Our economy is designed by the 1 percent, for the 1 percent. This book offers a compelling vision of an equitable, ecologically sustainable alternative that meets the essential needs of all people.
We live in a world where twenty-six billionaires own as much wealth as half the planet’s population. The extractive economy we live with now enables the financial elite to squeeze out maximum gain for themselves, heedless of damage to people or planet. But Marjorie Kelly and Ted Howard show that there is a new economy emerging focused on helping everyone thrive while respecting planetary boundaries.
At a time when competing political visions are at stake the world over, this book urges a move beyond tinkering at the margins to address the systemic crisis of our economy. Kelly and Howard outline seven principles of what they call a Democratic Economy: community, inclusion, place (keeping wealth local), good work (putting labor before capital), democratized ownership, ethical finance, and sustainability. Each principle is paired with a place putting it into practice: Pine Ridge, Preston, Portland, Cleveland, and more.
This book tells stories not just of activists and grassroots leaders but of the unexpected accomplices of the Democratic Economy. Seeds of a future beyond corporate capitalism and state socialism are being planted in hospital procurement departments, pension fund offices, and even company boardrooms.
The road to a system grounded in community, democracy, and justice remains uncertain. Kelly and Howard help us understand we make this road as we walk it by taking a first step together beyond isolation and despair.
Fast Company, Jan 2019, by Marjorie Kelly
To make companies moral, make the employees the owners: Having stockholders can offer confusing incentives for business owners with a mission–but not if those stockholders are employees who believe in the mission, too.
In the minds of many entrepreneurs, taking a company public, with shares trading on a public stock exchange, represents the pinnacle of success–a dream come true. For EA Engineering founder Loren Jensen, that dream proved a nightmare.
Located in Hunt Valley, Maryland, EA Engineering, Science and Technology is an environmental consulting firm with 500 employees and $140 million in annual revenue. For more than a decade, the firm traded on NASDAQ, but after initial success the company cycled through three presidents, saw morale plummet, and found itself in trouble with the Securities and Exchange Commission over accounting misstatements. Pressure for aggressive growth had clashed with the company’s scientific culture, damaging its environmental mission.
Jensen led a move to buy the company back in 2001. He then worked with new president Ian MacFarlane to transition to 100 percent employee ownership through an Employee Stock Ownership Plan (ESOP). MacFarlane also organized the firm as a benefit corporation, embedding in its DNA a commitment to the environment and community.
The company has prospered ever since. Its design keeps its environmental mission in the hands of genuine stewards, employees, rather than in the hands of absentee owners removed from the organization’s life. “Now we focus on who we are and what we’re doing. We returned immediately to the task of understanding environmental problems and knowing what to do about them,” Jensen said. “Nobody buys stock except in the hope of a good return on investment. The problem this poses for a company like EA is you confuse the goals. It was very difficult to manage in that environment.”
EA Engineering is one of multiple companies examined by my organization, the Democracy Collaborative, in research aimed at answering questions critical to 21st century enterprise design and the future of our planet: Are mission-controlled, employee-owned companies better environmental stewards than conventional finance-controlled corporations? Could these be the harbingers of next generation enterprise design?
If our goal is to design an economy that lives within planetary boundaries, we need to better understand the relationship between enterprise design and sustainability outcomes. Environmental advocates generally make the “business case” for sustainability, but research by the Massachusetts Institute of Technology found that such steps resulted in commercial benefits for only 37% of firms.
As U.K. sustainability consultant Carina Millstone observes in Frugal Value, true sustainability cannot be driven purely by commercial concerns. It requires moral decision-making. What enterprise designs enable and encourage moral decision-making?
Our research findings, though still preliminary, point to an emerging model, viable in today’s economy: the employee-owned B Corporation or benefit corporation. Weaving together worker ownership with mission-driven governance, this model embodies design elements required for true environmental sustainability.
In this model, mission is embedded through the B Corporation nonprofit certification process, or the benefit incorporation framework in state law. Among B Corporations, we have identified 35 employee-owned firms, including Eileen Fisher, King Arthur Flour, New Belgium Brewing, Namaste Solar, and Gardener’s Supply. In these companies, founders avoided sale to financial owners, instead passing ownership to employees as stewards, embedding a commitment to social and ecological benefit in governing documents. The companies show an alternative exit for founders, rather than going public and facing the multiple pressures that make it more difficult to have a deep sustainability mission.
