As an advocate and advisor on employee stock ownership plans (ESOPs) and other forms of employee ownership for nearly a quarter-century, I have seen their positive impact on business owners, company performance and, especially, employees’ wealth creation. And given the renewed interest in ESOPs, I’ve even predicted that this will be the “Decade of the ESOP.”

That explains why I was excited to talk with my long-time friend Corey Rosen, who founded the National Center for Employee Ownership in 1981, about his just-published book, “Ownership: Reinventing Companies, Capitalism and Who Owns What,” co-authored with John Case. Would he, I wondered, echo my prediction?

Rosen became enamored of employee ownership when serving as a staffer to the Senate Small Business Committee in the late 1970s.  “I was looking for a cause I could fight for and found employee ownership at the intersection of making a real difference in changing people’s lives, financially and psychologically, that was also politically practical,” he explains. “I decided to get involved and never regretted it for a moment.”

Rosen considers employee ownership a powerful tool to address inequitable wealth distribution. He notes it is a solution supported by both sides of the political aisle. And as he is an astute campaigner, I was interested in his views on how employee ownership can grow further in the U.S.

Rosen believes the complexity of the many forms of employee ownership works against business owners being aware of them and financial advisers recommending them.  “ESOPs have a lot of moving parts—lawyers, trustees, appraisers, and administrators, and it takes a while to understand them.  ESOPs are no more complicated than other ways to sell a business, but they are much less familiar, and business owners and their advisors often don’t want to deal with new approaches,” he notes.

Politically, employee ownership has less traction than it might precisely because just about every politician thinks it is a good idea.  Because of this wide support, “employee ownership Isn’t the kind of issue it is easy to run on—you need ones that differentiate you.”

Despite these challenges, Rosen cites four factors that encourage him that, yes, the 2020s will be the “Decade of the ESOP.”  Here’s his list.

Growth of State-level Centers for Employee Ownership:  He points to an NCEO study that shows state employee ownership centers work. They don’t cost much to create and operate and, in states where they exist, the number of ESOPs is 30% greater than one would otherwise expect.

Colorado is the leader. In the first nine months after its standalone Employee Ownership Center opened in 2020, new ESOPs created were twice the number expected. Rosen views it as the gold standard because it combines outreach to business owners and subsidized feasibility studies – and its chief advocate and ambassador is Gov. Jared Polis, who often promotes the merits of employee ownership.

Thirteen state centers now exist, although only two are state funded, so their resources are limited.  California just passed a bill creating an Employee Ownership Hub in state government, and Massachusetts is likely to make its state center program permanent.

Another positive portent: Language in the U.S. Senate’s so-called RISE and SHINE Act (Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg) that, among other things, would create an office within the Department of Labor to coordinate and fund (with $400,000 each) state employee ownership outreach programs.

Supportive Federal Legislation: Several bills before Congress would encourage employee ownership. Chief among them is the Promotion and Expansion of Private Employee Ownership Act of 2021. Sponsored by 36 Republicans and 26 Democrats, the Act would expand tax incentives and federal assistance for ESOPs by permitting the deferral of tax on the gain from the sale of employer securities to an ESOP and allowing a tax deduction for 50% of the interest received by a bank on loans used to finance an ESOP buyout. Presumably, the next Congress, regardless of its makeup, will consider this and other bills that encourage employee ownership.

Growth in Acquisitions by ESOPs:  Underappreciated, Rosen contends, is the number of employees participating in ESOPs. While the number of new ESOPs being formed has been relatively stable, ESOP companies are acquiring non-ESOPs and including the acquired companies’ employees in their ESOP plans, thus helping to grow the number of people covered by these plans.  He cites such ESOP-acquisitive companies as Folience, OwnersEdge, Empowered Ventures, LJA Engineering, Integrity Marketing, and Davey Tree that are expanding the rolls of employee ownership.

Rosen believes that “ESOP companies, because of the generous tax treatment they receive, are better able to accumulate cash and buy other companies. As these stories become more common, other business owners will find selling to an ESOP company – and getting a fair price and making their employees owners – makes sense.” (In a related anecdote, he cites the owner of a company at the sales closing of his company to a private equity firm. When the PE firm said it would fire the 20% of employees who were administrative staff, the owner walked away. He then sold his company to an ESOP for less money because it would retain all employees.)

Embrace of Employee Ownership by PE Firms – Credit Peter Stavros, long-time co-head of PE firm KKR’s Americas Private Equity platform, for pioneering an innovative employee engagement and ownership model for KKR’s industrial companies. Earlier this year, Stavros created OwnershipWorks, a nonprofit  that partners with companies and investors to provide all employees with the opportunity to build wealth at work.  Rosen expects Stavros’ impact will be both in the number of companies and elevating the idea of employee ownership to greater awareness.

So, that’s four strong reasons for optimism in the spread of employee ownership from Corey Rosen, perhaps the field’s leading crusader for more than 40 years.