When I founded Verit Advisors 12 years ago, I purposely embraced five values identified over 20 years of advising private culture-driven companies with an employee stock ownership plan (ESOP). These values – Integrity, Partnerships, Excellence, Commitment and Innovation – are listed prominently and proudly on our website’s Overview page. Several clients have told me they chose us as their ESOP advisor because we lead with and live our values.
Two recent surveys concluded that ESOPs and their employees weathered the pandemic better than comparable private and public companies. This stronger performance, I believe, demonstrates the worth of the principles and standards that many ESOPs live by. Together, these values represent a significant advantage in today’s riskier world, especially since a third new survey reports employees are drawn to values and “belief driven” employers.
Organizational psychologist Jack Wiley, for one, believes we’re in the midst of a Great Resignation, with 55% of people in the workforce reporting an intent to seek a new job within a year. But research he has done the past 10 years suggests that ESOP employees probably aren’t as apt to look elsewhere. His research covering 10,000 U.S. workers finds that nearly 40% want support, understanding and recognition from their managers and company. Research finds that employee ownership delivers those needs of employees.
As I’ve written in the past, today’s business environment may be ideal for making the 2020s the “ESOP decade” – for both demographic and economic reasons. The pandemic has prompted Baby Boomer owners of successful private businesses, many of whom are reaching or have attained retirement age, to mull selling their company or divesting a stake in it. Economically, the positive elements include plentiful equity, low-cost debt financing, appealing valuations for private businesses, and the likelihood of higher tax rates that make a tax-advantage sale to an ESOP appealing.
More about that later. First, though, consider how ESOPs and their employees fared better during the pandemic. A study completed by social survey firm SSRS for the Rutgers-funded Employee Ownership Foundation found that employees of ESOP firms with 50-500 associates suffered fewer economic hardships than those of conventional firms:
· Employment dropped only 4.8% at ESOPs vs. 19.5% at others.
· One-third of ESOPs cut hours vs. two-thirds at others.
· Twenty-seven percent of ESOPs cut pay vs. 57% at others.
· ESOP firms were more likely to adopt work-from-home options, with 81% of ESOPs sending workers home vs. 60% at others.
· ESOPs were better able to preserve pre-pandemic work allocation, with 20% of ESOPs adopting work sharing vs. 41% at others.
In addition, the research affirmed the persistence of the better performance, noting that ESOPs outperformed non-ESOPs during the Great Recession of 2008.
A second survey, by John Zogby Strategies on behalf of the Employee-Owned S Corporations of America, also found that ESOP employees experienced dramatically less financial adversity during the pandemic and had more stable jobs and better housing security and retirement savings than their non-ESOP counterparts. This study documented that non-ESOP employees reported downsizing or job losses at six times the rate of their ESOP counterparts. And no ESOP employees surveyed were behind on their mortgage or rent versus over 25% of their non-ESOP peers.
In articulating the values that drive their responsibility to employees and their communities, ESOPs are ahead of the curve. A new study by Edelman, an authority on behaviors that build trust, found that the predominant employee today is “belief-driven,” as apt to seek employment and stay with a company because it is values-driven as is a consumer in buying and sticking long-term with a brand.
In the current talent wars, this values-based approach proves an advantage for employee ownership. Given ESOPs’ statistically superior track record against non-ESOPs in bad times and good, retirement-minded business owners who contemplate selling all or part of their business would do well to seriously explore the value – and differentiating values – of an ESOP.