BiGS Actionable Intelligence:
While much has been written about the financial differences between Black and white America, one stark example is the numbers that surround retirement savings: The median for Black households is about $24,300, only a fraction of the $176,900 held by white households, according to the Institute on Taxation and Economic Policy.
Only about 41% of Black Americans report having enough savings to withstand the shock of losing a job or some similar financial emergency, compared to 60% of white Americans, according to the Economic Policy Institute. Black households were also more likely to report having difficulty paying bills and an income that varies.
“The racial wealth gap presents a stark challenge—not only to the well-being of Black households but to the health of the entire American economy,” Evan Edwards, president and CEO of Project Equity, wrote in “Black Employee Ownership: A Pathway to Wealth Building & Economic Opportunity,” a joint report with Morehouse College and the UC Riverside released in February.
While many solutions focus on government policy prescriptions, such as increasing the child tax credit or the minimum wage, some experts point to a business solution. Broad-based employee ownership, they say, can help close the wealth gap while boosting companies and local economies at the same time.
“As business leaders, policymakers, and working people alike increasingly recognize the limits of incremental reforms, there is a growing call for bold solutions that can deliver real wealth-building opportunities for Black workers across professions, industries, and geographies,” Evans wrote. “Broad-based employee ownership is one of those solutions.”
Nien-hê Hsieh, a professor at Harvard Business School who studies ownership, said that employee ownership structures can have a major impact on both companies and the people who work there. For example, research has shown companies can become more productive, more profitable and better able to withstand economic downturns. The impact on employees is similar.
“Whether it is a home or a business, ownership helps generate wealth,” he said. “We see this across the social and economic spectrum. Employee ownership can result in substantial amounts of money in the hands of workers. It seems like a very good tool to combat racial disparities in wealth as well as broader inequalities in status.”
‘A huge impact’
Employee ownership can take many forms, such as Employee Stock Ownership Plans or worker cooperatives, but generally involves giving workers some type of stake in the company and, in some cases, a hand in how it is governed. When the company grows, so does the employee stake, which helps workers build wealth. Examples of companies that have embraced this model include Gibson Guitars and Charter Next Generation.
Scaling employee ownership could significantly help close the wealth gap, according to 2021 research by Harvard Business School Associate Professor Ethan Rouen and Thomas Dudley, former CEO of Certified EO, an organization that certifies employee-owned companies.
If all private companies in the U.S. became 30% employee-owned, American household wealth would nearly double, according to the research. For Black households, the impact would be even greater: Net wealth would more than quadruple from about $24,000 to more than $106,000. If all private companies became even 10% employee owned, the wealth of Black households would more than double.
“This kind of redistribution would have a huge impact — we’re talking hundreds of thousands of dollars,” Rouen said. “It would bring the average Black family's wealth from near zero into the six figures.”
Rouen was surprised by the magnitude of their findings. He also said that the impact on the richest Americans, who own the majority of business wealth in the U.S., would be minimal, considering the potential boost in productivity and profitability that can come with employee ownership.
“When you align everyone’s incentives with a common goal, everyone will work harder to achieve that goal,” he said. “When you have an equity stake, all of a sudden you have a claim on the upside, and so that incentivizes you to work harder to increase that upside. It is something that has the potential to grow the pie and create wealth for everyone involved.”
Creating generational wealth
There’s also a ripple effect: Workers will have more money to pump back into the local economy and to pass on to their children and grandchildren, helping to create generational wealth.
“While not a silver bullet for racial inequities, [employee ownership] represents one of the most powerful and underleveraged solutions to help bridge the wealth gap and build a more inclusive economy from the bottom up,” researchers wrote in the Black Employee Ownership report.
Wages at employee-owned companies tend to be about 20% to 30% higher than at traditional firms, according to research by the National Center for Employee Ownership (NCEO) and Project Equity. The retirement savings are even more impressive: ESOP workers had more than double the savings of workers at traditional companies in their retirement accounts, according to a 2023 NCEO survey.
“By providing workers with a stake in the value they create, [employee ownership] offers a path to financial security that is often out of reach in traditional employment structures,” the researchers wrote.
Passing that wealth on can be a game-changer for future generations.
“It’s really hard if every generation is going to start at zero. It's just extremely hard to get to a place where you can be financially secure,” said Michael Brownrigg, co-founder of Apis & Heritage Capital Partners, an impact investing firm that helps fund companies transitioning to 100% employee ownership. “When you don't start at zero, your parents can stake you money [to open a] restaurant, or they can pay for your college, or whatever it might be. There's a long-run impact on wealth inequality.”
The impact also goes beyond families, benefiting communities and local economies.
“When you become employee-owned — let’s say 100% — that company is not going anywhere,” said Brownrigg, who is also the current mayor of Burlingame, Calif. “The workers are not going to vote to move their factory to Georgia because there's a tax break in Georgia. That company is going to stay rooted in its community, not just the wages staying local, but the wealth staying local. All of those profits are going to roll out into the community forever, and that closes the wealth gap, too.”
Barriers to adoption
Despite the benefits, experts have also found that there are several barriers to widespread adoption.
As researchers from Morehouse College found when studying Atlanta, there is a lack of awareness of employee ownership as an option. Many business owners and employees they interviewed had little or no exposure, though many did express interest. Others struggled with the daily grind of running a company, felt undercapitalized or were a little reluctant to relinquish control.
“What I've seen is that the biggest barrier is just institutional will,” Rouen said. “It's the fact that [transitioning to employee ownership] is hard to do. It requires thinking outside the box, and it requires leaders who have been successful doing things one way to do something totally different.”
Morehouse researchers concluded that, while employee ownership was well-received by business owners and workers, more support for businesses and workers is needed for it to succeed.
“The most important thing is consulting on the legal and cultural implications,” Rouen said. “The legal hurdle is a significant one—figuring out how to structure the equity is hard and … you need to really educate employees on what equity is, how their roles can actually impact the business and, through that, impact their own wealth. That’s not trivial. It really requires a lot of education, a lot of commitment and living this idea of an ownership culture every day.”