Future Now 007 — the Future of Employee Ownership with Alison Lingane

Hello, Future Now listeners. Welcome back to IFTF's podcast, spotlighting all the amazing researchers, scientists, and innovative thinkers in the community who are shaping our collective future. I'm Jean Hagan, executive producer, and in this season of Future Now, IFTFED Marina Gorbis continues her conversations with our guests working with IFTF's Equitable Enterprise Initiative, which provides an alternative view of shareholder capitalism and new kinds of business practices that are more humane, inclusive, and equitable. In today's episode, Brena talks with Alison Linda, co-founder of Project Equity, a nonprofit working towards a future where businesses and communities discover the benefits and power of the employee ownership model. It's clear that this kind of business model contributes to thriving local economies and creates quality jobs focused on workers. Alison is truly a change maker and a movement builder, and it's an inspiring conversation that I hope you'll enjoy. Welcome, Alison Linkane. So great that you could join us for this conversation about project equity and how it relates to equitable enterprise. We've been partnering and knew of each other for a while now, but it's so great to actually have an opportunity to talk to you in depth. So you're a co-founder of Project Equity, and maybe we should start with that. Let's just talk about what is Project equity, how it started, the origin story, what's the mission. Uh, all of that. Yeah, and thank you so much for hosting this conversation. It's such a pleasure to be having it with you, and the future of the equitable enterprise is so central to our work at Project Equity. So what we do, we are coming up on our 10 year anniversary next April Fool's Day, which gives you a sense of how we think about ourselves and maybe we are foolish to be trying to change our economy, but we think it is so important. And the context of Project Equity, my co-founder, Hilary Abell and I came together really because we have a shared desire to change the equation or the really the opportunity equation for people who get up every day and go to work and work hard, and the reality is that the American economy over the last 30 plus years since I have been working on this issue has just made it harder and harder for frontline workers, low wage workers who are unfortunately overrepresented by workers of color. To be able to have a job that is a quality job that can help them not only make ends meet but also advance their own goals and hopes and dreams. So, employee ownership is really a business model that is highly underutilized, and people have limited knowledge about what it is, limited awareness. And so that's the crux of what we came together to do at Project Equity is to change that. And in fact, we'd like to see employee ownership be The preferred business model. We want to see it normalized, be self-generating, something that everyone is familiar with, so that it can make up a much larger portion of our economy. And the reasons for that are that it has just tremendous benefits from the employee owner, the worker perspective. Whether you want to think about it through the lens of a quality job that pays more, has better benefits, where the employees have a voice in their workplace in the strategic direction of their business, I often will say these are companies where the business decisions are made through the lens of what is good for the employees and by extending their families and their larger community and local economy. So much better for the workers themselves, also much better for the businesses. So employee owned businesses are stronger. They have faster growth, higher profits, they outlast their competitors and business cycle downturns, and we saw this, we lived through this during COVID. I can tell you story upon story of the companies that we work with and how they really just outperformed during that incredibly challenging time period. And so the question is, how do we go from this place where there's not as much awareness of employee ownership, and I will say over the last nearly 10 years, we've made some big strides in that, but we still have a ways to go for it to be something that is a much more meaningful part of our economy. So it's interesting to me because you came to this realization or what you've been seeing is the business benefit itself of worker ownership. There's definitely the benefit for workers, but there's a businesses do better, they're more resilient, as you said, we also were looking at this data that businesses that were worker owned did better during COVID and during recessions and other, they just stay more resilient. But there is another benefit to it and other conversation that we in equitable Enterprise came to it through just economics and looking at the data, what and I don't know if you've probably been looking at the same things, which is the huge wealth inequalities in our country. We have huge income inequalities, but wealth inequality is 10 times greater. And a lot of that wealth inequality is based on the financial assets. It's either owning equity, a lot of it for more higher income people, higher wealth individuals, higher network individuals. It's based on equity. Ownership and ownership of financial assets. So there is a whole other driver for creation of worker ownership because it does give people economic state and it increases their wealth. Also, in addition to these other kind of business benefits. You are absolutely spot on, and when roll back the clock 1112 years as my co-founder and I were imagining what we could do to increase the awareness of employee ownership, and we really sat down. It was one of those moments where we had a paper nap, literally had a paper napkin and a pen and we're saying, what is the essence of what we're trying to do. And it boiled down to control of capital, which is directly connected to what you're saying in terms of wealth creation, right, when you look at it from a macroeconomic perspective over the past 4 or 5 decades, we see the return on capital versus the return on labor. And the return on labor, meaning people getting up and going to work every day, has decreased significantly in terms of the overall share, whereas the return on capital, the return on ownership on wealth continues to increase in terms of the overall return that the economy delivers. And so the wealth gap is really what holds people and families back. The income gap is absolutely important for the day to day, but the wealth gap is what can address intergenerational poverty. It can really help people and families be in the driver's seat of their own futures and their own destiny. We use the fancy word asset building or wealth creation, but for many families, it's simply about having a small amount of savings in the bank to be able to weather whatever the next thing. That might come their way is a car breaks down. So I have a $400 expense. We know that more than half of Americans