Empowering Workers through Ownership Models and Democratic Practices - Part 2

Unlock the secrets to transforming your business into an employee-owned powerhouse as we sit down with experts Mark Hand and Jenny Everett from the Research Cluster on Employee Ownership and Workplace Democracy. Discover a new world of business models including employee stock options, ESOPs, and worker cooperatives, enriched with real-life examples like Brookshire's, Bob's Red Mill, and Black Star Co-op. We also shine a spotlight on the cutting-edge concept of purpose trust ownership, showcasing how companies like ACP International and Patagonia use these trusts to benefit both employees and the planet. Learn how Organically Grown Company successfully balances profit with stakeholder benefits through its purpose trust framework.

In the latter half of our conversation, we explore how democratic practices in the workplace can revolutionize corporate governance and community organizations alike. With insights from Mark Hand’s teaching experiences at the University of Texas at Arlington, we draw compelling parallels between political democracy and corporate policy, emphasizing the power of transparency and employee involvement. From full worker-owned cooperatives to incremental democratic practices like employee representation on boards, we cover a spectrum of approaches to foster a more inclusive and participatory business environment. Don’t miss our discussion on the Kensington Corridor Trust and how perpetual purpose trusts can reshape community-focused real estate initiatives. This episode is a comprehensive guide to innovative ownership models that promise to leave a lasting legacy for businesses and communities.

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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. All right, welcome back to the second half of a really fascinating and energizing conversation I've been having here with Mark Hand and Jenny Everett, who work together with the research cluster on employee ownership and workplace democracy. Jenny Everett, who worked together with the Research Cluster on Employee Ownership and Workplace Democracy. If you didn't hear the first half of this episode, go back and take a listen to that, because both Mark and Jenny really got to share a lot of great information on the overview of what is employee ownership and why is it something that's being talked about more and more right now. We also got into why business owners who are hitting the retirement age may want to consider employee ownership as the best model to leave a legacy in their business. So we're going to pick back up here. Jenny and Mark, thanks so much for your time today. Welcome back to the show.

Mark: 1:32

Thank you.

Joel : 1:33

Yeah. So we ended by kind of talking about there's all of these business owners who are hitting that retirement age. They've spent decades building a big business, building a business. Maybe it's big, maybe it's small, but they built a business, they want to leave a legacy with that business and they're considering alternative options rather than just letting some company bigger than them buy them or maybe passing it on to maybe maybe want the business, maybe don't want the business, Right? And so I guess where I'd like to start is by actually talking about how does this actually work? You know, if, if someone wanted to hypothetically have a business that wasn't just owned by one person but that had some sort of worker ownership involved or some kind of equity stake for their people, what are the models that have already been used and who's used them?

Mark: 2:23

I'm happy to jump in there. Yeah, so before we get to employee ownership trusts and perpetual purpose trusts, which we're particularly excited about, I think it's worth just a quick overview of some of the options that are out there. Your listeners are probably most familiar with employee stock options, which are the sort of things that you might get if you work at a startup. And then, in addition to those, there's something called the employee stock ownership plan, or ESOP, and that's basically a retirement account that your employer contributes to and then holds interest on your behalf, and there are about 6,000 of those across the country, somewhere between 6,000 and 7,000 of those. Here in Texas. One of the big grocery stores, brookshire's, has one of these models, and Bob's General Mill has an ESOP program.

Joel : 3:11

There's a pizza company in Louisiana called Johnny's it has this little thing where everybody gets a slice of the pie, flour and greens. That's right, bob's.

Mark: 3:17

Flour Mill. Yeah, yeah, yeah, yeah, bob's Red Bell. That's right, that's it, that's the one, sorry. And then the less common but still powerful one is a worker cooperative, where a company is owned by its members, which are its employees. So there's a brewery in Austin, for example, that's called the Black Star Co-op your listeners have probably heard of, and the idea is that every member or worker there gets one option, one vote, and there's somewhere between 750 and 1,000 of those across the country, and so that's the lay of the land.

Mark: 3:48

And part of what Jenny and I are interested in is a form of ownership that's called purpose trust ownership, and the idea is that you would put a company inside of a trust which is then tasked with making sure that a company runs according to its mission.

Mark: 4:05

So if you take the case of a tech company here in Texas called ACP International, they make road signs, and if you ever see one of those little, the sort of things sticking out of the ground that tell you that there's a Wi-Fi cable underneath, they generate those.

