Financial Strategies Empowering Local Communities and Workers

Unlock the secrets to transforming your business and community through the power of shared ownership. Join me, Joel Skeen, as I engage with Jenny Everett and Mark Hand from the Research Cluster on Employee Ownership and Workplace Democracy. We explore how private equity is driving new trends in employee ownership, spotlighting Blackstone's innovative equity-linked incentive program for 18,000 employees. Additionally, we delve into the overlooked financial pitfalls tech workers face due to fossil fuel investments and the White House’s recent move to cancel $7.7 billion in student debt. You'll also discover how real estate crowdfunding could be the key to unlocking new local investment opportunities, reshaping financial landscapes, and preserving individual legacies.

We'll also unpack the success factors behind employee ownership and its profound ripple effects on businesses and communities. With insights from executive coach Drew McClure, Jenny, and Mark explore promising yet under-researched areas like profit-sharing and community reinvestment. Hear about the bipartisan support for these initiatives, with endorsements from figures like Ronald Reagan and Bernie Sanders. We tackle the urgent "silver tsunami" issue, where retiring business owners can consider employee ownership as a viable succession plan. This episode is essential listening for anyone interested in how investing in employees can help preserve legacies and create lasting community impact.

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Transcript

Joel: 0:33

What if investing in each other could change the world? I'm Joel Skeen with bizradious and this is the Mindful Marketplace. Welcome to the Mindful Marketplace, welcome, so good to have you all back. Really grateful for the time that we get to spend together here today If this is your first time with us on this program. We talk to the entrepreneurs, advisors, industry leaders, investors, economic experts who are really questioning the assumption that there's just one bottom line. It's where we learn how to connect our money and businesses to our values, our community and ourselves.

Joel: 1:09

My name is Joel Skeen with BizRadio US, and today I'll be talking with Jenny Everett and Mark Clayton with the Research Cluster on Employee Ownership and Workplace Democracy to talk research cluster on employee ownership and workplace democracy, to talk about the issue of ownership and legacy in business. But first we got to hit the balance sheet the assets, liabilities, debts and investments All right, in the assets column. I want to talk a little bit about a relevant topic for our guest today. But I want to talk a little bit about the growth of employee ownership, specifically by the focus that's being put on it by private equity, which we don't normally think of those two things as linked, but Blackstone, the world's largest alternative asset manager is launching an equity-linked incentive program that will impact about 18,000 employees at a climate technology company, and so the move by Blackstone reflects a broader trend within private equity industry, where companies are increasingly exploring ways to extend equity to their workforce. This trend has gained traction as private equities role in society has expanded more and more, leading to increased scrutiny on how private equity treats and retains its employees. Other private equity firms, like KKR that we've talked about here, have also embraced the practice of extending equity to workers as a means to boost morale and address potential unrest within their workforces. Over a million dollars in assets under management, blackstone has or I'm sorry, a trillion, not a million, my goodness, couldn't be more different. With over a trillion dollars in assets under management, blackstock's global investment strategies encompass various sectors, including real estate, private equity, infrastructure, life sciences, credit, real estate, hedge funds, so it'll be really interesting to see how that growth develops.

Joel: 3:00

All right, next I want to hit in the liabilities column. I want to talk about the tech monopolies. So new research found that tech workers could have actually earned an additional $5 billion in annual returns if their employees had pulled their retirement plan holdings out of the fossil fuel industry decades ago. So Google employees, for example, alone turns out they lost out on over a billion dollars in gains. The big tech companies have substantial 401k investment in fossil fuels, primarily through target date funds, with Google employees believed to have roughly $2 billion in fossil fuels and Apple employees another billion. The article on this also suggests that switching default options to sustainable funds and divesting from fossil fuel companies align with the company's sustainability goals and would protect employees from climate-related financial risk while bettering the investment returns for retirements of their workers. The 12 tech companies involved in this that were mentioned in the article it says that they have yet to offer any response to these findings.

Joel: 4:12

All right, next in the debts column. So I want to talk about how the White House just announced yesterday the announcement, the cancellation of seven point seven billion dollars in student debt for about one hundred and sixty thousand borrowers. So this brings the total number of people who have benefited from any debt relief push to about four point seven, five million. And the beneficiaries for this plan include those who had enrolled in what's called the savings on valuable education repayment plan, so they had already been doing earlier income driven plans, the public service loan forgiveness program, the total debt relief approved by the White House now stands at about one hundred and sixty seven billion dollars. The issue of student loans and debt repayments remains high on the agenda for younger voters, and you know the Biden administration continues to work on providing relief to those borrowers as he struggles to win the youth support. The relief is targeted specifically at individuals who had enrolled in the specific repayment plans and the public service loan forgiveness program forgiveness program. So I also want to mention obviously too, here. In order to help combat the debt crisis, my financial services agency is offering listeners of the Mindful Marketplace a free debt elimination report through our debt-free life service. It's education on the different strategies on how to pay off debt and a personalized report that shows how you could eliminate your debt in nine years or less without spending any additional money. So check that out. Go to mindfulmarketplaceshoworskeenfinancialcom to check out the Debt-Free Life program and get your free report.

