Project Equity is a California-based national non-profit organization devoted to growing all forms of EO. Co-founder Alison Lingane discusses how Project Equity works to with businesses and municipalities to maximize economic opportunities through employee ownership.
At the 12:41 mark of this episode we mention Project Equity's infographic on the upcoming "silver tsunami" and its potential effects on small businesses and communities. Here's the link to that information.
Episode 112 Transcript
Bitsy McCann: 00:03 Welcome to The EO Podcast where we amplify and celebrate all forms of employee ownership.
Bret Keisling: 00:13 Hello, my friends. Thank you for listening. My name is Bret Keisling and as it says on my business cards, I'm a passionate advocate for employee ownership. In today's episode. I'm very pleased to bring you the first of two conversations I've recorded with the cofounders of Project Equity, Alison Lingane and Hilary Abell. Project Equity is a national nonprofit organization devoted to growing employee ownership in all of its different forms and it has a very interesting approach that is a little different from what I've seen before. They're involved at the grassroots level working with local governments and businesses to try and bring employee ownership into the communities. This episode I'm joined by Alison Lingane and in next week's podcast, which will be episode number 113 I'll be joined by her co-founder Hilary Abell. Alison and Hilary are both passionate advocates for employee ownership in their own rights and I'm very pleased to have them on the podcast and help share their and Project Equity's story. Without further ado, here's my conversation with Alison Lingane.
Bret Keisling: 01:26 I'm very happy to be joined on the podcast today by Alison Lingane. Alison is one of the cofounders of Project Equity that I discussed on Episode 66 of the ESOP Mini-cast. Alison, thank you so much for joining us today.
Alison Lingane: 01:41 Thank you for having me.
Bret Keisling: 01:43 In my previous mini-cast, I did a profile of Project Equity and talked about you and your cofounder Hilary Abell and wanted to have you come on and just talk about how you got to where you are and where you're going with Project Equity. But Alison, you have a fascinating story that I read in one of your bios online. You've got a college degree, ended up getting an MBA, but your past seems to be a realization that opportunities that were open to you were not necessarily open to other people. Am I kind of in short -- in short-and-sweet -- summing up your journey a little bit?
Alison Lingane: 02:23 Yeah. Yeah. And then you know, it's really interesting because I often describe sort of how I ended up in the employer ownership space as really stumbling into it. You know, which kind of frames up for me why Project Equity exists and the challenge that I think we have in the employee ownership space. But I stumbled into it in a good ways into my career when a colleague introduced me to Hilary Abell, my cofounder at Project Equity and you know, I had been in the business world for about 20 years. It was the first that I had heard about this approach to organizing a business called employee ownership. As you mentioned, after getting my MBA at UC Berkeley the Haas School of Business which has had a very vibrant community of, of MBA students really focused on and interested in responsible business but there was no mention of employee ownership. And then following getting my MBA, I worked for about 15 years in mission-driven companies and again, never heard about employee ownership. And so once I started to learn about it after meeting Hilary, for me, it's just really quick. Because this is a business model in which business decisions are made through the lens of what's good for the employees and so by extension, their families, their communities. It's a business model that has both financial and professional opportunities for employees built right into its DNA. You know, a business model that creates quality jobs, jobs with a financial safety net. And so, you know, at the end of the day, it's not surprising given all of this that employee owned businesses also outperform their competitors are more efficient, are themselves more resilient and are ultimately stronger companies. And you know, so this all sounds terrific, but why doesn't anybody know about it? That's ultimately the big question that landed, for me, after I got my head into what employee ownership is, why don't more people know about it because it really seems like the best kept secret in the business world. And my question is, well what's holding it back?
Bret Keisling: 04:31 Well and do you have any thoughts about that? Because you're absolutely right Alison, the data that you're aware, and I'm aware when we talk about on the podcast quite a bit, makes it clear in economic downturns, you know, the great recession of '08/'09 employee owned companies treated their employees better and also weathered the storm better. So we see a direct link in causation, we think. It's too obvious- or I'm sorry - it's obviously too soon in the current economic crisis to see what's really coming about. But you draw the connection between the businesses doing well and the employees doing well as well.
