Like every state in the U.S., Massachusetts is worried about what will happen when the baby boomer owners of thousands of small to midsize businesses reach retirement age, in what is being called the “silver tsunami.” Fewer and fewer small business owner now expect to pass their enterprise onto their children and many older entrepreneurs, concerned about the possibility of having to shutter their businesses and lose their years of investment, have turned to selling to large conglomerates or private equity firms, which often lay off workers or gut the businesses.
Massachusetts wants to nudge these business owners toward another option: selling their companies to their employees. The state hired two nonprofits with expertise in shifting to employee ownership models–Working Wealth and ICA Group–to revive its Office for Employee Involvement and Ownership (EIO), which was initially established in the late 1980s but faded after funding dried up during the recession. With a $150,000 budget, ICA and Working Wealth will aim to reach a number of the approximately 28,000 baby boomer-aged small business owners in the state, and consult with them about the possibility of transferring their business to their employees.
“The office really emerged out of deindustrialization, and the administration at the time saying okay, plants are closing–is employee ownership a mechanism to combat closures and job losses?” says David Hammer, executive director of ICA Group. Now the impending sale of baby boomer-owned businesses, which perhaps on a more diffuse scale, poses a similar threat. “We really aim to focus on converting existing businesses to employee ownership models, and providing support to these businesses as they build out an employee ownership culture.”
There are several ways in which companies can transition ownership of a company to their employees: They can create an employee stock ownership plan (ESOP), in which a separate trust acquires a company’s stock and holds it for the benefit of the workers, or they can turn to a worker cooperative model, in which workers collectively own the company and share in its profits.
The different models meet different needs: ESOPs, for instance, are more expensive to set up, but easier to manage for larger businesses; there are around 6,700 in the U.S. currently. Worker cooperatives, because they transfer full control of the whole company to the employees, are more radical, but tougher to scale. There are over 300 in the U.S. Even though the two models differ in structure, they deliver similar benefits: According to the National Center for Employee Ownership, companies in which employees have a measure of ownership and control fare much better. Employees see both higher wages and higher productivity levels, and job retention gets a boost.
Massachusetts already has a homegrown example of how an ESOP has benefitted workers in the state: the Boston-based Harpoon Brewery. In 2014, one of the owners wanted to exit the over-200-person company, which could have opened it up for sale to a private equity firm or large conglomerate. But co-owner Dan Kenary had researched employee ownership options and proposed converting the business to an ESOP. Doing so, Harpoon president Charlie Storey testified at the reintroduction of the EIO, enabled the business to retain all its employees and preserve local ownership.
The EIO, Hammer says, aims to build on the success of companies like Harpoon, and open up conversations with more businesses that might take a similar path. While Massachusetts’s state office on employee ownership is the most developed, Colorado’s office of economic development is exploring ways to promote employee ownership for small businesses, and several other states, like Iowa and Missouri, have introduced tax exemptions for ESOP companies. National momentum around employee ownership and involvement is growing, too: Senators including Massachusetts’ Elizabeth Warren and Kirsten Gillibrand from New York have both advanced policies to build out loans for businesses converting to employee ownership models.