Joel: 5:50

Lastly, in the investments column, I want to talk about this article in Investopedia that talks about how crowdfunding could actually be a new path for investors. We often talk about local investing on this show, and Michael Schuman recently wrote in the Main Street Journal about how we shouldn't neglect real estate as a local investment option and a way to invest your money that's not on Wall Street, not with any of the big companies, but in your local community. Businesses in your local community are usually what people think of when we think of local investing, but those businesses need to live somewhere and they need to live in real estate. There's a lot of advantages, and obviously some disadvantages, to doing real estate investing versus others, but this new way of doing it through crowdfunding really lowers the barrier to entry so that people who normally wouldn't have enough money to actually purchase a piece of real estate can buy a share in that real estate, allowing them to invest more locally. So check out the Investopedia article called Real Estate and Crowdfunding A New Path for Investors, if you find that interesting as a way to get started in your local investment journey. All right, that is the balance sheet.

Joel: 6:59

I'm really excited to get to talk to Mark Hand and Jenny Everett today. I got to meet Jenny at the recent Neighborhood Economics Conference and we really connected there, and she told me about some work that they are, that her and Mark are doing, that I really wanted to get into, and so, jenny, thanks so much for joining us here. I'll start with you today for joining us here. I'll start with you today. You know I just talked about how employee ownership is gaining some traction in private equity. We've seen that all over the place, and your guys' work really revolves around some of these issues. Yeah, so tell us a little bit about why you think this is becoming something that we're seeing more and more in the news now.

Jenny : 7:36

Yeah, it's interesting. I mean, it certainly feels like there's a moment right now in the shared ownership space and Mark and I sometimes talk about. Is that confirmation bias, because we're now looking at these issues and the people that we follow are as well, or is there a broader interest? But I've seen a lot of new actors coming into this space, including myself. You know I've only been working in this area for about the past year and a half and I think it's driven by a variety of different factors. I mean, first and foremost, is the continual issues that we are facing as a community. You know whether it's around the increased wealth divide, increased racial inequity, climate change. You know so much of this is perpetuated by the way that assets are owned in our not just in the United States, but globally, and how that differentiates between what people do and do not have. So I think you know there's an increased awareness and desire to change that and a lot of new actors who are maybe discovering for the first time this idea of shared ownership. I mean, employee ownership has been around for a long time and some of the more traditional structures of ESOPs and co-ops. We'll talk a little bit about a newer structure that we're excited about. But I've seen a lot of actors from the philanthropic sector, the impact investing sector, who are now coming into this space, and that's where my background is. I've spent most of my work in kind of the broader social enterprise impact investing space and when I first started looking at the shared ownership space, it really just resonated with a lot of the issues that I was interested in. I mean, some of the ones I've already mentioned and a lot of the strategies that I was familiar with around place-based investing or impact investing, but as a different tool for going about that, and I think that's why we're seeing more people come into this. That and it's one of the few issues right now that has bipartisan support it's something that really resonates on both sides of the aisle. Whether you're looking at it from kind of a liberal, progressive, workers' rights standpoint or a more conservative main street shoring up local business perspective, it's a model that sort of both sides of the aisle can get behind.

Jenny : 9:49

And then you also have a moment in time. We are facing what's called the silver tsunami, where a large portion of businesses in the US right now are owned by baby boomers who are looking to retire and many of them don't have a succession plan, they don't have children who want to take over their business, and so you know, if they're lucky, they might get acquired. They might be acquired by private equity. You could argue whether or not that's a good thing for the business, but that's not going to happen for a lot of businesses, and so they need to figure out another way to keep the doors open if they want their company and their legacy to survive.

Jenny : 10:22

So, increasingly, business owners are looking for new avenues, and employee ownership provides a really interesting one for them, not only to make sure that their company continues on, but that they take care of their employees. So I think there's just a lot of factors. And then, as you mentioned, at the top, you have actors like private equity, who are coming into this, and the work that Pete Stavros has been doing with Ownership America. Now Blackstone's coming in, and there are some naysayers and some skepticism around that, and others are excited that this is just bringing more energy and excitement around the field, and I think it remains to be seen what are going to be the most effective strategies, but really encouraging all the energy that's going into this.

