Author David Korten explains in The Great Turning that, “We are slowly making progress as a nation toward achieving liberty and justice for all only through the long and difficult struggles of the excluded.” A large segment of those who have been left out are the workers who produce our nation’s goods and services. Our economic system directs wealth to owners and shareholders, while workers are generally limited to a wage.
From the 1930s to the 1960s, labor unions helped create a prosperous American middle class by negotiating increasingly higher wages and more substantial benefits for workers. Wealth and income inequality declined significantly.
In 1970, at the end of that period of greater parity, the average CEO’s pay was roughly 20 times the typical worker’s pay. It has now grown to approximately 300 times, according to Lawrence Mishel et al at the Economic Policy Institute. If worker pay had grown as quickly as CEO pay, today’s minimum wage would be more than $100/hour.
Nothing like that has happened. The government and corporations alike have left behind workers. We could change that. Widespread employee ownership may be the platform we stand on to build that change.
According to Project Equity, there are nearly three million small businesses in the US with employees whose owners are over 55. A “Silver Tsunami” of baby boomer business owner retirements will result in trillions of dollars in small business assets changing hands. Some retiring owners will pass their businesses on to family members or a key employee or two. Some will unceremoniously close the doors. Many of these companies have sufficient value that strategic buyers, larger companies or private equity may buy them.
They may be absorbed, bundled, relocated, squeezed, carved up and “sold for parts.” The role of these small businesses as contributors to their communities may end as management without a soul takes over or as these businesses close and leave empty storefronts on Main Street.
Many business owners want to keep their mission-driven companies vital, healthy and independent. And youthful employees and entrepreneurs are hungry for work that’s honest, meaningful, humane and inclusive. Most owners and employees (and those who advise them, like financial planners, accountants, attorneys and succession consultants) are unaware of the employee ownership options available to them.
What if the 32 million-plus employees of those three million companies could creatively purchase these businesses from the retiring owners? Could employee ownership alter the chemistry of our economy and culture and uplift the fortunes of both the entrepreneurs who have built small businesses and the employees who have contributed to their success?
That’s my question.
5 transitions
But simply converting to one or another form of employee ownership is not enough. Business owners and their employees can work together to accomplish what I call the Five Transitions. Each represents a progression — from the business, as it is, to the business it could be:
- Ownership: From proprietary to widely shared and accessible to all.
- Leadership: From founder to next generation.
- Mission: From unprotected to permanent preservation of purpose.
- Management and Governance: From top-down control to participatory and democratic.
- Impact: From business-as-usual to Certified B Corp force for good.
If you accept these five transitions as your intention, don’t expect to achieve them fully; few companies have. But you may want to hold them as goalposts, even if it takes decades or generations to get all the way down the field.
In my book From Founder to Future: A Business Roadmap to Impact, Equity, and Longevity, I invite you to examine, understand and make these Five Transitions. I did this with South Mountain Company, the integrated architecture, building and solar business I founded in 1973 and retired from in 2022 when second-generation leadership ascended. That journey, coupled with helping and observing other companies achieve this, has convinced me of the extraordinary value of this approach.
Applying these alternative corporate design principles may help small businesses lead a new era of shared prosperity, social impact and better lives.
The CommonWealth Company
The term I use for a business that is working on the Five Transitions is a CommonWealth Company (characterized by common ownership, profits, power, information and purpose).
CommonWealth Companies, as I perceive them, employ constant learning and improvement, with loose steering and control, to create continuity, longevity, resilience, impact and equity. Maybe your business already shares some of these attributes. Perhaps you’ve been working on the Five Transitions for some time and have already embarked on the journey toward CommonWealth.
If not, there’s no time like the present to give conscious attention to this scaffold of purpose and begin to climb its ladder. You have built something important. It can be even more than you may have imagined.
As your work toward CommonWealth progresses, you will build community and deeper connections to the places where you work and live. When the people doing the work are the people making the decisions, and when they are the people who will reap the rewards and suffer the consequences of those decisions, better decisions and greater success will surely result for these workers, their communities and the planet.
As I wrote my book, I spoke to people in dozens of companies. Perhaps my favorite moment came when I was standing in the dusty yard at Ward Lumber in Jay, New York, talking to operations manager C.J. Young about the dividends paid out by the company in its first year after transitioning from a family business to employee ownership: “For me,” C.J. said, ”the first-year dividend was life-changing — it helped me buy a house.”
By converting employees to owners and by making the values that matter to us a part of the conversion, we can transform the topography of tomorrow’s small business landscape into a rich ecosystem of widespread empowerment and wealth-sharing. Owning our work is as essential to good lives as owning our homes.
And, as C.J. said, it can be life-changing.
Opinions expressed by SmartBrief contributors are their own.
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