Something Most People Don’t Know About Employee Ownership
Since some people who read our newsletter are not experts in employee ownership, grant us one paragraph of basics before we jump to the topic for today. As you know, a small percentage of the population owns most of the wealth in most economies and that wealth is increasingly generated by ownership of capital. Yet with most of the population living paycheck to paycheck, few wage earners have been able to join the capital-owning economy. According to a Bankrate.com survey, 39% of Americans would need to borrow to cover an unexpected bill of $1000 and another survey shows 56% of American consumers are living paycheck to paycheck. Clearly it is not realistic to expect most people to save their way to significant capital ownership. One obvious way for more people to have ownership stakes is through an Employee Stock Ownership Plan (ESOP). The purpose of an ESOP is to enable employees to join in the ownership of their company and even the lowest paid employees can gain ownership.
Many non-ESOP companies can get certified for preferred status for government and supplier diversity set aside programs that allow small, disadvantaged, women, veteran, or minority held firms to bid on contracts. ESOP firms face a special challenge.
One of the greatest challenges is ownership. Most certifications require that an eligible individual or individuals own shares, however an ESOP company holds some or all of the shares in a trust on behalf of employees. Did you know that the trust is a legal entity, not a person, and therefore is not itself an eligible individual?
That means a 100% ESOP-owned business which has a woman CEO, all women employees, and a board comprised of all women can still not get certified as a woman-owned business because the ESOP trust owns the stock and since it has no gender or standing as a person, it is a disqualified owner.
Substitute veteran or minority for women in the example and now you know why many owners choose not to set up ESOPs at all. There is a simple fix to this issue. The US government needs to change the rules so that ESOPs (especially ESOPs that have lots of disadvantaged employees) are eligible to participate in set aside programs.
Two Conferences Delayed
The 6th Annual Oxford Conference on Business and Poverty - Housing has been postponed until July 27-28, 2022, and the 7th Annual Oxford Conference on Business and Poverty - Employee Ownership has been put off with the possibility that this conference will be held on September 7-8, 2022.
Who we are and what we do...
The Center on Business and Poverty supports businesses that embody the business practices of participatory capitalism and create good jobs through partnerships with individuals, businesses, and non-profits.