ESOPs, Job Quality, and Wealth Inequality: The Potential of Employee Stock Ownership Plans

welcome everybody I'm Matt Helmer an associate director with the Aspen Institute economic opportunities program and it's my pleasure to welcome you to today's conversation esop's job quality and wealth inequality the promise of Employee Stock ownership plans this conversation is a part of our ongoing opportunity in America Series where we look at the changing nature of Economic Opportunity in the U.S think about what that means for workers businesses and communities and really try to look at ideas that help create change and create change in a way that promotes shared prosperity and addresses issues of race and gender Equity today's conversation though is part of a little bit of a mini series we're doing on employee ownership as well in this series we've been looking at different models of employee ownership thinking how they're different and similar thinking about how they work and really exploring the obstacles to supporting their success and growth so back in November we had a conversation on worker cooperatives and uh today we'll be discussing Employee Stock ownership plans or esops part of the backdrop for these discussions is really a rising tide of interest in employee ownership and that includes policy makers we've seen some recent bipartisan legislation such as the work act we've seen some state level policies in action being developed that are designed to encourage employee-owned companies and this really marks kind of a new turning point and some new momentum in the discussion around employee ownership which is really exciting but this is really the result of a lot of Decades of hard work and dedication of so many experts researchers policy makers workers Business Leaders philanthropists including those on our panel today so I just want to start by acknowledging all that dedication and hard work for getting us to where we are today and part of where we are today includes this good body of research that really demonstrates the benefits of employee ownership so we know that when employee ownership is designed well it works really well for workers right workers and employee-owned companies have equal better pay and benefits they have better job stability and security and they have increased opportunities to build wealth and oftentimes they have a a greater say in the workplace they have more autonomy they have a better seat at the table which is also good just for their job satisfaction for their dignity but also translates into a lot of business outcomes so we know as well that employee ownership is good for the business because of all this research that's been developed so employee-owned companies often have less turnover they demonstrate higher resiliency and economic downturns they can have higher productive productivity and so much more and all of this kind of makes logical sense right companies are powered by people and people really have a deep connection to the things they own and it's really even kind of hardwired in our brains so researchers find that when we're shown images of the things we own the part of the brain that's associated with like rewards and motivation really lights up which means we're often engaged and invested in the things we own we care about them they're a big motivator for us we want to take care of them so we take care of the things we own and really owning a business is no different in that regard um but employee ownership is also uh really good for communities it allows them to retain jobs it allows them to keep the wealth and assets they've built and it can strengthen Civic engagement and participation which is good for our democracy and we'll dive a little bit into that today as well uh the late and great John Lewis said employee ownership is the foundation of a stable economy and a stable Society um so for many of these reasons employee ownership is one of those unicorns today it's one of those rare things that really has bipartisan appeal over 70 percent of Republicans and Democrats say they prefer to work for employee-owned companies we see more left-leaning Senators Like Bernie Sanders being supportive employee ownership saying it's one of the most important ways to promote economic democracy and ensure everyone has a stake in the success of our economy and then on the right side of the political Spectrum we have people like Republican senator Joni Ernst who says employee ownership can be an important way to retain jobs and keep businesses in local communities providing stability and opportunity for workers several decades ago Ronald Reagan was a strong proponent of employee ownership he called it a people's capitalism and said it was a path that befits a free people so all of this bipartisan appeal and this clear research on the benefits of employee ownership I think Ray is an important question which if it's so great and so popular why don't we have more of it and why don't we do more to support it as I said we're going to talk about esops today and that's our most common form of employee ownership in the United States it covers about 6 000 businesses and about 14 million workers which is great I mean that's a good number to to start with but in a country with you know nearly 165 million workers it's still a pretty small percentage and the numbers of people in esops over the last decade have really kind of stagnated but we're kind of reaching this uh big opportunity here in the next decade or two where a lot of baby boomers are about to retire now these baby boomers own somewhere around 12 million businesses it's estimated that 70 of these businesses will change hands over the next 10 to 20 years and that's going to represent the transfer of wealth of somewhere around 10 trillion dollars potentially so that's really kind of a once in a generation opportunity to really remake our economy to be one based on shared prosperity and I think it again kind of raises some important questions like what would it mean to have an economy that had more employee ownership what would it mean for workers and addressing issues of job quality and wealth inequality what would it mean for business Innovation and our economic competitiveness um and what would it mean for our democracy and importantly how do we make it happen we have a really fantastic set of speakers that are going to dive into these questions in just a second really quickly on the logistics all attendees are muted we want your questions put them in that q a box we also want your perspective your resources your feedback put those in the chat box we love your feedback so take our survey at the end of the event help us continue to get the word out about employee ownership tweet about today's events our hashtag is talk opportunity if you have any technical issues during the webinar please message Us in the chat or email us at eop.program aspeninstitute.org this event is being recorded you will get a copy of it and don't worry about that we'll make sure it's in your inbox here in the coming week or so uh closed captions are available click on the CC button at the bottom of your screen to activate it so as I said we have a great set of speakers and a terrific moderator today I'm just going to put quick names to faces and you can read more about them on our webpage we have Noel Montano who's the executive director of eska the employee owned s corporations of America uh so glad to have Cindy turcotte who's the CEO and president of Gardner supply company as well as the chair of the employee ownership Foundation uh grateful to have Sean Tamba Matthew who's a shareholder of the law firm Stevens and Lee and he works with its Affiliated business sesop strategies and many of you if you don't recognize those names which I'm sure a lot of you do if you know a little bit about employee ownership you'll also recognize Corey rosen's name he's the founder and staff active staff member of the national Center for employee ownership and I'll just break uh my note on brevity real quick to say Corey has a terrific new book out with his colleague John case it's called ownership Reinventing companies capitalism and who owns what there's a copy right here I encourage you to pick it up it's a great overview of the history of employee ownership and how different forms work I keep a copy in my backpack and keep coming back to it if you know a little or a lot about employee ownership it doesn't matter it's a great read and then finally uh I want to welcome our moderator here today tal Smith he's an economics reporter at the New York Times on the business desk he covers labor macro economics and financial markets he's done a fantastic job writing about inflation recently just really great stuff uh prior to this