Inequality is the fight of the moment for philanthropy.
The Ford Foundation has reoriented itself entirely to focus on this concern. Community foundations across the country are retooling their grant making to confront the growing gap between rich and poor. And impact investing is beginning to grapple with how — or even if — endowments and mission investing can shift the balance of wealth from rich to poor.
Foundations are stepping up to solve some of society’s thorniest problems. But what if there was a bold solution that up until now philanthropy had overlooked? As we consider how to make a wholesale shift in the economic system, have we thought about how a shift in the structure of our workplaces could change the game?
Worker ownership of companies could be that solution. It’s a simple idea, but as we work to curb inequality, there may be few solutions that could so directly, tangibly, and quickly help those hurt by the wealth gap.
Employment today generally presents people with two options. You can work for someone else, which provides some measure of security but very limited opportunities for wealth building. Or you can work for yourself as a small-business owner or independent contractor, in which case you assume all of the risk as well as all the rewards.
Worker ownership is a third way that offers a different set of possibilities. The simplest definition of the term is that people who are employed by a business — including entry-level hourly workers — also own part of that business. This collective ownership spreads a firm’s fortunes more equitably while providing some level of participation in decision making.
Given the current debate in the United States over income and wealth inequality, can this third ownership option be expanded meaningfully as a path to a more equitable future? That’s the question the Surdna Foundation set out to answer in a new report, “Ours to Share.” We commissioned this study to better understand the worker-owner landscape, including both co-ops, which many people know, and employee stock ownership plans, or ESOPs, another promising form of worker ownership.
Cooperatively owned businesses tend to be smaller, and there are only several hundred across the country, although their numbers have increased in the past decade. ESOPs provide the work force with an ownership interest but can look much more like traditionally run firms. Some of the largest companies in the United States, including Publix Super Markets and the architectural and engineering company HDR, are ESOPs.
Here’s some of what we found:
- These structures work. ESOP companies are just as productive, survive at the same rate, and are as innovative as traditionally structured firms, if not more so. Our research also suggests that the small footprint of co-ops relative to the overall economy is due to a lack of access to capital, not to any structural disadvantage inherent in the business model.
- The “silver tsunami” — the horde of baby boomers set to retire over the next decade — creates a huge opportunity to capture wealth for workers due to the tax advantages to owners of converting a traditional business into an ESOP.
Sixty-six percent of privately held companies with more than 20 employees — some 4 million businesses — are owned by boomers. Most of them are unaware that ESOPs are a possible option — one that not only diverts capital-gains taxes indefinitely but also preserves the legacy of the company. Working with employees to understand how to run the business and share profits will benefit the people who helped build the business in the first place.
- “Going co-op” could be transformative for smaller businesses. While co-ops tend to be start-ups with democratic ideals baked into their structure, co-op conversions are also a viable option to transform an existing company into a more viable and equitable employer.
There is a growing support system of co-op incubators and consultants that provide both start-up and conversion support to worker-owned cooperatives. Foundations could play an important role in raising awareness of and providing additional resources to the consultants and advisers working at the forefront of this movement.
- Worker ownership offers a pathway to leveling the playing field for women and people of color in the marketplace. The business work force is far more diverse than the ownership class, so devolving ownership de facto addresses issues of inequality. Co-ops, by definition and etymology, have a history rooted in worker cooperation and social justice. And, at the root, isn’t that what we’re all working for?
As we face the challenge of rising inequality, worker ownership is at a tipping point. This is a real solution for both better jobs and social justice. If philanthropy is truly committed to combating inequality, we need to think systematically about how to increase worker ownership, specifically about how to boost the ranks of worker co-ops and ESOPs through conversions.
Here’s a big idea: We hope grant makers of all kinds will join with us to create a co-op of our own — an alliance among foundations that are keenly interested in tackling income and wealth inequality head-on. Philanthropy should embrace the largely untapped potential of worker ownership. This is a solution to inequality that we can drive and whose time has come.
Phillip Henderson is president of the Surdna Foundation.
