The Mindful Marketplace with Joel Skene

Financial Rewards in Worker-Owned Enterprises - Part 1

• Joel Skene / Alison Lingange

Share episode

Discover how employee ownership can reshape the business landscape and drive social change! Join me, Joel Skeen on the Mindful Marketplace, as I sit down with Alison Lingange, the brilliant co-founder of Project Equity and the Ownership Capital Lab. Throughout our conversation, we'll uncover how democratic business models are making a difference for companies and employees alike. From the inspiring story of the Industrial Commons' role in the textile circular economy to the groundbreaking antitrust lawsuit against Apple, we cover a broad spectrum of topics that reflect the evolving dynamics of today's marketplace. Plus, get practical tips on managing personal and business debt amidst the growing credit card usage among Gen Z.

Is employee ownership too complex or just a myth? Think again! In this episode, we debunk common misconceptions about Employee Stock Ownership Plans (ESOPs) and illustrate their numerous benefits. Hear firsthand how New Belgium Brewery's transition led to financial rewards for its employees, and learn why employee-owned businesses often outperform their peers. We'll also break down the mechanics behind financing these transitions, showing that substantial personal savings aren't necessary for success. Don't miss out on this enlightening discussion about the future of employee ownership and its potential to transform the business world for the better.

https://project-equity.org/press-releases/project-equity-co-founder-alison-lingane-announces-transition/

https://project-equity.org/

This program is brought to you by:
Arc Integrated

Be sure to visit BizRadio.US to discover hundreds more engaging conversations, local events and more.

Joel:

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.

Alison :

Welcome to the Mindful Marketplace. I am so glad to have you here. I am Joel Skeen from Bizradious and I am particularly excited about today's conversation.

Joel:

I'm getting to talk with someone that co-founded an organization that I have referenced quite a bit on this show. Alison Lenang from Project, who's the co-founder of Project Equity and is from the Ownership Capital Lab, is going to be here with us to discuss employee ownership, democratic models of ownership and how businesses can utilize them to their benefit. But first we got to hit the balance sheet. It's time to go over the assets, liabilities, debts and investments. All right, here in the assets column, I wanted to talk about an article that was here in Forbes that was talking about steps to growing a climate resilient workforce. So the article talks about how small and medium-sized businesses can unlock the full potential of the green economy by fostering cross-industry collaborations, enhancing things like early education, tailoring their messaging and increasing training opportunities. And Forbes actually mentions a local North Carolina group here that I want to highlight, the Industrial Commons, which is a leader in the textile circular economy, with a focus on reducing textile waste and promoting environmentally sustainable practices within the industrial sector. The organization helps people start and partner with other companies while developing skills training. Their support enables frontline workers to learn a broad set of skills that contribute to a circular textile economy, one that's good for workers, businesses and the environment. The Industrial Commons has actually supported more than 2,500 workers through their collaborative, member-owned network of textile manufacturers and workplace development programs, and they've converted businesses to employee ownership, providing training and arts-based programming to thousands of youth, and managed and invest over 15 million worth of grants into our region's economy. They've also developed a rural wealth blueprint that is changing the face of our community and informing others so awesome that they got that shot out there In the liabilities column.

Joel:

So we're going to talk about big tech and talk about the recent antitrust lawsuit filed by the Justice Department against Apple. So the lawsuit accuses Apple of creating an illegal monopoly in the smartphone market, stifling innovation and keeping prices artificially high. Though the suit alleges that Apple's control over the iPhone has locked consumers into its ecosystem while excluding competitors from the market, ultimately hindering industry advancement, apple has, of course, strongly refuted these claims, stating that the lawsuit is based on incorrect facts and law. The lawsuit addresses allegations that Apple restricted the functionality of non-Apple smartwatches, limits access to contactless payment for third-party digital wallets and refuses to allow its iMessage app to exchange encrypted messages with competing platforms. It also seeks to prevent Apple from undermining technologies that compete with its own apps and crafting contracts that extend its own monopoly. And crafting contracts that extend its own monopoly. The lawsuit's part of a broader effort by the DOJ to promote competition and innovation within the tech industry. We've already talked about Google. We've already talked about what's going on with Ticketmaster and Live Nation.