position he commissioned and edited coverage of business public policy and culture as a staff editor for the time Sunday review and opinion sections Cal great to have you I'm going to turn it over to you Matt thanks so much for the kind introduction uh hello everyone um happy Tuesday and I just wanted to briefly also thank uh Maureen Conway and the rest of the Aspen team for um having me uh it's it's been a you know very fun Journey uh digging deeper into esops um just as a reporter in the last uh week or so um really you know a couple of months in preparation for today's uh today's discussion so um with that I'll just you know open with a few thoughts that I had um which connect to you know some of the conversations that I was having with uh Corey Rosen before we began which is this idea that we all know income inequality wealth inequality how it you know for essentially Generations some would say two generations has been increasing and there's a sort of helplessness and hopelessness that can sort of come with that um you know I'll just go to my notes here that I brought as I was thinking this morning about how I should open and I think it helps to talk about the scale that we're dealing with so in talking with Andrew flowers who's the chief Economist at appcast which is a tech firm that aids companies with recruitment uh I found that only twice in the last half century have rank involved workers experienced a sustained period of inflation-adjusted earnings both above two percent so average hourly earnings for non-supervisory workers so workers that aren't bosses have only been above zero percent a few times on a three average excuse me three year average basis since 1970. so there's a real real challenge that we have in our economy in terms of thinking that okay we all go to work we earn wages we earn salaries and yet we're only able to go over those wages or those salaries at best a two percent clip per year and yet we know that stock ownership and uh the wealth that you know folks have in real estate and the economy overall tends to grow at a much higher level than how is the average worker the average person in a literal sense supposed to get ahead enter esops which amid this sort of sea of hopelessness and helplessness really can offer along with many other reforms but in a very distinct way offer some hope um the the sense that um you know employee ownership can be a key to rewarding workers for their work throughout their life um and letting them share in our prosperity uh so with that I want to turn to our conversation because I'm not the star of the show um the guests that we have here today for our conversation are um so Matt thanks for the introduction to get us started um and I just want to jump right in and start with you Corey since I mentioned you an introduction and we talked a bit before um you know this conversation really got kicked off just give us a ground level entry into what esops are um you know obviously you know a lot of folks that are here today um watching and joining us probably have a decent idea but there might be others that don't so that uh that might be helpful and then you know maybe but if you can to your own personal experience um with esops which you know you may have the most personal experience with esops of anybody in this country um and I and I think uh everybody here with us today would benefit from hearing a little bit about that person's history so I hand it over to you Corey thank you thank you very much so esops are technically part of retirement plan law so the same law that governs pension plans and 401K plans and the like and what esops do is they provide a way for a company to use pre-tax or tax deductible said another way pre-tax money to transfer ownership from the current owners to the employees so people often get confused about that they will employ ownership employees have to buy the shares no not in an ESOP they never ever buy the shares what happens is the company funds this trust uses tax deductible money to do it the trust buy shares from the sellers and then those shares get allocated to everybody who works there on an equitable basis they earn it over time and when they leave the company they get the value of those shares if a seller wants to sell quickly the company's able to borrow money take those funds reloan it to the ESOP and the ESOP now buys a big chunk and often these days a hundred percent of the company so from a just mechanical standpoint it made employee ownership practical the second thing that is really distinctive about esops is Congress loves them Republicans and Democrats it doesn't matter there has never been the 17 bills that have passed through encourage esops not one is that opposition from anybody this is amazing and Congress has said a number of things one is the money's tax deductible the second is that if you sell to an Esau and you're a C corporation or become one and you reinvest that money in stocks and bonds of other companies you can defer tax you can't do that any other way and third if you become or you are an S corporation and you're 100 employee owned you don't pay any taxes at all that's a pretty amazing thing and all these things Congress said we want to happen for esops I got interested in this one code 1978 to be precise for precisely the reason you're saying Tao that I read this article about employee ownership and I've been thinking about this problem which was starting then that people's Economic Security depended on more than just their wages and I read a book a little later by Louis Kelso called the capitalist Manifesto which had been a bestseller in the 1950s and he said as we go through the next decades returns to income will stagnate returns to Capital will soar that combination had never happened before everybody thought he was crazy but of course he turned out to be prescient and he said if we're going to create an equitable effective economy one that will allow capitalism to sustain itself in fact we need to provide a way that people can become owners without having to pay for it out of those ever stagnating wages that they can't do and he came up with this idea of esops as a way to do it so I thought that was really fascinating and decided wow here's an idea that I think will work we didn't know then it's too early I think will work I think we'll make work more dignified for people more rewarding for people and that is politically feasible there isn't much out there that hits that intersection so I decided this is what I'm going to do and I've been doing it ever since well Todd thank you for that and um you know one of the the questions that uh as Matt hinted at in the intro that comes to mind is well these are so because these things are so great if uh Corey who was you know fundamental in creating esops is so smart along with you know the gals and guys that helped him you know push he stops forward then Mark these things more more popular instead of 14 million wise and why isn't it 40 million um and you know it's it's actually also true that many folks don't even know uh esops that are out there luckily today we do have uh the the leader of and misop uh Cindy the CEO of Gardner Supply and um hello again Cindy and um if you could for the audience and for the rest of us uh talk about your own personal Journey um which I think is really interesting because uh you know you're a part of a company that did not start out as an Esau um so while you know weaving in your own personal experience also give us a little bit about that you know internal corporate decision making to the extent you were involved about why it made business sense to become an ESOP yes good afternoon everyone um we Gartner Supply if you don't know Gardner Supply is we sell gardening supplies home card Goods to the home Gardener gardeners.com would be our website and then we have five retail stores so we're located in Burlington Vermont as our headquarters we do have locations in New Hampshire and Massachusetts but when we started we started back in 1983 and I started in data entry so I've I've had a long path to to becoming the CEO but in 1987 which was only four years in when our uh when our founder looked at wanting to have shared ownership in our company he came about the uh he learned about esops and we became an ESOP in 1987. we only had 30 employees at that time the reason we did it was because he believed in that the shared ownership that we should be get value for the company that we're working for that we should be we would be more productive we'd be more invested we'd be more interested in what we were doing in making that connection but it's a very different than what you tend to see now where people jump to that hundred percent right off or people are ready to sell and they want