Exploring Employee Ownership: Why Business Owners Choose it and what it Could Offer Your Company

welcome everyone my name is Derek Peebles I am the director of policy and advocacy for the America's sustainable business Network and I would like to welcome you all to asbn's 142nd uh asbn live series and so we have a excellent segment planned for you all today and uh just a little disclaimer before we get started if if you can mute uh yourselves that would be great so great um welcome and in honor of employee ownership month the asbn working group on transforming business ownership is pleased to present this special panel that we have for you all today speakers will include leaders of employee-owned businesses who can share different perspectives on the value of employee ownership and how it contributes to their company's success whether through Employee Engagement and retention succession planning and ownership transitions are just another way to express the company's commitment to sustainability so the panelists will address different scenarios through which businesses can transition to employee ownership and before we get started with the panel I would just like to discuss for a minute uh about asbn's inclusive economy portfolio and we recognize that asbn the importance of building an inclusive economy that serves the needs of small and local businesses place-based entrepreneurs as well as the unique needs of communities as uh been articulated by leaders such as yourselves we are building peer networks and we're strengthening place-based financing and we're advocating for restorative Investments and those are just some of the ways that asbn works with communities also at the intersection of climate and economic Justice we feel that our projects and our Gatherings our convenience have made significant impacts on sustainable communities and economies and we're often the bridge to between small to large Investments uh and long-term sustainability and so again like I said before this group uh the transform and work or transform and ownership working group is available for our members uh to be a part of and this group is committed to helping businesses transition and we feel that that will save jobs and keep wealth within our communities including the recirculation of the dollar and so we're very happy uh to present this to you today and so to get started with our agenda our panelists today here are make sure I get this right we have Rachel battles and we have Kevin Cook and we have Tommy Smith and then Hillary Abel with project Equity is also going to be co-facilitating uh some breakout rooms that we are going to have today and so let's get into it uh Rachel you are our first panelist and uh welcome and uh we'll we'll just start off with you introducing yourself and your company so my voice cuts out uh forgive me um but I'm Rachel battles I'm the general manager at happy Earth cleaning cooperative and we are Minnesota's first employee owned a green cleaning company so we've got about 20 employees um six of whom are currently member owners and just this morning actually we had uh three other employees hand in their membership applications so that's really really exciting we're almost up to half of our employees for owners we were started in 2010 by Jesse and Marion Dunbar they founded the company built it up from just them to about 19 employees by 2019 and then they chose to sell the business to us the employees um and I've been working at happy Earth since uh 2015 and I started as a cleaning employee I became a team lead and then as part of our Co-op transition I became the general manager thank you Rachel so the first question I have for you is just um how did your company become employee owned and if you could walk us through kind of that Journey yeah and it definitely was a journey it took um you know from the first inklings of an idea that maybe employee ownership was something we wanted to consider to the final product I guess it was about three years I don't know if that's normal or average for different companies but that was our experience um and Jesse and Marion kind of wanted to exit the company they were originally from the Seattle area and they wanted to move back and be closer to family and after running the business for 10 years and building it up from the ground up they were a little bit burned out so they were just kind of ready to move on to the next phase but as they were looking at Exit options most of the traditional exit options there were kind of would have meant no more happier to a degree they were looking at potentially selling to other non-eco-friendly cleaning companies or outside investors um and a lot of those businesses or investors would have probably um changed our practices around eco-friendliness or and or fired or you know reduced payer benefits for a lot of us long-term employees um to be more and more profitable and and no one wanted that just to get married didn't want that long-term employees didn't want that and so we decided to look at employee ownership as a possibility and one really cool thing that we were able to do is the City of Minneapolis where we're located actually offers a co-op technical assistance class through the city so we were able to take a class that was basically Co-op 101 here's how you become a co-op um and through that we got introduced to project equity and they helped us with uh feasibility study you know one of the things we were wondering at the beginning was is this going to be possible for us you know especially us as the new founding Co-op members we were like do we have to put in we don't have a lot of money you know how are we going to basically buy the business from the owners and project Equity really helped us out at that stage and then we moved forward with um other um you know the transition program that they offer and you know figuring out all the other nuts and bolts of what it takes to transition into a Cooperative um so yeah and