New & Next: The Strengths of Employee Ownership

Employee ownership is on the rise among small businesses, and the Rocky Mountain Employee Ownership Center is helping it gain more traction in Colorado.
Remember your first car and what it meant to finally own it? Suddenly, you had newfound access and opportunities, but you might have also felt protective, anxious and even physical pain about its first dent. Ownership does something significant to our relationships to things, places, and even business. It infuses us with a sense of responsibility and care that renting, borrowing, or sharing simply can't match. As the famous adage goes, "No one washes a rental car."

If you follow business journal headlines, you've seen that businesses are catching onto this idea. Although profit-sharing held a prominent place in last year's elections, U.S. companies are going even further and ensuring their employees have an equity stake in the companies they work for.

In Rockland, Maine, a coffee shop owner wanted to retire last year. Instead of shuttering her business, which had become an unofficial town center, she invited her employees to buy her out and keep their jobs. In Fort Collins, a construction company created an Employee Stock Ownership Plan (ESOP), so that its employees could earn equity for their retirement. In Denver, a group of taxi drivers joined together to organize the second-largest cooperative in the U.S. and the largest in Colorado, with driver fees far below those in traditional taxi companies.

Employee ownership is rising in prominence for at least three reasons. First, starting in 2011, Baby Boomers began to retire. U.S. Census Bureau data shows that they own approximately 66 percent of all U.S. businesses, accounting for an estimated $10 trillion in assets. Sadly, 51 percent of small firms close their doors because the founder retires, which means a loss of jobs and legacy businesses. Employee ownership provides a viable succession-planning option when keeping the business in the family or traditional mergers and acquisitions are not possible or not desirable. Who better to continue their legacies than the people who know the business best -- their employees?

Another reason employee ownership is growing is that entrepreneurs are trying new forms of business for the 21st century. After the recession, self-employment and contract workers became de rigueur across industries; while part of this trend granted workers flexibility, it also meant less reliable work and fewer benefits. Nearly 10 years later, those same workers are forming freelancer cooperatives to organize workflow, share marketing costs, buy health insurance and set competitive rates. They're also launching tech businesses as platform cooperatives to avoid the exploitative side of the "sharing" economy -- retaining the profits of their work. These startups have an open-book management philosophy and a less hierarchical structure than traditional corporate models. Every member participates in some of the decision making because each is a co-owner.

The final reason -- and arguably one of the best kept secrets in business -- is that employee ownership is actually better for business. When employees have a stake in the company, their interests align with their employers, and more people thinking like owners results in greater profits. The largest study on ESOPs found that business sales, employment, and sales per employee was 2.3 to 2.4 percent higher than firms in the same industry of similar size.

Additionally, employees of employee-owned businesses earn 5 to 12 percent higher wages than their counterparts at other businesses. This figure includes low-skilled workers in the service industry, as well as administrative staff. Tellingly, in 2014, the average percentage of employees laid off by traditional firms was 9.5 percent, in contrast to 1.3 percent at employee-owned firms. Employee ownership allows companies to innovate and weather economic downturns, making them more resilient.

Building off of these trends, the Rocky Mountain Employee Ownership Center (RMEOC), has collaborated with policymakers like James Coleman (D) and Jack Tate (R) to introduce HB17-1214, Encouraging Employee Ownership of Existing Business. The bill would create a revolving loan to assist businesses with conversion fees. It would also require that staff members of the Colorado Office of Economic Development and International Trade receive training in the basics of employee ownership, so that they could recommend it as a succession planning tool. RMEOC believes that Colorado has an opportunity to preserve our locally-owned small businesses, and we are dedicated to educating as many people as possible about this opportunity.

To that end, RMEOC is partnering with Democracy at Work Institute and Workers to Owners to host a full-day conference for small business owners, small business advisors and economic developers on April 3, 2017. Experts from across the country will convene to impart valuable information on why employee ownership is good for businesses and good for helping build strong locally-owned economies.

Attendees of the conference will receive tools to assess the feasibility of transitioning a business from a closely-held company to employee-owned. They will learn how to create a culture of owners and receive technical and financial information necessary to enable a smooth transition. Even more, participants will hear from employee-owners on the impact that employee ownership has had on their business culture and their bottom line.  

If you would like to learn more about employee ownership, we invite you to register for the conference today. Space is limited, so don't wait.

C Paul Bindel is communication manager of the Rocky Mountain Employee Ownership Center and Halisi Vinson is executive director.
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