Alison Lingane: 05:12 Yeah, absolutely. And that's the thing about employee ownership is that when you look no matter what side you look at it from, it's not, oh, they're winning and they're losing. Every side is winning, right? The employees are winning, the businesses are winning, the community is winning. And so, yeah, what is holding it back? Really one of the questions that prompted Hilary and myself to cofound Project Equity. You know, we spent time early on before we decided to launch the organization, just trying to get our heads around why there isn't more employee ownership in the United States. You know, we know that it's, it's a very normal form of business in many other parts of the world, many other countries in the world. And so early on when we launched -- we launched the organization in 2014 and we were lucky enough to have a grant -- you know, we're a nonprofit, a national nonprofit organization-- we're lucky enough to have a grant to help us look at a few different paths, really, to growing employee ownership that helped us assess which strategy for our organization we felt could have the biggest impact on growing employee owned businesses. And it didn't take us too long to figure out that transitioning successful and existing businesses to employee ownership could have the biggest promise really for accelerating the growth. And so we've been on this path ever since.
Alison Lingane: 06:37 But kind of this question of what's holding it back, you know, the way that we think about the issues and you know, the flip side of that is the opportunity is that since most people don't know about employee ownership, we have to invest first and foremost in raising awareness, in educating, in overcoming myths and misconceptions. Yes, to business owners and also to their advisors, to their lenders to small business advocates and supporters. And so, you know, that's sort of the work that we as a field has to be investing in now and we have to keep our eye on the ball of how do we also ultimately create a longer term lasting change, right? A systems change. How do we embed information about employee ownership into those systems that support small businesses? You know, take for example, economic development departments that focus on supporting businesses in one particular city or county. You know, there's small ways. So when I set up my business and I go to get my business license, why isn't there a box for me to check that says my business is employee owned? The City of Berkeley in California recently added a box to their business license form. That's, you know, that feels small, but it actually is a really big impact in terms of educating, raising awareness about this business structure.
Bret Keisling: 08:08 What I love about that, and it's a small step, you would think in tracking the data, but every single person that applies for a business license sees that box and it does bring the top of awareness of if they don't know about it better yet, what's employee ownership? But to me the growth it seems is going to come not from additional transactional focus, although that's critical, but rather from the grassroots, getting the local governments to appreciate the importance of employee ownership. One of the examples, my son Brian Keisling produced the podcast for a couple of years and he said something on one of them that that really resonated with me. When there are surveys for employee owners about how they feel about employee ownership, their response are off the charts, but if they sit down at Thanksgiving dinner, are they bragging to their family members that they are an employee owner? So it seems to me if you understand, you know like theoretically you're right, it checks off employee ownership, checks off boxes for everybody. Wealth inequality, you know, salary inequality, that sort of thing. Hiring and retainment practices are generally fair, but your approach certainly takes the transactions in mind, but it seems that you're really focused on growing the grassroots level, you know, the businesses working with the city government and trying to get some momentum with the employee owners and am I saying that right or overstating it?
Alison Lingane: 09:37 Yeah, I mean, for us it comes down to employee ownership is the best kept secret. Nobody knows about it. So how do we take the reality, start from the reality that we're in and take a step back and say, well, how do we figure out how to raise the awareness more broadly? How to get this as a business -- as the preferred business model, right? You know, when we, in our work with cities and counties you know, retaining businesses is in theory one of the legs of the economic development stool, right? But it doesn't always get the same attention as either attracting a corporate headquarters or a big box store that could create a bunch of jobs all at once, or even a startup oriented strategy, right? That has a little bit of like, oh, that's the sexy new businesses. But local economic development can and should invest in retaining the small businesses in their jurisdiction, not just for the tax base, which is incredibly meaningful. But also for the jobs, for the benefits of local business ownership, like the higher rate of local money circulation. You know, two and a half to three times the local money circulation in small businesses. And so the question is, you know, why don't they?
Alison Lingane: 10:53 And so that's, for us, our strategy in terms of engaging with cities and counties is it's helping them understand the value of business retention and helping them understand how employee ownership can deepen the benefits of business retention. And so, yes, we partner with a number of localities, from Berkeley and San Francisco and the Bay Area, to Long Beach and the city and the county of Los Angeles in Southern California to the city of Miami and Miami Dade County in Southern Florida. And we start off by helping them understand the share of local economy that comes from what we call long-standing small businesses. So these are businesses that have been in, in that community for 20 or more years. And not surprisingly, they have an outsized impact.
Alison Lingane: 11:46 So as an example, the study that we did in Berkeley, we estimated that businesses over 20 years old account for 60% of small business revenue. And so before that study, the city didn't, they didn't know the value in the local economy of those long-standing businesses. And so now they have this data which helps them really support the, now their continued support for business retention and employee ownership. They can point to this study and say, look, this is critical for our local economy. We must invest in retaining these businesses. Yes, for local tax base, but also for these other reasons. And so it really aligns the interests of the city or the county with the - ultimately - the strategy of business retention through employee ownership in a very powerful way.