Mark: 4:19

It's a manufacturing company, and when the owner, joe Nussbaum, began to think about retirement, he chose a trust, and so now ACP International is controlled by trust, and that trust says from now on, acp International has to be run to the benefit of its employees and then, over time, the ownership, the financial ownership of the company will transition from Joe to the trust and ACP will continue to be able to operate on its own, owned by that trust, to the benefit of the employees. Patagonia is probably the most famous example of a company that is using this Instead of benefiting its employees. The Patagonia Purpose Trust now has as its mission, as its purpose, to benefit the planet and it controls the company Patagonia, ensuring that it is operating to that mission. So there's a couple of examples one big, one small, one that's focused on the planet, one that's focused on its employees.

Joel : 5:10

So in either way, essentially a trust is created that then owns the company and the trust has the ultimate control to say what the purpose is, that then the company can try to fulfill that purpose. So it's kind of like a reorganizing of priorities, if I kind of understand it, where profit still matters because obviously you can't do business if you don't stay in business, business but that maximizing profit may not be the number one priority of the trust. Rather, either the benefit of the workers is the purpose of the trust, or the planet or whatever. Whoever designs the trust can set as the primary purpose that the business has to serve that purpose. Am I understanding that right?

Mark: 5:55

Yeah, go ahead If I give one more example that might line this up. And there's a company in Oregon called Organically Grown Company and when they set up their purpose trust, they decided that they wanted to use the trust to ensure that they could to the board. That committee is tasked with benefiting their employees, making sure that their growers of food benefit from the work that they're doing, their distributors, then also their investors, and so the job of the trust is to make sure that, in addition to making money, that each of those stakeholders benefits from the way that the company is run.

Joel : 6:35

Stakeholders the benefits from the way that the company is run. Yeah, yeah, I also want to understand too, because it sounds like this is the way that it's been done before, but you mentioned that it's something that has only really been, for the most part, accessible to pretty large companies, like, if you're Patagonia, you may be able to do this, but it may be harder for the local fleece maker in your town, if you have one, to do that. So tell us a little bit about the changes in innovations that are happening in these trusts I know you guys are specifically excited about. You said it's a, it's a purpose trust. Is that the name of it?

Mark: 7:07

That's right. So, legally speaking, these are non-charitable purpose trusts with, without an ascertainable beneficiary. Now, that's a mouthful, but the change is that in some states Now that's a mouthful, but the change is that in some states, you are now allowed to have a trust that owns a company in perpetuity that doesn't designate a specific beneficiary, like, say, your kid you had a trust fund or your pet. It can have a class of people like your employees or your other stakeholders as the beneficiary of the trust, and that shift that has taken place over the course of the last 20 years or so is the thing that has started to enable this, and so it is. It's. Whereas ESOPs tend to work best for larger companies because of the cost of setting them up and maintaining them, an employee ownership trust that might cost $30,000 to $60,000 to set up is much more available to a much wider swath of companies in the United States.

Joel : 8:01

I guess what would be the biggest. Yeah, go ahead, Jenny.

Jenny: 8:04

Oh, that's part of the reason we're excited about these structures is we think they have a real potential to fill this need, and you know we were talking in the earlier part about the silver tsunami. We have all these companies that could consider employee ownership, but an ESOP structure or co-op structure just might not be right for them for various reasons, and so could these new trust structures be a solution that could really scale and fill that niche.

Joel : 8:28

Are there certain kinds of businesses that like, let's say, we've got three different businesses that all have interest in being some kind of employee ownership, you know, moving forward. But which kind of businesses would be good for an ESOP? Which kind of businesses would be good for an employee trust? And then which kind of businesses would be good for an ESOP? Which kind of businesses would be good for an employee trust, and then which kind of businesses? I'm curious, because you mentioned the breweries. We have a brewery here in Asheville that's also a worker owned co-op. So I'm kind of wondering, like are breweries really good for this? Or like what? Which kind of companies does it make most sense to be either an ESOP, a employee trust, or actually be a worker-owned co-op?

Mark: 9:04

So I think that you're stepping right into one of the questions that this industry is asking right now, and the way that I think about it is that it depends on the characteristics of the business and then on what it is that the owner is optimizing for. And so, with a worker cooperative, if you're interested in that, what it means is that you're committing yourself to that one person, one vote decision making structure, so it's maximally democratic and that might work really well for some companies. So if you are, let's say, a group of lawyers, you might be interested in a co-op structure. There's a partnership structure, but maybe you could use a co-op structure too. And then if you're trying to set up an ESOP, part of what you might be prioritizing there is setting up retirement assets for your employees and maintaining the flexibility to then sell to another company in a way that would maximize their retirement accounts, and so ESOPs are often really about building assets.

Mark: 10:02

For individuals they tend to be a little bit bigger because of the cost of setting them up, but really the motivator there is building assets and then employee ownership trusts or perpetual purpose trusts.

