Employee ownership is good for businesses, selling owners, employees and communities.
– For businesses, employee ownership can have significant tax benefits, has been proven to improve corporate performance (when combined with an ownership culture), and can drive innovation as well as attract and retain talent.
– Business owners can benefit from a flexible exit strategy that allows them to exit the business on their own timeline, institutionalize the values and culture of the company, and protect the jobs of employees who helped make the company successful.
– Employees receive a share of the profits, resulting in better compensation, as well as meaningful opportunities to participate in decision-making. Because the profits of the company go to employees, employee-owned companies build community wealth and contribute to strong local economies.
Like any business, an employee-owned company needs capital to start up and grow. While some capital can be raised through employees, most employee-owned companies need outside financing to meet their business needs. However, employee-ownership can bring some unique challenges in acquiring capital. For example, many senior lenders are unwilling to give loans without personal guarantees, and in a shared ownership form such as a worker cooperative, there may not be one individual able or willing to give such a guarantee. When it comes to investment capital, a fundamental feature of the form is that employees own and control the business, and meaning that investors should have limited control. Understanding these differences, innovative businesses and finance institutions have been working to come up with solutions that meet the needs of capital providers and employee-owned companies including preferred equity instruments, debt without personal guarantee requirements, and more.
Employee-owned companies structure their management in whatever way makes most sense for the company; there is no right or wrong organizational chart. Depending on the company’s culture, size, and other factors, it can vary widely from traditional hierarchical structures with a C-suite of executives to flat management structures where all major decisions are made by consensus. Across these structures, there are a few unique aspects of employee-owned companies that the management structure should take into account:
– Decades of research has demonstrated that in an employee-owned company an “ownership culture” is vital to the long-term success of the company. The company should adopt policies such as open-book management, financial literacy training, formal opportunities for employee input in decision-making, and other practices that give employees the opportunity to contribute to the company’s success in their roles as both workers and owners of the company.
– Workers vote for the board of directors, who are responsible for overseeing managers. As a result, the leadership in an employee-owned company is accountable to the workers. Managers must adjust their decision-making to understand that the owners who they are serving are financially invested in the company’s success, but not at the expense of quality jobs and a good workplace environment.
In the United States, the two most common ways to share a significant ownership interest with employees are through worker cooperatives and employee stock ownership plans (ESOPs). For more information about these two forms, see our page “How Does Employee Ownership Work?”
In the United States today, there are an estimated 300-400 employee-owned firms, including worker cooperatives, democratically operated employee stock ownership plans (ESOPs), and other firms owned democratically by employees. These firms employ an estimated 7,000 – 10,000 employees. In addition, there are approximately 6,200 private companies—employing approximately 3 million people—that have implemented an employee stock ownership plan, but do not operate democratically.
Internationally, many countries have a much higher density of democratic employee-owned firms. For example, Italy has an estimated 25,000 worker cooperatives, there are several thousand in Span, and approximately 2,000 in France. Argentina has also seen a rapid rise in worker cooperatives and now have an estimated 6,000 worker-owned companies employing approximately 300,000 people.