The Employee Ownership Update
August 15, 2018
Main Street Employee Ownership Act Signed into LawOn August 13, the Main Street Employee Ownership Act became the law of the land when President Trump signed the John S. McCain National Defense Authorization Act (the text is available as web page or PDF; see section 862). The pro-employee ownership provisions included in the defense bill encourage the creation of ESOPs and worker cooperatives by facilitating transactions via loans supported by the Small Business Administration. It also directs the SBA's outreach infrastructure to encourage business owners to consider employee ownership. For more information, see our June 15 update.
This legislation is the most significant change in employee ownership law since the series of laws that allowed ESOPs to be shareholders of S corporations in the late 90s and early 2000s.
Worker Cooperatives Grow Dramatically in the U.S.On August 7, the UK's Coop News ran a story about worker ownership in the United States, noting that the number of worker cooperatives had grown dramatically from 350 in 2008 to roughly 600 today. Esteban Kelly, the executive director of the U.S. Federation of Worker Cooperatives, argues that a series of factors came together to lead to the increase. Those factors include the 2008 financial crisis, publicity in Michael Moore's 2009 documentary on capitalism, local initiatives such as ones in New York City and Newark, New Jersey, and interest by philanthropic organizations, researchers, and impact investors.
Harvard Business Review on Employee OwnershipAn August 8 article, Why the U.S. Needs More Worker-Owned Companies, in the Harvard Business Review, explores the current status of employee ownership in the United States by looking at cooperatives, ESOPs, and a hybrid model called the "ESOP-erative" which uses an ESOP structure with more egalitarian allocation of shares.
The authors write, "Within the next decade, we expect worker- and employee-owned companies to grow in popularity thanks to three mutually reinforcing trends: First, renewed interest in ensuring the economic viability of local communities suggests that Baby Boomer owners about to retire are increasingly likely to want to sell to workers. Second, evidence is mounting that worker- and employee-owned enterprises outperform their competitors, especially during economic downturns; a recent Rutgers study found that converting to worker and employee ownership boosts profits by as much as 14%. Third, as a result of strong performances by worker- and employee-owned companies, it is becoming easier for workers to overcome arguably the biggest hurdle to worker buyouts: financing."