Mark: 10:15

People tend to be drawn towards them because of their flexibility, and so there isn't a sort of size requirement there or an optimal size. A lot of the companies that we see are going to be between 20 and 100 employees or something like that. I think that's just because of the companies that have initially been drawn to it, but there are much larger ones, like Patagonia and maybe even Hobby Lobby I haven't been able to confirm. And then the other way that the flexibility attracts owners is that you can choose how much you're going to change your management structure separately from the conversion to the trust. And so there's some employee ownership trusts that we've encountered, like Bicycle Technologies International in New Mexico, and at least out of the gate, as they converted to an employee ownership trust, the way that the company is managed hasn't changed very much. And then as the owner then transitions out, then more and more of the management will be transitioned to those employees, and so the flexibility of the trust structure seems to be the thing that owners really get attracted to.

Jenny: 11:15

The one other thing I would add to this and we talked a little bit about this at the beginning is one of the reasons that business owners might choose a perpetual purpose trust is that ability to lock in the purpose which a co-op and an ESOP don't really have that mechanism. So those are really good options for companies that are primarily interested in the employee piece, but if they have another aspect to their business that they want to preserve into perpetuity the purpose trust allows them to do that Right.

Joel : 11:45

Maybe they care about a particular part of their town or a neighborhood in their town that's been disenfranchised. Maybe they care a lot about the environment, like in the case of Patagonia.

Jenny: 11:54

Yeah, or the suppliers that they're sourcing from, or yeah, exactly.

Joel : 11:58

Right, Right. No, that makes a ton of sense. You mentioned the earlier. You mentioned how this you feel like this model of the employee trust is really scalable, and you've also mentioned the flexibility. Is the scalability due to that flexibility or is there more to it than that?

Jenny: 12:14

I think it's a good question.

Jenny: 12:16

I mean, the flexibility right now is probably both a bit of a blessing and a curse, because these tools are so new and we don't have a lot of standardization and templates, and so a lot of the work that we've been doing on the field building piece is figuring out.

Jenny: 12:30

You know what do the various actors that are working to help businesses convert, you know, what are they learning from best practices? What are we looking at, research wise, to maybe start to standardize to a certain degree, and that gets into policy considerations as well. Part of the scalability and Mark mentioned this is it's just a more affordable option Because ESOPs are ERISA regulated. There's a lot of regulation and a lot that goes around complying with that regulation, and so for companies some smaller companies just might not make sense. And again because this is a newer space, there's only 50 or so companies in the country right now that have done this, but they're getting faster to do as well, so it may be a more expedient option for owners who would like to convert sooner rather than later. So those are some of the reasons we think it could scale, but early days still.

Joel : 13:25

Well, and I'm also curious to just thinking out loud here a little bit about could a perpetual purpose trust be put together not just by a company, but could some other type of community organization, whether it's a church or a neighborhood or a social co-op or anything like that? Do you see potential for this to become a tool for impact investing that people can do collectively?

Jenny: 13:51

Yeah, absolutely, and there's some great examples around the country of groups that are doing neighborhood trusts, which, again, are based on the same kind of legal structure but focused on property or community at a neighborhood level, versus a single company.

Joel : 14:04

Yeah, that'd be so cool if, if your neighborhood had a, had a trust that you could, you guys got to get together and vote and say, hey, we want to build a playground here, we want to, you know, do these other things with. I think that's. That's a really innovative thing. Mark, I see you uh, you getting excited. You have something to say there.

Mark: 14:29

Sure, yeah Well, I'm just always excited about this stuff, I think. But one example that I think your listeners could look at is the Kensington Corridor Trust in Philadelphia. It's one of the groups that is experimenting with how it is that we might use this structure in order not just to house corporate assets, but to house real estate assets and set them to a particular purpose.

Joel : 14:39

Yeah, I'm also curious from you, Mark, too, because I know that when it comes to democratic workplaces, you kind of have a different, you kind of have a deeper background in this stuff, because you actually you actually kind of teach it at at the university. Which school is it in Texas there? I apologize, I forgot already.

Mark: 14:55

You're good. I'm at the university of Texas at Arlington.

Jenny: 14:58

You just lost all your Texas listeners, but that's okay, the university of Texas at Arlington.

Joel : 15:05

It's great Texas Tech. I know those are. I know about Rice that's in Texas. I got a friend yes that's right.

Mark: 15:11

That's right. That's right. There are a lot of good universities down here. Come and see us.