to go the Baby Boomers are ready to go we were a bit different he was in his late 30s at that time so we were really an early adopter in Vermont for sure and in the country I suppose also um and so we did it not for any tax incentives so we started at zero and if we had money we went to one percent we went to two percent we just gave money as we could afford to so it wasn't until 12 years later that we actually jumped to the 30 which is the first time that there was a tax incentive for our Founders so um we really did it over a longer path and ultimately in 2009 it became our ownership succession when he retired and we became 100 ESOP owned um and now we have about 250 employees so I know there was a question in the chat it goes from small to large but the average ESOP is not huge you know it's we're more in the average range now um some are really large but some are small and so um throughout that time I really became the lead at Gardner's Supply on employee ownership I was really interested in um our founder and how he was having a particular respiratory work environment that we were sharing financials you know ultimately I became the CFO and head of HR and the CEO and all through that time is how do we have the best communication and open book and participatory management practices that we could have and that's really what I think opened the door to me being more involved at a national level I would go to the ESOP Association conferences I'd always meet with our legislator which is what we were supposed to do and do advocacy and talk about why employee ownership was important and sooner later I got asked then to be more involved at the national level so I became the president of the New England chapter of the ESOP Association became chair of the ESOP Association and then after that the chair of the employee ownership Foundation which is the non-profit arm of the ESOP Association but I was also the founding chair of the Vermont employee ownership Center and it was really all about how Gardeners Supply had embraced this model and how we are doing everything begin to help everybody else be successful as an employee-owned company and we're also doing it internationally I was just the foundation sponsored the International Symposium in Oxford so this past September so we're really trying to say how do we get this model out there in many ways how do we learn about what other people are doing and how do we help others so um for me it's all about um sharing what we've done what we've learned and that this model is a wealth equality model which was was really the important thing for us was it was about wealth equality and having now think about us this many years later how much wealth is in all of the hands of our employee owners so um we think it's a really successful model and I want to see more of it yeah uh thank you and I guess the thing I keep coming back to and um you know the the example of gardeners is just such a brilliant one because you are so obviously a successful business but you know um one of the the words you said that stuck with me just there um or terms that you said was participatory management practices and of course um that's you know extremely important um you know I work in journalism if you don't have participatory management uh the whole operation cannot work um and that that goes for plenty of Enterprises and yet it's also that sort of phrase It's that sort of attitude that a certain set of business folks kind of recoil from um and that might be a cultural thing it might be an ideological thing you know it's probably hard or maybe even impossible to pinpoint um but you know I want to bring in Sean here because you know Sean you're an m a lawyer uh you know a lot of what you do is uh having to both convince deal list and strategize about the bottom line about you know how the dollars and cents add up and we were speaking before uh we opened up to this broader group about the frustrations that you sometimes have despite all your success in the space of getting management teams getting Business Leaders getting CFOs to sort of see the light uh to the extent there is light um of ESOP so um both in uh please introduce yourself uh give us a little bit of your background and um yeah and then open up a little bit about you know those frustrations that can sometimes um you know manifest as you um do this work and and try to show how there can be a symbiosis between um you know uh margin expansion and overall uh business growth um and you know shared Prosperity between management and employees yeah yeah sure thanks so tell thank you uh for for moderating this discussion and and having us all here um and so I'll tell you a little bit about sort of how I came to the play ownership space you know obviously you don't grow up wanting to become an ESOP attorney um and and and and so for me it was really about fulfilling my sort of my passion of helping other people um who were less either less fortunate than me or who didn't have the same opportunities that I did uh to help them get a leg up either through education opportunity or through Economic Opportunity just because of my own background you know I've broken all of the poorest municipality in Ohio one of our school districts and got Hub along the way to really um you know take advantage of opportunities that my friends and neighbors didn't have um and so you know going along the path of sharing the figure out was sort of what I wanted to do uh you know dabbling politics that was not my jam for lack of a better term um and and sort of fell along the path I think a lot of professionals follow along uh especially legal professionals are just hey I'll work at the law firm for a couple of years um you know paid on some student loan debt and then transitioned to the nonprofit sector to work for you know uh one of a handful of organizations to help push the the needle in terms of the impact that you want to see in society um I fortunately had the opportunity to meet my colleague at Mentor Jim stiker um uh who founded SES uh several decades ago and was introduced to the concept of employee ownership three sapson and was you know impressed by the impact that it had on on on on on on employees and on the business owners uh who wanted to you know continuing their legacy in their communities uh beyond their exit um which you know we've given to some of the frustrations that you see uh with other you know business brokers or advisors or folks who are dealing with lower Middle Market or Market companies um they failed to sort of give the full spectrum of opportunities uh for transitions to their their their clients many of it much of it some is self-interested um to be frank you know you know there is a path to getting your fee and a transaction and it's selling to a financial buyer or strategic buyer um they don't necessarily go down the ESOP path because it's a regulated path and requires uh some more complex analysis than than your typical m a transaction to make sure that you're complying with various regulations requirements but it's not that different uh so you know it's the frustration really lies on sort of dispelling some of the myths about hey they're too complicated or hey they're too expensive um or hey you know I heard that you know this guy was sued for some ungodly summer money but because the dll came after that DOL came after probably ever came after them and it's trying to help people understand the real risk that's there um as it relates to the regulatory regulated piece of it um but also to help them understand how the ESOP option fits within the sort of series of uh options that you have when you talk about transitioning your business and dispelling some of the myths and dispelling some of the complexity that folks uh assert that's there that when it's really not yeah thank you thank you and uh to make sure that we make sure everybody gets involved here last but certainly certainly not least uh we have Noel uh who as we mentioned uh leads esca which is celebrating its 25th anniversary so congrats to them uh and congrats to you Noel um Noel please introduce yourself um as everybody else uh has here today and um in the spirit of that 25th anniversary if you could give us the arc um you know even if there's been Wiggles even there's been ups and downs in that Arc of esops uh you know within this 25-year period you know what have been some of the best years or those best years uh recent ones um are they you know back in the you know early you know 2000s or uh was it pre-pandemic uh and where are we now sure well thank you and it is a big year for S corporation ESOP so just a little bit of background I was working on Capitol Hill for then chairman of the house Ways and Means Committee Bill Archer When the