Bret Keisling: 12:41 And Alison, what I was reminded that what caught my attention and led to the mini-cast about Project Equity is you have an infographic that really lays out, Project Equity really lays out very well, the silver tsunami and the effects on communities and the effects on employee ownership. So I just wanted to mention that we'll include a link to that infographic on our show notes, but it's also available on your website as well.
Alison Lingane: 13:09 Yeah. And you know, we often say sort of pre-COVID, here's how we would talk about things, right? Or, you know, as of March 1st, these were the issues that we were really focused on. And you know, what you're talking about is what's dubbed the "silver tsunami" that I'm sure your audience of listeners is quite familiar with. But this is the silver tsunami of retiring business owners. So the long-standing businesses that I talked about, the studies that we do are more often than not owned by people of retirement age. You know, we estimated in that study that you mentioned, this is an analysis of census data that we did that nearly half of what we call the job creating small businesses --so privately held small businesses that have employees, so nearly half of those are owned by the baby boom generation. This is a generation of entrepreneurs, of small business owners. And that together those businesses employ an estimated one in six private sector workers. And so this is tremendous scale in the economy. And so if we just were to stop and think, well, roll the clock forward 15 years and all of those folks are now retired, what's going to happen to those businesses? And you know, again, your audience I'm sure is very familiar with the reality, but some of the stats show big challenges for retiring business owners who want to sell their company. Again, with pre-COVID, we have a new set of challenges now layered on top. But you know, one of the leading business brokers did a study that showed that only about 20% of companies listed for sale on their business broker listings ever sell. So one in five companies sells and the other four out of five don't. We know that kids aren't taking over their parents' businesses. And so there's all of these locally owned companies that either need to find a buyer or maybe quietly close down, you know, and enter stage left -- employee ownership, right? It's the perfect solution.
Bret Keisling: 15:16 The funny thing is, I hate to take a dire statistic and make it worse. We actually -- Seth Webber, who's a talented valuation advisor with BerryDunn in Maine was on sometime last year [in Episode 93]. And you're right, 20% of businesses, only 20% of businesses sell, but most of them sell on the third or fourth try. So, not only is it only one fifth of businesses that sell, but the vast majority of them go through close transactions, you know, of one sort or another, acquisitions that just fall through. So the process to sell the business is very difficult. One thing I'm curious about Alison, is you've mentioned some municipalities that you work with. How do the municipalities or the potential businesses you work with, you get a potential client in say Miami and then you reach out to the government or are you reaching out to the government and that's attracting businesses? Can you just explain how companies and municipalities get on your radar?
Alison Lingane: 16:18 Absolutely. Yeah. So, the work that we do with municipalities or with counties really is focused on reaching out to the businesses in that community. So the first thing we do is this data analysis that helps really shine the light on the value and the importance of these long-standing businesses. Out of that, we actually come up with a list of businesses that are in different age brackets, right? Because we don't, we don't have the age of the business owner. But we use the age of the business as a proxy for that. So businesses that are 30 years or older are sort of the high alert, you know, if they haven't already changed hands they're certainly going to need to soon. You know, 20 or older, 15 or older. So we organize the data in different age categories different sectors so we can slice it in all sorts of ways, different sectors. We'll often do it by geography. So council districts, for example. And then we sit down with the economic development at the city or the county and we kind of talk through what they understand about the businesses in their community, what their economic development priorities may be, so that we can then create an outreach plan based - that builds on - those priorities, draws from the data, what we know about where the businesses are, builds on the priorities of economic development teams. And then we at Project Equity do the heavy lifting of reaching out to those businesses. Now the connection there is between the businesses and the - I'll just use the city as an example - is that having the backing of the city gives our outreach, this sort of, you know, stamp of approval if you will.
Bret Keisling: 18:17 You know, at least a comfort level for those that you're talking to.
