As Baby Boomers Retire, Employee Ownership Emerges as a New Force in Business Succession
The ‘Silver Tsunami,’ a term coined for the impending retirement of Baby Boomer business owners, is set to significantly disrupt the American business landscape. This demographic shift presents a unique challenge and opportunity: the rise of Employee Ownership (EO) as a viable model for business succession.
According to a study by Lazear Capital, “51% of the current American business market is owned by Baby Boomers, who are planning to exit their businesses over the next ten years. However, only 20 to 30% of businesses that go to market will sell, leaving up to 80% without solid options to harvest their wealth and ensure economic continuity into the next generation.” With an estimated $10 trillion in assets expected to change hands, the ecosystem around EO is rapidly evolving.
Employee stock ownership plan (ESOPs) and worker cooperatives are the most common EO structures, but innovative approaches like Employee Ownership Trusts (EOTs) and Perpetual Purpose Trusts (PPTs) offer additional options to meet to the specific needs of retiring owners. Paradoxically, while EO marks a change from shareholder primacy and fiduciary absolutism there is extensive research indicating that employee-owned businesses yield superior financial results due to improved productivity, employee engagement, enhanced brand value, and potential government incentives.
For non-profit leaders, donors, investors, and policymakers, embracing EO is a critical, generation-defining opportunity. Deploying an ESOP or other EO structure is not merely a new corporate and governance structure; they are a shift towards a more equitable, sustainable economy. Effectively executed, EO should resemble a “three-legged stool,” offering maximum value to exiting owners, wealth building opportunities for employee-owners, and long-term benefits to the community. This third “leg” presents an unparalleled opportunity for non-profit Boards and Executive Directors to actively pursue being the managers of a trust and develop enduring social enterprise strategies that benefit all stakeholders.
Retiring owners looking for solutions are being met with options from business brokers, M&A specialists, and private equity. Thus far, activity from the impact community has been lackluster despite the existence of proven models and the magnitude of this opportunity. Evergreen Cooperatives in Cleveland is a non-profit community leader that has developed worker cooperative models with anchor local businesses to forward its workforce mission. An increase of EO advocates, funders, and subject matters experts in the ecosystem is needed to inspire purpose-minded owners to consider EO transitions, so the wealth building opportunities that vacated our middle- and low-income communities decades ago can return.
As the Silver Tsunami approaches, the adoption of EO stands at the forefront of a major economic transition. There is an urgency for innovators to develop impact-driven strategies before the perishable inventory of businesses are acquired, consolidated, or closed for good. For business and non-profit leaders, investors, and communities alike, these models offer a path to navigate the changing market landscape, ensuring both economic continuity and positive social impact.
SOURCE
https://www.lazearcapital.com/from-crisis-to-opportunity-the-role-of-esops-in-addressing-the-challenges-of-the-silver-tsunami/
Alternative Ownership Enterprises Learning Hub, https://www.transformfinance.org/alternative-ownership-enterprises-learning-hub
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