then we officially signed the sale papers and became a co-op uh January 1 2020 so it was really great experience I'm really glad we had project Equity to help us with that so you completed uh the process and the owners kind of went away at that point um take us through a minute or two on kind of what happened next yeah um oh boy what uh what happened right after that was uh you know we only had two or three months to kind of settle in to our roles as new managers new um you know new company structure essentially and actually a new physical office we also moved offices and read around that same time um and then the pandemic hit and um you know it was honestly it was really really kind of terrifying as new business owners facing a big Global crisis we had to make a lot of decisions right off the bat that were you know do we need to shut down and we did end up we were shut down for eight weeks um and you know do we need to lay off our employees or furlough um thankfully we had we we did have to furlough people while we were shut down but we were able to bring everybody back and everybody wanted to come back which is pretty awesome um so yeah it felt like really bad timing in a lot of ways but actually when I think about it it was good timing um in a in a way just because I really think that if Jesse and Marion had you know had to continue running the business themselves at the point they were at and they were ready to exit I really think they might not have been able to keep the company running through such a big crisis um and so us transitioning to a co-op and being able to support each other through making these big scary decisions and having the support of project equity and also shared Capital our lender is also a co-op and they were able to help us access some emergency funds and we were able to get PPP loans and all that kind of thing and but working together as an employee-owned company I think is really what brought us through that thank you for that yeah yeah and so I kind of have a two-part question um so you're you're an employee owner now uh can you talk about especially you know a company that's made it through the pandemic um can you talk about the personal impact that being a employee owner has had on you and then um can you talk about just you know maybe the crossroads that you're currently feeling kind of been your work right now being an employee owner yeah for sure um personal impact my goodness I had I had no idea signing up to do this that we were going to go through such a huge crisis right off the bat and if I had known I you know might not have chosen to do that by my confidence has grown so much and that we were able to make it through this and I've been able to gain a lot of skills and knowledge along with that confidence um that have just really helped me I think you know move forward with my career and um also my boyfriend and I were able to buy a house we weren't sure if we were going to be able to that was always something we really wanted but you know I had been a cleaning lady for you know a long time and then my boyfriend was delivering pizzas and doing restaurant work and we were like you know are we going to be able to buy a house in this economy and things like that and um just having a worker owner and you know being a successful business owner on our mortgage application I think really helped in our our real estate agent also mentioned that and so we were like yay so that was that was really awesome personal impact for me um and then as far as you know Crossroads of of where we're at now um still not fully through the pandemic but kind of um at least things have gotten better in terms of vaccines and and things like that um we're just at a really interesting phase of transitioning to almost the second generation of worker owners like I said earlier we had just had a bunch of people join more looking to join and out of our five original member uh founder founding members uh three have already moved on to other things such as myself and our sales manager Jason who are onboarding new members so that brings a lot of interesting challenges with it but it's also really cool because it uh gives me hope for you know that this whole uh Co-op is going to last longer than any of us and we keep bringing new people on people leave who bring new people on and um so that that's kind of where we're at right now thank you well thank you Rachel I think your story is very inspiring and uh really appreciate you sharing uh time to really kind of uh describe your journey with us and so thank you and so yes thanks and um so we'll we'll move on to our next panelist and I am going to introduce uh Hillary Abel with project equity to interview our next panelist Hillary hi everybody thank you Derek it's wonderful to be here today I really love the asbn community and it's been really exciting to see the Deep commitment that the asbn network is is putting toward employee ownership along with all the other great things asbn works on um so I am really happy to introduce Kevin Cook hi Kevin good morning um and Kevin I would like to ask invite you to start off by just telling us a little bit about yourself and about your company technicians for sustainability great uh yeah hi thanks for having me so um I'm not sure what to say about myself uh I um I run a company technicians for sustainability that's currently a 70 person company we do Residential and commercial solar design and installation in Southern Arizona so we're we're based in Tucson we're focused in Southern Arizona um we occasionally will go a little bit outside of the Tucson area for special projects but basically we've really focused ourselves as being interested in solar in the in the in the in the local area that we operate out of um I am and the company as a result is uh Mission driven company and I say that just to say um you know we we are focused more on getting solar installed than we are on um business for business sake uh in 2017 we