Newsletter Article
May 2021

What You Can Do to Move Employee Ownership Forward

As we have been writing here lately, there is a lot of reason to be encouraged that 2021 can be the year of employee ownership. On the legislative front, there is a good chance that Congress will extend the tax deferral on the sale of stock to an ESOP (now available only for C corporations) to S corporations as well.

Key people in the new administration are favorable to ESOPs, and there is a possibility that we will see new efforts by the government to spread the idea of employee ownership through ESOPs and worker cooperatives.

At the state level, laws have been proposed in a number of states to create employee ownership centers. The privately funded Employee Ownership Expansion Network has set up state centers in 13 states, with three of them now professionally staffed. Adding the centers already funded in other states by other government and/or private support, there are now 17 state centers, seven of which have professional staff.

Pete Stavros, a partner at KKR, has pledged $10 million to start a Center for Shared Ownership and KKR an additional $15 million. He will be seeking additional support from major companies and professional firms to encourage more broad-based employee ownership in public companies and private equity buyouts.

A number of impact investment firms have created employee ownership programs and are starting to invest the funds in a variety of efforts. A growing number of policy think tanks have become interested in employee ownership as a way to address economic insecurity.

You can help move this idea forward in a number of practical and often easy ways:

Spread the word: Employee ownership spreads mostly from one business owner to another, whether directly or through a story. A lot more business owners would sell to an ESOP if they knew what it is. But few do, and even if they know something, there is a lot of misinformation. You can help clear this up by contacting your trade association and suggesting a panel on ESOPs for business transition or your trade publication editor to urge their writing an article on ESOPs. It’s in their interest, after all—if a company is sold to another company instead, that is one less member for the association. The NCEO can help on both of these fronts, suggesting speakers, providing resources for reporters, or drafting articles. You can also contact your local newspaper and suggest a story or write an op-ed or even just a letter to the editor in response to a story on economic insecurity. You can also talk up your ESOP experience with colleagues you know or write about employee ownership on social media sites like your Facebook page or a LinkedIn post.  
This effort is really essential now. Baby boomers own most of the privately owned companies that could do an ESOP. The “silver tsunami” of retiring owners has gotten delayed by the economic crisis, but people keep getting older, and there is considerable pent-up demand for transition solutions. If these companies are not sold to an ESOP, they will be sold to competitors or private equity firms. Our community needs to reach out to them now.

Talk to your state legislator: State centers that do local outreach, connect people with providers, and help with initial assessments can have a significant impact on the growth of employee ownership. In the 1990s, we did a study of four state-funded programs (Ohio, Washington, Oregon, and New York; only Ohio still has a program) and found they increased the incidence of ESOPs in those states by about 30%. 

The cost of setting up a state program either in an existing agency or by funding a nonprofit is minimal, usually in the range of $150,000 to $300,000 per year. But the impact can be very large—if just several companies go this route, the state can retain more good jobs. And because ESOP companies tend to grow faster and lay people off much less, state tax revenues can be enhanced much more than the cost of the program. States currently spend over $100 billion annually on tax incentives to retain companies or lure them in, a largely zero sum strategy. 

State legislators are usually very approachable. Set up a meeting with your representative to talk about why this idea is worth promoting. It may lead nowhere, but if there is interest, we can help by providing model state program language and putting you in touch with other ESOPs in the state to join your effort. Efforts like this paid off with a program in Massachusetts. Mike Hart at employee-owned EEA in Austin, Texas, is leading an effort in that state that has made progress (and is looking for people to join it). The bill Hart is promoting would also qualify ESOPs for contract preferences.

Invite your senator and representative: Congressional support both for new legislation and to retain existing laws is obviously essential. We can provide reams of data about why employee ownership is a good idea, but nothing is as persuasive as your story. Invite your representatives to your business (when that is possible again) to see what you are doing and to meet your employee-owners. There is a very good chance that visit will win a friend for employee ownership—or reinforce existing support.

Feel free to contact us at the NCEO for feedback and support. Now is our time to make a real difference.