Shareholders in publicly traded companies are large in number, geographically remote, disengaged from companies, and structurally unable to effectively voice social and ecological responsibility. Creating shareholders with different characteristics–fewer in number, close to the firm, engaged, committed to a common social or environmental mission–could help create companies compatible with an environmentally sustainable economy. In this configuration, owners can become moral agents.
Eileen Fisher Inc. is a good example. A $440 million company that designs and markets women’s clothing, it is 40% employee owned, a B Corp, and a leader in human rights and sustainability. Founder Eileen Fisher’s vision is of a world where business is a force for good. As the company website says, “Our vision is for an industry where human rights and sustainability are not the effect of a particular initiative, but the cause of a business well run. Where social and environmental injustices are not unfortunate outcomes, but reasons to do things differently.”
Fisher at one time thought about selling to another company. When Fisher met the CEO of Liz Claiborne and asked why she wanted to buy the company, that CEO said, “We can’t meet our mandated target of 10 percent annual growth without buying other companies.” As Fisher said, “I realized that most people were interested in what they could get out of the company, not what they could give to it.”
Instead, Fisher decided on an ESOP, in which shares are held in trust for employees until they retire or leave. The average equity share of employee-owners in an ESOP is $134,000, according to Rutgers University employee-ownership expert Joseph Blasi; this is almost 10 times the average retirement account for American households headed by someone between the ages of 55 and 64 ($14,500). The ESOP ensures that, when Fisher retires, the company will be owned by “the people who put their blood sweat and tears into it; the people who love it and care about it and think about it every day,” as Fisher said. That’s very different from owners who see the company as a way to extract maximum short-term profits.
Employee-owned benefit corporations–like Eileen Fisher and EA Engineering–embody a powerful model of enterprise design for a new era of ecological sustainability and social equity, a corporate design for the 21st century and beyond.
Marjorie Kelly is executive vice president at The Democracy Collaborativeand cofounder of Fifty by Fifty, an initiative helping to catalyze 50 million employee owners by 2050. She is the author of Owning Our Future: The Emerging Ownership Revolution and The Divine Right of Capital: Dethroning the Corporate Aristocracy.
We found one simple trick to boost employee happiness: Give them ownership Giving workers profit sharing and a seat at the table lowers turnover, reduces inequality, and improves the bottom line.
BY JOSEPH BLASI DOUGLAS L. KRUSE AND MAUREEN CONWAY in Fast Company
Near-record-low unemployment has companies fumbling to find the best ways to recruit and retain workers. Our research suggests a sure-fire way to do just that: Give them a real stake. By that we simply mean sharing some of the profits and even ownership with the men and women who are fundamental to their companies’ success.
Most Americans say they want it. A recent government survey found that vast majorities of respondents across the political spectrum prefer to work for an employee-owned company than an investor- or state-controlled business.
Perhaps that’s one reason why the idea is gaining steam on Capitol Hill and on the campaign trail, with several plans being floated–including ones by Senator Bernie Sanders (D-VT) and Senator Elizabeth Warren (D-MA)–to share more corporate control and profits with workers.
After conducting a massive, multi-year study of shared capitalism, we found that not only is it good for workers, it’s good for the bottom line too.
PROFIT SHARING 101
U.S. businesses have a variety of ways to share their gains with workers, from offering cash profit sharing to giving them the opportunity to purchase stock at a large discount. Another recourse is the Employee Stock Ownership Plan, known as an ESOP, which allows companies to use credit to buy shares that are later distributed for free to employees.
Past research has shown the benefits for workers. A survey that has tracked 5,504 younger men and women since 1997–when they were in high school–found that participants who worked at companies that gave employees some ownership reported higher wages and wealth and better benefits and job quality than their peers, regardless of industry or the person’s demographics.
When interviewed in 2013–when the workers were aged 28 to 34–their wages were a third higher and their median household wealth was about double. A follow-up study in 2018 showed that the employee shareowners continued to have better jobs, benefits, earnings, and wealth.
And a 2018 survey by the National Center for Employee Ownership found that workers in ESOPs reported an average retirement balance of $170,326, more than twice the national average of $80,339.
