It’s a once-in-a-generation opportunity: Selling to employees can yield a better price, preserve a legacy, keep jobs and profits local—and maybe even eradicate inequality. Thus is one way that a Commons Corporation can grow.
This article is part of New Economy Week, a collaboration between YES! Magazine and the New Economy Coalition that brings you the ideas and people helping build an inclusive economy—in their own words.
Billionaire entrepreneur Nick Hanauer wants to warn the world’s elite that “the pitchforks are coming.” He has spoken and written at length in an effort to make his wealthy comrades understand that today’s obscene inequality is not only unfair, it’s bad for business. Thomas Piketty’s best-selling book, Capital in the Twenty-First Century, gave a great analysis on why the rich keep getting richer (because they own productive capital) and advocated for a global wealth tax. If the pitchforks do come, we can be pretty sure that won’t lead to better outcomes. But the chances of implementing Piketty’s proposed solution to inequality are essentially zero.
One strategy that does stand a realistic chance of lessening inequality is a large-scale effort to support business owners selling to their employees and forming worker cooperatives and democratic ESOPs (Employee Stock Ownership Plans). This is a once-in-a-generation opportunity. The baby boomer retirement wave, dubbed the “Silver Tsunami,” means that over the coming decade, millions of business owners, controlling trillions of dollars of business wealth, will be trying to figure out how to retire and sustain the businesses they’ve built and the jobs they’ve created.
Supporting conversions to worker ownership provides a substantial win for everyone. For business owners, selling to employees can yield a better sale price, reduce their tax liability from the sale and preserve their legacy. Employees gain the opportunity to become cooperative entrepreneurs and build wealth through ownership. The community retains jobs, profits and owners committed to staying locally rooted. So there you have it: a ton of reasons to sell your business to your workers. Or at least ten!
1. Your kids don’t want it, and no one person in your town wants it.
When Vern Seile, one of the largest employers on Deer Isle, Maine, decided it was time to retire and sell his three retail businesses, he realized he had no one to sell to. His kids didn’t want the whole enterprise, and there was nobody on the remote island who could buy it, either. If he sold it to someone from “away,” they wouldn’t care for it like he had and preserve the legacy he’d built over several decades. In fact, the only offer came from a competitor on the mainland who promised to close one of the businesses and lay people off (see Reason #2, below).
Seile discovered that if he wanted to be rewarded fairly for years of hard work, his best option was to sell to his employees. In June of 2014, the Island Employee Cooperative (IEC) was born. This was the largest and most complex conversion to a worker cooperative ever done in the United States, and the IEC has become the largest worker co-op in Maine and the second-largest in New England.
2. Your competitors would love to steal your customer list and downsize—or even shut down—your operations.
Realistically, given Reason #1 above, what will probably happen to your business if it doesn’t simply shut down is that a competitor will buy you out, plunder your customer list, and cut jobs. In 2005, that’s what was facing the owners of Select Machine, a company based in Kent, Ohio, that manufactures, sells, and distributes machined products and equipment. “These are our guys, our family, and we wanted them to keep on working,” company co-founder Bill Sagaser said of his former employees in a 2006 interview with Bloomberg BusinessWeek.
Sagaser and his co-founder, Doug Beavers, engineered a better solution: With the help of the Ohio Employee Ownership Center, they sold the company to the workers, and enjoyed tax-deferral on the proceeds (see Reason #5!). The company faced hard times in the Great Recession, but managed to weather the downturn and grow back (see Reason #4!).
3. Your employees already know a lot about running the business.
Some people think letting employees have a say in running the business is like letting the inmates run the asylum. But think about it: The best businesses already engage worker intelligence and creativity, through open book management, “Theory Y” management, or even Zappo’s “holocracy.” Why not tap into not just their intelligence, but also their self-interest? Employees are going to put more effort into hitting sales targets, solving problems, and contributing to decisions if they get to see the reward as the success of their own enterprise.
And your employees don’t need MBAs to get the hang of it, either. Take, for example, A Yard and a Half Landscaping Company, in Waltham, Massachusetts. Founded in 1988 by Eileen Michaels, the company was already succeeding by opening its books, sharing profits with employees, and involving employees in decision-making. When Michaels decided to prepare for retirement by offering the company to her employees, incorporating as a worker-owned cooperative was a natural step. The bilingual co-op employs many workers from El Salvador, and classes on everything from horticulture to democratic decision-making are offered in English and Spanish.
4. Your employees really, really want this business to stay in business.
The only thing harder to find than a job in many rural, inner-city, and immigrant communities is a good job. And even harder to find is any opportunity to own a business and build wealth. Imagine the difference it makes to the construction workers who are now equal owners of Build With Prospect, Inc. in Brooklyn, New York City. They vote for and can hold a seat on the board, thereby determining the overall direction of the company. They influence decisions on everything from human resources to the long-term plan. If they cared about keeping their jobs before, think how much more it means now, when they share in the long-term profits. That’s going to show up in the quality of their work. And the quality of their jobs is going to show up in the quality of their lives.