can't afford a $400 emergency expense, and that can be the difference between making rent that month and not. It ties into our homelessness crises, you know, because the wages have not kept pace with the cost of housing. And so we talk so much about homelessness being a supply and demand of affordable housing. But the unspoken challenge that really is holding working families back is that wages are just too low. Wages relative to to rent is just too low. So absolutely it is about the wealth gap, it's about ownership. And with ownership comes control. It comes at the ownership of the underlying asset, the returns on capital, however you want to talk about it. If we can help people become owners of the businesses where they work, it can be absolutely life changing for them and for their families and can address these much larger societal issues that are of such huge importance and Wealth is what gives people economic security, as you said, if something happens, you have opportunity. If you have medical expenses, it doesn't just throw you out on the street. You have this wealth. It's like somebody said it's like the difference between a river and a pond. Income is something that comes and goes. Your household, it's spent yearly. Of course, if you have huge income you can convert it into assets and into wealth. Most people don't, but wealth is your assets minus debt, so it's something that gives you this pond. You can always go to that pond that you have some. Funds to carry you through hard times whether it's medical expenses or other expenses or it's you're suddenly lose your job, all of that that gives you that more stability and economic security. There is another interesting aspect of ownership that I wanted to ask you, and I think to me it relates to identity when there's a huge difference between being a hired hand and having an identity of an owner. Can you say how you think about that? Yeah, I think you're absolutely right, and we see this transition happen within the teams that we partner with to support them to to becoming employee owners. The shift between, oh, I'm an employee, I'm a worker, and so I'm gonna advocate for myself in terms of I want X or Y or Z, I want better pay or different hours or flexibility or whatever it may be. And then when a group of people becomes the owner of the business, it may take a transition time to make that shift, but the conversation changes to be, how do we make this business more successful so that we have the money to be able to Pay ourselves better, provide health benefits, better health benefits, or whatever it may be. And with that shift, what you do see is there's there's the pride of ownership that this is ours. We are in the driver's seat, and people really stepping in and stepping up to that responsibility, and then therefore opening the door. To the rights that come with that responsibility of ownership. And it's really powerful. Maybe this is a good time to share a brief story from a company. We've got lots of them, but I will point to a slice of New York. They're based in Silicon Valley, 2 location pizzeria. They're about 30, 30 employees overall. And during the pandemic, restaurants were so hard hit. And if we go back to the early days of the pandemic, when we as a society, we didn't really know what was causing COVID, and so therefore, what we had to do and so the health regulations for food businesses were just changing constantly. So the significant portion of their business was the lunch customer, where people were no longer going into the offices, so they lost their lunch customer. They also were selling slices of pizza, and at some point, the health regulator said, oh, you can't slice your pizzas because that might introduce COVID into them. And so, they basically, they had to turn on a dime, not once, but over and over again, in terms of responding to these changing conditions. And so they came up with a single personal sized pizza, and they shifted their focus to the dinner crowd, and that required new systems and processes, new, I think they had to even buy new equipment, refrigeration or freezers or otherwise, to enable this to happen, and they did it so fast. And the reason they did it was because this was their business, their income, their customer base who they cared so dearly about, right, this community that they were a part of. And, and that really speaks to that shift of You know, yes, it's pride of ownership, and it's also responsibility of ownership, and it ties really back into why employee ownership creates stronger companies with better outcomes for workers and stronger overall companies. Yeah. And is this pizzeria at the co op or employee stock ownership company? Yeah, this particular business, they are organized as a worker-owned cooperative, and that is one of the three main forms of broad-based employee ownership. So worker owned cooperative, employee stock ownership plan, which is ESOP for short, and employee ownership Trust or EOT for short. OK. I was just gonna ask you about different forms of employee ownership. So maybe go into each one and talk about what's unique about that form and how they might be different, and maybe advantages, disadvantages, if there are any. Absolutely. So maybe I'll start with the ESOP employee stock ownership plan because that is the most well known form of broad-based employee ownership is, it is also the one with the largest number of companies. And the reason for that is that the federal government back in the 70s through legislation, so when the 401k was created, the ESOP was created by federal legislation under the same legislation. So, the ESOP is in its essence a retirement plan in which shares of a company are held in a trust on behalf of the employees. And the federal government is such a big supporter of employee ownership that that it has attached a ton of tax benefits. So they're basically saying we want employee ownership because of all these good things that it does for businesses and for workers and for our economy. And so because of that, whenever there's tax benefits, there's also regulation associated with that, which increases costs. It adds some increased cost. So ESOPs as a form do come with a wonderful set of benefits from a tax perspective, and they are higher cost. So because of that they are really only a good fit for companies over a certain size, and the rough rule of thumb is about 40 employees or more could be a good fit for an ESOP. And what percentage of business, I don't know if you have this number on top at the top of your head, but what percentage of businesses are that size, like more than 40 employees? Is it the majority? If you look at it in terms of number of businesses, I don't have an exact stat to be able to quote you, but if you can imagine, if you were to do a graph of businesses by size, and you had 1 employee on the left and 500 or more employees on the right. It would be significant, it'd be a big curve where you have a huge number of small employee businesses, and then it goes down