How California workers can own their futures

One of the best ways to grow savings and wealth is to own a business. However, owning a business is out of reach for folks living paycheck to paycheck or without any savings to get started.

There’s an answer. Employee ownership and cooperatives provide useful models that enable working people to build wealth while also sustaining businesses for the long haul.

Data shows that employee-owned businesses outperform their peers in profitability, productivity and resilience. Employees enjoy working in a team environment where their ideas are respected and where they hold one another accountable for the performance of their company — because it really is their company. From a wealth-building perspective, here is the most telling statistic: The average employee nearing retirement in an employee-owned company has $147,000 in their retirement account. 

We don’t have to look far for successful versions of this model. A Slice of New York, with a pair of pizza shops in Santa Clara and Sunnyvale, has had a successful employee ownership model since transitioning to a worker cooperative five years ago. In California, nearly 1,000 companies in industries ranging from manufacturing, logistics and waste management to hospitality, renewable energy and consulting have broad-based employee ownership. Nationwide, there are over 6,000 employee-owned businesses today and approximately 64,000 co-ops. 

While business advisors can help companies make this transition smoothly, many discourage retiring owners from selling their enterprises to their employees. Retiring owners may be told paperwork is a nightmare, and they would have to hold back 50% to 60% of the sale price in a “seller’s note.” Owners or workers might not be aware new approaches are emerging, such as an “employee-led buyout” in which an investor arranges 100% of the financing: The owner does not need to keep a large loan or handle paperwork, and workers don’t pay for the shares, they earn them over time by doing their job. Recent examples of that model include a plumbing company in Denver and a landscaping company in El Paso. In both cases, workforces of color became the owners and beneficiaries. As for the former owners? They preserved jobs and their enterprise while building on their legacy in their business community. 

Unfortunately, owners and workers tend not to know about all options available to them when transitioning to an employee-owned business — or how to get started on the process.

Senate Bill 1407, the California Employee Ownership Act introduced by Sen. Becker, helps bridge the knowledge gap. The bill, soon to be considered by Gov. Newsom, establishes a dedicated hub within the Governor’s Office of Business and Economic Development to help educate stakeholders about employee ownership, assist business owners and workers in navigating resources, and reduce barriers to transitioning into employee-owned companies. The hub helps bring a familiar business model from Silicon Valley to Main Street. 

This model will also help us weather the looming “silver tsunami” of baby boomers who are at or near retirement age with no succession plan in place for the businesses they worked so hard to make successful. Almost 360,000 California businesses — with 3.9 million employees and $865.5 billion in revenue — are at risk in this growing wave of retirements. Our state must do more to let owners know employee ownership is a feasible and attractive option. 

Let’s make it easy for owners to sell their businesses to their employees and grow wealth broadly in the decade ahead. If we get this right, California can be at the forefront of restoring the American dream for working people. 

Josh Becker represents California’s 13th Senate District, which includes most of San Mateo County and northern Santa Clara County. Michael Brownrigg is a co-founder and partner of Apis & Heritage Capital Partners and vice mayor of Burlingame.