Why the U.S. Needs More Worker-Owned Companies

///Why the U.S. Needs More Worker-Owned Companies

Why the U.S. Needs More Worker-Owned Companies

The gap in wealth in the United States between the ultrawealthy and everyone else has reached its widest point in decades. One way to narrow the divide is through the use of worker buyouts, in which ownership of a company transfers from a single person or a small number of people to the workers of the company.

Currently, about 10% of Americans hold equity stakes in their workplaces. By providing more workers and employees with opportunities to buy shares, companies can help workers and communities raise their standard of living and simultaneously feel more invested — literally — in the success of the enterprise. In that way, worker buyouts also increase firms’ competitiveness: Research suggests that employee-owned companies are more durable and resilient during economic downturns.

Workers and employees have more opportunities today than ever before to become capitalists and invest in the businesses that employ them. Baby Boomers at or near retirement age own nearly half of the privately held businesses in the United States. These 2.3 million companies employ one in six workers nationwide, or close to 25 million people. More than half of these owners expect to retire in the next 10 years, and one-quarter wish to transfer ownership of their companies to a business partner or their employees.

Such ownership structures have already proven successful: About 17 million people, or 12% of the U.S. workforce, are employed at variations of worker-owned enterprises. These companies are not just small groups of artisans or craft workers. Agricultural cooperatives Land O’Lakes and Ocean Spray have become major players in dairy production and fruit farming, earning hundreds of millions in annual revenue. And some companies with employee majority-owned stock programs, such as Publix Super Markets and outerwear maker W.L. Gore and Associates, are leaders in their industries. The largest industrial federation of worker cooperatives in the world, Mondragon Corporation, is one of Spain’s top 10 multinationals, with about $13 billion in revenue from 105 cooperatives, and 75,000 employees stretching across Europe, Asia, South America, and the United States.

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.

That’s because a growing number of funders, both social impact funds and traditional institutions, are interested in financing workers’ takeover of a company. The social impact funds want to support it for social reasons, whereas hedge funds and others are recognizing that the superior resiliency and performance of worker-owned firms can improve their returns. This funding often comes through loans or financing vehicles specially designed so that workers and employees can retire outside investors over time after achieving a certain level of earnings while protecting and even growing their ownership stake.

Already, U.S. nonprofit organizations like Heartland Capital Strategies are bringing together institutional investors, private asset managers, and worker representatives to harness some of the $13 trillion of assets in workers’ pension funds to invest in worker-friendly businesses that offer good investment returns. And companion bills developed to enable the U.S. Small Business Administration to make loans to intermediaries that help finance worker co-op transitions have been passed by the House of Representatives and the Senate.

To encourage worker buyouts, more awareness-raising initiatives are required. The general understanding of how emerging hybrid ownership models can benefit investors, business owners, workers, and community stakeholders needs to be broadened so that retiring owners and investors like private equity funds, with charters to invest in enterprises that have a positive social impact, can consider them more often. At the same time, legislative and community programs designed to support worker ownership should be expanded.

Read more at Harvard Business Review