Businesses that are majority- or part-owned by employees cover a wide range of industries, such as supermarkets like Publix, clothing makers like Gore, and consumer goods company Procter & Gamble. Others, such as automaker Ford and airlines Delta and Southwest, offer generous profit-sharing programs.
The U.S. government’s General Social Survey reported that 38% of employees said they received a share of their company’s profits in 2018. Although that seems like a lot, the average payout is just $2,000. And smaller businesses–which make up the majority of U.S. enterprises–are much less likely to engage in profit or equity sharing with employees.
In addition, the number of ESOPs has actually fallen in recent years to 6,660 in 2016 from 7,100 in 2010.
BEST COMPANIES TO WORK FOR
Our research team at Rutgers, in collaboration with the Sloan Foundation and Harvard economist Richard Freeman, wanted to delve deeper into the data on what both workers and companies gain from profit sharing and how those benefits accrue over time.
To do so, we studied the 800 companies that applied for Fortune magazine’s 100 Best Companies to Work For competition from 2005 to 2007. In total, these companies were responsible for 10% of all sales and employment in the U.S. at the time. About one-fifth had Employee Stock Ownership Plans or another form of profit sharing.
To get a sense of how these companies performed financially, we looked at return on equity data compiled by Standard & Poor’s. Return on equity is a common measure of financial performance that divides net income by shareholder equity.
As part of the application process, the Great Place to Work Institute conducted independent surveys of more than 230,000 employees at all the applicants over the three-year period.
After compiling the data from all these surveys, we found that companies that offered workers both equity compensation and profit sharing performed statistically better than the others on a variety of measures. For example, their workers were substantially more likely to say that their company had a collaborative management culture, that they were getting a fair share of compensation, and that their company was an “excellent place to work.” They were also much more likely to say they intended to stay for a “long time.”
All of this translated into better results for the companies as well. Specifically, we found that businesses offering these benefits had a much lower voluntary turnover rate–workers were half as likely to leave–and a return on equity 12% higher than their peers.
A CLEAR WIN-WIN
Bottom line: Sharing the fruits of a company’s success with workers makes the latter happier while helping–or at the very least not hurting–the former’s profitability. On top of all this, these kinds of shared capitalism can reduce inequality.
That’s why we believe the government could do more to encourage it by considering offering tax incentives to both large public companies and small businesses to share profits or create employee share ownership plans. An example of this is a bipartisan bill signed into law in August that lets the government make loans employees who want to buy our retiring small business owners.
If that’s not a clear win-win for all involved, we don’t know what is.
Joseph Blasi is director of the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University; Douglas L. Kruse is distinguished professor and associate dean for academic affairs at Rutgers University, and Maureen Conway is executive fellow, Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University.
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“It takes a job to get out of poverty but it takes assets to stay out of poverty. Ownership shares increase in value over time, generating wealth and security.”
—Fifty by Fifty cofounder Marjorie Kelly
Employee ownership offers a solution to the vast income and wealth inequality that is undermining America’s economy.
GOOD FOR EMPLOYEES
- WAGES: Employee owners earn average wages 5 to 12 percent higher than employees in conventional firms.
- WEALTH: The net worth of employee owners aged 28 to 34 is 92 percent higher than for non-employee owners.
- RETIREMENT SAVINGS: The average retirement savings for an ESOP employee is $170,000, twice the national average.
GOOD FOR BUSINESS
- TURNOVER: Employee engagement is higher and turnover is lower at employee-owned companies.
- GROWTH: Transitions to employee ownership increase productivity by more than 4 percent.
- STABILITY: Employee owners are one-fourth as likely to be laid off and their companies go bankrupt less frequently.
GOOD FOR COMMUNITIES
- JOBS: Employee ownership saves local jobs, because companies that are owned by their employees are far less likely to leave their communities.
- LOCAL WEALTH: Employee ownership keeps wealth circulating in local communities.
GOOD FOR OWNERS
- LEGACY: When business owners sell their businesses to their employees, they can keep their legacy alive for generations to come.
- SAVINGS: Entrepreneurs and family owners can realize the value the business has built while enjoying substantial tax savings.
- RESPONSIBILITY: Business founders and families can find ready buyers in employees, avoiding sale to those who would dismantle the business.