Empowering a New Generation of Employees through Shared Ownership

February 28, 2019
Melissa Hoover, Executive Director, Democracy at Work Institute

Image Courtesy of The Working World

When Gregory and Linda Coles were looking to retire, they looked into selling the Queens, NY childcare business they started in their basement more than 30 years ago, which had grown to employ more than 50 people and serve hundreds of families. They could not find a buyer for their business who would preserve the legacy of the beloved community anchor they had built. Instead, with the support of nonprofit loan funds and technical assistance organizations, they found 50 buyers: their employees. By October 2018, the Coles were transitioning their business to employee ownership, working with local loan fund The Working World to finance the sale.

Just across town, at Citi's office, a roomful of community leaders gathered to explore how to finance the transition of longstanding community-serving, "legacy" businesses like the Coles,' and the millions of other businesses owned by baby boomers reaching retirement age in the next ten years, to an employee ownership model. The sale of these firms represents a looming "silver tsunami" of potential legacy business closures that is expected to hit minority business owners and rapidly evolving urban neighborhoods particularly hard.

These impending large-scale business closures are why Capital Impact Partners and Citi Community Development, along with my organization, the Democracy at Work Institute (DAWI), The Working World and the ICA Group, brought together national community development finance leaders to explore how best to unlock the potential of employee ownership to retain legacy businesses in their communities. With business asset ownership ranking second only to home ownership in importance for building and retaining wealth, the participants, including community development financial institutions (CDFIs), minority financial institutions, credit unions, and regional banks, were there to develop strategies to ensure legacy businesses, often with minority ownership, stay standing.

Our efforts align with a growing national movement to support employee ownership. The Main Street Employee Ownership Act, a bipartisan piece of legislation passed last August, enables the U.S. Small Business Administration and the nation's Small Business Development Centers to formally provide capital and technical assistance to firms seeking to convert to employee ownership. The legislation is a major recognition of the impact that this work can have on ensuring community benefits such as job retention, continuity of a neighborhood's access to goods and services, and preservation of the critical cultural and social fabric of local places in cities where we work and live.

As Congresswoman Nydia Velázquez, who co-sponsored the bill and provided a keynote at the event stated, "When we talk about employee ownership, what we are really discussing is empowering workers --- giving them a greater stake in their workplace and helping them succeed financially. I think we all know that right now this is a polarized time in Washington. Yet, ESOPs and cooperatives continue to draw support from all parts of the political spectrum. It is my hope that we can come up with additional ways – both from a policy perspective and through private sector efforts to see ESOPs and cooperatives further grow."

Shared ownership plays a critical role in addressing the erosion of household incomes and rising property costs in cities while providing avenues to strengthen the small business ecosystem. There is significant benefit and market opportunity for small businesses converting into employee-owned cooperatives, and, for minority business owners, in particular, the power of business ownership is an asset-building strategy.

But scaling employee ownership as a practical solution to business preservation requires building a supportive network for financing conversions. This convening served as a first step to building this network, by demystifying employee ownership conversions and encouraging financial institutions to embark on the journey to potential financing and social solutions.

From Washington, D.C. to San Francisco to Durham, North Carolina, grassroots efforts to harness employee-owned businesses are growing. As this approach gains momentum for business owners and policymakers, we must also facilitate capital investment to drive conversions to employee ownership and strengthen the thousands of employee-owned businesses that have already or are in the process of converting to employee ownership.

By investing in employee ownership for the Coles' business and beyond, our collaboration with Citi enables progress by creating more inclusive growth and long-term stability for communities across the country.

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