Skip to content

Why does employee ownership need a nonprofit?

Employee ownership has the potential to completely change the economic landscape of Missouri and Kansas in the next decade. Even so, a mission-driven nonprofit advocating for employee ownership doesn’t immediately resonate with many people. For one, most people don’t have much of an idea of what employee ownership is and they aren’t emotionally moved when the introductory description includes phrases like “business model,” “tax benefits,” or “federal policy.” For those select few actually familiar with the concept, it’s often hard to move mentally from business structure to meaningful, social cause. After all, there isn’t a “Missouri Center for Sole Proprietorship” or a nonprofit advocating for more limited liability companies. So why is employee ownership gaining traction as a cause worth supporting in the region? The answers might surprise you.

First, employee ownership is closing the wealth gap and promoting racial equality. With an economy-wide shift to broad-based employee ownership all those in the lower 90% of wealth distribution in the U.S. would see substantial gains, according to a recent paper from Thomas Dudley and Ethan Rouen published by Harvard Business School. That same study suggestions those in the lower 20% of wealth distribution would see their mean wealth quadruple and the median wealth of Black families would increase from $24,100 to $106,271. A 2019 study from Rutgers University confirmed that women and people of color who were employee owners had substantially more wealth than the national average for these groups. However, there is much more work to be done in this area, which points to the need for nonprofits to advance the cause.

A second reason why employee ownership is a cause worth supporting with a nonprofit organization is that it’s making retirement possible for aging business owners. In Kansas, 54% of privately held businesses are owned by someone 55 or older. In Missouri, that number is 52%. This means that the majority of businesses in these two states will be changing hands in the next three to ten years. As many as 85% of business owners don’t have a succession plan. When owners finally decide to sell their business, they often can’t find a buyer. Even when they do, the final sale often doesn’t work out. In reality, only 20-30% of businesses sell. This pushes aging business owners to hold off retirement much longer than desired or efficient. Employee ownership, on the other hand, provides another selling alternative much more readily available to business owners.

Employee ownership is effective at keeping jobs in communities. In contrast, merging with a competitor or selling to a private equity firm could mean jobs being lost or a business moving out of a county or state. This really hurts local economies, especially in rural areas. For the 70-80% of businesses that don’t sell, liquidation and closing the business is sometimes the only option. This can be devasting for communities like Putnam and Reynolds Counties in Missouri, which each have more than 90% of their businesses owned by someone 55 or older. As these business owners look to retire, these communities could lose nearly all of their available jobs. Selling the business to the employees in the community ensures that the business stays in town and that residents remain employed.

Employee ownership is essential for keeping local and statewide economies moving. In Missouri, businesses owned by someone 55 or older generate approximately $119B in annual revenue. In Kansas, this number is $57.6B in annual revenue. Keeping these businesses in their communities and states will keep these economies moving forward, building back after the pandemic.

Finally, employee ownership is creating democratic workplaces where employees feel valued and empowered. In the year of the #GreatResignation, people across the country are looking for careers that allow them to thrive. The most regularly cited reason why business owners decide to shift to employee ownership is to take care of their employees. This naturally translates to work cultures where everyone is valued, and everyone contributes to the overall success of the organization. Employee-centric work cultures are a necessary step towards recovery from the current employment crisis.

Employee ownership isn’t just about tax benefits, federal regulations, and competitive advantages. Employee ownership is about changing the entire business landscape to make a more sustainable, equitable, and profitable economy for everyone involved. It’s a cause worth advancing.

If you or your organization would like to learn more about how you could support employee ownership in Missouri or Kansas, or if you’re a business owner interested in considering employee ownership for your business, email Keith Davenport, Executive Director.

Posted in