converted to uh worker Cooperative so between 2003 and 2017 we were an LLC um with just a few few owners and in 2017 we started with 14 owners we're now up to 27 owners out of the out of the 70 staff in the company wonderful and and Kevin why did you want um TFS to become employee owned and I as I understand it um you you had other owners um and was this a shared goal among all of you tell us a bit more about that decision yeah so um I think I would start out by saying that I view business as not just a reflection of society but actually the the creator of society so um you know the society that I live in is largely dictated by um the norms and expectations of a community that I live in and a big portion of that Community has to do with the place that I work and so in one in you know being in charge of how our business operated made me really want to have the business structure reflect the society I wanted to live in um and there were a number of ways that that wasn't happening um so the the two things that that sort of Stand Out are um are sort of one is the category of participation and control and the other is the financial risk and rewards and um we had a lot of Staff who were heavily invested in our mission and they were contributing in ways that felt ownership like to me but they weren't actually owners and so partly I wanted to have a structure that reflected their you know the the um the contributions that I felt they were already making and partly I wanted the financial returns to be able to flow to people who who wanted to I wanted the opportunity to be there for people to have the financial returns uh flowing the way that they that they do for owners so um you know we're in an industry and I know different Industries have different financial needs but we're in an industry where reinvesting and retaining earnings from the company is incredibly important and a big driver of future success and competitiveness and um and so you know we had a profit share program that was meant to reflect the contributions that the employees were making but it only paid out 20 of the profits every year and the other 80 was being retained in the company and that felt lopsided to me based on the contributions that all the other employees were making and so employee ownership was a way for us to um to to provide some access to the to that 80 that needed to stay in the company um regarding other owners I I was the main driver for employee ownership in the company and I think you do need a strong driver to make to make it happen it's not easy um and it's also you know it's also helpful when you have somebody who's driving something to have a counter a counter voice uh somebody who asks good questions and has concerns that you have to work through and in my case I had another owner who who played that role and their concerns were largely around the loss of control we are a worker on Co-op and so we're shoulder to shoulder on a governance level decision making wise I have one vote the other owner had one vote and the other 12 new owners all had one vote and so that loss in control was a big was a big source of concern that we uh we took efforts to address as we built the structure of the company and the bylaws and another was security you know having a company that starts to become profitable and build some some wealth gives you security and and so figuring out how to address those security concerns in transitioning the company to an employee-owned company was really important for us and and and and incidentally turned out to be one of the more uh sort of satisfying and freeing parts of the transition to employee ownership for us because we had to ask the question you know how much is enough for us to have and when we answered that question you know it's a question I think it can be easy to skip over in life if you're lucky enough to to be able to answer that question and and um and it's just been very freeing to be able to move past that so anyway and yeah Kevin I love how you balanced um the retained earnings the the importance of in your industry especially but really in any business having some Assets in the business itself so becoming employee owned didn't mean like sharing all those assets in cash with all the other owners but you were able to give the other owners access to that for their own wealth building and you know eventually some of that may may come out to them in cash so I really like the way you spoke to that that balance that you achieved um you know I'd love to ask you um when we were talking the other day you mentioned that um you see a lot of people who are interested in employee ownership as a succession plan um and focused on getting a good price and a project Equity we work with a lot of owners for whom that is their priority and we help them figure out the price that works for them and often a market price that they can get thrown employee ownership transition um but that other people like you um see it really as as you've articulated a way to help create the world they want to create um and yeah we do see that that Spectrum as well and you know selling owners often do get a market price um employee ownership can't compete with a strategic buyer per se you know someone who's willing to pay more for their own reasons than a typical market value um but a lot of people assume that business owners need to sort of take a haircut or give the business away or or take a really low price to sell to employee ownership I mean that's not not necessarily the case at all um but that said many mission-driven business owners like you and like people in the asbn network um do see this as a way to help Drive their broader Mission um and you've you've experienced some really interesting things and and have some interesting observations about what ownership means how it's different from entrepreneurship and how Employee Engagement um ties into all of that so I'd love to invite some of your Reflections on those topics