A financial stake in the company isn’t enough; employees need to be co-managers. Corey Rosen, author and founder of the National Center for Employee Ownership, talks to Brunswick’s Carlton Wilkinson.
As a Senate staff member in the 1970s, Corey Rosen worked on legislation that supported the formation of employee-owned companies and employee stock ownership plans (ESOPs). What he was seeing first hand on Capitol Hill was that many well-intentioned taxpayer-funded social programs either didn’t happen or had to cover too many people, making them too expensive to do enough for the neediest beneficiaries.
“Employee ownership was a way that you could use capitalism itself to get there,” Rosen says. “It appealed to me because it could actually happen.”
He went on to create the National Center for Employee Ownership, a nonprofit that conducts research and acts as a resource for companies involved with and considering ESOPs and other forms of employee ownership. Dr. Rosen—he holds a PhD in political science from Cornell—is the author or co-author of many books and publications, including Equity: Why Employee Ownership Is Good for Business (2005) and Beyond Engagement: How to Make Your Business an Idea Factory (2019). He stepped down as Executive Director of NCEO in 2010 but remains a full-time volunteer with the organization. He’s at work on a new book.
What he uncovered, in those decades of research, is that while employee ownership is a crucial step in creating an advantage for a business, it is not enough. Required in addition is a management structure that includes employee participation in decision making at the work level.
Employee ownership isn’t new. The US supermarket chain Publix, which operates primarily in the South, has been employee owned since its founding in the 1930s. In the 1980s, Publix became one of the first major companies to transition to an ESOP, a structure blessed by new tax laws. Today the chain is not only the largest ESOP in the world, but also one of the largest companies in the US, employing over 225,000 people. Significantly, it also consistently ranks on Fortune’s list of “100 Best Companies to Work For.”
Employee ownership has gained visibility over the last 50 years, thanks to increased legal recognition and also changes to the tax code that make employee ownership more appealing to private owners. Today, many companies, particularly in the tech industry, offer stock options as part of their employee benefits package, an idea rooted in research (including by NCEO) showing how ownership increases employee motivation. Google is perhaps most notable for using equity compensation to retain much-lauded talent at extraordinary rates. On the NCEO website, Google co-founder Larry Page says, “The significant employee ownership of Google has made us what we are today.”
While other publicly traded companies have embraced partial employee ownership, owners of privately held companies found they could transition to majority-owned ESOPs as a way to preserve their legacy as well as to help motivate employees. Selling to an outside buyer carries risk: With no inherent loyalty to the old enterprise, the new owner could implement restructuring or policies that would radically transform the business, leaving workers and existing partners and customers out in the cold. Selling to employees, on the other hand, can help carry the company forward as the old owner intended.