Joel: 11:03

Yeah, absolutely, I've been seeing it more and more. Mark, I'm curious for you how did, how did you find your way into doing this kind of work, and you know why has it been important with you to you know, partner up with Jenny here.

Mark: 11:16

Joel, thanks for thanks for having us. I'm really happy to be here, and I think one of the things that struck me and that I thought about, as Jenny, was ways to retain and attract talent. I think that philanthropists are beginning to understand that a lot of the ways that companies have traditionally been run and managed serves to further accumulate wealth in a smaller number of hands, and so if part of what we want to do is address income inequality, we might need to take a look at who owns assets, and so there are a ton of different rivers that are coming together, streams that are coming together into this larger river of interest in alternative forms of ownership. A conversation with my friend, zoe Schlag, who runs a group called Common Trust that invests in companies looking to convert to employee ownership trusts, and when she and I were talking about it, I got interested in this new structure, which I thought was interesting. So, as an academic, as somebody whose job it is to do research, I got curious about this new organizational structure that seemed to be growing and emerging.

Mark: 12:42

But then, as a political scientist, I also got interested in this question of when you start to change how companies are owned, then you might also change how they are governed and managed, and it might be that if you become well, certainly if you become a worker cooperative then the way the company is managed will change.

Mark: 13:00

If you become an ESOP-owned company, then it might be that some of the management has to change. It might be that it has to become more democratic, and so that's one of my real areas of interest here is what does it look like to build democratic muscles and habits inside of organizations, inside of the places that we work? And then, as a political scientist, part of what I'm curious about is, if we make workplaces more democratic, then does that help us build the skills and muscles that we might need in order to participate more effectively in democracy, as writ large, in political democracy? And I think that it's fair to say that many Americans might look around right now and feel like maybe some of our democratic muscles aren't as well developed, aren't as strong as they used to be, and so perhaps our workplaces and the organizations that we're a part of can be places where we can start to get in some reps at managing things more democratically.

Joel: 13:55

Yeah, yeah, there's several ways that this can be done that I want to get into. On the second half of our conversation here, this will be a two-part conversation for everyone listening, but I guess what I want to start with is what is the end result? There must be some reason, some sort of effect that you've seen that has inspired you to do this work. I'm curious either of your perspectives on that.

Mark: 14:20

I'm happy to jump in there, because I think that question in and of itself speaks to all of the fascinating complexity in this area, and so the most well-researched version of shared ownership is employee stock ownership plans, or ESOPs, and in companies that are run by or that convert into being an ESOP, the outcomes are great, especially to the degree that you involve employees in the participation and the management of that company, and so they build wealth.

Mark: 14:52

The companies are more resilient, they tend to grow more quickly, the employees report being happier at work, and so there's this whole potpourri of benefits that that brings, and I think that one of the most important ones there is that it helps those employees build long-term assets, because that's where generational wealth can start to come from. It's not from wages, but from assets. And then, on the other side, I think that there are benefits to participating as an owner in the place that you work in terms of your own sense of self-efficacy, and then maybe there are these spillover effects, which is that if you learn how to handle conflict at work, maybe you get a little bit better at handling conflict at home or in your neighborhood or in your community.

Joel: 15:41

Yeah, it reminds me about a year, year and a half ago I had on a guy who was an executive coach, business coach, but really people oriented gentleman and his name's Drew McClure great guy and he talked about how, with his coaching business, they actually, they actually encourage the executives to look at their employees as the people they need to be investing in most. Because they said, if you invest in your people, you eventually are investing in your profits, even though some business owners try to skip that Right. And so, yeah, I'm curious, jenny, do you have anything to add on that, on the effects that you've seen?

Jenny : 16:15

Yeah, I was just going to add. Well, I think, in addition to the research that exists and, as Mark mentioned, there's a lot of evidence out there about the you know, increased success of businesses that convert to employee ownership, but there's a lot we still don't know and that needs to be researched. So the things that really interest me understanding over the long term is you know, for example, if employees are part of a company that has a profit sharing mechanism and so they are sharing in the profits annually and then reinvesting that in their community because they're buying homes or they're getting more involved in their local schools, you know, what does that look like? What's that knock on effect? How does this affect groups in different races or across genders or different abilities? You know there's a lot of nuance that, as more companies go to these models and we have more data we can really get into, I think there's a lot of hope and promise around this, but some of it still remains to be seen. But I think it's a really interesting piece of this.