big 1996 tax bill was passed and that is the bill that created the S Corp ESOP structure so while Corey 25 years before that was working on C corporation e-stops there was an initiative to allow s corporations to be owned by an ESOP and you can imagine that's a pretty complicated structure right when you're marrying a pass-through entity that's owned by a tax-exempt trust a qualified retirement savings plan so eska the employee owned s-corporations of America was formed by a handful of companies that realized once they transitioned to this structure because of the tax benefits because of what it would mean for their companies it was critically important that there be a coalition or an association that would protect this structure because everyone knows what kind Congress creates they could do away with and just because there's a lot of bipartisan support and there's a lot of bipartisan support for s-corporation esops but that's because the community has been active for these 25 years educating members of Congress so um eska has grown in that time from 20 companies to about 200 member companies our companies range in industries from engineering to Contracting to manufacturing construction grocery stores convenience stores service Industries and they represent about 300 000 employee owners and they range in size from companies that might be 50 employee owners to companies that are 40 000 employee owners and they get bigger just like what Cindy said and what Sean does I mean through mergers and Acquisitions Our member companies are often acquiring small family-owned businesses where the owner doesn't have another path or wants them to become wants his employees his or her employees to become part of and ASAP and we love that story of Acquisitions we had one of our member companies who had acquired a smaller company talked about a new one of their new employees had said you know I used to work for a family-owned business and I never felt like family and now I work for an employee on business and I feel like family and that's that's what we do that's what we're all about is our advocacy on Capitol Hill to ensure that the SE stop structure is preserved and not negatively impacted by policy changes and it's been really gratifying over these I mean you asked to assess the 25 years I mean in general from my viewpoint which is the Congressional Viewpoint what's been going on in the policy World there have been threats there have been things that we have had to educate members of Congress and Advocate on behalf of S corporation esops and say hey you didn't mean to mandate because of Enron that all employee-owned companies start diversifying out of employees owning stock in their companies there needs to be an exception because escort B Subs are something different and so that's what we do we're the eyes and ears and voice on Capitol Hill for S corporation ESOP so that our member companies and all s-corporation ESOP companies can feel confident that they can be busy running their companies growing their companies hiring more employees because we're looking out for things that could be negatively impact and it's just really exciting and meaningful to be able to tell members of Congress hey what you did 25 years ago even if they weren't in Congress then they like to take credit for it you know this is working even better than you could have expected yeah thank you thank you and um you know it it's it's really interesting to Russell with this idea of and I think I use this term before symbiosis right people tend to be very skeptical of the idea that something that can be an unalloid good or a business in a certain situation uh could also uh be a win-win for uh you know that set of employees um and so to stick with that and drive down a bit here um you know right I've been reporting for 18 months now at the very uh tense intersection of rising pay for workers and Rising input costs for businesses right and we know that you know we had a plague in a war in Europe both of which have not happened in quite some time and and that is uh you know that's certainly a source of non-labor input costs and yet it is also true that um you know what economists call reservation wages the the you know the floor of the amount of pay that a worker will accept except for a good and job you know that's gone up in a lot of Industries um in some of those industries that you that you've mentioned actually um and you're open and so uh if you could and I know that this you know in a sense drifts a bit from you know corporate structure and uh some you know legal and policy advocacy into the the realm of you know uh data wonkery but um I know that you are expert at both so in embracing that lean in for us and and tell us a bit about that like you know those rubber meets the road decisions where um you know a a an employee um may not see an ESOP as a fit for them if that ever happens and times when businesses decide against them uh even if you think that it doesn't make business sense for them to do so well yeah we work with a lot of experts we work with NCAA Corey's organization and look at a lot of economic data all the time and it was actually back in 2016 that Jared Bernstein who now chairs the Council of economic advisors for President Biden he looked at what esops can do for a company and particularly like on the wage issue that you mentioned we wanted to find out if ESOP companies were paying lower wages and if they were able to because of the benefit could they still attract workers because of this ESOP benefit that they were providing and what we found and still found in studies that came after 2016 that esops are very impactful on reducing wealth inequality because in addition to this incredible benefit this retirement security and savings benefit you're getting from the ESOP wages are just as good at ESOP companies and I think that speaks to the commitment that business owners have to their Workforce and that I mean we could talk all day with this panel about that from studies that show during the economic downturn of 2008 2009 to the recent pandemic that these companies are in it for the long haul so they are looking out for their workers they're looking out for their workers in terms of the wages they provide the benefits they provide the majority of s-corporation esops in addition to offering the employer-provided ESOP that they fund also offer a 401k so they've got two retirement plans and they're also looking to retain their workers we've heard so many incredible stories from our member companies whether it was during the pandemic and again the economic recession back in 2008 that they hung on to their workers they did what they needed to do whether it was reducing hours whether it was just furloughing people for a little bit because they knew that the good times would come again and their workers and their Workforce were the most important things to maintaining the stability of that company so it's great that I mean From eska's perspective not only do we have data that supports that but being able to share just the anecdotes and what we hear from our member companies and I mean most of these companies with the industries that I mentioned they were essential businesses so during the pandemic they were still out you know building the bridges the roads working in the hospitals they were workers that were did not have the luxury of working from home and I think their employers recognize that increased wages where they could um and that just shows the value that employee-owned companies pay place on their employees thanks um Cindy what do you make of all this um I I asked you before we got started whether you know partner Supply in this employee ownership structure that you all have there whether that is uh something that comes as a pleasant surprise to workers versus workers that actually sign up and and apply because of their knowledge of uh employee ownership at the company what makes what share of um worker uh do you sort of see in that situation or both yeah I would say both they're you know I would say that do the majority of comp um employees know that we're employee owned I would say probably not you know we have a lot of hourly workers and what does that even mean I think people don't necessarily know what that means and so they're entering into a Workforce that that is just hopefully a very different work environment in terms of how we run our business and how involved they are and our we in our staff meetings are how much we communicate so I think that's where the connection so I think they immediately see the difference when they see how they're treated and how they're oriented and um and I think that one thing I'll speak to what Noelle said is that we were a company that was very much