Joel:

Many argue that Apple's products are often priced at a premium, making them inaccessible to a large portion of the population. Additionally, the closed ecosystem, which limits connection of Apple devices with non-Apple products, is a way to lock customers out of the Apple ecosystem, limiting their freedom of choice. Moreover, there are concerns about Apple's stance on repairability, with a lot of people arguing that the company makes it difficult for users to repair or upgrade their devices, leading to unnecessary waste. All right, so next in the debts column All right, so there was an article here that was talking about how the young folks, the Gen Z, are using credit cards at kind of an astounding rate.

Joel:

The factors contributing to this are providing, you know, providing and provide suggestions and helping the younger generation manage their finances more effectively. There was a, so there's this recent study by TransUnion that revealed 84% of credit active Gen Zers had at least one credit card, a significant increase compared to 61% of credit card active millennials. Also, the Fed Bank Reserve of New York found that nearly one out of every seven Gen Z Americans have maxed out their credit cards. Compares that to only 12% of millennials and just under 10% of Gen Xers. The article does attribute two main factors in the rise in credit cards inflation and high interest rates. Inflation, reaching its peak in 2021 at an annual rate of 70%, has led to higher prices for necessities like housing, groceries, gas We've talked about that before the rise of more online lenders who are taking advantage of that. The article also highlights the challenge of finding employment for a lot of young adults, particularly those who came of age during the pandemic. The job market has been particularly rough for younger people, as many were unable to secure the internships or starter jobs during lockdown and then face competition from older and more experienced job seekers once COVID precautions were lifted.

Joel:

Just a reminder that, in order to help combat the debt crisis, the Mindful Marketplace is providing all of our listeners with a free, customized report on how to best eliminate personal and business debt, based on everyone's unique situation. Lots of families are using this report and the information in it to get out of debt in nine years or less without spending more than they were. So go ahead to mindfulmarketplaceshowcom and click on the link to get your free report about how you can eliminate your debt faster, all right. Lastly, in the investments column so I want to talk real quickly about I mentioned Impact Alpha before. They are a partner with our sister show, community Capital Live, and there was a recent article article here by Ellen Frank Miller, who talks about employee ownership and talks about how, when combined with quality jobs, it is increasingly becoming recognized as a powerful driver of value creation and improved financial performance within companies. Private equity firms like KKR and Blackstone are leading the way in implementing employee ownership programs globally, adapting the model for local markets and including broad-based employee ownership at firms in which they take a controlling interest. The shift suggests that these firms see the potential for improved job quality to generate superior returns throughout the organization.

Joel:

Contrary to the belief that financial incentives alone drive better financial results, the recent research indicates that the relationship between employee ownership and improved financial performance is a bit more complex than that.

Joel:

While financial incentives do play a role, two other key factors have been identified. She talks about organizational identification and social exchange obligation. So these factors, rather than just financial incentives, are crucial in explaining why more broad-based employee ownership generates better financial results. So to achieve this, companies do need to focus on their ownership behaviors and the practices that ignite them. She talks about how this involves measuring and fostering ownership behaviors, such as employees employees discretionary efforts to improve the company's fortunes, while implementing managerial and operational practices that support these behaviors. So really fascinating stuff on the future of capital and employee ownership, which I think is a great place to introduce our next guest, because she is someone who has been working in the space of capital and of employee ownership longer than most have known about it. I feel like at this point Allison, thank you so much for being on the show. I'm so excited we get to have you here.

Alison :

Oh, thanks, Joel. I appreciate being here and really looking forward to our conversation.

Joel:

Yeah. So I'm sure a lot of people out there don't know who you are or know the work that you've done. I know you're the co-founder of an organization we talk about a lot here called Project Equity, and you are also moving into something called the Ownership Capital Lab. Tell us why did employee ownership strike you as something that you I don't know that hit at your heart and that you became passionate about?

Alison :

Yeah, well it's, you know the, when you look at your career in the rear view mirror, the path makes sense. My career has always been about unlocking opportunity for people who may not have as much of it as as, frankly, they should. And you know, I I spent many, many years in the education sector thinking that, you know, oh, it's all about helping people get more access to education. And I kept coming back to well, yeah, that's true, unless and the unless is unless you are, you know, growing up in poverty, living in an over-policed community, right, I could go on and on, but all of these things that get in the way of, you know, education being sort of that clear and obvious path. And so I kept really searching, for there's got to be a way. You know, I started actually started my career in job training, but started asking the question why are we training people in poverty level jobs? And I just kept networking and talking to people and was randomly introduced to Hilary Abel, who became my co-founder at Project Equity. You know, we launched the organization a decade ago and, as you mentioned, I'm now transitioning out of the organization. I'll get to that in a second, but the you know, for me it was this massive light bulb?

