Employee Ownership Promotes Racial Equality
As our nation grapples with thorny issues of racial equality, Verit Advisors’ view is that companies with employee ownership are inherently a force for change. Equity participation benefits all employees, and research shows it helps counter the persistent wealth disparity that is correlated with race.
Most of our conversations with clients since the start of the coronavirus pandemic have centered, understandably, on how to regain sustainable business momentum. Lately, though, another issue has emerged for some CEOs of companies whose employees hold an ownership stake that has them flummoxed. Many ask us how their companies should respond to the issue of racial injustice that has percolated since the protests nationwide over the killing of George Floyd and other Black Americans.
These CEOs’ interest is important. Many ESOPs have focused a great deal on articulating their values and purpose, and on creating a just and equitable future for their employees. Believing their values deliver long-term value in the marketplace, these business leaders want to know what they can and should do to sustain and promote their values.
Plentiful research underscores how ESOPS’ employee-focused mindset benefits their employees’ wealth and savings accumulation. This is important because research from the Federal Reserve Bank of Cleveland and elsewhere shows that racial inequality correlates with wealth inequality, which can be countered by employees’ equity participation.
A 2019 study by the Rutgers Institute for the Study of Employee Ownership and Profit Sharing found that employee ownership “can provide a significant accumulation effect for all” and can increase the wealth and savings potential in communities of color. Indeed, the study revealed that while the retirement savings of individual white ESOP participants were 12-to-14 times higher than white employees in the general population, Black and Latino employee-owners had hundreds of times more retirement savings than their peers.
In addition, the Rutgers study found that under stable economic conditions, ESOP companies are six times less likely to lay off employees than traditional companies. Further, during the two recessions prior to 2020, ESOP companies were 50% less likely to lay off employees. Finally, ESOPs are 50% less likely to go out of business over a 10-year period, which portends maintaining and creating jobs in their communities for years to come.
Our conversations and related discussions with CEOS and others identified several initiatives that companies with employee ownership are taking. Among them:
- Communicate with employees about the company’s values, and reiterate or move to reset the foundation of what the company stands for. Strong values and an inclusive corporate culture are important, especially to millennials and to land and retain star employees.
- Encourage directors and management to ensure the company’s goals, culture and programs reflect the principles of inclusion and racial justice.
- Review your human resources policies and programs on hiring and firing, advancement and training to ensure they are fair, equitable and understood by all employees.
- Consider training to address the challenge of implicit bias, which research shows is hard-wired in all human beings. Such training increases awareness of racial bias and support for policies that promote racial equality.
- Evaluate and, if necessary, change organizational processes, including how work assignments are made, to eliminate obstacles minority employees face.
- Keep tabs of how your employees are feeling; make sure leaders are holding regular conversations with employees to gauge their concerns and seek their suggestions.
Since systemic inequality surfaced as a topic of national conversation, many employee-owned companies have taken steps to attempt to address it in their own companies. For example, W.W. Norton & Co., the prominent publisher and an ESOP, promised to “recommit ourselves” to publish material that deliver “essential perspectives on the racial injustices we must fully own and the true community we must bravely build.” Grocery chain Publix, long an ESOP, donated $1 million to National Urban League affiliates in the Southeast for their civil rights efforts.
Employee-owned supermarket chain Hy-Vee said it will donate $1 million as well as commit to provide one million volunteer hours to organizations that support racial unity and equality through its eight-state Midwest region. And organic food maker Clif Bar & Company donated $100,000 to two national organizations helping to lead the movement toward equality.
Verit Advisors’ view is that companies with employee stock ownership are already on a path toward building a fair workplace and a participative economy where everyone benefits equally. Steps consistent with these companies’ values can enhance that journey and promote financial as well as racial equality.