impacted by the pandemic in that we were all of a sudden the first week or two of I'll remember that first week where we had expected 14 000 orders and we got 32 000 and for us it's all about oh my God what are we gonna do we don't have enough employees and talk about a group of employees that leaned in and did whatever it took to manage a really difficult situation where we didn't have enough people we didn't have enough product and customers wanted help and they were scared and they wanted to grow their own food and so that's where you see the power of employee ownership is All Is How They responded and they came to work every day even though a lot of people got to stay at home you know they didn't get to stay at home we were open we had a warehouse we had retail stores and we were trying to help the customer so I think that when they arrive and and not only see how they're treated and how the participatory Workforce works but also now all of a sudden you get a piece of the company you get a large percentage of your pay at least at this point for us in a contribution to the stock and the company you work for we we do we pay well you know compared to the others and we have really great benefits so um the one thing that I wanted just to mention that that um when we talk about retirement is that I think it's really important that we don't talk about esops just as Retirement plans because that doesn't resonate for someone who's not staying or they're young or you know that their intent isn't to be there for 40 years it's a well move and in 10 years if they stay for 10 years and they have whatever thirty thousand or fifty thousand dollars isn't that great it doesn't matter whether they're there at retirement um they're still getting a pocket of money so I think how we talk to employees about that too is important so that they get it and the more employees talk and the more our community responds to us being employee owned the more we are getting people that understand that we're employee owned so I guess that's the best way I'd answer it thank you and um sticking with the idea of this not just being you know uh for lack of a better term a sleepy sort of retirement vehicle though we should all not disparage retirement Vehicles as sleepy retirement vehicles are important it is true that um esops can be a form of wealth building and when we think about wealth inequality overall I think all of us here are well aware that uh people of color in particular have struggled to build wealth over the past few decades over the past few centuries actually um and so on a serious note Sean uh you know you along with your colleagues at um Aspen Rutgers uh and others have been pivoting to not only talking about how this makes business sense but on a social level on a pro-social level how esops can also be a way that we can uh you know not just lessen racial inequality in the data which you know may look some may cause some charts to look less egregious but in a real material way allow uh households black households Hispanic households uh you know other people of color to build wealth in a way that can really change folks lives down down the road yeah no so you know I I think esops especially can do this in two ways one um one is in terms of preserving the wealth that you know minority business owners have helped to create uh with their companies over the years um especially for those businesses that are certified as minority-owned businesses their their range of options for exiting their their company can oftentimes be limited if they are reliant on their certification status to drive their revenue right and so what an ESOP can do is create a buyer where the effect of you know selling to a strategic or selling to a private Equity company that won't be able to get that certification that that the ESOP especially if you can get to um that that same level of ownership that's reflective in the minority business owner with through the ASAP technology basis can be positive and then there's some things that we're working on that we can touch on a little bit later uh as to you know help drive that that home for a lot of minority-owned businesses um uh especially um the other piece of this is the one that that speaks to to me even more is the fact that you know when you create employee ownership opportunities for people of color you do have the ability to really significantly reduce the racial wealth Gap and um there's this great uh report that uh the Aspen Institute along with Rutgers University and its Institute for employee ownership and share and profit sharing uh and the Democracy at work Institute uh pulled together I think that's a couple years ago now that shows that that summarizes a lot of the research that's going on over the last several years as it relates to how employee ownership can address the racial wealth yeah um you know for instance employers of color I have 30 higher wages than non-employ owners will come of color or you know seeing an employer ownership does significantly reduce the racial wealth Gap um I think that the the trouble that you know maybe policy makers and others might find is try well how do you how do you bring this to scale how do you bring the solution to you know uh people of color who are employees who don't have their own businesses you know targeting the minority business owners that's one great way um but the question is well how do we target employees and companies that that that are you know significantly have a significant minority populations and so we've been fortunate to work with uh at our firm uh a group uh called Apison Heritage Capital Partners uh brand new uh two new fund managers who are college classmates and friends at Morehouse Todd Leverett and and Phil Rings uh raises over subscribe fund last year that closet around 58.1 million dollars and what they're doing is targeting companies that have significant minority Workforce systems so they've had two Investments so far one is a landscape contractor out in El Paso Texas the other is a plumbing company out in Denver both companies have workforces that are uh you know indexes of 90 Latin American um you know the the contractor in Texas has increased the number of employees since the the transition the business transition to 100 ESOP ownership through the financing provided by a h and they're facilitating it um and and what they've done is creating that this New Wealth opportunity you know it's been very appealing it's been able to retract and retain people who otherwise would not be uh might not have been working with that company before uh and so they're really so they're digging so they're dealing with issue at the core targeting these businesses both of which were Caucasian known beforehand now that Minority on businesses uh both of minority leadership now in place uh that can help build wealth in their communities for for people of color uh so so that's one sort of example of sort of how we could get this moved forward um uh and you know across the country yeah so we sort of we've all said a bunch of very nice things about esops including me so far and you know I just want to take a moment to sort of stress test right about this idea of this movement uh this corporate structure you know uh there are times where I've done some research and you know I you know they do come across these esops as you know awfully squeaky clean um and yet you know there there has been some tension under the surface for certain companies for example Publix which is you know not a 100 ESOP as as far as I can remember um based on a little bit of reporting I did but it is um a large share of of the company is is technically employee owned and yet Publix has been uh receiving a lot of backlash from employees recently um for uh you know having uh you know median employee salaries that are uh below 25 000 um and and a CEO to medium pay ratio of over 140 uh to one um and you know the Tampa Bay Times um uh you know as I was able to read it um you know notes that part of that median you know salary being so low is because that includes some part-time and seasonal workers and yet nevertheless it shows that it seems you know employee ownership esops themselves are not necessarily a silver bullet um for um Society at large much less um you know Finding ways for uh Capital Management and labor to to live in some level of Harmony um so so if I can turn back to you Corey what am I getting wrong if I'm getting something wrong there um about you know maybe the ability for employee ownership to be a salve or you know give cover for businesses that otherwise are still operating in a way that you know um some folks particularly Progressive folks might not consider uh Progressive um and and and what are the ways that um you you see