5. There are government incentives to sweeten the deal (but there should be more).
Vernon Seile, Bill Sagaser, Doug Beavers, and countless others have benefited from various federal and state subsidies and tax breaks when they sold their businesses to their employees.
At the federal level, USDA-Rural Development is the primary source of funding and technical expertise for developing co-ops, but that support is limited to rural areas. Many states are living up to their reputation as “laboratories of democracy.” In states as diverse as Iowa, New Jersey, Ohio, and Indiana, Republicans and Democrats have worked together to invest in employee buyouts, provide tax benefits to business owners who sell to their employees, and create Employee Ownership Centers, all to meet the unique challenges and opportunities of employee ownership conversion. And cities are starting to catch on, with NYC leading the way and investing about $4 million in the past 2 years in worker co-op development, and Madison, Wisconsin, pledging $5 million over 5 years.
But the resources spent by all levels of government on supporting employee buy-outs don’t amount to a rounding error, especially when compared with the taxpayer dollars that go down the tube on race-to-the-bottom tax cuts and corporate welfare. It’s time to invest in more effective strategies .
6. A lot of businesses have made the switch and thrived.
Thousands of business owners have read The Companies We Keep by John Abrams, founder of the South Mountain Company on Martha’s Vineyard, and wondered if they, too, could create small businesses that honor community and place. When Abrams started the design-build firm forty years ago, he didn’t imagine that his company would become the poster-child for successful employee ownership. And they’ve done it not through wild growth since becoming a worker co-op in 1987, but through thoughtful development. They are widely respected for integrating handsome design with energy efficiency, combining attention to detail with creative vision and excellent customer service. They have been profitable every year since becoming worker-owned, and, as Abrams writes, “nobody’s getting rich, but we are living comfortably doing the work we enjoy in the location of our choice. All of us are able to make good livelihoods because no one of us is getting rich.”
One company hoping to follow in the footsteps of South Mountain and carve a new path is Namasté Solar, founded in 2005 and a worker cooperative since 2011. They employ more than 60 people now, and in order to obtain better pricing on panels and financing launched a purchasing cooperative, Amicus Solar, to bring together other independent solar installers—including South Mountain Company, which is now a member-owner.
7. There are professionals who know how to help a business owner get it done.
The Democracy at Work Institute is leading a nation-wide collaborative, Workers to Owners, that brings together advisors, accountants, lawyers, and lenders who can work with business owners and their employees to create worker ownership solutions. The group includes technical assistance providers such as the Cooperative Development Institute, the ICA Group, the Ohio Employee Ownership Center, Project Equity, the University of Wisconsin Center for Cooperatives, the Vermont Employee Ownership Center, and the Working World; and lenders such as Capital Impact Partners, the Cooperative Fund of New England, National Cooperative Bank, the Northcountry Cooperative Development Fund, the LEAF Fund, and Transform Finance.
This group can do a lot. But let’s face it—unless people who work in businesses, own businesses, or advise business owners (such as bankers, financial managers, brokers, and accountants) get on board to help raise the profile of this common sense approach, we’ll be swimming against the tide. So it’s up to all of us to spread the word and learn more.
8. Employee owners are better, more engaged citizens.
Chris Mackin identifies one of the key outcomes of employee ownership as the making of good citizens: “healthy non-intimidated human beings.” As David Erdal writes in Beyond the Corporation: Humanity Working, the communities of employee-owned businesses benefit not only from the flow of wealth into the local economy, but also because the skills of participation learned at work can be deployed in community activities
President George Washington gave tax incentives to rebuild the fleets of New England cod fishers after the Revolutionary War—on the condition that the captains and crew sign contracts ensuring broad-based profit-sharing among workers. He and many of the founding fathers insisted that an ownership stake for a broad base of the citizenry would guard against European-style feudalism (or popular revolt—see Reason #9, below!). Researchers Joseph Blasi and Richard Freeman recount the fascinating history of support for broad-based ownership that stretches from the nation’s founding to the present-day in The Citizen’s Share.
9. Broad-based ownership is the surest, fairest way to keep the pitchforks from coming.
Think about what John Abrams said about South Mountain: “None of us is getting rich, but we’re all living comfortably.” What would a society like that look like? I bet it wouldn’t look like it’s about to break out in pitchforks.
If we can transform ownership of the economy, people will be able to control their own jobs, and we’ll slow down the rate of concentration of power in the hands of the wealthy. This was a concern for the founding fathers (see Reason #8, above), and then as now broad-based ownership was the preferred solution.
There are the beginnings of such a movement but it needs to gain much wider acceptance and receive a ton more support.
10. Worker ownership looks good from every political angle.
Politicians and activists from across the political spectrum are strong supporters of employee ownership, so a strong, effective political coalition can be built to move this forward. Champions have included representatives from Ronald Reagan to Bernie Sanders, because employee ownership works. It strengthens economic and community development by enabling more people to build wealth through the ownership of private businesses.