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The Ladder

A Blog from New America's Asset Building Program

Employee Ownership: A Promising Asset Building Strategy

Published:  May 26, 2010
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Here is a guest post from our colleague Heather McCulloch, whose work has helped shape the asset building field in numerous ways. She runs her own firm, Asset Building Strategies, and recently has been highlighting the potential of employee ownership, such as worker cooperatives and other share distribution plans. As Heather notes, there are successful models to emulate and leverage which can create meaningful asset building opportunities for working families across the country.

Economic downturns typically galvanize interest in alternative economic models, and this one is no exception. Employee ownership is one such alternative that has, in recent months, captured the attention of the mainstream media including CNN Money, The New York Times, Time Magazine, Christian Science Monitor, The Economist, and Business Week. Employee ownership leaders and asset-building practitioners share a common goal of broadening access to ownership opportunities, but these strategies are still off the radar screen of the asset-building movement. It’s time to give them the attention they deserve.
 
Asset-building advocates have long included investment strategies – home and business ownership, in particular – as critical steps along a path to financial security for low-income working families, but we have typically focused on individual ownership strategies. Notable exceptions include recent Ford Foundation investment in the exploration of shared equity homeownership as a way to enable low-income families to build home equity while preserving public subsidies and keeping housing affordable over time and the Annie E. Casey Foundation has supported a national work group focused on the asset-building value of shared business ownership.
 
Today, there are new windows of opportunity to bring funders, investors, advocates and practitioners of shared business ownership strategies into the broader asset-building movement.  Two common employee ownership strategies are a logical place to start—
Employee Stock Ownership Plans (ESOPs) and worker-owned cooperatives.  These strategies have long supported U.S. workers – across the wage spectrum – to build financial assets through ownership of an equity stake in the businesses where they work. ESOPs are one type of employee benefit plan that buys and holds company stock on behalf of workers. Worker-owned cooperatives are companies that are owned and democratically managed by their employees. 
 
The National Center for Employee Ownership reports that more than 10,500 ESOP plans cover almost 13 million workers and over $900 billion in U.S. company assets.  ESOPs hold great potential as asset-building vehicles for U.S. workers, at all wage levels: the average ESOP participant has $47,000 of savings in the ESOP alone (the majority of ESOP companies offer additional, direct contribution retirement plans, typically 401(k)s).
 
Worker cooperatives represent a small segment of the U.S. economy: According to a recent federally-funded study, 223 worker coops in the U.S. employ 2,380 full-time worker-owners.  But they are particularly relevant to asset-building advocates because they are increasingly being established in low-income communities, targeting low-skilled and/or immigrant workers.  For example, the Cleveland Foundation, City of Cleveland, business and university leaders have established the Evergreen Cooperative Development Fund to create a network of coops targeting low-income community residents.  In the San Francisco Bay Area, two nonprofits – WAGES and Teamworks – are supporting networks of worker-owned cleaning cooperatives owned by immigrant workers.
 
Elected officials have promoted employee-ownership for different reasons. In 2008, Republican Treasurer Richard Mourdock of Indiana leveraged the resources of his office to establish a “linked deposit” program whereby the state accepts reduced interest on its funds if the recipient banks provide below-market-rate loans to ESOP companies. Treasurer Mourdock’s priority is keeping jobs in Indiana; but, in a recent interview, he shared his interest in ensuring that lower-wage workers have access to asset-building opportunities: “We’re becoming more and more of a society with greater distance between the working class and the owner class. ESOPs offer a way to address it. They offer an exercise in financial literacy that blue collar workers don’t typically get.” At the federal level, Senator Bernie Sanders of Vermont recently proposed two pieces of legislation to support employee ownership (S.2909 and S.2914).
 
Given the challenges of today’s economic and political environment, one might argue that a focus on trying to build home and business equity among lower-wage workers is a losing proposition. But recent trends point to windows of opportunity: 
  • ESOPs leaders report a growing number of retiring baby-boomer business owners looking for a succession strategy.  The opportunity to capture business assets for local workers and communities is one that deserves the attention of asset-building and community development leaders, as well as elected officials.
  • In relation to worker coops, positive trends include:  successful examples of “franchising”  coop businesses; increasing financial support from cooperative investment funds and technical support from coop networks; potential support from U.S. Labor, as indicated by United Steelworkers’ recently announced collaboration with the world’s premier model of cooperative enterprises in Mondragon Spain to establish manufacturing coops in the U.S.; and the opportunity for increased global attention as a result of the recent United Nations announcement declaring 2012 the International Year of Cooperatives
Embracing employee ownership offers unique opportunities for the asset-building movement to leverage new networks and resources toward a common goal. It’s time to combine forces to expand ownership opportunities for America’s working families.

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