For Retiring Business Owners of Color, an Exit Strategy That Saves Jobs and Builds Wealth

People of color own more than 1.1 million employer businesses in the US, but half are nearing retirement and only a third have a succession plan. Coupled with the pandemic’s disproportionate impact on Black and Latino communities, the coming “Silver Tsunami” puts tens of thousands of businesses and millions of jobs at risk.

“These strategies help business owners preserve the wealth that they’ve created”

The NJ/NY Center for Employee Ownership at Rutgers University, with support from the W.K. Kellogg Foundation, is rolling-out a nationwide initiative designed to keep these businesses going and prevent harm to local economies. Starting today, Rutgers is offering a free online program that guides business owners through the process of selling to their employees through an employee stock ownership plan (ESOP) or a worker cooperative, two proven succession strategies that many business owners overlook or simply have not heard about.

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“The ESOP model creates two bags of gold,” said Michael E. Brown, founder and president of Michael’s Transportation Service, Inc. headquartered in Vallejo, California, a Black-owned business that introduced an ESOP in 2009. “The owner’s bag is filled with cash from the business sale to employees. The employee’s bag is being filled with the equity from the company’s profits. The business owner starts to eliminate the cause of systemic poverty by replacing the traditional business model of exclusion, where the many serve the few, with a 21^st-century business model of inclusion.”

In a series of empirical studies, Rutgers researchers found that employee share ownership leads to higher productivity and lower turnover when paired with a supportive corporate culture. Low-income and moderate-income workers can build significant wealth, narrowing the racial and gender wealth gaps. And employment stability does not waver in times of recession: employee-owned companies implemented significantly fewer layoffs and pay cuts than traditional employers in the early months of the pandemic.

“When the pandemic began, we lost 70% of our wholesale accounts, which should have taken the company under,” said Vinny Green, co-owner of Taharka Brothers Ice Cream, a majority Black-owned worker cooperative in Baltimore. “We could have shut down, but the worker-owner mentality makes you take that extra ten steps. We brainstormed different ideas and home delivery was one of them. We developed a system to pull it off and ended-up doing 100 to 200 deliveries a day. Now it’s a permanent part of the business and still running strong.”

The NJ/NY Center for Employee Ownership, a unit of the Rutgers Institute for the Study of Employee Ownership and Profit Sharing, teamed-up with the Democracy at Work Institute to develop the free online program. It enables business owners to learn at their own pace through a series of easy-to-navigate modules, delivered by instructors of color with real-world experience in their subject area. For business owners who decide to move forward with employee ownership after completing the program, Rutgers will connect them with professional associations, service providers, and state employee ownership centers for direct assistance.

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The Employee Ownership Online Education Program covers the following topics:

ESOP

• Succession Planning for Business Owners of Color
• What is an Employee Stock Ownership Plan (ESOP)?
• How to Finance an ESOP Transaction
• Increasing Your ESOP Value
• How to Tap into the Benefits of Employee Ownership

Worker Cooperative

• What is a Worker Cooperative?
• Worker Cooperatives and African American Cooperative Economics: Origin Stories
• Using the Cooperative Advantage to Grow
• Four Corner Posts of Democratic Management
• Governance in Worker Cooperatives
• Developing Worker Cooperative Structures: Legal Considerations
• Capital for Worker Cooperatives and Other Employee-Owned Businesses

“These strategies help business owners preserve the wealth that they’ve created,” said Professor Bill Castellano, executive director of the NJ/NY Center for Employee Ownership at Rutgers University and leader of the team that developed the new program. “That is the biggest challenge facing these firms. Many of them lack business succession options such as selling to a competitor or private equity organization, which some do not prefer anyway. They might want to pass it on to a family member, but often times family members are unable to take over the business. Selling to the employees by becoming an ESOP or worker co-op could be a viable option for many firms. It’s a strategy that preserves wealth, keeps the business going, saves jobs, and prevent harm to the local economy.”

Today’s announcement advances the W.K. Kellogg Foundation’s commitment to supporting groups disproportionately affected by the COVID-19 pandemic.

“Our goal is to achieve long-term, positive outcomes that promote children and families’ well-being,” said Jeanne K. Wardford, program officer at the W.K. Kellogg Foundation. “Employee ownership does just that. Yet too many Black-owned businesses or businesses with majority Black workers don’t know about employee ownership programs. We are proud to support Rutgers’ new online portal because it delivers how-to knowledge on employee ownership to businesses.”

The Foundation’s grant also supports an initiative by the Rutgers Center for Innovation in Worker Organization (CIWO) to diversify leadership in the worker justice movement.

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