pretty dramatically and a much, much smaller number of businesses, even over 100 employees. If you were to do that same map, that same graph or chart by number of employees, By the and total employees by size by employee numbers, right? You would, you'd see a much smoother graph because the larger number of businesses are the larger size businesses are going to have a larger number of employees. So what we do see is we see a huge number of companies that are in the 10 or fewer employees, which is a size of business that isn't a great fit for transitioning to employee ownership. Uh, and then we see larger numbers of companies in the 10 or more, 10 to 20, once you start to get up into the 40 or 50 smaller numbers of companies, but on a per company basis, you're impacting a larger number of people. So when we think about how do we target our own work, what company size is the right size to target, it's this balance between the number of companies and the number of people per company that are impacted. Sweet spot really in terms of our work of transitioning existing long-standing successful businesses to employee ownership is about 20 employees to 100. We're not going to say no to a 500 person company, but we're going to be targeting that 100 to, I'm sorry, 20 to 100 employees. And as you mentioned, the whole notion and promotion of ESOPs happened in the 70s. And none other than Ronald Reagan was a huge supporter of ESOPs and wrote about it and spoke about it. And yet since the 70s, I don't know, you probably have the numbers, but we haven't been hearing that much about ESOPs and they haven't been the success that we imagine them to be. In fact, stock ownership has become more and more concentrated and equity ownership. So is it because of what you said, the regulation, it's burdensome, is it lack of awareness? Why do you think that it hasn't been such a success? I will say that there are about 15 million employee owners all across the United States. So, it hasn't not been a success in that sense. Are these, do these include like one person employed in ESOPs and other forms of 15 million. And so it has been a success for those 15 million employee owners. Now our challenge is to make it available to the average worker so that it is something that that can be accessed by most people if they want to. So it that it's a much more, it's even broader than just the 15 million people. There's roughly about 7000 employee owned companies in the United States, so we have a lot of opportunity. We have a long way to go in terms of continuing to grow this space. And I do think you're absolutely right. Awareness is such an important issue. I think that employee ownership is maybe a little bit siloed today. What I mean by that is if you know to Google employee ownership, there's a ton of resources, a ton of organizations that can help you learn more, that can help you explore the different options that can help you do the work to move your company to incorporate employee ownership. The challenge is that most people are not Googling it today. So we have stood up with a number of organizations in our space, really a brand campaign for employee ownership called Employee Ownership. It's EO equals. The URL is employee ownership equals.org. That is essentially targeting that in the, in marketing speak, we call it the pre-contemplators, the people who don't know what they're looking for, they're just starting to look around of how can I make my company stronger, what are my succession or exit planning options, and we want employee ownership to be considered when business owners are asking those questions, so that when they are then ready to, let's just take the retiring business owner when they're ready to retire, that they'll say, oh yeah, let me look at employee ownership more closely. We're also working with business advisors who are often the first go to for a business owner when they're looking at succession options or business structure options. So we are developing training programs for business advisors. That enable them to get their professional education credits. If you're a CPA every year, you need to get a certain number of CPE units in order to maintain your license status. So working very hard to integrate employee ownership into the path of business owners and also the path of business advisors, so they will. Learn about it in the regular course of their day to day, and they don't need to have someone tap them on the shoulder and say, Hey, you should Google employee ownership. They'll know it. So I have tons of questions about that and where training is done, you're doing it versus the traditional business schools, but let's get to that later. But continue, so ESOPs is one form of employee ownership. Talk about the two others. Sure. So the second largest form of broad-based employee ownership is the worker-owned cooperative. Many people may be familiar with the cooperative form of business, which is in its essence, a business that is owned and governed by and for the benefit of its members. Now cooperatives take all sorts of forms, so there can be housing cooperatives, there can be farmer cooperatives, right? Ocean Spray is a farmer cooperative, a big national brand that is owned by its farmer members for the benefit of its farmer members. A worker owned cooperative is a business that's owned and governed by and for the benefits of its workers, of its worker owners. And so what is somewhat unique about the worker co op model is it comes really with a built-in governance structure where the workers have majority of the board seats that are held by workers, worker owners elected by the full base of worker owners. So if you have a 50 person worker cooperative, maybe you'd have a board of directors. 5 or 7 people. So in the 5-person board of directors, you'd have at least 3 of those board members made up of employee owners who are running for the board elected by the full base of if everyone's a worker owner, the full base of 50 worker owners. So there's nothing that precludes that governance structure from being integrated into the other two forms of employee owner ownership. It's just not required. So the worker co op is the one where it is required as part of the structure. So it's a more democratic governance at the outset. Exactly requirement have a democratic ESOP or a democratic EFT. It just requires you to build it in additionally on top of great way of doing it. So would I be right if I said the ESOPs, of course there is worker power representation and ownership sort of economic stake, but it's still a little bit more driven by the economic incentives as opposed to a lot of co-ops. It's more of a social. Unit there is a kind of a social agenda and democratic agenda more, would you say? I might say that if I were talking about the advocacy groups are really organizing behind the specific model. When it comes down to the particular business and what form they're choosing, and then how they're operating that business. The reality is these are all businesses and