... or watch the video of Episode 176, below.
Episode 176 Transcript
[00:00:00] Bitsy McCann: Welcome to The EO Podcast with Bret Keisling, part of the EO Podcast Network.
[00:00:12] Bret Keisling: 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 mid-October on Episode 157 of the Mini-cast, I celebrated three new things in the EO sandbox, the EO Podcast Network that you're listening to now, Project Equity [and EO Equals] which is an exciting new education campaign, and I also talked about the brand-new organization Ownership America. And it is my great pleasure to welcome onto the podcast Jack Moriarty. who is the founder and executive director of Ownership America.
Jack, thanks for coming on the podcast.
[00:00:50] Jack Moriarty: Thanks so much for having me. It's a pleasure to be here.
[00:00:52] Bret Keisling: So, was it a coincidence you have kicked off Ownership America at Employee Ownership Month and that just is a beautiful symmetry. Coincidence?
[00:01:00] Jack Moriarty: We planned it from the start! No, it's absolutely a coincidence, but a very happy coincidence. And what an exciting Employer Ownership Month between our launch and other initiatives in the space. So, we're really happy that it ended up being in October.
[00:01:14] Bret Keisling: Well, it worked out really well and part of just a whole lot of exciting new things going on in employee ownership and a new vibe that's going on of collaboration and understanding there's more to grow and we will get to all of that. So, Jack, with your permission so that our listeners know what we're going to do is have you talk about Ownership America, tell us what you're doing, how you're doing it and why, and how it came about. And then we'll circle back and have the segment of what's a nice human like you doing in a space like this?
So, if it's okay with you, give us the nutshell. I talked a little bit about Ownership America, but tell us.
[00:01:45] Jack Moriarty: Absolutely. Ownership America is a new nonprofit public policy and grassroots advocacy organization. And our mission is very simple. It's to turn Americans into owners.
The United States has had such a rich tradition of various attempts to build an ownership society. And so, we see it with President Lincoln and the Homestead Act and the Morrill Land-Grant Act. We've seen it, later on, with our entire home mortgage finance system. And I think we have an opportunity to extend that legacy with employee ownership and certainly we've come a long way over the last four decades.
As I got to know the space and learn about employee ownership and ESOPs and co-ops and all the great work that's happened, it's always struck me, why is this not talked about in more detail and more depth? Why is this not politically a much higher profile issue?
And my diagnosis ultimately was that employee ownership has never been a movement. And this, Bret, I know is something that you've articulated many times on The EsOp Podcast and I think you're completely right. And if you look at other movements, and this isn't just observation, this is empirically the case, movements like women's suffrage or same-sex marriage. You see it with property tax reform and even most recently with medical and recreational marijuana of all things. What you see in these movements is that they start on the periphery and they build initial momentum in the states. They start and they find a pioneer state or two, they get a grassroots victory and then they start to build coalitions, pull in alliances with other interest groups and start to move public opinion towards their issue.
And that initial victory at the state level turns into several states. And then what time and time again, with all of those examples that I referenced and certainly many others, is an exponential level of growth. And you see an inflection point where, as you start to get 15, 20, 25 states that adopt a particular issue, then you often see it go federal. And so that either happens through an act of Congress or a Supreme Court decision.
If you think about employee ownership, the history is really the exact opposite of that pattern. As we all know, Louis Kelso sits down with Russell Long, who is the Senate finance chair at the time, convinces him on the spot and we get into ERISA and the rest is history. What Kelso did was he skipped all of those stages of this sort of grassroots development and the movement building and the state-based victories and went right into federal law.
And so, in some ways, fabulous! We got ESOPs far quicker than we might have otherwise by not having to go through that typical movement process. But in some ways I think we're also a victim of our own success in employee ownership where, because we didn't build the movement infrastructure to mainstream employee-ownership, 45 years later, we're still - have a low level of political awareness despite having such an impressive track record of thousands of companies and workers that have become employee owners, that have changed lives, help to close wealth gaps and keep jobs in this country.
So, I think we're at a really important time in employee ownership to take a step back and say, how do we build a movement? And Ownership America is designed to build that movement infrastructure that employee ownership has never had to build. And we've certainly had components of that. And it's certainly a coalition project, but we have a number of strategies, initiatives that, that I'd love to talk about, that are all designed to build a movement for ownership, where employee ownership, as a political policy, thrive.
[00:05:18] Bret Keisling: Let's talk about that. But I want to differentiate Ownership America in the space in one regard. And for those who have listened to this podcast much at all, let alone in the five seasons we've been doing this now, I probably am as neutral as you get. I support and celebrate all the organizations, all of the forms of employee ownership. And if there's anybody helping one part of us, I celebrate it. What differentiates Ownership America from some of the others and the big ones that are in DC, and The ESOP Association and ESCA who are great organizations and do a great job, your focus is on the public policy. Your focus is on that, I'll say lobbying, you haven't used that word, but on that awareness and education. Whereas for other organizations - and a lot of the state groups do stuff in the states - but your organization is devoted specifically to that. And I think that's what sets you apart. Am I right?
[00:06:13] Jack Moriarty: It's a great question, Bret, and you're absolutely right. Let me tell you how Ownership America is a little bit different. We are a dual entity organization, so we have a 501 C3 and we have a 501 C4 lobbying action arm. And what in many other issue areas is that's a very common movement organizational model.
