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The Employee Ownership Report

NewsletterConcisely written for leaders in employee ownership companies and for service providers in the field, the NCEO's bimonthly newsletter, the Employee Ownership Report, is the most efficient way to stay informed about legal issues, current events, best practices, breaking research, management approaches, and communications ideas for employee ownership companies.

Available exclusively to NCEO members, the Employee Ownership Report is delivered in hard copy and all issues back to 1997 are available in the members-only area of the Web site.

Nonmembers are invited to read the sample article below from the current issue of the newsletter. Every time a new issue appears, the sample article on this page will be replaced by one from the new issue. Join online for only $90 to receive the Employee Ownership Report and all our other membership benefits.

You also can read a sample issue of the entire newsletter (July-August 2011).

Sample Article from the January-February 2015 Issue:

The Fed Chair and Business Ownership

By Loren Rodgers, NCEO Executive Director

In a speech in late October, the chair of the Federal Reserve Board, Janet Yellen, spoke about income and wealth inequality. Most people in her role, as arguably the most important person in the global economy, avoid being as blunt as she was about the state of inequality. Just as importantly, however, she put ownership of private business at the core for her proposal for where we go from here.

Citing data released this Fall from the Fed's Survey of Consumer Finances, Yellen talked about the dwindling assets at the bottom of the wealth spectrum: "The lower half of households by wealth held just 3 percent of wealth in 1989 and only 1 percent in 2013... [T]he average net worth of the lower half of the distribution, representing 62 million households , was $11,000 in 2013. About onefourth of these families reported zero wealth or negative net worth."

Yellen was similarly blunt about the possible impact of this inequality, saying "I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity." Having these concerns voiced by the chair of the Fed is likely to make those concerned about inequality cheer. Equally important are the four policy areas Yellen proposes to reduce inequality, which appeal to both the left and the right: resources available for children, affordable higher education, inheritances, and business ownership.

I'd like to focus, not surprisingly, on the last of those: business ownership. Here, Yellen notes that although wealthy people have much greater ownership of private businesses than others, business ownership is The Fed Chair and Business Ownership also a substantial source of wealth for the non-wealthy. The Survey of Consumer Finances shows that among people in the upper middle class (those in the top half of wealth, excluding the top 5%), about one in seven have ownership in a private business. That ownership stake represents, on average, one third of those individuals' net worth. Fewer of those in the bottom half of the wealth distribution have ownership of a private business (3%), but for those who do, that ownership represents 60% of their net worth.

Yellen's statistics suggest that business ownership has the potential to be a major source of family wealth. They also suggest that it plays that role in far too few families.

I believe that her analysis has one unfortunate shortcoming. She focuses on the decreased rate of business formation, saying the "slowdown in business formation may threaten what I believe likely has been a significant source of economic opportunity for many families below the very top in income and wealth." New business formation will only help a small percentage of the work force. Ownership in existing businesses matters far more for issues of wealth distribution and has far broader potential to change wealth patterns. Moreover, when existing businesses fail, relocate, or are acquired they reduce the income and wealth of many people.

One of the most effective strategies for job preservation and wealth sharing, documented by research by the NCEO and many other organizations, is employee ownership. Employee ownership makes companies more durable, but it also inherently pushes against the depressing wealth trends Yellen cites. When employees own shares in the companies where they work, the working women and men of America hold wealth they would not otherwise have.