in order to deliver the benefit of ownership to the workers, these need to be successful businesses, successful enterprises with profit that can be shared. So I would say that all employee owned business, regardless of type, share the economic drivers, and then the different forms or different flavors of employee ownership may have just different emphasis on employee engagement and involvement, especially when it comes to governance. Right. And stats, you've mentioned the data that show just outsized business performance for employee ownership, and I will point to a white paper that Project Equity published called The Case for Employee Ownership, which attempted to really pull together the best of the research on employee ownership so that put to put to rest the question of does it work and really focus the conversation of on to how do we get more of it. But the point around employee engagement is that the magic that comes together with employee ownership that makes it this win-win model all the way around, comes with the combination of both structure. And culture. So the structure by itself doesn't deliver the outsized impacts. If you have the structure of real ownership combined with an ownership culture and you're investing in that employee engagement, that's when it really all comes together and you see these tremendous benefits. And the 3rd 1, the 3rd is the employee ownership trust. Now this is a model that has been very time tested in Europe, especially in the UK and is newer to the scene in the United States, and it is gaining a lot of traction and a lot of interest in the United States. It has some similarities to the ESOP in that it utilizes a trust structure, so the employee owner, the stock of the business is owned. On behalf of the employees in a perpetual purpose trust. And that word perpetual is something that is a unique characteristic. So, when you were asking about since the legislation in the 70s and how much progress have we made in terms of the number of companies that are employee owned. What we see is that ESOPs can get bought and sold just like any other small business can be. So an ESOP can be acquired, and the acquirer of that ESOP can decide if they want to continue the employee ownership or not. And very frequently we see that they decide not to continue it. What happens in that moment is those employee owners have a windfall because they're getting their shares bought out, so they're seeing the real financial benefit. Of their ownership happen at that point of the company getting acquired. And what it means is that there's that ownership is now gone, right? The it doesn't, there's no future opportunity for those employees to, to continue accruing that benefit. And unless they get a huge windfall, they have to look for another job. No, they still usually will have their jobs, right? They're being acquired into this new jobs are maybe there's some consolidation as there often is with acquisitions, but their jobs are generally still there. They just don't have the benefit of the ownership on an ongoing basis. So the EOP employee Ownership Trust is attractive to some people because of the perpetual nature of it. And what it does is it provides a lot of flexibility. So it's the form when we're talking to business owners and they're saying, oh, I want to do something a little bit different, or I want to, I have these other ideas or I want to have more than one stakeholder involved in my company, where the EOT can then be a really good model to look at because it does offer a lot of flexibility. And similar to my comments that I made about the democratic governance can be built in to either an ESOP or an EOT that, that can definitely be layered in. Patagonia, right? Patagonia became a perpetual purpose trust, right? Yeah, Patagonia is used a slightly different approach because their ownership is not employee ownership, but they did utilize that trust structure to do their very unique approach, which was exciting for us to see because of the visibility that gave to this perpetual purpose trust model. Mhm. You just mentioned that ESOPs one advantage or disadvantage is that they can be sold, and I just been reading about hedge funds getting into the ESOP work and investing in them, and precisely for that reason, maybe let's talk about AR specifically and what how do you feel about it? What, like what do you see? Happening there. Why hedge funds all of a sudden showing this huge interest, not huge, but some interest in ESOs. Yeah, yeah, so KKR and Pete Stavros, we really feel that employee ownership. Needs to flourish in all of its forms, that if we take a very narrow view of what employee ownership is, and there, it has to be pure in these ways, or else it's not good enough, then we're really closing out the opportunity for workers to have higher quality jobs, to have Access to the benefits of ownership. And so we are real fans of there being a plethora of models that can deliver different benefits, maybe in varying degrees. Maybe there is what some would consider a gold standard that we'd love for everything, the ideal that everything could line up for. And at the same time, any form of ownership by employees can create tremendous benefits and change people's lives. So for us it's very exciting to know that private equity is look is working hard, that some folks within private equity, and I'll give a little shout out to Ownership Works, which is the nonprofit that Pete Starvos founded. And Annalisa Miller is their executive director, and they're really working to bring forms of employee ownership to private equity that can work well within that framework, and they have demonstrated real benefits to employees that, that for one-time financial payout that can be absolutely gamechanging for families when the companies are bought and sold or exited from the private equity portfolio or whatever it might look like. So, yeah. Different solutions for Wall Street maybe than there are for Main Street, and we need all of the solutions in order to grow this space and increase the awareness and make employee ownership something that is a much larger part of our economy in order to serve workers and small business owners and strengthen the power really of our economy. We have lost so much of local ownership over the decades and it's very impactful and so employee ownership is a way to bring some of that back. So you see this kind of ecosystem growing is a good thing, although like each 1 may take a different approach. Absolutely, yeah, yeah. So maybe talk about what does project equity do specifically? What's your job on a daily basis and maybe some case studies and then we can talk about what are some of the challenges. Why do people want to go through the conversion, how do you convince them to do it, but just talk about your work. On a daily basis, our team at Project Equity is, we wear a lot of different hats as an organization, and the reason for that is that our overall mission is how are we really growing this space and normalizing