Alison Lingane: 18:22 Exactly. So we as a nonprofit, you know, most people haven't heard of us either, right? So for us to be cold calling, reaching out to businesses you know, and saying, hey, we think you might need a succession plan, right? That's kind of a personal thing to be reaching out to business. But if there's a letter that's coming from the city economic development department that essentially says, hey, long-standing business, we value you in our community and we really want you to be here into the next generation. And we've learned that businesses of your age, if they haven't already changed hands, that focusing on succession planning is a success factor to make sure that happens. And so we've lined up a resource that we'd like to make available to you to speak to about succession planning. So that, you know, paves -- opens the door, paves the way, whatever the right metaphor is for kind of being more open to having a conversation about succession planning. Because, you know, we know that succession planning, the way I describe it is, it's pretty much always on tomorrow to do this for business owners. Oh, it's not, you know, it's not important and I'll do it tomorrow, it's that urgent but not urgent and important lists that we as human beings don't tend to get to. And succession planning falls on that list. So whatever we can do to get succession planning on today's to do this is just centrally important to retaining these local businesses.
Bret Keisling: 19:58 And one of the reasons why it's important to get on today's to do list is that any succession, regardless, employee ownership or not, but it's going to take time and it's not unusual for it to take a year, sometimes a couple of years if it's complicated and there are reasons to do that. So you want to get on folks' radar to start the process and then to be able to ascertain how long the process would play out. But it also gives you the opportunity to meet whatever the particular needs of the business owner is.
Alison Lingane: 20:33 That's exactly right. And you know, we find that small business owners tend to retire later than, you know, that magical 65 age of retirement. You know, we're more often not talking to business owners who are in their early or mid or even late seventies, who haven't yet developed their retirement plan. And you know, the real tragedy, and this happens unfortunately, is you know, when we're talking to a business owner we have had an example of a San Francisco business owner, this was a couple of years back, but we were talking to him actively. It was a business he and his wife were running and they were both in their almost mid-seventies. And they were about to, you know, move towards an employer ownership transition and just stopped returning phone calls. You know, kept reaching out, kept following up and I don't know, six, eight, 10 weeks later got back in touch again. And unfortunately there had been a health crisis. The wife of the pair had had a stroke. And so of course, they completely focused their energies on her and her health needs and they liquidated the business in the meantime. And so, that's what we're trying to avoid is, you know, these are business assets in communities. These are jobs in communities. How do we retain those and how do we get in front of that business owner before you know, in time, so that those plants can get in place and those transitions can happen. And those business assets can be retained.
Bret Keisling: 22:11 Something is going to happen to their business and you're providing them the opportunity to have a mindful result as opposed to a result that just comes about as a result of urgency. There's a CEO that I spoke with in January, I hope to have him on a podcast and have him share his story. But his was actually fascinating. A large competitor of his in his metropolitan area died unexpectedly in his late forties, and this was a competitor and it threw the competitor's business in turmoil. And the CEO that I was talking with who's now 100% ESOP, his key people came to him and said, whoa, we just saw our competitor fall apart, you need a succession plan. So for him, and he's passionate about what employee ownership has done for his business, but for him it was actually you know, the tragedy of a competitor that made him realize that he had to take steps with the help of his key management team saying, hey, what would we do this situation.
Bret Keisling: 23:19 So it is very, very critical. Let me ask a lot of the challenges that you've discussed for small businesses on the succession planning are exactly stated, right. And, you know, again, the challenge isn't that nobody knows those are the challenges, it's breaking through with employee ownership and that's part of what Project Equity is trying to do. Are there some other challenges pre-pandemic that you think it also addresses well? Or, conversely, has anything changed in your thinking in the last couple of months? And we're real time in what I'm afraid is still the early part of the pandemic as we're recording this, it's mid-May. Is there any change to your approach yet or you know, what are your thoughts about the pandemic?
Alison Lingane: 24:08 Absolutely. I mean we all know that most small businesses are in a world of hurt right now. That's understating it wildly. The economy in many parts of the country is still mostly shut down though it is starting to open up in some places to the shelter in place orders that are rightfully in place to protect our community's health. And you know, the length of the time of the shutdown and the specifics of which businesses are impacted differs in different geographies and across communities.
Alison Lingane: 24:39 But you know, even absent stay at home orders as we are seeing some get lifted, people are not going to just jump right in to life as normal. The comfort level that people have with gathering in groups, right, with being close to other people as we, as was so normal just a few months ago you know, that comfort level is not back yet, and probably won't be for awhile. So that it is great and incredibly important that the federal government has jumped right in to help small businesses with the relief bills. They not only support businesses but also workers, States and cities have also jumped in, in their own ways to provide support. And we know that there are still tremendous challenges, right? Just the scale of the issue and the need when an entire economy shuts down? And time will tell how this unfolds as we do start to open up. But just to give a sense of scale, it is estimated in 2019 that small business' share of GDP was 44%, which is a little over [inaudible] trillion dollars. And so he divided that by 12 one month of small business' share of GDP is $786 billion. And so when we look at the size of the small business relief packages, it just puts that into perspective. You know, the relief packages may seem like they're big, big amounts, but that money just goes by, you know, in a month of small business GDP. So, you know, the scale is just huge.
