December 21, 2020 12:03 PM
Crain’s Chicago Business

The food industry runs on cheap labor. Here’s how to change that business model for the better.

Torana Group

The pandemic is shining a bright light on an uncomfortable fact: The workers we deem essential are rarely treated like it.

We see this in numerous industries, including health care and education, but it is strikingly apparent in the food supply chain, a significant driver of Chicago’s economic engine. The people who grow, harvest, package, process, distribute, deliver, prepare and serve our food are on the frontlines of this crisis and exposed to higher risks. This multitude of often-invisible, low-wage workers has been feeding us, and frankly, keeping panic at bay during the pandemic.

And how are we thanking them? With social media posts and lawn signs. Headlines throughout the year showed how low wages and risky conditions continue in production fields and processing facilities. The hazard bonuses (where they were available) are expiring, even as the risks persist.

There is a better way — to not only thank these workers but also strengthen their employers and mitigate risk, a way that lets these essential workers share in the business value they create: employee ownership.

This is not charity. It is smart risk mitigation, tax planning, value creation, and, in some cases, an important step towards more equitable compensation. Smart business owners also know that offering employees ownership helps harness frontline intelligence held by essential workers while giving these employees a reason to act on their insights, observations and expertise.  In such essential industries, like food processing, distribution and agriculture for example, the pandemic has shown us just how much supply chain stability relies on the frontline workforce.

KKR’s Peter Stavros has been showing for years how it works for large manufacturers, with Ingersoll Rand’s 16,000 employees the latest beneficiaries. “Shark Tank” billionaire Mark Cuban argues employee ownership helps businesses survive. And this even bridges the political gulf. Both conservative Sen. Ron Johnson (R-Wis.) and progressive U.S. Rep. Alexandria Ocasio-Cortez (D-N.Y.) have proposed legislation recently to promote employee ownership.

Employee ownership is a viable, attractive option for small- and mid-size companies too, and it can take many forms. The most well-known and well-researched is the employee stock ownership plan, or ESOP, however business owners have other choices including employee-owned trusts and a variety of stock plans from phantom stock to options. Before a structure can even be considered, employee ownership starts with a business owner who wants to sell part or all of the company — and who wants to sell in a way that, in addition to getting fair market value for the company, also seeks to reward and retain valued employees.

If you are a business owner, there are an array of resources to help you think through these choices, from the resource-rich National Center on Employee Ownership to industry leaders like Verit Advisors (based right here in Chicago) to regional exemplars like distribution giant KeHe and grocery retailer Woodman’s.

As a business owner, you gain material benefits from selling equity to your employees.  It keeps the company intact, your employees employed and your business rooted in the community.  It offers significant tax benefits for the company and you.  It can protect your company culture and legacy.

The potential of employee ownership to provide more stability to essential workers and create a more resilient economy should not be overlooked.

recent study by Rutgers University’s School of Management and Labor Relations and the non-profit Employee Ownership Foundation found that majority ESOP firms were more than three times likely to retain staff during the pandemic — even when the traditional company received Paycheck Protection Program money while the employee-owned firm did not.

Which brings me back to the food industry, with hundreds of companies employing more than 55,000 people in the Chicago area — many of whom are deemed essential and many of whom could benefit greatly from employee-ownership deals.  After two decades of working in food & agriculture and finance, I have seen first-hand how frontline employees drive financial value for their companies and have witnessed increasing evidence that employee ownership can have powerful business benefits.

I’ve also seen plenty of social media posts during the COVID-19 pandemic expressing gratitude to essential workers for their sacrifice.

Thank yous are nice, but ownership is better.

Malini Ram Moraghan is managing director of Torana Group, a boutique firm that invests in middle-market companies to support responsible growth and meaningful ownership.