Joel: 17:10

Well, and I like what you mentioned earlier about the bipartisan nature of this. It really is. I noticed both. It's one of the few things I was talking to Marjorie Kelly on, and she said that this was one of the few ideas that was supported both by Ronald Reagan and by Bernie Sanders, and you don't usually see those two names next to each other.

Jenny : 17:29

Yeah, Mark and I were just at the Aspen Institute conference, at Aspen Institute and Rutgers University conference on employee ownership and we had a day at the Capitol and it was exactly that we had several congressmen from the Republican side coming in and talking to us and at the end of the day Bernie Sanders came in and told us we were all revolutionaries for the work that we were doing.

Joel: 17:49

I love it With a few minutes that we've got left. I think another reason why this is becoming such a topic of conversation is this idea of the silver tsunami. I wonder if either of you could just jump in on why it is that a business owner who's retiring ready to kind of hang up their business, why they are really kind of high priority or most likely to consider some sort of conversion to employee ownership, because there's so many of them happening right now.

Jenny : 18:19

Yeah, and this is a little bit what I was talking about at the beginning of our conversation it's you know, part of it is reality that they don't necessarily have another alternative.

Jenny : 18:29

You know, if they don't have a family member who wants to take over their business, they don't have somebody to sell it to. You know, if they can't find an alternative, they're going to have to close their business. And for people who've spent their whole lives building up a company and being part of the local community, they need different alternatives, and so are starting increasingly to look to employee ownership, traditionally in the form of ESOPs. But ESOPs really only work for companies of a certain size, because ESOPs are RISA regulated, they can be quite expensive and quite complicated to do, and that's one of the reasons that Mark and I are really excited about this newer model around perpetual purpose trusts and employee ownership trusts that I think we'll get into, because it has the potential to be a much more scalable option, or at least an option for the companies that you know, just for whatever reason, esops might not be the right avenue, or co-ops might not be the right avenue.

Joel: 19:21

Mark anything on that?

Mark: 19:22

Yeah, I would say so. There's a practical consideration here, which is that as baby boomers retire, most of them will have no option, and so many of these businesses that exist and that are often pillars of local communities will just close, and that is one of the primary things that we're in at the very beginning of right now. That, I think, is driving a lot of the interest in some of these alternative ownership models is what does succession and legacy look like for those business owners? That's the pragmatic version. I think the philosophical thing here is that many of these owners of small and medium-sized businesses they have never been in it just to make money. They've been making money in order to support their families, in order to build up their communities.

Mark: 20:04

They're often the folks that sponsor little leagues and donate to local causes and churches and are leaders in some of those organizations, and so what we often see is that when owners are presented with another option other than just cash out, that they're very hungry for that option, even the ones that could sell to private equity.

Mark: 20:28

I had one owner tell me that he saw friends sell to private equity and he left with a fat wallet and a broken heart because he then was going into grocery stores where he would see the spouses of the people who then got hired by the private equity firms that had purchased his company. And had he known there was another path available then he might have even taken a haircut on the sale to ensure that the company that he had spent his entire career building and cared about could stay open and continue contributing to that community. So I think they're both the practical're both the practical considerations. You know, just the raw facts that a lot of businesses would close, in addition to the fact that some of these alternatives actually line up a lot better with the way that small and medium business owners think about their companies.

Joel: 21:11

Yeah, I, I. I spent a good amount of time in sort of entrepreneurial. You know meetups and startup communities and you know kind of getting around the people who are trying to do something. It's always fun and energizing for me. But I have noticed that one of the main reasons that people do get into business for themselves a lot of it's because they don't like having a job or a boss. That's a. That's a big one. But another one is to really leave a legacy you know to, to leave some to make a lasting impact. And you're right, if you end up just selling your business after all those decades to a machine, basically that's going to just churn out profit from it, that doesn't really feel like a legacy, in the same way that leaving a community institution where your people are taken care of and where they now get to carry on that torch for you does. So I'm really excited.

Joel: 21:56

In part two we're going to dig into how does this work? What are these perpetual trusts? Why is democracy in the workplace important? So we got a lot we could talk about in 20 minutes. But join us next week same time here on Tuesdays and make sure to subscribe on, you know, youtube, itunes, spotify, stitcher, you know wherever you get your iHeartRadio, wherever you get your podcasts, and make sure to check out the work that these folks are doing here. Where's the website that they can follow you guys at? They?

Jenny : 22:27

can check us out at eowdcom.

Joel: 22:32

All right. Well, join us next time and until then, remember we are each other.