Alison Lingane: 26:14 And then we also are seeing the uneven distribution of help. So you know, anybody who's been reading the news, we've been seeing about the smaller businesses or the businesses owned by people who are perhaps less well connected to mainstream business support, you know, maybe companies that don't have lending relationships, they've bootstrapped never taken out a loan. Or are owners who themselves are less connected. Maybe they're immigrants, maybe they're in lower income, people of color. And so we've heard those stories of the Paycheck Protection Program and complaints about it not going to perhaps some of the businesses that may need it most. And then I would say thirdly, the concentration of this pain in certain industries as we begin to open the economy. So restaurants, bars, event companies, any businesses that really flourish when people come together in close contact are some of the ones that are hardest hit.
Alison Lingane: 27:13 But even if you're not in one of those industries, there's an extra cost to begin to operate in this new environment that maximizes to be able to maximize the physical distance between workers, you know, whether you're manufacturing or service sector. And so, really our rallying cry is that we need to be sure that we are investing to flatten the curve for small businesses too. We have to preserve our locally owned businesses, support them to get through these challenges.
Alison Lingane: 27:45 And we're already seeing, you know, you asked about the change in our approach. So you know, this overlay, if you want to imagine a Venn diagram of the silver tsunami, the retiring baby boomer business owner and the businesses that, you know, every business today, but the ones that are perhaps even more affected by the COVID situation. We're, seeing, we're calling this the "fatigued business owner," right? So I've been in business for 30 or 40 years. I've already been through multiple recessions and gosh, I'm looking at the, I'm looking at this recession and I'm just thinking, I just, I don't have it in me. Like now is the time. This is the sign. It's just time for me to close up shop. I just read this morning actually about a beloved country western bar and dance place in the East Bay of the Bay Area that's been around for I think 44 years. They made the decision to close down because they just don't see a way through the social distancing requirements of the coming multiple quarters. So, you know, it's a really major issue. So how do we both support these fatigued business owners to bring in the energy to weather this crisis to make sure that there's financial business continuity support back to that Berkeley study that showed that those long-standing businesses account for 60% of small business revenue.
Alison Lingane: 29:14 You know, this isn't something that we should do just 'cause we love these companies. This is really important for our economy, that we preserve these businesses. And so we have to find a way ultimately to avoid losing these businesses. And also remember this is the base from which we pull to expand employee ownership. So it's a twofer, you have to, you know, have that business continuity and then those supports in place to make the transition to employee ownership.
Bret Keisling: 29:43 Isn't it important for all of the focus, the recovery efforts, the government dollars, that kind of thing, not just to be focused on the businesses but on the people themselves. Because it seems to me the folks that you've talked about that are hurting the constituencies that are hurting disproportionately and we see them all over the country but when the lockdown orders ease and I think 47 States are starting to ease their restrictions now, these folks need to have the money to spend for the businesses to work. So, so it's finding the sweet spot of taking care of the businesses and the people, I guess strikes me as what's important.
Alison Lingane: 30:25 Absolutely. We're all interconnected, right? The dollar that I spend today in a store supports a small business that supports a paycheck for that worker in that business that supports that worker spending a dollar, right? It's all interconnected. So I think that that was the concept behind the Paycheck Protection Program was keep paychecks flowing. You know, that keeps small businesses open, keeps paychecks flowing, keeps dollars flowing in that local community. So that the, you know, we talk about the domino effect or whatever you want, but so that we are able to keep those dollars flowing, keep money circulating in our economy.
Bret Keisling: 31:10 Let's now talk Project Equity. As you know, my background is primarily with ESOPs. Will you advise on co-ops, collectives and ESOPs? Are you primarily ESOP focused or broader with employee ownership? Just talk a little bit about that if you would.
Alison Lingane: 31:27 Yeah, at Project Equity, we really are employee ownership, structure agnostic. So for us it's about we call it broad based employee ownership where all of the, the full employee base has access to become an owner. And so that can be done through an ESOP that can be done for worker co-op, it can be done through an employee ownership trust. There's other forms as well. But that there's broad access for the full employee base. And that ideally we also like to see that there's profit sharing. So that you have the asset ownership of your business ownership in an ESOP that really shows up as a retirement benefit, which is great. And if you're a frontline worker or lower wage earner, having some profit sharing today is also really important in terms of your own financial situation, your own personal economic resiliency.
