Kendeda Doubles Down on Employee Ownership, an Underused Part of the Equity Toolbox

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The impacts of COVID-19 on the labor market and the economy at large seem to be shifting constantly, often in unexpected ways. In recent months, labor shortages and worker strikes have come into focus as employers and workers grapple with evolving expectations. Workers are quitting their jobs in a trend some have branded a “Great Resignation,” while others are negotiating with employers over wages, benefits and work-from-home policies. 

At the same time, the deck remains stacked for management over the long term, with the union landscape decimated by decades of anti-labor policies and organizers often starved for resources to compete with big employers’ ability to propagandize and outspend opponents.

One promising yet underappreciated solution to the inequities between employer and worker is employee ownership, in which employees acquire an equity stake in the company they work for. This alternative model has the capacity to increase profitability, employee satisfaction and business longevity, as well as contribute to the health of local economies. If more widely adopted, the employee ownership model could also reduce wealth and racial inequities in the United States. 

In 2019, the Kendeda Fund announced an initiative to boost this little-known strategy for addressing the wealth gap. As previously reported in Inside Philanthropy, the Atlanta-based grantmaker provided $24 million, to be divided between four recipient nonprofits, to expand employee ownership in the U.S. The broader aim: to “dramatically expand alternative models for wealth-building in America and empower thousands of workers who have traditionally lacked economic stability and opportunities to build wealth.” 

The four grantees in question are the ICA Group, a national organization dedicated to the development of worker cooperatives, Nexus Community Partners (based in Minnesota), Evergreen Cooperatives’ Fund for Employee Ownership, and Project Equity. These nonprofits all assist local small businesses in making the transition from private ownership to employee ownership. 

Now, two years later, Kendeda has announced a parallel initiative, the Employee Ownership Equals (EO Equals) campaign. Launched in early October, the goal of EO Equals is to provide information about employee ownership to small businesses around the country. It is the collaborative brainchild of Kendeda and its four nonprofit partners, who realized that their common goal of transitioning businesses to an EO model can’t be realized on a larger scale if business owners have never heard of it. 

“EO needs a brand campaign,” said Alison Lingane, co-founder at Project Equity. “The example I always give is the ‘pork, the other white meat’ ad. The goal was to get grocery shoppers to consider pork instead of, or in addition to, chicken. We need business owners to consider EO alongside things like business structure or employee engagement as a way to build great companies and create legacy-based succession plans, whether they are near retirement or not.”

An overlooked strategy

According to Diane Ives, fund advisor of the People, Place, and Planet program at Kendeda, the idea for an awareness-raising campaign began when Kendeda was initially interviewing its EO grantee partners in 2019. The same topic came up again and again: Business owners aren’t familiar with employee ownership. It’s not part of the conversation. Particularly in the context of retirement, small business owners might really be struggling with limited options, such as selling to private equity or passing the business to their children, while being unaware of the possibility of employee ownership.

The question of business succession is a larger problem than most realize: 85% of business owners have no succession plan, and two-thirds of small businesses listed for sale never sell. Employee ownership is a viable solution that few have heard about. 

“So for us, this was an opportunity for the four [grantee organizations] to do some shared work,” Ives said. They hired Hattaway Communications, a firm that applies social science research to assess how people think about certain topics—in this case, options for small business owners—and created a campaign centered on changing people’s beliefs. The result is EO Equals, which includes outreach strategies for small businesses as well as the philanthropic and impact investment communities, educational materials, and a workbook that helps stakeholders understand the benefits of employee ownership. 

Kendeda’s investment in EO is one of the largest in the fund’s history. It’s also a good example of Kendeda’s penchant for committing to niche strategies with untapped potential that are perennially overlooked by other big funders. Kendeda was established in 1993 by Diana Blank, the former spouse of Home Depot co-founder Arthur Blank. It has made about $900 million in grants since its inception and gives around $55 million per year with the goal of spending out the majority of assets by 2023. Other programming areas include gun violence prevention, sustainable and green development, girls’ rights (primarily in South Asia), and environmental and economic initiatives in Montana. 

With its capacity to reshuffle the traditional power dynamics between worker and employer, employee ownership is a timely model. Kendeda’s initiative began in 2019, when the problem of skyrocketing wealth inequality in the U.S. already seemed urgent. When COVID struck, the potential of EO as an underappreciated solution to that problem became, if anything, more obvious. 

“COVID was a monumental crisis for small business owners,” Ives said. “A lot didn’t have savings or resources to keep things afloat.” Kendeda’s concern became how to respond to the crisis by using employee ownership as a tool to help people save and sustain their businesses. 

Questions surrounding the so-called “silver tsunami”—the large numbers of baby boomers reaching retirement age—also became more pertinent. For business owners considering reopening when they’re approaching retirement, there is a lot of uncertainty. 