Alison :

Because with an employee-owned company, all you do is get a job. You get a job and that job has opportunity baked right into it, so that can be financial opportunity. Employee-owned businesses tend to pay significantly better. One study showed 33% higher wages in an employee-owned company as compared with industry peers. Not only that, but you can end up with significant assets, savings, assets, retirement benefits. That same study showed that employee owners have household net worth of nearly twice as high as non-employee owners. And then, depending on the employee-owned business, you might even have the opportunity to serve on the board of directors of that company. And that I mean I would ask all of the, all of your listeners to say well, is that an opportunity you've ever had, to serve on the board of directors of the place where you work? Talk about an incredible professional development opportunity. But at a minimum, one of you know to that article that you were just showing about. You know private equity and employee ownership. At a minimum, employee owned companies ask people to bring their full selves and to be engaged in the workplace and to to think and act like an owner. Because, guess what, you are an owner, and, and that in and of itself is a is a tremendous professional development opportunities. So you know, 12, 13 years ago, when Hillary and I started talking about you know what does this look like I kept coming back to the question of well, why didn't I ever hear about this? You know, I went and got my MBA.

Alison :

It was in every single network of whatever the words you want to use responsible business, good business it was nowhere to be found, and I think one of the real problems has been that employee ownership has been very siloed, and so over the past decade, what we've really put a lot of energy into is how do we bring it out of its silos? I often say, if you Google employee ownership, there's a lot of information to be found. But the problem is most people like me back before I'd even heard about it, don't even know to Google it, and so we've been doing a lot of work over that past decade to bring it out of its silos. It's a very exciting time right now in employee ownership. There's so much interest and activity, a lot of new entrants, a lot of opportunities for businesses that are interested in looking at employee ownership to be able to get support and help and financing to help make that a reality.

Joel:

Yeah, it just makes. What makes sense to me about it is something that you said earlier about how when you give people ownership, they take ownership. When someone has ownership, they kind of treat their job with more. They take more ownership over their work and the quality of their work that they, that they do, you do. I feel like that's actually a growing trend. Is that mindset within the business community? Because I've noticed that from people that I've worked with or coaches that I've talked to and had on this show here, there really is an understanding that like, hey, if I'm going to take a long view of business success, not just like what can I squeeze out of people this year or this quarter, but how do I keep good people here and how do I give them more ownership of the work and it's like sometimes maybe that actually might mean yeah, you may actually give them ownership of the business. And so it sounds like this is really just an extension of that same kind of long term and more holistic thinking.

Alison :

Yeah, the way I often describe it to people is, if you think about your workforce on the expense side of your accounting, you're gonna really work to try and minimize that cost. But if you think about your workers on the asset side, then you're gonna do what you can to maximize the return on that asset. And from a short-term perspective, yeah, maybe thinking about the workers as expense, maybe that does have a short-term. But you are really, you know, shooting yourself in the foot from a business perspective if that's how you always think about your workers. But because if you really think about them as an asset, then you're going to be investing in the workers, you're going to be making sure that they are being effective in their work, you're engaging with the workforce and that's what ultimately creates that ownership culture. But certainly the best way to create the ownership culture is to pair it with actual ownership.

Joel:

Yeah, you mentioned that employee ownership has been kind of siloed, and I think that's definitely true. Like you know I think you have to work in certain spaces to have even heard about it when has it been siloed up until this point and what does that look like to break down those barriers?

Alison :

Sure, yeah, well, I think that you know the biggest form of employee ownership in the United States and for business owners or business advisors who may be listening to this, there's a form called the ESOP Employee Stock Ownership Plan that's been around since the 1970s.

Alison :

It was actually created by the federal government in the same legislation that they created the 401k plan.

Alison :

So, you know, the federal government envisioned that there is this real benefit to having this high engagement culture and they created a structure that provided a whole lot of tax benefits to business owners that are interested in pursuing the ESOP form of employee ownership.

