Employee Ownership Transitions: Lessons from the Field
When Eric Greenberg, owner of Green Mountain Graphics, was faced with the question of retirement, he was stumped. Neither of his children were interested in taking over his sign manufacturing and installation company, and he was uncomfortable with the idea of selling to a third-party buyer who might drastically change the company’s culture or layoff his staff.
Eric purchased the company from his parents in the 1990s, and it had since grown into a successful venture employing 11 long-tenured full-time designers, salespeople, installers, and administrative staff. After hearing about the option of selling to employees at an event, Eric reached out to The ICA Group to see if this option would meet his financial and legacy goals. At the start of 2022, Green Mountain Graphics became a worker-owned cooperative. It is one of 11 conversions that ICA supported over the course of the pandemic. These conversions occurred across a range of industries, including, among others, professional services, manufacturing, child care, healthcare, and retail.
Building an Equitable Economy
Bringing employee ownership to scale is at the heart of ICA’s mission and intended strategy. While we are immensely proud of these recent conversions and their impact on the lives of the workers and their communities, we recognize that these firm-level transitions are not enough to create the true shift in power needed to build an economy that would have more equitable outcomes. For that, transitions of power must occur at the firm, network, and community level.
“To build an economy that would have more equitable outcomes, transitions of power must occur at the firm, network, and community level.”
The ICA Group’s theory of change envisions those shifts in power working together as follows:
By transferring ownership to those who historically have not had access to wealth-building opportunities and building democratic structures, low-wage workers build financial independence;
Through networks of peer support, newly created and existing worker cooperatives share resources and work together to tackle challenges in community; and
At the right scale, these new institutions, with their increased market shares, begin to disrupt systemic oppression and shape local economies to make real change for communities.
Through our work on these 11 conversions over the last few years, and throughout ICA’s 45 years of experience developing worker-owned companies, we have learned a great deal to inform our strategy moving forward.
Lessons from Selling Owners
In most cases, our process of working with companies on a conversion starts with the selling owner. After working with dozens of owners in the last several years, some patterns have emerged.
There simply is not enough information about worker cooperatives being shared in exit planning and small business support spaces. Despite the many challenges owners face in selling small businesses, employee ownership simply isn’t on the menu. Most exiting owners we meet have not heard of employee ownership as a succession option, or they’ve received inaccurate information about the option.
Values-aligned owners are drawn to employee ownership: Many of our selling owners find their values align with employee ownership—they believe in economic democracy and providing wealth-building opportunities for workers—making it a good choice for them. They like the idea that a worker-ownership transition is likely to sustain the culture and legacy they have built.
Flexible timeline: Owners often like that they can leave on their own timeline, remaining with the business as it transitions.
Private equity is a strong competitor: Some owners want, or need, the highest price for their business. This puts employees who want to purchase the business in direct competition with private equity, which often has the means to offer a higher price, a more seamless process, and immediate cash for the seller.
Lessons from Workers
For many workers, the opportunity to own their own company is an exciting prospect, but not one that comes without challenges. To both purchase and successfully manage a new cooperative business, workers need support in three areas:
Access to cooperative-friendly financing: Financing provided by our banking partners allows debt service to be paid from the converting company’s profits and does not require personal guarantees or large down payments from workers themselves. This model is key for workers who may not otherwise be able to come up with the capital necessary to purchase a company or take out a loan themselves.
Building an “ownership mindset”: Becoming an employee-owned company is not simply a legal transition, it is also an operational and cultural one that requires a great deal of support. Workers are excited to participate in democratic governance structures but need training and guidance to ensure that they can navigate these new systems effectively and efficiently.
Post-transaction operational support: Operating as an employee-owned firm surrounded by traditionally structured firms can be isolating; a network of support is important for success. Access to service providers, legal and accounting support, and cooperative friendly banks is critical. Ongoing coaching and consulting, especially in the first year after conversion, is essential to the long-term success of new worker cooperatives.
The Barriers That Still Remain
When reflecting on these lessons from the last several years, we ask ourselves, what strategies will allow us to create deep and meaningful systemic change? We’ve identified several pressing issues that are critical to our ability to scale:
Expanding the audience of owners: We need to move beyond the small group of values-aligned owners who are thrilled to sell to their employees. All exiting business owners should know about employee ownership—one of multiple options that could meet the business owner’s needs and the needs of the business. Reaching exiting business owners who are not necessarily values aligned and ensuring that employee ownership can compete as an exit option is critical to scaling employee ownership.
Finding the right balance between resource investment and long-term impact: Transitions to employee ownership take time and effort on the part of selling owners, employees, and consultants. To thrive after a transition, companies need thorough financial analysis, thoughtful governance development, and training to integrate new systems and structures seamlessly into operations. We must use our resources efficiently, balancing pre- and post-transaction support, to ensure that companies are being set up for success.
Integration into economic development landscape: Not enough people know about employee ownership as an exit option—or they are misinformed. To overcome this knowledge gap, we need to further integrate employee ownership and conversions into the already thriving economic development field through strategic partnerships and network building. This could lay the groundwork for integrating employee ownership into the standard options considered during exit planning.
The ICA Group has been a catalyst for multiple ownership transitions that have had real impact on the lives of workers. But to scale these efforts to the network and community level, across the field, we will need to reach more firms, build relationships with economic development partners, and continue to find new ways to access selling owners who would not otherwise have considered employee ownership. We are excited to share our experience and the lessons we’ve learned as we work together to scale employee ownership and build a more equitable economy.
Allison Curtis is the business conversions program director for the ICA Group.