“This is a moment of reckoning for business owners,” Ives said. “If they want to continue, their books from the past 18 months might not look so good. Employee ownership is a path forward that allows them to think of ways to shape their legacy, reward loyal employees, continue their business, and have fresh new energy infused into the process.”

“The win-win-win of employee ownership”

For examples of success in the employee ownership space, the EO Equals campaign doesn’t need to look far. Its founding partners have all helped businesses make that transition. One example is Happy Earth Cleaning in Minneapolis, a cleaning company that moved to employee ownership shortly before COVID with the assistance of Nexus Community Partners and Project Equity.

When COVID hit, the employee owners at Happy Earth were literally invested in the company’s survival. With home cleaning services temporarily suspended, they came up with a creative solution: packages of cleaning products that were dropped off at their clients’ homes. This stopgap product kept the company afloat and got it through the crisis successfully. An employee-owner at Happy Earth recently told Ives that the company likely wouldn’t have survived COVID if it weren’t employee-owned.

Another example is the California Solar Electric company, a solar design and installation company in northern California that converted to an employee ownership model in 2019. The entire team had to furlough in 2020 during the first months of COVID—but everyone had a personal stake in the company, and they came up with a new line of business to get them through the downturn. They became solar battery storage resellers, which was a success. The company hit projections for the year, hired more people, and everyone got a pay raise. 

“This really illustrates the win-win-win of employee ownership,” says Lingane. “That resiliency is what is so desperately needed in our local economies. If you could only imagine if one of every 10 companies were employee-owned, the change that would create.”

A growing body of research shows that companies participating in some form of employee ownership not only experience potentially higher profit margins and survivability for the business as a whole, but also advantage individual employees via higher median wages, better benefits, job security, job satisfaction and more savings in the bank. A study by the National Center for Employee Ownership, for example, showed that companies with employee stock programs have a 33% higher median wage compared to similar workers at companies with traditional ownership structures. In an economy where 78% of workers report living paycheck to paycheck, these top-of-line benefits have a real impact on people’s lives. 

According to Lingane, the COVID crisis, the baby boomer retirement wave, and the Biden administration’s support for innovative business models have all created a window of time where private and public sectors alike are exploring what rebuilding the economy looks like. Employee ownership initiatives tend to attract bipartisan support—the Main Street Employee Ownership Act, for example, passed in 2018 with backing from both parties. Employee ownership models are also increasingly on the radar for city and county-level governments, particularly as they explore solutions to worker shortages, small business closures and the impending mass retirement of baby boomers. 

The case for funding

Project Equity now has several city and county governmental partners, but is funded primarily through philanthropic grants. In addition to Kendeda, the organization receives support from the W.K. Kellogg Foundation, the New World Foundation, Citi Community Foundation, Prudential, Wells Fargo and Kaiser Permanente. According to Ives, a promising avenue of funding for employee ownership is investments through endowments or mission investing. An interesting new effort along those lines is the Apis & Heritage Legacy Business Fund, which supports the acquisition of businesses with large workforces of color to be converted to employee ownership. The Ford Foundation, the Rockefeller Foundation and the Skoll Foundation are all investors.

Employee ownership isn’t on many funders’ radars because of a lack of awareness, not potential interest, Lingane said. EO actually aligns neatly with popular philanthropic priorities. “In the funder community, there has been an increased focus on the future of work, on quality jobs, these areas and spaces that EO impacts,” Lingane said. “There has been a recognition of the need to address the fact that when people show up to work, they are coming home with a paycheck that leaves them in poverty.”

Nevertheless, aside from a few progressive funders, like Ford, Kellogg, NoVo and the Libra Foundation—as well as Kendeda—philanthropy has shown only incidental interest in employee ownership or similar strategies like employee stock ownership plans (ESOPs) and worker cooperatives. One issue is that unlike, say, support for labor advocacy nonprofits (which is hardly part of the philanthropic mainstream either), employee ownership requires business buy-in and happens mainly on the local level at individual firms. While demonstration projects and funding for local examples is one way to try to galvanize interest, Kendeda’s outreach strategy is another way to tackle that problem. 

Meanwhile, employee ownership remains a promising tool for getting at deep-set structural inequality. EO has the potential for immense impact on the vitality of local economies in majority Black and brown neighborhoods, and Project Equity is currently focusing its efforts on areas where there is a concentration of Black workers as well as Black business ownership.

“With employee ownership, you are engaged in your workplace, you have professional opportunity, a quality job, and a path to building assets, which is really the game-changing piece to addressing the wealth gap and intergenerational poverty, especially the racial wealth gap,” Lingane said. “Given the benefits that we know EO can bring, the essence of the EO Equals campaign is how to make this a self-generating, normal part of the business ecosystem.”