Alison Lingane: 32:26 So some profit sharing ideally. And then thirdly that the employees have a voice in the strategic business decisions. So as we think about these businesses are ones in which the decisions are made through the lens of what's good for the employees. And best way to do that is to give the employees a voice in those decisions. And so yes, we support pretty much any form of employee ownership. And the question for us is more about what's the right fit for this particular business? What's the right strategy for the business owner? You know, as for larger businesses, looking at the tax benefits of ESOPs is really important. And so you can have an ESOP that also has a profit sharing program built into it. So, so what's the right strategy for that business for the business owner and what's ultimately going to make that be a successful employee owned business?
Bret Keisling: 33:18 And there are certainly challenges among the different formats. For example, ESOPs may have difficulty with access to equity. Nobody has access to as much equity as they would like. But generally the co-ops and collectives don't have the access to equity that ESOPs do. Even the Small Business Administration at Congress for a few years now has been saying treat ESOPs better, treat -- and through the Main Street America Act -- and treat co-ops and collectives the same. They're still not being treated the same, at least in terms of a lot of funding banking sources and that sort of thing. So I imagine that fits into your analysis as well, that you know, what transactions can occur, how you can put them together, and what are all the details that make up the successful look for any particular business.
Alison Lingane: 34:10 Absolutely. And the whole question of capital access to finance the transaction has been front of mind for us. You know, kind of back to the why we're doing this in the first place. We're doing this because we're trying to, frankly, to scale employee ownership in the United States. And so we've always had in our looking through our telescope into the future, what are the things that might be barriers to, to scale and you know, you hit the nail on the head there with worker co-ops in particular, a barrier to scale is access to capital. And so there's a number of strategies to including trying to engage with the SBA to get some of the barriers lifted.
Alison Lingane: 34:57 We have also just in 2019, we launched a joint initiative with a national financial institution, a CDFI, which stands for Community Development Financial Institution, called Shared Capital. They've been around for 40 years and they focus on lending to cooperatives of all types. And we went out and we raised some money to be able to have some loan funds specifically dedicated to supporting employee ownership transitions where capital access might be a barrier. And one of the things that we ultimately aim to do with this capital is to help bring other lenders along. So lenders that don't have any experience and so they kind of just, they don't have the risk modeling within their lending institution for employee owned businesses. So let's invite them to lend alongside us and there's various different ways that that can happen to lend alongside Shared Capital through our initiative, "Accelerate Employee Ownership," lend alongside us, learn, see how it's done, see how risk is assessed and managed, and then hopefully lend on their own. So that we're opening up the capital that's in, you know, whether it's other CDFIs that are small business lenders, community banks or banks themselves to be able to open up their small business lending capital to support, especially worker co-op transitions.
Bret Keisling: 36:27 Do you have an example of how employee owned companies might be responding these days?
Alison Lingane: 37:30 And so their goal, of course, is to support their employee owners to the fullest extent possible. You know, we were talking earlier about the domino effect and the need to support businesses and workers. And what we see is employee owned businesses put supporting their workers as a central goal to how they make it through the crisis. And so this example of Recology is just one example of how employee owned companies really operationalize. What we know from the data, you know, there was an analysis done in 2018 by NCEO that showed ESOP employee owners are, are significantly less likely to be laid off by a factor of one third to one fourth. And so in Recology's situation, they're not only not laying off people, but they're also making sure that they have full pay, even if they aren't able to give them full schedules.
Bret Keisling: 38:27 Alison, as you described Recology first of all I said, wow, there's an employee owned waste management company and I laugh at myself because you know, as a trustee I probably was involved in 40 industries and I still get surprised when there's one I didn't know, but there's a point that I want to make, the policy that you talked about is so important and there are going to be business people, some of the folks on the transaction side or even business owners who will say, well that's not sustainable. We're not driving revenue, we're not, et cetera, et cetera. We can't do that. And what I've discovered as a trustee, and this is going through valuation reports year after year after year, is companies that do something like this. It does improve the bottom line. And I'll give you one quick example. There's not an employee of Recology who's going to be supported during this pandemic, who is not going to remember that down the road. If a job opportunity comes along, I mean you are, you are letting your team members know that it is team, that it is family and that's just going to pay benefits for decades to come in my opinion.