pushback that is you know Fair um and then the sort of pushback that actually is just a form of misunderstanding yeah so I think part of the problem is particularly amongst progressives is and I'm one of those uh but part of the problem is sort of lading esops with expectations about every social goal that you have they need to be democracies they need to you know pay everybody extraordinarily well they need to contribute to Liberal causes by you know on and on and on and that's not fair that's not an expectation that's reasonable of company they look at a company like Publix and I don't know but I assume that they're like most other grocery chains and pay is not very good in the grocery industry generally so I'm not surprised that their pay is at that level on the other hand Publix consistently is in rated in one of the best hundred companies to work for which is based on surveys of employees saying it's one of the best hundred companies to work for and employees who've been there for a while have accumulated tremendous amounts of wealth so is you know is it perfect in someone's definition of perfect well lots of companies aren't going to meet those criteria and one of the common things that you see for instance asked about esops is well why aren't they more democratic why don't employees sit on boards and make decisions what we found in our research is that that's something that progressives think is important but employees don't and that doesn't actually turn out to make any difference when they when you do do it and how well a company performs we surveyed employees thousands of employees to see What mattered to them about being an employee owner and being on the board of directors or voting or shares was not one of them what did matter to them a lot was how much influence do I have in the way that my job is done every day and I suggest ideas on new marketing ideas on new products on different processes and will somebody listen to that and it turns out that the companies who do that have more satisfied employees have longer attention and make a whole lot more money so it's really a win-win situation to do that and that's where employee ownership companies I think have really excelled if you go to our conference for instance you're going to see panel after panel about how we get employees involved in making decisions at the work level and how impactful that is I wrote a book called Beyond engagement and the first sentence says it's simple the best companies are the ones that generate the most ideas from the most people about the most things and think about that if you're a company and you can generate the way that for instance hypertherm in New Hampshire does two usable ideas per employee per year you're going to be a whole lot better company and and that's really what we need to expect from e-stop companies not every company does it but they're much more likely to do it than other companies so are esops perfect by whatever definition you want to use no but they're sure a whole lot better than the alternative sure sure and and there's there's certainly a fair argument for it and you know I I think there are parallels that uh you've been thinking about as well of you know it's it's a good thing it seems that uh you know we have so much bipartisan energy or if not energy just sort of latent support for esops uh you talked about the track record in Congress being remarkable um you know that it certainly doesn't fit The Narrative of gridlock that is dominated uh so many other issues um and yet I I wonder if you know and I'll ask of you and then ask us of uh some some other panelists um whether you ever fear that if you become too successful and uh you're sort of uh you know uh evangelizing of esops that uh somehow like you know everything right like mask just did and like vaccines just did um it gets politicized and you know therefore loses a base of support um so I'll start with you but I'll be sure to ask you know others about uh their their take but do you ever fear that that you actually might lose in Victory no never I would be delighted if if we got to that point no I'm not worried about that one at all they're if no matter what Forum you're asking it in whether it's the senate or house or state legislatures or the various opinion polls or polls about from companies that they would prefer to buy from other companies that are employed on no matter what group you're asking employee ownership is viewed in a remarkably positive light so more is better and one of the things that that might accomplish is more political critical mass and we have a long way to go to get there so so no I'm not worried about that I'm worried about not enough people doing it because this is really the right solution for thousands of businesses covering millions of employees and Sean was absolutely right on when he said that the main reason you don't see more of it is not that they don't work it's that when people go to their business advisors and they say I'm thinking about business transition what do I do they are not likely to hear or you should think about an ESOP and as Shah also said that's often because it's not in their interest to sell an ESOP to them they'd rather do something they know how to do that'll make them a lot more money that's a big hill to climb in and we're hoping some of the recent legislation that encourages Outreach on esops from various state and federal levels will be helpful in doing that yeah Noel if you could hop in and and dig in deeper for us about um you know some success stories and some stories of of you know challenge um and evangelizing esops you know having you know more uptake uh I was really surprised to learn and a bit embarrassed I did not know about it that in certain cases for some businesses if you work your way towards 100 employee ownership and becoming ESOP um you can actually greatly greatly reduce your tax bill um while also you know providing these pro-social benefits to your employees and so the sort of you know community of the business um and yet clearly getting there whether it's through um you know gaps of knowledge or sort of strategic hurdles is a thing so you know digging a little bit deeper into the weeds for us here since I think everybody at this point if they weren't before uh sort of knows the the basics get into the weeds first here about what determines success or not um and in these regions and as you said it's an incredibly intricate tax structure but it was intentional I mean there are no way are they loopholes Congress deliberately designed the S corporation ESOP structure to encourage employee ownership and retirement savings through this complicated structure with significant tax benefits and again not a loophole the taxes are being paid as they are with any other qualified retirement savings plan when the employee owners retire start drawing down money from their ESOP or if they've rolled it over to an IRA they're paying individual income tax rates but it was designed that way because the companies needed that Capital to grow the business and to pay for those retirement costs so it is complicated it takes a lot of education and I think what's particularly important to continuing our efforts to build support in Congress is to make our message current what are people talking about what are the issues of the day so recently it's been the great resignation and finding enough workers and our employees happy with where they're working or they're all quitting in mass and so a new study and I keep bringing up studies and they're all in our Esco website I'll include that in the chat but we're going to release a new study that nceo has been working on for us that shows the quit rates and the layoff rates are much lower so it's it's very important that we keep the current messages what's going on what are member what are policy makers talking about and how do we relate esops and the benefits of employee ownership to that I mean members of Congress were thrilled to meet with us virtually during the pandemic and hear about what our companies were doing to keep their businesses going to keep their employees to keep contributing to the local economy you asked about why there aren't more esops and Jared Bernstein also did a study for us on that and it's a lot of things but it's primarily education and what you mentioned our advisors offering this to business owners looking to transition out at the business there aren't enough advisors that are saying this is a really strong viable alternative plus it's hard it's expensive it's not the easiest way for a business owner that just wants to cash in it takes a very committed business owner to go through this complicated transaction to start selling shares to the ESOP um again not the easiest way