Alison :

And so, because of that, there has been really this growth of a whole marketplace, if you will, of service providers who specialize in ES. That community and it's a deep and rich and you know community of practitioners who know how to structure ESOPs, how to finance ESOPs, how to support ESOPs once they are in existence, but from, but you know, the average business owner or business advisor or MBA doesn't really learn about what that looks like. It's not being taught in most business schools today. You know, in here and there you might get a professor or two that's mentioning it, but it's not, you know, structurally, a part of the curriculum, which really is unfortunate because, you know, corporate finance teaches you all day long how to manage not only the ratio of debt and equity within your business, but also how to manage your tax liability and how to think about that, how to optimize that and, frankly, given the many tax benefits, especially of ESOPs, it should belong in MBA programs and in CPA programs and all of the above.

Joel:

Yeah, because it seems like you know, it's kind of like with you know, if you go study economics you don't actually learn different, a bunch of different models of economics. You learn one model of economics and it seems like there's some of that coming into play here, where you're right. I don't think many people when they go to business school, or maybe if they just kind of read the general business literature on entrepreneurship how to start a business you're starting to see people more put in things about social entrepreneurship in there, about triple bottom line businesses who are have a social mission along with their business, but you still don't see a lot of education around that employee ownership is a model that is not only possible, it's one that can be pretty profitable. Is that right?

Alison :

Absolutely yeah. Employee-owned businesses. If you just take a step back and think about it, okay. Well, if I have a workforce that's highly engaged, what's the chance that I'm going to outperform my peers?

Alison :

Well, it's a very high chance, and there's reams of data that show that employee-owned companies do just that outperform their peers, outlast them in business cycle downturns, higher rates of profit, not one year, but year over year. So think compound interest right, higher rates of profit, higher rates of growth, higher rates of profit, higher rates of growth. And so so really is that high engage, engagement culture. That is is the secret to to employee owned companies. You know, outperforming.

Joel:

Yeah, I think that's. That's probably one of the biggest misconceptions out there is that if something's a worker owned co-op or if it's, I think a lot of times when people hear the word co-op they just think of you know the, the little grocery store, um, you know something that is small and cute, but you know you were. You come to realize like there are actually these examples of. You know, one of the most successful micro breweries in the country that's located here in our backyard, new Belgium, is a is a worker owned cooperative. You know there's one in Spain that makes pretty much everything. Uh, you know that that that gets produced over there is in a worker-owned cooperative, and so I think that that's one of the biggest misconceptions about it. Do you think? We've got just a couple minutes left on this half and we're going to pick back up on the second half of this conversation? But are there any other kind of biggest misconceptions that you feel like you've heard over your years about the idea of shared ownership or democratic ownership of businesses?

Alison :

Yeah, absolutely, and just real quick. New Belgium was an ESOP and they were actually acquired by a company and at that point of acquisition, all of those workers got a big payout for their ESOP shares. So the ESOP was dissolved, but big, big payout to each of those worker owners. So misconceptions we often talk about the myths of employee ownership. One is that, oh, my employees could never run my business.

Alison :

Well, in an employee ownership model, it's not that your frontline workers are suddenly going to all become co-CEOs of the business. You still have a CEO or a general manager and you still have a hierarchical management structure most typically, and that's because those are effective ways to manage large groups of people. But the difference is that you have a broad set of stakeholders now who ideally have a voice in the business in one way or another, and that can be from a high participatory culture. It can be all the way up to having employees on the board, or even to having employees be the majority of the board and be in the controlling seats on the board. So there's a whole spectrum of how you can do that. But yes, your employees are not running your company. Your employees are participating and bringing their full selves in a high engagement culture within the regular hierarchical infrastructure.

Alison :

Another really important myth is oh, my employees can't buy, they can't afford the company, they don't have the money to buy it. Well, the beauty of an employee ownership transition is it's actually the business that takes out the financing in order to finance the payout that is going to the selling owner right. These are market-based prices of the business. The company is selling at a market sale price and the business is the one taking out the financing based upon its typically decades, sometimes generations, of positive cash flow. So, yes, you don't need an employee base that has a lot of money in their personal savings accounts or a lot of credit to be able to make these transactions work.

Joel:

Yeah, and what I'm excited to dig in with you on part two here is really about examples of businesses that have done that, what it looks like, how it goes, why it's happening now, why there's more popularity around this right now and what you see is the future of capital and employee ownership working together. So everyone out there, tune in next time and follow us on all the podcast networks and remember we are each other.