and how are we changing the systems. And I'll talk maybe about some of the work of some of our different teams, and I'll start with the team that works hands-on with business owners. And so we, we engage one on one with business owners to help them explore the option. We never start with, OK, let's talk about ESOPs. We always start with. What are your goals? We're talking to the business owner because the business owner is the one who owns the business and is ultimately making the decision about what, what happens. How do they find you or do you try to target certain kind of businesses? How do they find out about that it's even an option? Yeah, so back to that brand campaign and the awareness about the ownership. So we do every marketing tactic, strategy and tactic in the book can be deployed to help business owners learn about employee ownership and come come to us or to to others in our space to be able to start to to look under the hood a little bit. So whether it is press and PR that that is getting the stories of employee ownership in front of business owners or their influencers, of their business advisor, their their man, their wife or their brother or their sister or their neighbor, right? So press can be really valuable. We also do a lot through partnerships. So we have partnerships with a number of local governments and local government agencies. So that's, I'm based in Oakland and so we have a lot of partnerships up and down. the state of California, we have partnerships in Arizona, we have partnerships in, in Miami and Atlanta, the Twin Cities, many different parts of the country. We are launching and we're pre-announcement on a really important partnership with the county of Los Angeles, just to give you a sense. So these kinds of partnerships can help with getting the word out. It can also help with making it seem like something that is normal and acceptable versus this nonprofit called Project Equity. I may never have heard of, but I have heard of the county of Los Angeles or so it's usually their economic development people or. Local government people, local economic development who basically promote this idea or partner with you exactly because most local governments are funded in large part through business taxes and so the retention of small businesses. In that community as taxpayers is a really important incentive for our local governments, and we know that 1 out of every 2 privately held businesses with employees is the owner is at or near retirement age, 1 out of every 2. And so as an economic development team that's looking at how am I supporting the small businesses in my community and where's my tax revenue coming from. That stat is incredibly important, and so we'll partner with those economic development teams. We'll actually do for them a data analysis of the businesses in their jurisdiction. Help them understand by industry, by council district, if needed, what the breakout is of sort of ownership, how many business they have that are 30 years or older, 20 years or older, therefore, those are the ones that are more likely to need succession planning support and and how does that break out and what's the impact on both your tax revenue base as well as the number of jobs in your community. And so and it's that particular where you see particular need and opportunity are these businesses that are owned basically by boomers who are about to retire and probably shut down their businesses. Yeah, is that it is a huge need. The retirement of the baby boomers has been called the greatest wealth transfer in America's history. And not just called that, it is that, and business ownership is a really meaningful part of that quote unquote wealth transfer. And so if we take a step back and talk about the wealth gaps and especially looking at the wealth gaps in this country by race. This is a huge opportunity to transition the ownership of really these wealth generating the engines of wealth generation, right, our small businesses in our communities. Transition the ownership from the demographics of the baby boomer business ownership. It's primarily white ownership, white male ownership, and then the demographics of the employee base is much more diverse. So we are, we can transition the ownership of these engines of wealth creation in a way that pays that business owner fairly for their life's work. So this is not a gift, this is not a, oh, I'm doing it out of the goodness of my heart, because their retirement is tied up in the business, right? Their retirement, this is their nest egg, is their business. So the business owner gets paid fairly for their life's work. Gets also the added legacy of knowing the future of their business and what it is doing for the employees and for the broader community while also opening the door to business ownership to this diverse base of employees who might otherwise not become sole entrepreneur business owners themselves and have access to this engine of creation. So do you do the kind of financials with the business owner to say this is you structure, how that would work? I assume the workers probably don't have enough capital to buy out the business, so how does that work? Yeah, and this is really the beauty of employee ownership transitions. The workers themselves, I will often say, don't need a rich uncle or a mattress full of cash, or a home that they can tap for a home, he lock a home equity line of credit because it is the business that takes out the loan. And then the workers pay back that loan out of the profits that their work creates. So let's take an example. I'm gonna use just an easy round number, a million dollars of sale price of the business. It could be $10 million it could be $100 million it could be anything in between, but for easy math. The business is going to take out a loan to pay, to pay back the sale of itself really to the selling owner. The selling owner is typically going to have a note, so maybe that's 30%, maybe it's 40% in some models, it can be as low as 20%. So the seller has a loan or a note, let's say 30%, so in this case $300,000 the business takes out a loan for $700,000. So when we get really start the conversation of could this be feasible for me as a business owner to go this route, the first thing we look at is how much debt can the business afford to take on. It's called a debt capacity analysis. So it's a bunch of spreadsheet work. Can the business afford to pay back a loan that is a million dollars of sale price? And the business owner also needs to do their own math and say, how much do I need to make from the sale of this business in order to fund my retirement because I probably don't have a 401k or another any other savings because my everything has just been plowed into this business. So it's the multiple different sides you're looking at this math and do the numbers come together and sometimes a business owner will get through that feasibility analysis and say, OK, I really want to do this, and I know now that I need to spend the next 3 years growing