Alison Lingane: 39:34 Yes, absolutely.
Bret Keisling: 39:36 I want to go back to one of the things we talked about earlier about businesses and we talked about it can take a period of time for a succession plan to come into place and I do want to make a point for regular listeners. We had Mark Kossow who's an ESOP attorney on about a month ago talking about very practical steps to take right now during the coronavirus related to transactions and in terms of closing transactions, wait is a pretty good thing to do, but this strikes me as a perfect time for businesses to start, I'll say informally kicking the tires, but taking a look around at their options because of the circumstances, whatever this might be the right opportunity to start working with someone like Project Equity and yourself to figure out what their options could be a year or two down the road.
Alison Lingane: 40:27 That's absolutely right. It is the perfect time to reach out. And, and you know, we're seeing businesses sort of in a couple of different categories right now. You know, the ones that are just, we can't focus on anything but getting through this crisis, you know, rightfully we're just a hundred percent focused on figuring out how to get some revenue back in the door again. You know, let's talk later. We're putting, you know, either we're already engaged in an employee ownership assessment and we're putting a pause on it or we were getting ready to move that direction and we want to talk, let's talk again in six months and see where we're at.
Alison Lingane: 41:06 We're also seeing business owners that are saying, gosh, you know, this crisis has further put into focus for me, what my values are, what matters most. Right? I think a lot of us are experiencing that. It's like, you know, the value of being alive. The value of our family members being healthy. Like those are really central central values. And so we're seeing business owners go through that same thought process and say this whole employee ownership thing, is this matters. You know, my business and transitioning it in a way that sustains my legacy, sustains those jobs, you know, leave behind something really positive in my community that matters to me. So yes, we're seeing those business owners as well.
Alison Lingane: 41:50 And then we're also seeing others who, you know, back to that fatigued business owner who are just saying, okay, you know, I was, I was going, I was thinking about, you know, kind of staying in for another five, eight, ten years. But now it's kind of the time for me to think about should I be transitioning.
Alison Lingane: 42:07 And so the challenge in our field of course is, you know, that combination of how do we help those businesses, weather the crisis, how do we assess their fundamentals in this crazy time period so that we are making the right helping the business make the right decision about, you know, how much debt to take on what is that value, all of the above. And so things are changed a little bit. But I think, you know, that legacy piece for some business owners has really come into focus and is even perhaps more important than it was previously.
Bret Keisling: 42:44 And if someone's contemplating reaching out to you, can you give me a sense of the type of businesses that can say, Hey, I'm the size or the structure that should reach out to you?
Alison Lingane: 42:56 Yeah, absolutely. We generally say we use a floor of an employee number versus a revenue or an EBITDA. Because the, you know, the revenue per employee can vary widely depending on industry. So for us you know, sweet spot is if they're 20 or more employees. Now can a business that's fewer than 20 employees be a successful employee owned business? The answer is yes. And those much, those smaller businesses, what makes them kind of makes them the exception are a couple things. One is that they have already invested in, you know, whether it's systems or processes or infrastructure such that the owner, the owner's role is, is not completely outsized. So meaning the, you know, if you were to pull that owner out, everything wouldn't fall.
Alison Lingane: 43:55 So sometimes what the strategy can be with the smaller businesses is separating out in time the sale, the transaction that creates the employee owned business, from the management exit of the owner. And this, you know, it's done widely across employee ownership. You know, in the ESOP space, that's often what happens as well. But that can be a key to the success so that you're giving enough lead time to build those structures and processes to backfill the skills, the relationships, all of the things that that owner brings it up business. That you're separating this out in time and extending the timeline of that management exit.
Bret Keisling: 44:39 That makes a lot of sense. And it's interesting to hear that your criteria initially started with the number of employees coming from the transaction side, normally I'm used to hearing the EBITDA and you know, that sort of thing. All of that, you know, is important as well to the end transaction, but it kind of renews the focus on you folks being employee ownership-centric, you know, about the employee owners. So I think that's wonderful.
Bret Keisling: 45:05 Is there anything you wish I had covered?
