There are obvious options, of course, including selling to a competitor or asking a family member to take it over–though, increasingly, family members aren’t interested in taking on family businesses. Or, these business owners could think about selling to people with a vested interest in the success of the enterprise and who know it as well as anyone: the workers.
Brendan Martin hopes boomers will increasingly consider the last option because he believes worker-owned companies are both more productive and more economically just. Martin’s non-profit firm, The Working World, funds dozens of worker-owned companies and he believes they promote equality and improve communities.
“The only stakeholder invested enough to take over these businesses are the workers who depend on them for a livelihood, and the communities who depend on them for the benefit they have,” he says. “Either these businesses close and we get sudden great unemployment, or we take an opportunity for wealth distribution and demographic inclusiveness.”
Martin Staubus, a researcher at University of California San Diego’s Rady School of Management, estimates 150,000 to 300,000 boomer-owner businesses a year could be ripe for conversion to worker ownership over the next 15 years. If boomers took the idea seriously, they could create a sea-change in business ownership structure in this country–and perhaps to no detrimental cost to themselves. Selling at least 30% of a company to its workers comes with a generous capital gains tax break.
Martin points to the example of A Child’s Place, a flourishing day care center in Queens, New York. It is taking a loan from The Working World that will allow its 65-person staff to buy out the owners and keep the business running.
“Like many other retiring boomers, we worried A Child’s Place might be downsized by a new owner or have to close,” the owners, Linda and Gregory Coles, wrote recently in the Huffington Post. “Those looking to buy our business could not guarantee it would continue as a day care. So we decided to solve the problem in a way we never dreamed possible. We would sell A Child’s Place to the very people we knew would take care of it best: the staff who worked there.”
The Working World has made more than 1,000 investments in worker- and community-owned businesses. It currently has a $5 million fund, which it wants to expand to $20 million over the next year. What really makes it different from conventional finance, though, is not so much that it lends to cooperatives, it’s that it lends on more cooperative terms. Its client businesses have to provide no collateral, and the fund is repaid only if the businesses make a profit and provide community benefit.
“We’re not looking for moonshots, and we’re not looking for easy exits,” Martin says. “We’re looking for long-term, slow wealth-building. There should be some growth, but there doesn’t need to be extraordinary growth. We’re looking for business that a normal community can run, and that lots of people understand.”
Many of the businesses are in commodity crops, food grocery, clothing, shoes, and traditional activities like metal-working. Most are in the U.S., Argentina, or Nicaragua.
Martin says he has a different relationship with his clients than most fund managers. Because he charges lower rates of interest on loans and only gets a return when the business gets a return, the clients are more likely to communicate straightforwardly with him, he says.
A recent report from the Surdna Foundation argued that worker co-operatives and companies with employee share ownership programs tend to be more resilient to failure than other types of ownership structure. It also called for baby boomers to consider such options as they succession-plan in the next few years.
Meanwhile, Martin hopes The Working World can inspire other finance groups to adopt something like its approach. “We want to show ourselves as a model in hopes more capital gets into the game and more people are willing to steward capital from a community-benefit point of view. This is about the future of work and battling inequality in the future,” he says.
All Photos (unless otherwise noted): via The Working World