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For Goodness’ Sake, Start Teaching About Employee Ownership

This article is more than 4 years old.

It’s inexplicable. Why, with few exceptions, do today’s business and law schools and university finance and accounting departments shun teaching about employee ownership? Why isn’t it a question on the bar, CPA or CFA exams? Why isn’t it a topic in academic and public sector conversations about community and economic development?

 “My students had never heard about employee ownership before, but they ate it up,” says Michael Foley, who taught an entrepreneurial finance class at the Massachusetts Institute of Technology. Foley, who ran an ESOP-owned company and is director of another, is not surprised. “Each generation has a different mindset and today’s generation focuses on societal issues. Employee ownership resonates with them.”

What explains the absence of this topic from the nation’s professionals’ education? The gap is baffling, as about half of U.S. workers have either employee share ownership, company stock, profit or gain sharing, according to 2018 data from the esteemed General Social Survey. It’s especially relevant now since engaging and satisfying employees grows significantly more important in today’s fierce war for talent.    

Rutgers University Professor Joseph Blasi, director of the Institute for the Study of Employee Ownership and Profit Sharing, has a “working conclusion” for this absence. He blames those who design curricula and consider executive compensation the only POV in exploring benefit sharing with the middle class. “Business schools have been very late to the discussion of middle-class inequality and the use of employee share ownership or equity participation to share wealth,” he contends.

In his view, three main objections exist to including content on employee engagement and ESOPs in U.S. professional education. One, says Blasi, is “if it’s such an interesting idea, why don’t we see more of it?” The second is that it’s perceived to be too risky for workers to own stocks in their employer.

The facts belie these assertions, he points out. ESOPs are, in fact, widespread in the U.S. with, by the latest count, roughly 6,600 ESOPs covering more than 14 million participants. Further, employees of public companies have long tended to over-index ownership of their employer’s stock in their retirement plans, a risk that can be reduced through prudent diversification. Plans for ESOP employees should similarly allow for ownership of a broad basket of financial assets, not solely their employers’.

The third objection goes to the kind of economic system we favor and the myth that employee ownership smacks of socialism. Interestingly, in the latest biennial General Social Survey of political attitudes – conducted by the University of Chicago’s National Opinion Research Center with funding from the Employee Ownership Foundation – nearly three-fourths of respondents when asked the kind of economic system they preferred favored an employee ownership option while only a very tiny percent preferred a state-owned option.

The bias against educating about employee ownership is especially harmful to family businesses and the localities in which they’re based. Data shows that family-owned business disproportionately benefit their communities in providing jobs and supporting local civic and philanthropic organizations.

Today, when more family business owners are retiring and their children don’t want to run the business, seems the perfect time to inform students about employee ownership. And, specifically, to underscore that transferring ownership to employees rather than sell to an outsider without ties to the community can safeguard the business, jobs and often a community’s economy. Everyone’s walked down a street of a once-vibrant community that lost a major employer. It’s sad – and can be avoided. 

Educating students about ESOPS would dispel the too many misperceptions that exist about them, including that it’s all or nothing when going the ESOP route. It’s just not so, and because of their flexibility, ESOPs and employee ownership should be seen as one of many tools in the lawyer and financial advisor’s toolbox. Often, the family doesn’t even have to give up control to the ESOP.

What should an employee ownership curriculum comprise?

•            The topic should be included in CPA, CFA and law school courses about wealth and estate planning, corporate structure and business ownership alternatives.

•            Law school classes should address it when studying corporate structure, governance and legal issues.

•            Economic development classes can focus on how an ESOP benefits localities whose fabric is destroyed when a significant employer closes or ownership shifts outside the community.

•            Schools of business should feature cases in which benefits and, yes, pros and cons of the ESOP structure are explored.

Having seen the beneficial impact to business owners, employees and communities, we believe passionately that employee ownership must be a vital part of these students’ education. Consider these recent findings:

•            ESOP participants have more than twice the average total retirement balance of Americans nationally and 20% more financial assets overall vs. employees at non-ESOP companies. •            Being in an ESOP is associated with 92% higher median household net wealth, 33% higher median income from wages and 53% longer median job tenure. •            Two-thirds of millennials employed at ESOPs expect to retire by age 65, twice the number of millennials at non-ESOP companies. 

Some progress is emerging on the education front. Rutgers University, the leader in employee ownership studies, has begun a certification program in participatory management with its first class starting this October. Professor Bill Castellano, executive director of the New Jersey/New York Center for Employee Ownership, is directing it. Jointly, the business schools at Northwestern and the University of Chicago offer an Entrepreneurship Through Acquisition program with an employee ownership component. Plus, more centers of employee ownership are opening in states such as Massachusetts, Ohio and Vermont. These trigger more regional education about employee ownership. It’s high time to change the way we teach business, law and community development so that employee ownership becomes an essential part of students’ education. Our people, economy and nation will be the better for it. My view is that by teaching about broad-based profit sharing and employee ownership, educational institutions broaden students’ knowledge about corporate structure and employee engagement. It’s in keeping with the economic vision of America’s founders – Washington Jefferson, Adams and Madison – who believed citizens should have some ownership stake to generate productive capital.




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