yeah well I certainly think that knowing why you want to transition to employee ownership is really important for how you structure the transition what form of employee ownership you choose to pursue because there are there are many um even within what a worker-owned co-op looks like let alone esops or or LLC models you know you can just structure it in such different ways so understanding why you're doing it's really important as you said for us this was a mission this was a sort of a an ideal based decision more than a succession plan uh decision we we were sort of looking for the opposite of um of selling the business at market value we were looking to continue to participate in the business in the future uh I I remain the top paid employee but now it's just shared much more fairly than um than it than I feel that it was beforehand so yeah I mean all kinds of different reasons that that go into why you might do it um one of the things that you referenced that I learned you know as a small company it's very easy to confuse uh entrepreneurship and ownership those I I I certainly felt that those two things were very tied and linked to each other um so much so that I didn't really see you know we talk a lot about wearing different hats so we wear our employer our employee hat and we wear our owner hat and I've pretty much felt that entrepreneurship was part of my owner hat and I and I um you know I recognized that my that the employees of TFS were already heavily invested and engaged with our mission I expected when they became owners that those employees would uh both deepen that engagement and start to look at the business as their own and therefore develop some additional entrepreneurship and I don't want to say there haven't been nudges in that direction but by and large I have learned that entrepreneurship is a is a different at least in my experience it's a different hat from the ownership hat and so our owners have deepened their engagement our customers love that we're employee owned I do think it matters when an employee of our company is an owner and shows up at somebody's house and the way that they interact with that client and and care for the work that we do I do think there are noticeable changes there that are favorable um but it doesn't turn people into Risk Takers or or have the judgment about what risks to take or necessarily the yeah I mean so so many things that entrepreneurship is that I I now see as sort of more in line with an employee role or something a needed part of a company's operations that may or may not be tied to ownership and then the other thing I guess I would mention that stands out for me as a both a point of confusion with employee ownership or some models of employee ownership certainly the worker Co-op model is um just the difference between operations and governance and many times we we run into companies or people asking us about employee ownership who think that because we are one vote per owner um on a governance side that that then applies to our operations side and it couldn't be further from the truth or operations today are the same as our operations before we we became employee owned we still have a hierarchy um you still have to get something approved from the appropriate spheres of of responsibility uh within our company yeah that's right and you're still the boss as I understand it you're the in this case I am I am I was before and I still am now it turns out what's different is that I now have another boss for me um I now report to a board that represents the owners and so that's where it transitions to governance I have an accountability that I didn't have well before my accountability was to myself and now it's to the to the owners But ultimately from an operation side I'm still the boss yeah that's great I'm glad you mentioned that because a lot of business owners think that maybe there will be no management anymore that they can't still have a leadership role or have authority in the company and that's actually not the case so thank you so much for that Kevin I think we we need to move on to our next panelist um and so folks know you know both Kevin and Rachel and Tommy we're all going to be in breakout rooms um so you'll have more of a chance to talk individually with with Kevin or Rachel if you'd like so thank you so much Kevin for being with us and I will pass it back to Derek now thank you Hillary and thank you Kevin and I would like to introduce our next panelist and we have Tommy Smith with Kaiser Permanente with us today and Tommy uh is going to take us through the work that he's involved in and so Tommy uh can you take it away for us yes thank you Derek um and good morning or good afternoon wherever you may be my name is Tommy Smith and I'm with Kaiser Permanente and um I've got uh some visuals that we could um bring those up um there we go great thank you so Kaiser Permanente is the um nation's largest um Integrated Health System so we provide both the care and the coverage for over 12 and a half million uh members um much of our footprint is throughout the state of California also in Oregon around the Portland metro um in Washington around the Seattle Metro in Hawaii in Colorado around the Denver metro DC Maryland Virginia area and in the Atlanta Georgia markets so 12 and a half million um folks who um we are providing both the care and coverage uh next slide please so our mission as an organization really is to provide high quality affordable health care and to improve and this is the part that's important to me to improve the health of our members and the communities that we serve so you know within our mission within the reasons for our existence is this idea of improving Community Health and so our vision really is to be those trusted Partners in community health and really making our communities those markets that I described as some of the healthiest in the United States and in the world so next slide please so why is a a health care