my business to this level of profit so that I can make enough to fund my retirement, and the business can afford to pay me that because it has now the profit that can support that level of debt. So then the company will take out for the lenders who may be listening to this, a cash flow loan, a financial institution will provide a cash flow loan. And then pay that back over a period of 5, maybe 7 years. And we set the expectation with the companies that we work with that during that 5 to 7 years, most likely, most of your cash flow is going to be going to pay back that loan. We would, we never want to overleverage or overburden that business with debt. So there's plenty of buffer room, so that, oh, say, if a global pandemic comes up, the business isn't going to fold because they can't afford to pay. The debt back. But what we have actually found is that in the companies that we have worked with, they have outperformed even their own projections, and they have been able to start profit sharing as soon as the first year after becoming employee owned in really meaningful ways. One business we worked with shared $50 million of profit in the 1st 2 years of becoming employee owned. Another business we had just recently, one of the employee owners told us that the check that that his first profit sharing check meant for him that he can now be a homeowner in, in the LA market, which as we know, is not an inexpensive housing market. So yes, it's really important to be smart about not overleveraging the business, and then it really is up to the employees to outperform, which we see that they do for all the reasons that we've already talked about. And how easy or difficult it is to get those loans? Is it regular banks that do this, how easy it is to get this access to capital? I dream of the day that is regular banks, and this is part of what we continue to work on in our field is opening up capital access for employee ownership. So today, because you can't really go into a bank and say we want a loan and we have 50 owners because the banks are used to a personal guarantee by the one or maybe two owners of the business, and they look at you like you have three heads and say, who's going to sign for the personal guarantee and the 50 owners say we can't really pick just one or two of us to sign on behalf of all of us. So the personal guarantee is really the challenge that holds mainstream banks from being able to access financing. So two things. One is that as a result, today there are a number of really incredible loan funds and community development financial institutions that specialize either in employee ownership or in the co op form of ownership, whether that's worker co-ops or housing co-ops, etc. That have been stood up in order to fill this financing gap. So at Project Equity, we have a fund called the Employee Ownership Catalyst Fund that we stood up because we needed flexible capital to be able to support the companies that were going through this transition. Now the larger fix is, I think, on multiple fronts. So this is the second point, which is #1, we need the federal government to legislate the Small Business Administration to allow employee ownership loans to go through without the requirement of a personal guarantee. Mhm. During the whole P time period, our space advocated and were successful in getting the SBA to remove the personal guarantee requirement for the loans for the cooperative form of business, which is the one where it matters the most. And we have not been successful in convincing the SBA that they need to do that now for the 7A loans. So the SBA loan guarantee programs are basically what have opened up lending for small businesses among mainstream banks because the SBA comes in and guarantees those loans. In California, we have the infrastructure bank. It's called the California I Bank for short, which also has a loan guarantee program, and we have been successful with our fund, the Employee Ownership Catalyst Fund, which we co-manage with Mission Driven Finance. We've been successful in tapping the iBank loan guarantee program for employee ownership. So that's really exciting for California. And we're hopeful that we can use this as a demonstration that can feed into. There have been year after year we have legislative efforts to try and get the Congress to legislate the SBA. So we're hopeful that we can, the combination of the P and other efforts to convince the federal the federal Congress that it's time to take this up and to fix this legislatively. The other thing I want to mention is in terms of capital access. So, a lot of what I've been talking about is what we would call an independent transition. So a business owner comes to employee ownership and says, I want to do employee ownership, and then an organization like ours or there are many other wonderful organizations across the country who do this work, helps them and helps the business owner and a small team of employees create this employee ownership structure, and then they go out and get a loan for that company. They stay independently owned. Through that whole process but just become employee owned. Now there are a number of efforts, including Project equity is doing this as well, to go to the business owner and not say Hey business owner, come learn about employee ownership, but instead say Hey business owner, we're a fund and we have capital and we're looking to acquire businesses. We'd like to talk to you. So this is the way that that private equity or other acquis will contact business owners, and many business owners are used to getting those kinds of kinds of inquiries. And so in our space, what that means is the need to raise a fund, so have a pool of capital already in hand to be able to then go to these business owners and make that transaction happen quickly and fairly, quote unquote, painlessly right in the same way that that it might happen with private equity. And then there are some cases where the fund is actually acquiring the business, but more typically what's happening is the company is going straight to employee ownership. They are remaining independently owned, but the difference is that business owner is not involved every step of the way. They don't have to or get to depending on the attitude of the business owner. And so in order to really grow this approach, and I think there's a huge opportunity to grow this approach, we do need to make it easier for employee ownership organizations to raise capital. And so there's a very exciting federal legislation right now that has co-sponsors and is actively being looked at, which is the Employee Equity Investment Act, and I will give a big shout out to Ownership America and Jack Moriarty. So it's the EIA and essentially what this does is there's an investment facility within the SBA that's called the SBIC Small Business Investment Company. And this has been actually credited with getting, if you go back decades, getting, I believe that the venture capital space and private equity space fueling a lot