Event Recap: Investing in Ownership Economy
Over the summer, the Institute for Business & Social Impact (IBSI) announced its Shared Ownership Initiative including staff across multiple Haas Centers such as the Center for Responsible Business (CRB), and Sustainable & Impact Finance (SAIF), Center for Social Sector Leadership (CSSL). This collaboration aims to strengthen Haas School of Business activities related to research, education, policy, and practice on various ownership models – including worker and employee ownership, worker cooperatives, Employee Stock Ownership Plans (ESOPs), and foundation ownership.
In early October, CRB, SAIF, and IBSI co-hosted a panel titled Investing in Ownership Economy. The panel created an engaging discussion between Haas students, faculty, and experts in the Bay Area impact investing community on why and how to channel capital into employee ownership. The panel was organized by CRB’s Nathalie America Munoz and Persis Sberlo and SAIF’s Megan Morrice and moderated by Lindsay Smalling, Assistant Vice President of External Affairs at Mission Driven Finance. To build the expert panel, CRB and SAIF invited the following speakers:
- Julie Menter, Program Director at Transform Finance,
- Leo Freeman, CEO of the Obran Cooperative,
- Michael Brownrigg, Co-founder and Partner at Apis & Heritage Capital Partners,
- Nicole Middleton Holloway, financial advisor at Natural Investments.
Setting Intention
The ‘Ownership Economy’ is a movement to build economic prosperity and redistribute power among all workers via employee ownership (EO). Though employee owners still make up less than 1% of the US labor force, since 2019 there has been a 30% increase in the number of US employee owned businesses.
The invited panelists are building momentum for this movement by educating and encouraging investors to better understand that financial and social impact opportunities don’t have to be mutually exclusive. For example, Leo Freeman and the Obran Cooperative are redefining what private equity can look like, focusing on mergers & acquisitions that expand worker-ownership. Why? Because investing in the ownership economy:
- Increases wealth for workers: Employee ownership can build wealth for workers through profit sharing, expanding benefits, and increased wages.
- Rebalances power in the workplace: Employee ownership supports power sharing among all workers through democratic decision-making and cooperative values.
At Haas, business students are encouraged to embed Haas’s Defining Leadership Principles such as Questioning the Status Quo and going Beyond Yourself, into their professional careers. Demystifying the assumptions about the ownership economy allows these future business leaders to build less extractive and just economic structures for all communities.
Opportunities for Impact Investors
The panel discussion mainly focused on the opportunities for impact investors in the Ownership Economy. These opportunities include:
Opportunity 1: Large and Underestimated Market
Panelists emphasized the often-underestimated size of the employee ownership market, a point quantified by the work of Julie Menter and Transform Finance’s recent research report. Their analysis identified huge opportunity in terms of the size and scope of the potential ownership economy market including:
- An estimated 1.2 million U.S. companies could potentially convert to employee ownership. These businesses employ about one-third of the U.S. civilian workforce.
- Converting 20% of these eligible companies could mobilize about $1 trillion in investment capital, which is projected to generate roughly $3 trillion in wealth for workers.
- This wealth represents an average of about $270,000 per worker in those companies, which is described as a truly life-changing amount of money.
Opportunity 2: Massive Wave of Succession Needs
Panelists also emphasized that now is a critical moment for the ownership economy. Why? They see:
- An increase in retiring small-medium business owners with little to no plan: Coined the ‘silver tsunami’, the U.S. Census Bureau shows that just over half (52.3%) of U.S. employer-businesses are owned by people who are at or near retirement age, those 55 and older. These firms represent 3 million of the nearly 6 million private-sector employer firms operating in the United States and many of these owners have not planned for succession.
- Traditional methods, such as ESOPs or mergers and acquisitions, are often unattractive or infeasible: Traditional methods for owners to sell to their employees (like a do-it-yourself ESOP) are often financially unfeasible for the retiring owner, who typically has to hold a note for up to ten years for the majority of the company’s value.
For Michael Brownrigg, this is exactly the moment for Apis & Heritage Capital Partners, a social impact private equity firm that works with businesses with significant workforces of color so that founders can receive a fair return on their life’s work while their companies become 100% employee-owned through an Employee-led Buyout Model.
Opportunity 3: Interest in Values-Aligned Investment
Natural Investments is a socially responsible investment firm led by innovators who wrote the (three) books on socially responsible investing and coined the term “regenerative investing”. Their transition to an employee-owned trust structure was an example of the firm practicing its values. And it helped them understand more about the opportunities and challenges for the ownership economy, including:
- The profiles of ‘impact investors’ are changing. Some impact investors are less concerned with Return on Investment (ROI) and more concerned with real impact on social and economic outcomes within communities. These clients need services that can respond to their unique, and potentially highly impactful, strategies.
- The financial advisor community needs to adapt and learn these innovative strategies. While client demand is strong, a key hurdle is the lack of willingness and due diligence from the financial advisor community to evaluate and offer these alternative, non-traditional investment funds. Opportunities are available for both accredited and non-accredited investors, including through community governance loan funds, private equity (like Apis and Heritage), and community-organized real estate (such as the East Bay Permanent Real Estate Cooperative).
Alongside enthusiasm and optimism, the panel ended with a focus on one pragmatic goal: to amplify and expand the alternatives to traditional private equity and investment firms to focus on justice and wealth-building opportunities for communities. As we looked around at our Haas community during this event, we thought – what better place to explore these creative business solutions for driving social impact than at Haas? Follow the CRB, SAIF, and IBSI for more.
