Wall Street Agrees That Ownership Works

A group of private equity firms, companies (including Harley Davidson – employee owners), pension funds and nonprofits – spearheaded by Pete Stavros a partner at KKR

KKR
— has announced that they are creating an initiative they have titled “Ownership Works” that will work to encourage companies to have their employees – especially low-income employees – become shareholders. This makes for a happy day as employee ownership is an issue of which I have long been drum banging.

Studies repeatedly have shown the benefits of employee ownership for both workers as well as improving company performance and profits. For example, a Rutgers study found that employees close to retirement and working at a company with an employer ownership plan had more than ten times the median savings of employees nationally (with particularly strong outcomes for minorities). Further, the Rutgers study found that with an employee ownership program – employees were more likely to benefit from job training; greater job security; increased retirement security; improved financial skills; and improved inequality.

A separate recently released Rutgers study (Rutgers is the center for all things employee ownership) found that employee-owned companies during the COVID-19 pandemic were:

o 3-4 times more likely to retain non-manager and manager employees;

o More than three times more likely to retain staff (even when other businesses received the PPP)

o Significantly less likely to reduce employees’ hours or pay.

While this study (and the other studies) reinforce the notion that the benefits of employee ownership for employees and companies are joy without end – the problem has been that the incentives for encouraging employee ownership have been narrow as they have been primarily focused on the Employee Stock Ownership Plans (ESOP). The ESOP has been important and provided real benefit to workers – but is also limited.

Given all the extraordinary good that can be accomplished with encouraging employee ownership – it’s time to swing for the fences – enter “Ownership Works.” My hope is that this organization can bring a real change to the outlook of employee ownership – and make employee ownership front and center for investors as well as the board room across the country. The bottom line is that it is sorely needed.

A recent NBER study highlighted that for U.S. companies with managers who hold a business degree – within five years of their appointment, wages declined by 6% while labor share by 5%. We need to encourage better results for workers and an outlook that embraces wealth creation for workers. The “Ownership Works” program may want to think about bringing its good message to the business schools and future managers.

Happily, “Ownership Works’” call for increased employee ownership is pushing against an open door. It is clear that Congress – on a bipartisan basis – would be open to avenues for encouraging (including through the tax code) corporations and pass-throughs to embrace employee ownership. Congress has historically been supportive of ESOPs and from my years on the Senate Finance Committee as tax counsel – I’m confident that more expansive approaches to encouraging employee ownership would be welcome by members on both sides of the aisle. As a reminder, conservative icon Margaret Thatcher was a fan of encouraging employee ownership as part of a broader agenda: “Popular Capitalism”.

Congress has set up 2025 as a “Gotterdammerung” for taxes – with a host of tax provisions expiring that year (including 199A – a major tax break for small and medium businesses). In short, the entire tax code will essentially be revisited at that time (although I think employee ownership has such appeal that it is an example of something that could be considered in the next Congress). It is one thing to encourage employee ownership with studies and words and huzzahs (and I’m all for it), but I would suggest that if you strew tax dollars (and other incentives) along the path that can be quite effective. Grab them by their wallet and both their hearts and minds will follow.

Some recent press articles about the announcement of “Ownership Works” have highlighted that employee ownership has its downside of “one basket all eggs” variety for employees and their shares. A fair point (and one that Piggly-Wiggly workers saw first-hand). However, the answer is, in part, allowing/encouraging diversification (for example, when there is a job change or approaching retirement). The hard response though is that the real choice is between the opportunity to create significant wealth for low-income workers through employee ownership or nothing.

Employee ownership has tremendous possibilities and opportunities to bring real and significant financial benefit to low-income workers across-the-board – while at the same time strengthening companies. What this good idea has needed is the big push. Here’s hoping for “Ownership Works.”