of the efforts there. But the idea is how do we mobilize private investment to, to create and Grow and sustain small businesses and in the case of this, the Employee Equity Investment Act, it's about how do we do that to create, grow and sustain employee owned businesses. And so this is very exciting because it would operate at no cost to the taxpayers. This would be a no subsidy. No cost to the taxpayer, to the government to, to help fuel the availability of capital for these, what I'm calling these capital forward approaches where funds are raising capital, going to that business owner with capital in hand to be able to help make these transactions happen more quickly. And I will just share that we've got a wonderful group of summer associates working with us this summer and They were able to do an initial analysis of the number of businesses that are listed on brokers in the United States at a moment in time. And if you just look at companies in the business value between $1 million.10 million dollars of enterprise value, that it's estimated that there are, there's more than $32 billion of business assets that are put up for sale at a given time in the United States. And so having significantly increasing the access to capital, enabling these capital forward approaches to go and talk to the business owner, just like a private equity firm or an acquirer would, is a really important strategy to help us move the needle on those 15 million employee owners and get that number accelerating much more quickly. So Do you see the role for philanthropy in the capital and supporting these kinds not just supporting, of course, these efforts, which a lot of them are, but creating capital pools specifically for worker ownership and these kinds of transitions, and also how do you view, I know you've written about public banks and what's the connection there with public banks and where the opportunity is. Mhm. Yes, absolutely. I would love to see philanthropy come into employee ownership. So, can we imagine that as a field of employee ownership, we have a billion dollars of capital under management. That would change. So you know that philanthropy is sitting on huge amounts of endowments, huge assets, right? Why not take some of these assets and put them into these pools? a billion dollars is not that much. It really isn't. And if philanthropy could be the first mover on that coming in, say, at $100 million or $200 million then employee ownership is an investment in small business that has Some really important risk mitigations because of its ownership structure and the highly engaged employee base. There was a pension fund that was quoted, Taylor Guitars is a company that's based in San Diego, and their transaction had a pension fund involved in it. And it's the first time that I have seen a pension fund quoted about employee ownership, and they said that the reason that they were excited about this investment and why it really fit for them was that they saw it as a low risk investment. And that's exactly how I see it. These are lower risk investments because of the high engagement of the employees. So pension funds are a really good fit. So if we could have, if we could have philanthropy coming in at $100 million 200 million, that could then attract pension funds to also come in, and then quickly we could get to a place where we are operating at a scale that that is much more measurable in the economy. And you see philanthropy moving in that direction? Is there interest? Or is it just early on? I think that we have had some philanthropy involved in employee ownership, and I will give a shout out to the Candida Fund that has been a really important philanthropic partner for our space. They did a really meaningful grant investment to a number of organizations in the space, and they have also incorporated investments into a number of the capital funds that are newer and have been growing and demonstrating real traction. Uh, I know that some of the sort of larger more established foundations have also invested in some of the employee ownership funds, so I would love just to see more of that. Living cities is one more example. So living cities is a collaboration amongst a number of different foundations and banks, and living cities, I can just speak for the Employee Ownership Catalyst on their investment in our fund. So yes, there is some happening. And we're not at the place where really employee ownership is seen as an investable asset class, and that's where we need to move to, and I think we can get there, and I think it'll take some organizing amongst ourselves in our field to organize investors and really change that perception. And what about public banks? How do you see their role in this? Yeah, so public banks have been getting traction in jurisdictions across California and across the nation, and it's a really exciting movement because it is really an innovation in how Our money, right? Public money is our money. So how our monies can be invested to create local outcomes. So just as a for example, I'm a city and I have deposits sitting in the bank. Which bank do I have my deposits sitting in? And is it one of, is it, I'm just gonna pick on Chase because they're the, I think they're the biggest bank, but I'm not trying to pick on anyone, but is it it's sitting in Chase, a national bank, where, who knows where those dollars are going in terms of the impact that they're creating, and who knows if that bank is actually like really prioritizing those deposits to be utilized to create the impact that our community needs. So that's in essence what a public bank is trying to do. And there has been a lot of interest amongst some of the public banks in, in having employee ownership be one of a number of areas that they're investing in, and I'll point to some wonderful publications that were put out recently by the Jain Family Institute, looking at the Municipal Bank of Los Angeles that have one of which included employee ownership and I was a part of authoring that, but that really looked at what could it look like for A municipal bank to carve out a portion of those deposits for their deposits for the public bank, and then within that a portion of that for employee ownership and the possibilities I was talking about this capital forward approach of raising funds and going and engaging with business owners as an acquirer would. So the possibilities for Especially some of the larger jurisdictions to be able to be a part of fueling that, I think are really tremendous. One of our fellows in the Ecuador Enterprise Initiative, Trinity Tran, she's been very active in the whole public banking movement in Los Angeles and that's, yeah, she's doing really amazing work and yeah, just thrilled to see the progress that movement is making. I have so many more questions, but we're short on time, but let me ask you this question is the last one. One of the things and one of the roles that I think both of our organizations in different ways are playing is changing the narrative