Nearly half of American small businesses are owned by baby boomers, and most — more than 80 percent, according to Project Equity — have no succession plan. Some of these businesses, which employ as many as one-in-six American workers, will be passed on to the owner’s children or will successfully sell to new, locally-based owners. But the majority are vulnerable to simply disappearing, along with the jobs they provide.
This upcoming “silver tsunami” poses a great risk but also an opportunity. In many cases, the business’s employees may be those most committed to its continued existence, making a worker-owned cooperative an excellent path forward. But conversion to a cooperative is not easy, and owners and employees alike may not be aware of the option or how to go about it. This challenge has prompted a number of local efforts to begin offering dedicated support for coop conversions.
In Philadelphia, city officials have teamed up with the Philadelphia Area Cooperative Alliance (PACA) to support coop conversions along West Philly’s 52nd Street corridor. The area has one of the densest concentrations of black-owned businesses in the city, and many of the owners are at or beyond retirement age, with no prospects of passing the business down to their kids. PACA is providing outreach and education to businesses about worker ownership and technical support for conversions.
“The failure to plan for business succession in small and middle-sized closely held businesses is the leading preventable cause of job loss in the U.S.”
The city of Fremont, CA worked with Project Equity to identify and begin outreach to the nearly 40% of its manufacturing businesses — employing some 12,000 people — that are more than 20 years old and potentially at risk of closure. In Chicago, a consortium of business, labor, and community groups, along with the Cook County Bureau of Economic Development have started a similar program of outreach, education, and assistance to an estimate 1500 to 2000 manufacturing firms at risk of closure. Their project plan quotes the Ohio Employee Ownership Center’s finding that “the failure to plan for business succession in small and middle-sized closely held businesses is the leading preventable cause of job loss in the U.S.” They aim to promote conversion to worker ownership and business sales to entrepreneurs from historically marginalized groups.
Cleveland-based Evergreen Cooperatives, profiled in the previous installment in this series, is taking an even more direct approach to tackling the silver tsunami. They recently launched a Fund for Employee Ownership to purchase local small businesses when owners are ready to retire, and then take the time needed to work with the firms’ employees to make the transition to employee-owned cooperatives within the Evergreen network.
Supportive policies can make a big difference to the success rate of business conversions. In August, the US got its first major boost to employee ownership in decades, with the Main Street Employee Ownership Act, sponsored by Senator Gillibrand. The Act directs the US Small Business Administration (SBA) to open its loan guarantee program to worker cooperatives and employee stock ownership plans (ESOPs), another worker ownership model more suitable to larger companies. The Act also directs the SBA to provide training on employee-ownership options through state Small Business Development Centers.
Italy has a cooperative conversion law that goes much further. Its Marcora law offers workers in companies that are shutting down the right of first refusal to purchase and relaunch the business as a cooperative. Workers can proactively apply the unemployment payments they would have received had the company shut down as a lump sum towards capitalizing the conversion. A state-funded loan program will then match the funds the workers contribute. The new cooperative can also receive additional financing and technical support by joining one of Italy’s three coop federations. Since the mid-1980s, the Marcora law has saved over 13,000 jobs at more than 300 new cooperatives, at an estimated cost of less than $15,000 per job, a bargain compared to many economic development incentive programs.
Here in New York State, the SBDC network is gearing up to share expertise on worker ownership across the state. The Buffalo State SBDC recently helped the retiring owner of the Rose Garden Early Childhood Center and her employees plan for and carry out a conversion to worker ownership. SBDC advisor Andrew Delmonte, who supported the conversion, and Frank Cetera of Onondaga SBDC worked with the Democracy at Work Institute to create a New York State-centric guide to coop conversions, offering an overview of worker coops, a self-assessment for owners to help beginning determining whether conversion might be right for them, and a five-stage outline of the conversion process. Delmonte walks through the process and the Rose Garden conversion case study in Episode 4 of last summer’s Pathways to Ownership webinar series.
Here in the Hudson Valley, one of our first worker-owned cooperatives — Earth Designs Cooperative in Rosendale — started as a conversion from a sole proprietorship, albeit one in which the original owner had no plans to retire but has stayed on as a member of the coop! And at the Cooperatives and Shared Leadership gatherings hosted by the Good Work Institute last fall, I met several other business owners interested in learning more about converting their businesses. Combine that with our share of the silver tsunami, and we could have fertile ground here for relatively rapid growth of worker coops through business conversions, especially if we can provide good support.