Alison Lingane: 45:09 Well, I guess just, you know, maybe, maybe as we're moving to close here, I think the central issue for all of us for all of us, whether or not you're in the employee ownership space or not, you know, is where we're sitting a few months, a couple months into the COVID crisis is how we are thinking about how we as a community, as a society, as an economy, how we choose to rebuild. You know, and this whole question of resiliency I think has become really central as we've, you know, we've watched and we've seen our essential employee in this, in essential businesses who, you know, a few months ago, nobody considered those people essential. And you see that reflected in the quality of those jobs and the pay rates, et cetera. And you see it reflected in the amount of resiliency that those individuals have in their own financial lives because of the quality of jobs. And so I see that employee ownership should be absolutely central to any rebuilding strategies because of the resiliency that's built in to the businesses themselves, to for the employees in terms of their financial situation. One of the companies that we worked with, they were able in 2019 to deliver annual profit sharing that was the equivalent of $4 and 50 cents an hour in the food service industry. So this is a fairly low paid industry. $4 and 50 cents an hour had a huge impact on the financial situation of those employee owners.
Alison Lingane: 46:54 So profit sharing, retirement benefits, assets, whatever study you look at, you see that employee owners have a much more, are much more financially resilient. You see the businesses are much more resilient. And then you also see the federal savings from these lower layoff rates. So from the government's perspective, this is a business model that has great value, right? I'm sure that you've seen the studies that have mapped implied federal savings from lower layoff rates. There was a 2013 study by the Employee Ownership Foundation that showed that in 2010, which was right in the midst of the great recession, 2010, there's implied federal savings of $23 billion in a single year. So, you know, if the federal government believes in investing to rebuild with resiliency, taking a small slice of that and investing $5 or $10 billion a year in expanding employee ownership would not be unreasonable. So, you know, I think really that is the question for us is what choices are we going to make as we look to rebuilding? And how can we as a field of employee ownership really raise the profile of employee ownership during this time period so that we get it in bedded in the plans at the state level, at the federal level for rebuilding so that we don't lose this opportunity?
Bret Keisling: 48:32 Well, I think that that an important component of that is reaching out at the local level as you and Project Equity have been doing. Because those folks you know will rise in their careers for the state and national level as well. So everything is connected. We need all of the governments, to step in but the work that you folks are doing is just so critically important and I really appreciate your coming on and sharing about yourself and Project Equity with our listeners.
Alison Lingane: 49:00 Thank you so much for having me. I really enjoyed our conversation.
Bret Keisling: 49:05 And I hope you, our listeners, have enjoyed the conversation as well. You can learn more about Project Equity at their website and we'll have a link in our show notes and you can find, as I mentioned at the top of the interview, I covered Project Equity in Episode 66 of the ESOP Mini-cast. And in last week's Mini-cast Episode 82 I did a spotlight on Recology and you'll hear Alison's comments about Recology and also just a little bit more about that company as well. Episode 66 and Episode 82 of the ESOP Mini-cast are available along with all of our archived episodes at theESOPpodcast.com. I hope you'll stop by and check out our almost 200 episodes at this point.
Bret Keisling: 49:52 Before I go, I want to share a quick update about Recology. Alison shared about the "Recology Recovers" program that kept staff and team members on salary and with their benefits, et cetera. Recology is announced that that program is coming to an end as of the end of May. Now, I have no doubt that the management team and all of the employee owners at Recology would have loved to have continued that program throughout the pandemic crisis, but the fact that the program is coming to an end or being modified doesn't change the truth that Recology has really stepped in an admirable way and I'm sure as all of us work to find our ways through recovery of the pandemic crisis that Recology will go above and beyond to get their team up and running at full speed as quick as possible.
Bret Keisling: 50:43 Next week, please come back. You'll hear a conversation with Hilary Abell who is as interesting and as engaging as Alison was and I'm sure that's going to be another great interview. Thank you so much for your time today. This is Bret Keisling. Have a good day.
Bitsy McCann: 50:59 We'd love to hear from you! To contact us, find us on Facebook at KEISOP, LLC and on Twitter @ESOPPodcast. To reach Bret, with one "T", email Bret@KEISOP.com, on LinkedIn at Bret Keisling, and most actively on Twitter at @EO_Bret. Again, that's one "T". This podcast has been produced by The KEISOP Group, technical assistance provided by Third Circle, Inc. and BitsyPlus Design. Original music composed by Max Keisling, archival podcast material edited and produced by Brian Keisling.
Standard Disclaimer: The views expressed herein are my own and don't represent those of my own firms or the organizations to which I belong. Nothing in the podcast should be construed as guidance or advice of any kind in any field and the fact that I mentioned an organizational website or an advocate or a company on a podcast does not reflect an endorsement, but if you've heard your name or your group's name mentioned on this podcast, I'd love to have you come on and talk about it yourself.