December 9, 2022 •CSG Partners Staff
The statistics on employee ownership seem too good to be true. ESOP-owned companies, on average, outperform their peers in terms of productivity, employee wealth, job satisfaction, and tenure. But why?
Earned Equity & Shared Rewards Drive Results
Coined by Whole Foods co-founder John Mackey and Professor Raj Sisodia, the term "conscious capitalism" refers to free enterprise practices that ethically serve the interests of a broad range of stakeholders. That includes employees and their communities.
The modern ESOP is one of the purest distillations of this philosophy. Broad-based employee ownership spreads the benefits of a capitalist enterprise without resorting to handouts. Shares are earned, loyalty is rewarded, and hard work can translate to greater financial rewards. By creating balanced incentives for stakeholders, ESOPs encourage all parties to row in the same direction. The results speak for themselves.
Lawrence Kaplan, CSG's founder and managing partner, recently discussed employee stock ownership plans, through the lens of conscious capitalism, with Vistage's Purpose and Sustainability Network. The Q&A session covered a range of topics including:
- Business Succession & The Silver Tsunami
- ESOPs vs. Private Equity
- Employee Ownership by the Numbers
- Attracting & Retaining Talent with an ESOP
- Building Working Class Wealth
Business Succession & The Silver Tsunami
"67% of today's middle market business owners will reach retirement age by 2029. There's going to be a huge transfer of ownership from one generation to the next."
"Most owners have built their companies up through decades of hard work... The big question is, how are they going to take that equity that's locked up in their company and move it from the corporate balance sheet into their personal balance sheet?"
ESOPs vs. Private Equity
"The primary goal of private equity firms is to make a return for their investors. That means they may need to cut employees. That means they may have to outsource manufacturing. If that means moving the company to a lower cost state, then they're going to do that. "
"We deal with a lot of business owners that want keep their companies in their communities. They're looking to pay back the employees that have helped them build these companies."
"We view an ESOP just like a private equity firm views a private equity transaction - it's a leveraged buyout of a business. The difference is that in the case of an ESOP, it's not a private equity firm that's getting the equity - it's the employees."
Employee Ownership by the Numbers
"When employees get ownership in their companies, those companies become better companies...it creates a better overall working environment."
"Employee owners earn 33% higher medium wage income, and they have 92% higher median household net worth, so there are real benefits to the employees, and this is seen over decades of resource. You see long-term sustainable benefits and the employees are generating a great retirement benefit by working hard and being an owner in those companies."
Attracting & Retaining Talent with an ESOP
"ESOPs give the employees a real chance to be owners in a business that they would normally never get. If an owner that sells to an employee trust spends time on the ownership culture and conveying the benefits, the results can be quite amazing."
"It's a win for anyone that comes across that company, because you're going to find that employee-owned become better entities."
Building Working Class Wealth
"The concentration of wealth in the top 1% has been getting greater since the early 1970s, so we're all looking for tools that can get wealth to employees."
"What better way of doing that than by giving them a chance to become an owner of a company and having them grow in the same direction as your business. ESOPs are not handouts, they're not charity. Employees that get stock need to work to create value for everyone."