organization big large non-profit Healthcare organization you know involved with worker and concern about worker ownership and and our concern really is around the Upstream health benefits of of of wealth creation particularly in communities where they're the greatest Health disparities you know if we really as an organization are going to live up to our mission then we have to find or leverage the ways that we buy build higher Advocate and invest in such a manner that promotes Upstream health only 20 percent of an individual's health status is dependent on clinical care so I have members who reside in South Central Los Angeles and members who reside in Beverly Hills 20-year difference in their life expectancy going to see the same doctor so how are we going to protect individual and promote health and live up to our mission again it really is looking at ways that we can leverage all of our non-clinical assets to promote uh sustainability and economic Justice so I'm part of an organization in Kaiser Permanente called impact spending and a Kaiser Permanente impact spending is our Supplier Diversity Program our sustainable sourcing program and then the portfolio I manage is our economic impact so how do we look at the ways that we spend and use our purchasing power as a means of promoting health and wealth in our communities and one way that we are doing that and I'm happy to say that um Hillary and project Equity along with another non or another organization called the Oberon Cooperative or working with Kaiser Permanente to promote worker ownership in our diverse supplier base and so we reach out to our diverse suppliers and this is a way to promote succession planning for um those companies that are getting to a point where they could the owners are looking for exit we would like them to stay diverse and so if you have a diverse Workforce and you transition to a worker-owned company the company remains diverse we also want these companies to stay local so that they're creating the job as an employment and economic stimulus within our communities and we like to see a broader creation of wealth we saw Rachel talk about how um with her worker ownership that home ownership was um finally possible we know that living indoors and making sure that you have a a good roof over your head and quality housing is an important part of protecting your health you know as an organization we've invested 200 million dollars in affordable housing and so we really look at ways that we can support wealth creation in our communities and we see worker ownership as as one of those ways of doing so and so I'm happy to you know um work with um Hillary and and and and and uh Oberon cooperative and and I'm happy to be here to talk and promote the idea of worker ownership as a succession plan for small businesses diverse businesses keep them local make sure that they that wealth that they create stays in the community is spread in a a broader group of folks within the community and also you know my my organization sits within the supply chain and so the business Logic for that is that we need to make sure that our suppliers are are are solid and resilient and and good performing and worker owned companies have through research prove that they are more resilient and better performing than um their non-worker owned peers and so for all those reasons you know we are working to support worker ownership within our supply chain and we're partnering with other Hospital Health Care Systems to spread the word and create those um uh leverage and work together to um spread worker ownership throughout our Healthcare Supply chains uh back to you Derek well thank you Tommy that was very uh very I like the way you laid that out because I actually learned a lot that uh I wasn't aware of and just kind of been your role um so thank you and um and yes and so before uh Hillary breaks us into small groups I think Hillary you were gonna explore kind of some some options as well I'll turn it back to you yeah I'll be really brief um this is such a rich discussion and we know that the asbn community really likes to interact and has that wonderful culture so I want to make sure we get to the breakout groups um and and thank you thank you Tommy for your remarks so I just want to briefly say that um today we featured two really inspiring companies happy Earth cleaning both very Cutting Edge of green green business if you will sustainable business I'm happy Earth cleaning with 20 employees technicians for sustainability with 70 employees happy Earths in Minneapolis TFS is in Tucson um so you can see that this is relevant all over the country um it's relevant for all sizes of businesses and and both Rachel's and Kevin's companies are worker owned cooperatives sometimes called employee-owned cooperatives essentially the same thing and there are other kinds of employee ownership that I just want to briefly mention um one is called employee ownership trusts which is a newer form in the United States but it's been used in the UK and Europe for many many years I mean some similar to sort of a be a benefit Corp it really bakes in Mission into the trust ownership model and doesn't have any particular tax advantages but a lot of sustainable Business Leaders are interested in that new model there's also another one called Employee Stock ownership plans and this is the most widespread form of broad-based employee ownership in the U.S and ESOP is a trust which is actually a um what do we call it a not regulated but a you know an official benefits plan regulated by the erisa legislation and the Department of Labor um so it's it has a lot of tax advantages actually um ESOP ownership of your company does and companies can transition you know 30 or 100 of their ownership to an ESOP and that's got a lot of complexities to it but it's a really important model and has done a lot for for wealth building for employees and to address the you know horrific wealth Gap in our in our country