out they have to really be committed and those are the business owners that you see making this transaction because they are committed to keeping their Workforce intact not seeing their business just be sold off split into Parts they want to keep it local they want to keep it together and that's why we firmly believe that Congress should continue to encourage and promote and protect the structure I'm on the ground ESOP correspondent here um have you have you seen the hopes that you know Noel you know speaks about here you know at the lower puts rates lower layoff rates I mean one of the things that I've been doing in my work you know is really asking okay um much of the business much of Economics is about trade-offs and I I've been trying to push my colleagues my you know econ Twitter uh you know just just my general world to think a bit harder about okay well what's a presumed trade-off and what is the trade-off that we you know you know whether it's macro micro and financial markets otherwise what's a trade-off that maybe we just presume is there um and C is inevitable but actually we just never stress tested whether you know a more challenging but ultimately rewarding Dynamic is is possible um you know we've just seen that uh you know we got down to five percent of black Unemployment uh for the first time and yet um it's it's and it's in a situation where uh it's it's deeply threatened by uh an oncoming recession that um could could wash a little away at least temporarily um and so that brings me to the question of you know can esops in a way that obviously as as Corey told us you know not be a silver bullet for all of society's problems but if do you think if there are more companies that were set up like gardeners that there'd be less volatility in terms of in terms of hiring you know employee retention and so on and so on um and you know to the extent you're comfortable sharing it with us you know what are some of those uh challenges that gardeners did see uh you know maybe during the pandemic when obviously there were a lot of um you know good reasons to be scared of of being a central worker well um that would be true for any company so as an employee-owned company you know the the only the the major risk you have to think about is that you are buying yourself out all the time you know you have to have the funds to be able to over time pay for yourself to come the employees are not contributing um their own money to be employee owned the company is contributing the money so you have a a case where your stock price goes up a lot because you've done well now the amount you owe to the terminated participants that are leaving for whatever retiring diversifying whatever you have to have a constant cash flow to be able to keep the system rolling and so that is an important piece for people to understand as they think about it so that would be one of the challenges that you have to think about as you become a more mature ESOP now that's just the way it works you have to be prepared and you're not you have the tax incentives of not paying tax federal tax and that's what helps can help fund these this this methodology that that's been created and to keep the whole system moving and but that's all about planning and it's about understanding what it means and it's about thinking out 15 or 20 years what does it look like so that we can keep our businesses rolling infinitely and not having to sell because we haven't thought through all of the issues so um that is is just an important piece and and I'll just add one more piece then in terms of opportunities that we talked about is that we now have the opportunity and having been one of the more successful State Centers over the time with the Vermont and plannership Center we have a huge opportunity with the work act bill that just went out for money that's going to come into the states um to be able to help them 50 million dollars to help boots on the ground help companies know about employee ownership that's what we need is we need more people to be talking about it and we need boots underground helping um companies know how to work through the the challenges of thinking about an ESOP and even understanding and who should they go and meet with what are the ESOP lawyers all of that sort of thing so there's um that piece too that really is a big opportunity for us to have more employee ownership thanks Cindy uh Sean I want to turn back to you as we kind of Round the Bend here um going back to the sort of financing space right um obviously uh Financial conditions can tighten or loosen in any given year um sorry about the folks doing yard work folks um Jordan hopefully you can still hear me okay um so that means I should kick it to you even sooner Sean um as we look at the lending environment right now but sort of a zoom out and imagine you know credit that you know will eventually loosen to more accommodative uh or a more accommodative environments you know rather than later um do you think that the ESOP space will continue to be not dominated but you know have a large share of um investors be sort of impact investors sort of social minded investors um and what opportunities do you think there might actually be for sort of more traditional private Equity investors and uh sort of large larger scale even institutional investors to get involved in the ESOP game what would need to happen um to to accelerate that yeah so I think that we're in a really interesting time as it relates to private Capital funds that are coming to Bear uh to uh take a lot of the dry power that's out there and to deploy them in ESOP transitions so as I mentioned you know the uh you know Apison Heritage Capital Partners they just had their fun that was driven a lot by your traditional sort of impact investors you know you know folks like skull Rockefeller and whatnot that really you know helped and Robert Wood Johnson that really helped you know fund their fund I think for folks like apis and Heritage like the Toronto Group which is another uh group that we've worked with uh that's raising a fund you've got other folks like Social Capital Partners out in Canada that's actually I think driven a lot by the Canadian pension plan so you've got all these sort of new funds that are coming online that are you know you know sort of creating the test case for why employ ownership transitions are essentially an investment class that institutional and other investors should look to invest in uh to get you know you know you know competitive you know and many times market rate returns um uh to help finance and facilitate these top transitions um I think you're also seeing you know stuff on the policy side and there's a lot of discussion about uh hopefully a new legislation that will come out uh that will help SBA you know loosen up funding um and to have it done in a way that obviously you know protects you know ESOP says what they are which are you know retirement plan for the employees uh but a corporate finance technique that companies can use in a sustainable way um to help facilitate more employee ownership transitions across support so I I think there's a lot of optimism out there uh as it relates to you know these sort of new capital providers they're looking to make and employee ownership Investments uh throughout uh throughout the country thanks Sean uh so Corey we have a great question I think that you just engaged with actually in the chat and I want to sit out loud for the for the rest of everybody before I get to the question there and sort of a broader q a as we wrap up I want to expand upon something that Sean got out there which is you know Finding ways to attract Capital right um we do not live in a you know command and control economy we live in a market economy a market society and uh it's been interesting that there's sort of been a bipartisan if not rallying towards an idea an acceptance of it just as the world that we live in the water that we swim in right I mean for years and years climate Advocates focused on a sticks approach rather than a carrot's approach to climate change we saw with the IRA that carrots absolutely went out um of course that made you know some folks uncomfortable that there weren't enough strings attached to um you know some of the funding to encourage and attract capital and subsidize it in some cases and yet that is a route that people you know uh in Congress took um what sort of funding what sort of you know subsidy um as well as education which we've all talked about here might be helpful at a federal level which you know really has a sort of bazooka that should change the environment um you know states do what they can but obviously the federal government's the biggest game in town what are folks in Congress doing or