and shining the spotlight on a different set of issues and different pathways for basically ensuring more equitable society and more equitable wealth distribution for us some of the work comes out of us hearing so much about the narrative automation. Is coming jobs are disappearing. Everybody needs to be trained and retrained, and there are these great jobs out there that everybody can get if they can code, program, or do other things. And as we were looking at data and looking at all the researches, OK, yes, it's good to give people training and it's great to educate people, but that's not the root cause of inequality, the root cause of inequality access to assets and wealth building. And that requires a very different set of approaches, and it requires us rethinking some of the strategies, and I feel like a lot of your work is not just thinking you're actually doing it, you're helping people move in that direction, but one of the things that we've been talking about is if you go to traditional business schools or particularly elite business. There are hardly any case studies of co-ops or the kind of things you're talking about of these transitions or perpetual trust funds or any others. The the curriculum is focused on very traditional return on investment, return to capital, not necessarily return to workers. How do you see that that lack of awareness and lack of people. You said that you're creating resources and ecosystem of people who can provide consulting and you're training that how do we change that? And is that something you're thinking about like really dramatically changing what business education looks like because it's such a driver of narratives, it drives how people think about business, it drives management, priorities, all these other things. It drives legislation. What do you think about it? Yeah. I love that question. And it's so personal to me as well because I never learned about it. I went to business school, right? I did. I went to the High School of Business at UC Berkeley. Employee ownership was nowhere to be found. I was in all of the circles, the net impact, the responsible business circles. I went to every event and every conversation related to that, all really about How can we harness the power of business to create positive change in the world? And after business school, I went and I worked in mission-driven companies for, for more than a decade. And similarly, nowhere to be found until I was randomly introduced to my co-founder, Hilary Abell. That was the first time that I learned about this, this concept of employee ownership, which is why I go back and I say it feel, it just is so siloed. So, a couple of things. One, I will say that I am heartened to see an increase of interest in employee ownership coming from some of the elite business schools, and I will include the High School of Business in that. I had the good fortune to, to actually speak at a class at UC Berkeley that that was hosted at the High School of Business this past spring, and that was really exciting. So it's happening in sort of bits and pieces here. I will put a plug for one of our advisors, Jerry Davis at the University of Michigan, which is also one of the top business schools doing a whole series of classes on creating equitable enterprise. Fantastic, fantastic. And so hopefully it's spreading. Absolutely. There's also a wonderful organization called the Beyer Institute, B E Y S T E R, and they are located at the Raddy School of Business at UC San Diego. And they were, they exist because the founder of a very successful employee owned business, whose name is Bister, to see this exist within the university environment, and they do great work involving students as interns in in supporting the analysis, this feasibility analysis and other efforts. And so there, there have been conversations about That Bister is really interested in how do we take what we have learned to do at this institution and bring it to other institutions. So I'd love to be able to make connections where connections could be had to expand that interest because I do really see it as You know, we think about things like, oh, recycling, right? Recycling is now being taught in kindergarten, right? Schools all the way up and it is now a more normal part of our society. So I do think that educational infrastructure has a big role to play, and business schools have a big role to play as well. And I'll say two more things. One, is that there is a community college in Pennsylvania and I'm not unfortunately not able to recall the exact name of it, but there is a an endowed, I don't know if an endowed chair is the right word, that so there's, there are efforts in different parts of the country so that community college has an endowed chair or endowed program focused on employership as well. And then the interest that that has been really bubbling up over the past maybe 58, maybe even as long as 10 years ago through what's called a search fund or entrepreneurship through acquisition, ETA, many business schools are formally teaching about this entrepreneurship through acquisition approach. Which frankly, is very similar to employee ownership. And so at Project equity, we often think of our work as we are a search fund for good, if you will, where we're going out and quote unquote acquiring companies. We're not actually owning them, we're transitioning them directly to employee ownership, but it's a search fund for good. So for all of those students that are attracted to this model of a search fund or entrepreneurship through acquisition. Getting involved with organizations like Project Equity and our the many wonderful peers in our space can be a really good way to focus that that interest and that energy on having also this really powerful set of social outcomes. That's great, and I hope we continue and we'll partner in that in just normalizing. That this is not something that's an alternative, it's not something that's out there, that's niche, but this becomes the norm. So I feel like you and we and so many other people that we both come across, we're creating this new ecosystem, changing the narratives about what's normal and what's not, and making it easier for people to acquire and to Really limit some of the wealth gap and to close the wealth gap and for more people to have access to economic security. So thank you for your work and thank you for this conversation. I hope we continue. Absolutely. I'm such a big fan of your work at Institute for the Future and your equitable Enterprises approach, and I really appreciate you making the time for the conversation. Thanks so much for listening. Institute for the Future is the world's oldest continuously running futures research and educational organization. At IFTF we believe people can harness the power of imagination to awaken a sense of agency in their own futures and drive change in themselves and their organizations. Be sure to subscribe to the Future Now podcast and find out more about IFTF by visiting IFTF.org. Until next time.