so so we just wanted folks to know that there are three main kinds of broad-based employee ownership worker cooperatives esops and employee ownership trusts and that you can transition a successful company to a worker Co-op and I noticed some some chat in the chat about the fact that you can also start up businesses as cooperatives or eots and what I meant to say is you can transition a successful business to any one of these kinds of employee ownership um so we we have a video that I'll put in the chat we're not going to show it in the interest of time today but we wanted those of you who want to take three minutes later in your day to watch a video about an ESOP 100 employee-owned ESOP company called Delta pipeline I'm in Southern California you can watch that as well so um with that Derek did you want me to introduce the breakout groups or did you want to do that or to Lessie yeah so I'm gonna make those breakout rooms open now and everyone can self-select which one they would like to be in um but basically we have one dedicated to small business one for medium-sized and one for institutions and investors supporting EO thanks to Leslie and we'll spend um 10 minutes in our breakout groups and then be back for for Derek to lead us through some debriefing and wrap up do you all see them and the ability to choose which one you want to go to no no where are they it should be a little pop-up box Paul I see people are moving to rooms so I see that it is working at the bottom click breakout rooms and then you get a window and it gives you the three choices there you go thank you Harlan thank you which one has Kevin Cox in it that's the medium-sized business yes I figured thank you very much yep thank you and if you're happy you you may want to lay out just kind of the structure of the breakout rooms to to help maybe people make a choice and who's going to be in them sure yeah yeah essentially um Rachel um and our friends from Co-op Cincy I'm Kristen Barker and Ellen Vera will be in the small business breakout and um Kevin Cook and Derek and and so we're coming close to the end of our time but I just wanted to leave just a minute for any any thoughts from anyone about what you learned or heard about in your group maybe any questions that we didn't get to that you may want to um leave in the chat so maybe we can address them at a later time but uh let's see Paula have your hand up if you can um be brief but definitely want to hear your your comment or just just thought about what you heard Derek I loved your intro um Road tooth it had it had a bunch of what I what I like to call Pizzazz words in it yeah is it written down anywhere because you were you went through it too fast for me to write them down I give access to your Spiel if you wait well yeah I have a lot of content and I'm I'm open to sharing it with you thank you Paul for the com words really appreciate it any other comments real quick okay well so I think we are uh able to close out and um and Paul again thank you you know for your words you know I think uh as we conclude this session you know asbn is a convener and and so we want to bring people together like the panelists we had this afternoon uh and really build a a community around uh employee ownership and part of my role if any of you all are interested in connecting is uh we're also looking for policies that can potentially be introduced and so not only are we building the community around employee ownership we also want to take what we learn and be able to educate policy makers and and we really see this as important you know some recent policies uh that are in the works there was a state policy in California that was recently um signed by Governor Newsom that really expands on employee ownership uh Senator van Hollins office is introducing legislation around employee Equity investment and so stay tuned to that and um yeah if any of you all want to connect with the panelists um we'll we'll uh make sure that you all have their contact information and so we also have a link that will share uh to our resources and um Hillary I'm not sure if you're able to share the link to the resources uh in the chat if you're able or we'll we'll share it to the participants at a later time um it is up there in the chat again 5 a.m yep gotcha thank you thank you and so also uh business owners anywhere in the country uh can book a free consultation with project Equity um and so please feel free to seek out Hillary and um and and learn more about the work that they're doing and then I also just want to remind the group about a future session uh that we have coming up on uh October 28th um that's going to include some additional employee ownership experts and people that have experienced this process and so with that I want to thank you all for participating in our discussion today and I think uh if there are any more comments uh baby Hillary that you want to speak on before we depart sorry just quickly everybody thank you so much for joining us and I want to give a special thank you to Kristen and Ellen from co-ops and see who are also very involved in this work and have been hugely helpful in getting this work put together so they are also a tremendous resource I will include their emails as well in the follow-up email that I'll send to you and hope you can join us the session on the 28th there'll just be an opportunity mostly of breakout rooms with experts in the field and uh so thanks a million for getting us going Derek and Hillary great work and special thanks to Eric and to Dave who've also been instrumental in shaping this yeah thank you very special yeah go ahead well I see a question about the sign up link for the 28 so let's go ahead and put that in the chat before we end the zoom thank you so much everybody thank you Derek well thank you and um thank you very special thank you to our panelists learned so much from all of you all and so with that I'll say enjoy the rest of your Friday afternoon thank you