not doing what are folks maybe even in treasury uh the you know the Commerce Department doing or not doing um to um help here the the case of esops there is a new program through the state small business credit initiative which may be helpful to some esops in some situations I think it's a relatively limited value though what I think really would help and Sean sort of made reference to it as a a bill that hasn't been introduced yet but will be that would solve what I think is the remaining biggest Financial issue for ESOP transitions which is if I want to sell my company to an Esau and I want to sell most or all of it and get a bank loan maybe for some portion of that but I'm not going to get a bank loan for 100 percent so the rest I finance through what's called a seller note I'm going to take money over time with interest well if I if that doesn't work for me sometimes you know I I'm you know I'm 72 and I want to sell and I don't want to wait so I'll sell to somebody else so what this would do is it would provide the same kind of federal funding that's available for all sorts of other development projects and research projects and so on that would say if you will nope sorry about that if you will provide us if if the government will create these uh employee business investment corporations that will guarantee some portion of that loan and that would make the bank loan more than they otherwise would so I think that's a really critical piece that if we can get that to happen you're going to see a lot more esops happen so watch for that at the employee ownership investment act and we hope we'll see that see the light of day pretty soon all right so moving on to uh some some questions to dig a bit further and and before you wrap up you know sort of see what things may look like going forward um for Cindy what risk and opportunities do you see with private Equity becoming more involved in employee ownership obviously for some private Equity is uh just a scary word unto itself yeah the concern is um that I mean certainly it's gotten more newsworth news about it um and so that's a good thing about employee ownership but um they are bringing the money in and um and so a percent of the companies employee owned but I believe my understanding is that the goal is then you're going to sell it and those people will make money that were there for that segment of time but then the if the company is not going to stay an employee-owned company in the long term um that doesn't help any future employees so I have a concern about it being a one and done that they are we all that group and including the private money is going to make money when it sells and and that's that Corey do you agree with that that's absolutely right and they're only the employees are only getting about five percent of the company you know it's getting a lot of publicity what they're doing and some other company of the same size becomes a hundred percent employee owned and it's not so it's not man bites dog the way that the private Equity is yeah it's great what they're doing but it's it's a shadow of what esops are doing ownership can you talk about issues of federal track excuse me issues around Federal Contracting with esops uh the preferences and challenges around it um like we said the government is the biggest game in town um you know the federal Contracting pulled into this uh issue yeah so as it stands now if you have if you're certified as a woman-owned business or a better run-on business or minority-owned business or federal Contracting purposes and you sell to an ESOP you are not going to be able to continue that certification going forward because that will require a change in federal law um one thing though in that in that space for on the state level because a lot of State Contracting organization or state governments not only rely on the federal Contracting certification but they also rely on private certification organizations and those private certification organizations also serve as a vehicle for major corporations so I sit here in Philadelphia you're thinking of your Comcast of the world and whatnot they rely on the private certification organizations to drive Supplier Diversity those private certification organizations have very different Viewpoint from the federal government they're very much open to that so with respect to we bank for instance they they have issued and proposed and have issued sort of requirements and regulations as to how you certified a woman-owned business by looking through to the ESOP I want to thank Corey uh and Tim garbanski his client uh not his client but his colleague over and CEO who recently helped our team and client of ours who was actually going through a a application slash proposal process with um the national minorities supplier Development Council to help Create and Craft those guidelines for minority owned businesses um for a uh for a company that we're looking to get certified here and the reception there I'm actually speaking at nmsdc local affiliate conference later this week you know the reception there is very positive because of the two issues that you address right you address the issues with the minority business owners and you address the issues with uh or the opportunity for the you know sort of people of color who are working for these companies going forward and so that creates a I think hopefully a a ground full of support that can help drive and push Federal legislation down the road and also helps people qualify for potential State contracts uh that that are out there for that might be able to freeze up on companies that are either diverse or woman-owned and whatnot thanks Sean I think about this conversation we've had and it's been really great I've already learned a lot um thank you all um and I see you through line maybe because I inserted it in part of sort of parallels to [Music] um the need to quickly with urgency find ways to solve a really big problem right in this case finding finding Fair ways for employees for workers most of us are workers not bosses to build wealth in a way that still makes sense within a market system um the IRA as I as I've you know mentioned you know a couple minutes ago uh is trying to do that through a robust you know carrots heavy in the carrots and sticks Paradigm approach um and it seems like many of the ideas that you know have come across throughout this conversation are in that carrots Department um Corey um you know you're sort of The Godfather in some sense of this issue to the extent there are any parallels to the to the fight to ramp up for climate change adaptation Etc um you know a lot of those goals are spoken of in like 10-year sort of increments so let's imagine it's 20 33. um if we were able to go all in on esops as an economy what would that hopeful scenario look like where you see substantial success Earth tried to model this and I think it's reasonable that you could double the number of employee owners over another 10 to 15 years well uh with that is there anybody else that had a closing remark or idea or something not be left out all right well with that um thank you all and I want to you know toss it back over to Matt who opened up for us to give some closing remarks and once again thank you to Aspen for having me think uh all you for joining me and you know hopefully I see all of you uh if not virtually in person again sometime soon oh thanks so much great job and thanks to Cindy Corey Noel and Sean great conversation I could have went on for a lot longer time but we'll have to have you back again uh please stay tuned for more information on our next event coming up on May 10th that's a book talk with zainab tan on her latest book the Case for good jobs how companies bring dignity pay and meaning to everyone's work and stay tuned as well for an exciting announcement we're about to make here in the next week or so about uh some more employee ownership panels that we'll be having in June uh thanks very much to Maureen Conway for her dedicated support and Leadership on these conversations to all my colleagues Colleen Amanda Tony Maxwell Joyce Merritt Victoria and seating and huge thanks to Tony maustria Nora who are really an Irreplaceable part to making these events happen uh thanks so much to our audience for joining and sharing your questions and comments glad to see it was such an active conversation please take a moment to respond to our quick feedback survey which should open in your browser as we close this out notes you can always email us too at eop.program aspeninstitute.org we'd love to hear your thoughts and and comments and again thanks all for joining us and thanks again to this wonderful panel and to tell for moderating the conversation take care thank you thank you yeah