In a fascinating development in the US business landscape, a growing number of entrepreneurs are choosing to pass the baton to their employees rather than sell to external buyers. This trend, dubbed the 'silver tsunami' by some commentators, is reshaping the way businesses are structured and owned, with profound implications for both employees and the broader economy. As the 'baby boomer' generation retires, they are leaving behind a legacy of small and medium-sized companies, and the question of who will take the reins is becoming increasingly pressing. The answer, it seems, lies in the hands of the very people who have dedicated their lives to these businesses: their employees.
One notable example is Softstar Shoes in Oregon, where the workforce has taken ownership of the business through an Employee Ownership Trust (EOT). This move has not only motivated staff but also ensured the preservation of local jobs and the company's artisanal shoemaking heritage. The former owner, Tricia Salcido, is now a part-time CFO, sharing in the risks and rewards of ownership and receiving business insights from her colleagues that were previously absent. This is a far cry from the traditional sale to an outside buyer, which often leads to cost-cutting measures and a loss of local control.
The appeal of employee ownership is multifaceted. Research shows that such companies are more productive, less likely to make redundant staff, and pay higher wages. For Salcido, the decision was driven by a desire to protect local jobs and prevent her firm's unique craft from being taken over by a cost-cutting corporate buyer. This sentiment is shared by many other US entrepreneurs, who are approaching retirement age and seeking a way to pass on their businesses while preserving their legacy and values.
The methods of transferring ownership to employees are varied. Softstar Shoes used an EOT, while William Stockwell, the owner of Stockwell Elastomerics, opted for an Employee Stock Ownership Plan (ESOP). Under an EOT, a trust is set up to own the business on behalf of the staff, with the former owner receiving the agreed sale price in instalments as a share of future profits. ESOPs, on the other hand, allow employees to receive shares that they can only cash in when they leave the company, with the retiring owner also waiting for their money over a longer period. These schemes are more complex to set up than a traditional sale, and the longer wait for funds and increased risk may deter some owners.
The lack of awareness about these schemes is another barrier to adoption. As Salcido at Softstar Shoes notes, 'No one's heard of them.' However, there is growing political will in Washington to simplify the process of employee ownership, with the Department of Labour's new Employee Ownership Initiative aiming to promote the practice and offer advice. There is also bipartisan support in Congress to make selling up to staff an easier and more realistic option for business owners.
The trend towards employee ownership is not just about preserving the legacy of baby boomer entrepreneurs. Younger workers, disillusioned by traditional, unequal corporate structures, are also attracted to the model. Harvard's Ethan Rouen argues that employee ownership is a way to democratise wealth creation, allowing workers to share in the risks and rewards of ownership. However, the complexity of setting up EOT and ESOP schemes may put off some owners, and the longer wait for their money and increased risk are factors that need to be carefully considered.
In conclusion, the shift towards employee ownership is a fascinating development in the US business landscape. It offers a way to preserve local jobs, protect unique businesses, and empower workers. However, it also presents challenges, such as the complexity of setting up schemes and the longer wait for funds. As the silver tsunami continues to roll, the question of how to navigate this transition will be a key focus for entrepreneurs, employees, and policymakers alike. The future of business ownership is being rewritten, and the employees who have dedicated their lives to these ventures are now the key players in shaping its course.
