2021 Lane Reports

Closing the Wealth Gap Through Worker Ownership: A Fresh Look

Monday, May 3, 2021 9:00 am
by Marc J. Lane

Closing the Wealth Gap Through Worker Ownership: A Fresh Look

By Marc J. Lane

Lacking resources, power and hope, too many low-wage workers – especially those who are Black and Hispanic -- are struggling to buy homes, provide their children with a high-quality education, and enjoy good health. While 38 million people -- 15% of Americans -- report that they’re even worse off now than before the outbreak of COVID-19, billionaires have seen their wealth skyrocket. The injustice and the social costs are simply untenable.

There is no shortage of proposed policy solutions to the unconscionable wealth gap our society faces. Some commentators argue for universal cash grants at birth, others for universal basic income. Still others promote sovereign wealth funds that pay dividends to citizens, the Alaska Permanent Fund being one notable example. Whatever their merit, these proposals face substantial political headwinds.

But, with greater private-sector commitment, broader based employee ownership could have a profound impact on the wealth gap.

Take the worker cooperative which creates and maintains sustainable, dignified jobs; generates wealth; improves workers’ quality of life; and makes business ownership more accessible to people with limited access to start-up capital. Illinois’ recently enacted worker co-op law, a model among such statutes, created a hybrid entity form that brings together the best features of a worker cooperative corporation and a limited liability company. A “limited cooperative association” must be majority-owned by workers, and outside investors are denied voting power unless worker-owners grant it to them. So, it’s the workers who are the bosses, and it’s they who will earn the lion’s share of the venture’s income and thereby build personal wealth.

Then there’s the Employee Stock Ownership Plan (ESOP). An ESOP is a tax-favored, company funded employee benefit plan that creates ownership accounts in employer stock for all employees based on their relative pay. Participants in these plans accumulate more than double the retirement assets of employees in other retirement plans. While roughly half the non-government working population has no retirement plan at all, some 14 million Americans already participate in ESOPs which hold about $1.4 trillion in equity.

And now a promising new strategy, popularized in Great Britain, is also moving workers into the ownership of U.S. companies. It’s the Employee Ownership Trust, or EOT. The EOT is not based on individual stock ownership, and company employees don’t maintain separate accounts. Instead, all of a company’s stock is held by trustees safeguarding the interests of its employees.

The EOT doesn’t create a retirement nest egg for employees. It guarantees that they equitably share in profits throughout the years they work at the company. It also improves their lives: employees are partners in the business, treated with dignity and respect, from the first day on the job to the last. And so are those who succeed them.

Moreover, EOTs can ensure that businesses seeking to drive positive social change stay on course over time. Consider, for example, Organically Grown Company, one of the country’s largest distributors of organic produce, which has adopted the EOT model. The company was built on the belief that organic food is simply the best way to nourish people while protecting the planet. It’s controlled by a mission-driven EOT called a “Perpetual Purpose Trust.” Under its terms, the company can never be sold, so it can never be bought by an opportunistic purchaser that values profit over purpose. It will be managed in perpetuity by “stewards” accountable to five stakeholder groups -- employees, producers, customers, investors and communities – which will forever reap the benefits of the company’s growth and earnings.

Let’s urge the adoption of employee ownership strategies in each of its forms, all of them lifting up workers, their families and the communities in which they live.

To explore how worker ownership might benefit your business and its stakeholders, feel free to contact Marc J. Lane, in confidence, at MLane@MarcJLane.com or 312-372-1040.


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