Four Big Ideas for Growing US Employee Ownership

Let’s imagine that some far-sighted donor wants to give $10 million or $20 million to help spread employee ownership in America. What would we—where “we” is the community of employee ownership advocates—propose to do?

Naturally, we’d do more of what we’re already doing. Research. Publicity. Information and assistance for company owners. Conferences. Lobbying for favorable legislation. And so on. That’s the good news. We’re on the right track.

The frustrating news is that we have been pursuing these avenues for many years, and the number of employee-ownership companies has plateaued (though the number of ESOP participants continues to grow). How can we think bigger, better, broader? How can we have more impact?

EOA’s four big ideas begin where we are today, but then look at some steps that could take us to a whole new level. This initial list isn’t intended to be definitive. (How could it be? We’re all learning as we go.) But we hope that it provokes discussions, critiques, and other new proposals.

1. Game-changing legislation. At the moment, some helpful EO-related bills are making their way through Congress (see story below). But like other legislation Congress has considered in recent years, the bills have modest objectives—mostly, making it easier for the Small Business Administration to support ESOPs.

So what would truly change the game? For one thing, Congress has so far provided tax incentives for only one kind of employee ownership transition: sale of privately held companies by individuals to an ESOP. Now we need legislation that facilitates EO in other kinds of transactions, including corporate divestitures and sale of private-equity portfolio companies. The Quinsigamond Group, an informal gathering of ESOP advocates based in Boston, has begun to develop legislation in this area; EOA will be reporting on the group’s progress.

Meanwhile, the proposal for federal loan guarantees—developed by Dick May of American Working Capital and his coauthors—provides a method for supporting all kinds of ESOP transitions at a high level. The guarantees would level the playing field between ESOPs and other would-be buyers, who often have mountains of cash at their disposal. Once turned into legislation, this idea would put substantial financial muscle behind the creation of ESOPs. May and his partners will be refining and publicizing the idea in the months ahead.

Meanwhile, too, some states and cities are moving ahead with programs to facilitate employee ownership. A wave of state and local initiatives could also help change the game over time. This is a subject we’ll be writing more about in the future.

2. Different kinds of research and reporting. A wide variety of academics and independent researchers—led by the Rutgers Institute for the Study of Employee Ownership and Profit Sharing, the Beyster Institute at UCSD’s Rady School of Management, and the NCEO—have documented the remarkable performance of employee-owned companies and their positive effects on the income and wealth of employee owners. Scholars now need to identify and explore the obstacles to, and opportunities for, continuing expansion of employee ownership. For example, we need research and policy development around the issue of ESOPs in publicly traded companies. What is the best way to encourage public companies to establish and fund ESOPs? What are the pitfalls to watch out for?

And here’s a related idea, though more for journalists than for academics: report on the destruction that occurs when a community’s major employer is sold and then dismantled, restructured, or resold. An example is Brian Alexander’s fine book Glass House, which describes in devastating detail what happened to Lancaster, Ohio, when the glassware manufacturer Anchor Hocking underwent this kind of slow-motion demolition. Sale of the company to its employees could have made a huge difference. At the same time, what if we were to identify a talented journalist or two and send them around the country to report in depth on successful ESOP companies and their employees, as Inc. magazine once did? The result of both efforts could be a series of powerful emotional narratives, horrific on the one hand and heartwarming on the other.

3. Awareness: broadcasting and narrowcasting. Certified EO has taken a critical first step toward building awareness of employee ownership among business buyers, consumers, and the general public. (“We exist to create an employee-owned economy” is the organization’s motto.) As a next step, how about a broad-based awareness campaign, designed and led by a professional ad agency? It could be built around a catchy slogan such as “I love where I work” and would serve to introduce EO to the public. Historically, national ad campaigns have been cripplingly expensive. But we no longer need to buy costly airtime or print ads: savvy marketers these days have learned to spread the word through social media, viral videos, and other low-cost techniques. Where is the group that’s explicitly working on this?

To complement a general awareness campaign, we need a series of targeted campaigns aimed at specific audiences. These might focus on three broad categories: Entrepreneur peer-to-peer groups such as Vistage and Entrepreneurs’ Organization; organizations of CPAs, business attorneys, financial planners, and other business advisors; and chambers of commerce, Rotary Clubs, and other local business-oriented groups. Such campaigns could include ads and articles in the relevant publications and websites, plus a push to provide speakers at meetings. NCEO already does some of this and is planning more, but its staff time and resources are limited. There’s an opportunity to do considerably more.

4. More boots on the ground. Read nearly anything about how to spread major innovations—Atul Gawande’s “Slow Ideas,” for instance, or Hussein and Plummer’s “Selling Social Change”—and you find that the most important single factor is one-to-one, person-to-person communication. In short, you need a sales force. For employee ownership, that on-the-ground salesforce is often a state center. Working through state-level organizations like the Ohio Employee Ownership Center or the Pennsylvania Center for Employee Ownership, company owners can learn about local ESOP businesses, and political leaders can muster support for measures to support the concept. Right now there are a handful of such centers (for other links, see our Basics page). A group of volunteers is currently working to spawn many more, another effort that EOA will be reporting on in the future.

How much would all this cost? Estimates range all over the map. Legislation and policy development has so far been managed by a combination of organizations such as The ESOP Association and ESCA and by volunteers such as May and the Quinsigamond Group. Research has been funded by donors to universities; the journalistic reporting suggested earlier would require a minimum of $100,000, the more the better. Awareness campaigns and state centers are expensive, and will eventually need dedicated staff and budgets. But with several million dollars to fund these and many other initiatives, ESOP advocates could make a big difference.