Mark: 15:15

So I teach a course on democratic theory, and one of the things that I do with my students is is I introduced them to the idea that the principles that we might want to follow in the way that we govern ourselves might also be principles that we want to follow in the workplace. And so when we think about the ability to speak your mind, the ability to know what is happening in the decision-making rooms that might affect you, that all of these things are things that in the governmental space we've kind of worked out, but in the corporate space they're still pretty fringe and still pretty niche. And so one of the things that I have my students do is that I have them pick an organization that they're a part of, or that they would like to be a part of, and then go see how democratic it is or how hierarchical it is. So is the company that they work for more like an autocracy or more like a democracy? And you can see students, as they begin to think about this, they start to get nervous, and as they go out and have conversations with, say, the places that they work.

Mark: 16:08

They realize that when they ask these questions, that they're now stumbling into these unspoken questions of power, and so, for me, as a political scientist, that's part of what I'm interested in is how it is that power is distributed, and despite the fact that our Political philosophers have helped us figure out how to move away from kingdoms many hundreds of years ago and build another option that works, we're still at the very beginning of companies beginning to look at themselves and say does this have to be a kingdom, does this have to be an authoritarian structure or is there another way?

Mark: 16:43

And so there are some groups that have started to figure this out, groups that have started to figure this out. One of the most obvious and accessible is something called the great game of management, where companies begin to open up their books, their financial statements, to employees, and that's a risky thing to do because it exposes where power lies, but there are organizations that help companies walk through how it is that we can take that step towards what I, as a political scientist, might call a more democratic form of management.

Joel : 17:08

That question that you have about power and ownership. It seems like those two things are pretty uniquely connected and I imagine that's why those students are making that question. I've never done that type of exercise. I actually thought through hey, is the place that I'm, is this group that I'm in, do they operate more like a democracy, or is it more like a theocracy or more like a dictatorship? Who knows Right? Sure, and in almost any organization.

Mark: 17:32

I would say, in almost any organization you could say, are there places where we could share information more widely and effectively? Are there places where there are big decisions being made that affect a lot of people where we could figure out ways to incorporate more of the people affected by that decision into the making of that decision? And so there's sort of those baby steps that you can take towards a less hierarchical, more democratic workplace.

Joel : 17:55

Right, cause there are other ways to move in this direction that doesn't even involve such a huge like a huge shift to a different ownership model. Like some people, some, some companies, just make sure that their employees have representation on the board. Some companies, they make sure to include all the different stakeholders, or as many as they can or are expanding to, and so there's ways to get in this direction. I like the way you described it because it puts it in a perspective of a spectrum that there are. A worker-owned co-op may be way off to one side of, like, total democratic ownership, but there's other ways that you can actually start to move in that direction if you're an entrepreneur or a business owner like that.

Joel : 18:40

I've got a couple minutes left and I just kind of want to end with something, jenny, you were talking about at the beginning or in the first half, which is about the kind of bipartisan support of this. You know, in some ways this does feel kind of radical. It does feel like a completely radical and different way of doing business, but in other ways it seems like it's just a natural kind of progression of, as you said, moving from kingdoms to, you know, business owners and, you know, kind of having the ownership lie there and then moving to the actual workers and the people. But I'm curious your perspective on why you think it resonates across the board in a world where most things are very divided that have to do with business or the economy.

Jenny: 19:19

Yeah, it's kind of remarkable. It's one of the few areas where there is some consensus, though maybe for different reasons, right. So you know, on the progressive side, I think it's more again about worker rights, it's about wealth inequality, it's about shifting of assets. Those are the types of issues that people care about that this resonates with. On the more conservative side, it's about securing Main Street. It's about keeping businesses local, particularly in rural communities. That can be really effective if you know, one of their Main Street companies goes out of business or is purchased by private equity and then sold off. Job security, job creation, that kind of thing. So it just really touches on a lot of issues that are cross-cutting, and so it's been interesting to see, even in this current administration, where Congress is coming together and passing legislation and being proactive around this in a way that we're not seeing across most other issues.

Joel : 20:16

Yeah, I love to see it, Mark. Any other final thoughts on that before we head out?

Mark: 20:19

No, I think Ginny covered it really well.

Joel : 20:21

Very grateful to be here, joe, for the work that you all are doing. Can you once again say the name of the blog that you guys have, where you're publishing everything here and where people can find you to learn more about how they can you know how they can make their workplace more democratic?

Mark: 20:39

Happy to. So we've got a weekly newsletter that we send out from the website EOWDorg, which stands for employee ownership and workplace democracy. So that's EOWDorg, which stands for Employee Ownership and Workplace Democracy. So that's EOWDorg, and our weekly newsletter takes fewer than six minutes to read every week.

Joel : 20:53

Awesome. I'm going to subscribe right now and we're going to put that website in the show notes for everybody so they can get there. Make sure to subscribe on all the different platforms that, wherever you get your podcast whether it's YouTube, itunes, spotify, iheartradio, stitcher, buzzsprout and make sure to subscribe. Leave us a like and a comment and, until next time, remember we are each other.