Building Racial & Gender Equity Through Employee Ownership

In October 2020, the Aspen Institute hosted a webinar aimed at addressing the question: Can employee share ownership improve racial and gender wealth equity? 

Speakers from worker cooperatives, think tanks, universities, and public radio came together to confront the systemic inequality that workers at the bottom end of the opportunity scale face in this economy.

“Broadening opportunities to participate in the ownership of business assets,” the event page reads, “can help address this wealth divide and offer working people the opportunity to meaningfully participate in the success of our economy.”

The events of 2020 — a global pandemic, protests over systemic racism and police brutality, and one of the worst recessions in American history — have put a spotlight on the work that needs to be done in order to promote true equality in our society for BIPOC groups and historically marginalized populations.

Below we’ll cover a few ways that employee ownership can play a role in creating a more inclusive economy by helping to build equity, especially among women and people of color.

Increasing access to build assets

A major study from Rutgers University, funded by the W.K. Kellogg Foundation, found that “increasing access and inclusion by gender, race and ethnicity” is one of five specific elements that work together in order to allow members of the workforce to build assets.

The authors of the study specifically honed in on occupational segregation and wage gaps by race and gender. Their findings that women and people of color in the ESOPs studied fared much better than their national counterparts in building wealth suggest that employee ownership can be used as a policy strategy to reverse wealth gaps.  

And while wealth gaps still did exist among employee-owners, they were far less pronounced than in the general population. The authors even note that individual workers of color interviewed as part their study had savings that exceeded households of color nationally.

This isn’t to say that racial and gender inequities don’t exist in employee-owned firms. Barriers to entry and advancement, among other things, still present themselves as challenges to minority groups in the workplace.

So while employee ownership can be a better vehicle for equitable asset building than traditional employment, the ownership structure isn’t sufficient in itself to eradicate inequality. More work is required to make sure women and people of color especially receive equal support and opportunities for growth.

An impact investment after COVID-19

A conversation with Todd Leverette, partner at Apis & Heritage Capital, published in Fifty by Fifty highlighted an initiative to expand business ownership as a means to build wealth for workers of color in the wake of COVID-19.

The pandemic has been disproportionately affecting people of color by exposing those in “essential jobs” to greater risk while also experiencing layoffs and unemployment at a faster rate than their white counterparts who are more often able to do work from home. The article notes that in April 2020, more than half of Black workers were already unemployed.

In the interview, Leverette argues that impact investors should consider providing third-party capital for employee buyouts. Even when a business that isn’t necessarily “purpose-driven” transfers ownership to workers, particularly immigrants and people of color, that generates significant social impact individually and in their community.

“Employee ownership gives black and brown workers the ability to both build wealth and improve the quality of their jobs through actually having a voice in not just their day-to-day activities but in the actual governance structure of their firms,” he said.

Especially in the time of coronavirus and the subsequent recession, employee ownership can be a critical means for confronting inequality and providing stability for disproportionately affected communities.

Confronting racism & economic injustice

The roots of economic injustice began with slavery and continue to the present day through redlining, predatory lending, and discriminatory hiring, argues Ben Platt in an article published by Project Equity.  

The effects of these practices “have made it far more difficult for people of color to get good jobs, move up the ladder, start their own businesses, or buy homes,” he writes.

Drawing on multiple academic studies, including the Rutgers study mentioned above, Platt identifies four main areas that ESOPs in particular can address the racial wealth gap… 

• Building assets, especially for retirement. Because ESOPs make contributions to worker retirement funds, employee-owners don’t need to sacrifice their own paychecks. This allows people of color to realistically plan for retirement, pay college tuition or a down payment on a home, or transfer wealth to their children.
• Job security and longevity.  Not only are employee-owners more likely to have greater liquid assets to mitigate the risk of lost income, but they are also six times less likely to be laid off. Plus, ESOPs are 50% less likely to go out of business over a 10 year period than traditional firms.
• Better jobs.  ESOPs frequently offer higher pay while also increasing opportunities for career advancement and skill development through training, mentorship, and tuition assistance. The financial education learned through open-book management can also lead to better financial investments for workers and their family.
• Intergenerational wealth transfer.  Due to both legal and more covert forms of discrimination, Black families are far less likely to have wealth and assets to pass on to the next generation. As noted, employee ownership is a powerful vehicle for asset building, but it also tends to stabilize local economies by keeping jobs in the community long-term.

Employee ownership isn’t a panacea for racial and gender inequality, nor is it the only thing that needs to be done to eradicate systemic injustice from the economy. 

That said, its history and the empirical evidence surrounding it makes a clear case for the advantages of collective ownership over more traditional structures that benefit only a few at the expense of many.

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If you’re interested in exploring how a conversion to employee ownership can help your own business become more resilient while promoting equality among workers, schedule a free consultation with us.