Thousands and thousands of small business owners are nearing retirement age, and many of those small businesses will shut down when their owners call it quits.
When that happens, tens of thousands will lose their jobs. Perhaps hundreds of thousands.
But what if, instead of shutting down their businesses, those retiring entrepreneurs passed them on – to their employees?
That’s the message of a new study, “Down Home Capital,” written by economic analyst Patrick McHugh of the NC Justice Center.
It’s the so-called “silver tsunami” that has observers like McHugh worried: millions and millions of Americans (many of them business owners) leaving the work force as the Baby Boom generation reaches retirement age.
“Thousands of businesses could disappear over the coming years as baby boomer entrepreneurs enter retirement,” writes McHugh – and tens of thousands of people could lose their jobs as a result. According to the Ohio Employee Ownership Center, business closures resulting from the owner’s retirement is already “the number one preventable cause of job loss” in the U.S. McHugh says it could get worse soon: “roughly half of all small business owners plan to leave their businesses over the next 10 years,” he writes, but “72 percent (of them) have not taken steps to plan their exit.”
Employee ownership isn’t feasible in every single one of those cases. But McHugh says there are about 23,000 businesses in North Carolina – with about a million employees between them – that “could be good prospects for conversion to employee ownership.”
Patrick McHugh discussed his study with Aaron Keck on WCHL.
When we think of employee-owned businesses, we often think of co-ops (like Weaver Street Market), where ownership and management is shared among a company’s employees. (In WSM’s case, of course, it’s also shared among its customers.) But there are also “employee stock ownership plans” (or ESOPs), where employees own shares of a company that’s governed by hired managers. This model is already widespread: more than 28 million Americans work for companies with ESOPs – including Starbucks and Southwest Airlines.
And McHugh argues that there are numerous benefits to the employee-ownership model. When a business converts instead of shutting down, it preserves existing jobs – but employees with ownership stakes also report greater job satisfaction (and higher income). And the companies themselves become more productive: “workers are more likely to work harder,” McHugh writes, when they have a stake in their output. (They’re also more likely to come up with innovative solutions for problems.)
The employee-ownership model is a promising way to address a growing problem, McHugh concludes – and local governments and other organizations ought to get involved to help realize the model in practice. “There is a role for governments, economic development entities, business associations, and other local groups to identify candidate companies and proactively ensure that their current owners know that the option exists,” he writes. Local governments and NGOs could provide feasibility assistance (helping owners determine if an employee-ownership model will work in their case) and technical assistance (providing legal and managerial training for new employee-owners); they could create employee ownership centers (like the Ohio Employee Ownership Center) that can help with “expanding and facilitating worker ownership”; and in some cases they can even provide financial incentives for businesses that choose to convert.
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