By: Brenna McCallick, Sanjana Seth, Jacqulyn Washington, and Tom Woelfel
PCV is excited to announce the release of a new Policy Brief: An Impact Investing Policy Agenda for Growing Employee Ownership to Support COVID-19 Recovery. With support from the Tipping Point Fund on Impact Investing (TPF), PCV conducted in-depth research and interviews with experts from across the employee ownership space and impact investing, this brief outlines proposals for federal policymakers to leverage private capital for scaling employee ownership in the U.S., addressing inequality, supporting COVID-19 recovery, and building a more resilient, equitable economy.
The last two years have revealed the harsh realities of economic inequality in the U.S. As small businesses shut down, the pandemic exacerbated disparities among workers, laying bare the ways low wages and limited or no benefits, especially opportunities to accumulate wealth, leave millions of Americans without a safety net in times of crisis.
Yet, even amid the devastation of COVID-19, employee ownership has remained a proven wealth-builder for workers and a beneficial model for businesses. A recent study from Rutgers University’s Institute for the Study of Employee Ownership and Profit Sharing and the research firm SSRS found that Companies with Employee Stock Ownership Plans (ESOPs) have outperformed non-employee-owned companies during the pandemic across the areas of workplace health and safety, benefits, worker pay, and job retention. A recent survey from the Democracy at Work Institute provides early evidence that worker cooperatives are similarly outperforming their peers. This story isn’t a new one: companies with broad-based ownership structures have historically fared better and supported workers more effectively than non-employee-owned enterprises during economic downturns.
Employee ownership has resulted in higher-quality jobs with a 33% increase in median wage income, a 53% increase in median job tenure, and a 92% increase in households’ net worth based on a 2017 study conducted across workers who are employee-owners, of all ages 28-34, by the National Center for Employee Ownership. Businesses have been successful in generating higher sales and reducing employee turnover through the employee ownership model according to Project Equity, a national leader and advocate for broad-based employee ownership. However, the lack of awareness of the opportunity to convert businesses to employee ownership and the steps involved in conversions prevent many business owners from exploring the option.
By creating more opportunities for workers – particularly in BIPOC communities – to have a stake in their companies, we can build a more resilient economy, keep wealth and jobs in the communities where they are created, and combat widespread wealth inequality.
Impact Investing Policy Proposals for Employee Ownership
This policy agenda showcases ways that Federal policymakers can work with impact investors and the employee-ownership community to co-invest and extend guarantees that leverage private capital, enact policies that direct capital to enterprises in need, and change or clarify existing regulations that currently prevent capital providers from investing in employee-owned businesses. Policy proposals include:
- Issuing formal guidance to CDFIs that lending to employee-owned businesses/financing employee ownership conversions counts toward their mandate under the CDFI Fund
- Capitalizing Local Economy Preservation Funds (LEPFs)
- Passing the Employee Equity Loan Act to create up to $100B in loan guarantees to scale ESOP transitions
- Fully animating the Main Street Employee Ownership Act allowing the use of SBA 7(a) loans for employee ownership conversions. Removing the Personal Guarantee requirement for SBA loans
- Creating an Office of Employee Ownership within a federal agency to increase coordination across federal and state and local agencies
- Providing federal funding to states for state-level outreach and technical assistance on broad-based employee ownership
- Altering Minority Business Enterprise (MBE) certification to include employee-owned businesses
- Providing federal subsidies for employee ownership feasibility studies
By unlocking private capital and creating a more supportive environment for new and existing employee-owned companies, policymakers and impact investors can help build a more resilient, equitable business landscape in the U.S. We look forward to continuing the conversation about the benefits of employee ownership and the role impact investors can play in the sector’s development.
For more background on how impact investing policy can support COVID-19 recovery and address inequality see PCV’s October 2020 discussion paper: Meeting the Moment: U.S. Impact Policy, Inequality, and COVID-19 Recovery.
Correction: “Joseph Blasi’s title within the policy brief was misidentified. Joseph Blasi is the J. Robert Beyster Distinguished Professor and Director, Institute for the Study of Employee Ownership and Profit Sharing / Rutgers University School of Management and Labor Relations.”