The Employee Ownership Update
July 15, 2015
Bipartisan Senate Working Group Supports S Corporation ESOPsLast week, the Senate Finance Committee released several reports, and the one on savings and investment mentions ESOPs. The working group that produced the report singled out the Promotion and Expansion of Private Employee Ownership Act ( S. 1212), noting that it "contains several provisions to further encourage employee-ownership in S corporations, including extending the gain-deferral provisions of Code section 1042 to sales of employer stock to S-ESOPs, providing resources to small businesses contemplating making the transition to an ESOP, and ensuring that SBA-certified small businesses do not lose their status by becoming employee owned" (p. 13).
SEC Launches Probe into Derivatives Trading Based on Pre-IPO Employee and Investor SharesThe SEC announced that it is investigating several transactions where investment firms have traded derivatives in hot pre-IPO companies that are based on employees and investors selling rights to appreciation in their equity. While secondary markets for such shares are not illegal, the SEC is concerned about fees for these securities and claims by the packagers about what they are selling. Because many of these firms release limited financial information, the field can be ripe for fraud. Employees may also be violating company policies at some firms by agreeing to trades. The investigation does not focus on established secondary markets, such as the NASDAQ National Private Market, which allows firms to allow employees to sell their equity investments on a regulated exchange.
July 3: Employee Ownership Day in the United KingdomOn July 3, the United Kingdom celebrated Employee Ownership Day. The president of the Employee Ownership Association of the UK (EOA), Iain Hasdell, said "employee-owned companies now account for over £30 billion [47 billion USD] of UK GDP." A group of employee ownership organizations released The MoralDNA of Employee Owned Companies, a preliminary report of an ongoing study of 829 employee-owners at 14 companies by Roger Steare and colleagues. The report finds that "the cultures of employee owned businesses are much less hierarchical and more collegiate than others" (p. 6) and that "90% of people working in employee owned companies experience high-performing visionary, affiliative, democratic and coaching leadership styles," compared with 59% among a comparable group of non-employee-owners. The study also found higher rates of commitment, improved recruitment, and longer-term decision making.
Graeme Nuttall is the author of the report that served as the basis for the UK government's push to promote employee ownership, and his law firm, Field Fisher Waterhouse, partnered with EOA, Prospects, and the UK's Chartered Institute of Public Finance and Accountancy to release a second report on employee ownership in public services.