And so, what you have on the C3 side is the think tank apparatus. We put out our initial policy publication called Turning Employees into Owners, Rebuilding the American Dream and that sort of sets an opening agenda for how can we really scale employee ownership, primarily ESOPs, but not, certainly not, limited to ESOPs, in the United States. So, that's an example of our sort of C3 vertical, if you will.
What else are we doing and plan and do on our non-profit C3 side? Volunteer recruitment, right? At the end of the day as employee ownership movement, we need to be recruiting volunteers, bringing them into the space and then giving them the tools, whether that's state policies, whether that's outreach materials, not just to prospective business owners. I think that the space is already enormously well-served in terms of outreach, whether it's through state centers or service providers to business owners that might be considering employee ownership. But really, we're talking about political outreach and coalition building at the state and local level. And so, all of that can happen on our C3 side.
Now, once you educate policy makers, you generate attention, you get press, you educate the community around employee ownership. These are all examples of volunteer actions that we're going to be working with advocates primarily at the state level. Once you get a bill in front of the legislature, then you can talk about mobilization and then you can really take the campaign playbook, and it's an issue advocacy playbook as well, to actually mobilize supporters, to put pressure, and encourage policy makers to actually pass the thing. And so that's what we started to do here in Massachusetts, where I'm based, but it's a model that we'll be piloting here and expanding elsewhere.
And that's where our 501 C4 becomes so important because we can do, to not just hire a lobbyist to move the bill in a state house although we certainly can and we'll do that, but to also do what's called grassroots lobbying. Which is to say, hey Bret, we've got a bill in Pennsylvania that's about to move. Will you give your state legislator a call to encourage them to pass the bill? That's an act of grassroots lobbying and that's something where we can really facilitate that at scale through our C4 action.
[00:08:38] Bret Keisling: Jack, what I love about that is that I've got some frustrations, as I've talked about things, on why we're not a movement. And for the only issue that has broad bipartisan support, we have essentially employee ownership as a whole zero political clout to show for it. I've done podcasts a year and a half ago during the Democratic primary in the last presidential election, and there was no Republican primary, or I would have done those as well. And it was playing clips of the Democratic presidential candidates and what they were saying about policy and then me saying, and here's how employee ownership addresses that. And the context of these were, everybody's talking about employee ownership, to your point, they don't know what they don't realize it. So, I love the mobilization.
First of all, am I correct with my, boy, we've got little political clout to show for it. And the other thing is we'll have organizations will put out press releases, and again, I'm grateful for everything. It's what can we do more and better? And it's, so-and-so introduced a bill. So-and-so did whatever. I've never seen a call for employee owners to mobilize and say, let's make an impact. And it sounds like that's what you're talking about aspiring to?
[00:09:47] Jack Moriarty: Not only do we not have political clout, I would go as far to say that we are the, by far, the most unsung economic policy success story in America, is employee ownership. And you mentioned, Bret, hearing about sort of different policy problems and saying, yep, employee ownership, checks that box, it checks that box. That's where, I think, we have such an opportunity. Because we know that if someone cares about providing high quality jobs. If someone cares about trying to move policies in the direction of helping keep jobs in America, and to prevent a sort of offshoring and automation, how can we be globally competitive? How can we preserve economic opportunity in rural America? And how can we be serious about gender and racial wealth gaps? You go down the list and employee ownership is an answer to all of these questions.
So, why I'm so optimistic and bullish about employee ownership is we are an answer to questions that have an enormous amount of attention right now. And not - and on both sides of the aisle. And that's such an asset that we have is that we can appeal across the political and ideological spectrum and in a way that very few other issues can.
And so, I think a key part of the Ownership America model is to get in front of different groups that are thinking about these questions and that care about these questions. And employee ownership needs to be on your menu. You don't have to abandon anything that you're already working on, but if you're thinking about an agenda for economic opportunity, it's incomplete without employee ownership, and here's why.
I'll give you an example. We did some pilot work with a group called the Texas ESOP Initiative, led by Mike Hart out of EEA Consulting Engineers. And something that Mike did, which was very smart, is he got the state GOP, the Texas state GOP, to endorse ESOPs in their state party platform. Fast forward to a little bit earlier this year, we did the same thing with Massachusetts Democrats and got them not only to reaffirm support for employee ownership in their state party platform, but to actually pass a resolution by overwhelming margins, endorsing a pending state center bill in the legislature.
So, if you can get Texas Republicans and Massachusetts Democrats to agree on employee owners, for very different reasons, but that's great! That's just goes to show you the kinds of coalitions that we can build around this issue. And in both cases, the awareness level was incredibly low at the start. We got questions, in the Massachusetts example, like why have we never heard about this? Who could be against this? How do we get involved? That's the kind of political education that we're talking about with Ownership America.
[00:12:16] Bret Keisling: Jack, in the last couple of years, we have discovered that the benefits to employee ownership really are not just the issues that you've talked about, but they benefit the community. When we address wage inequality, people have more money to spend in their local stores and community and et cetera. When we have wealth inequality being addressed, people will be able to retire better in the communities, et cetera. And similarly, during the pandemic, and we have some great research out is that employee-owned companies where three to four times less likely to have layoffs or to, cut salaries during the pandemic, less likely than non-employee-owned companies. Which means, by extension, employee owners were less likely to use the food banks, less likely to be on public support and that sort of thing, using those community resources.
Is that why it's so important for you to focus the benefit of employee ownership on the communities and the states? Because it's more than just creating employee owners. You're really talking about transforming the country.
[00:13:16] Jack Moriarty: There's no question, Bret, that employee ownership needs to be thought of as a fundamental economic development priority. And that's what really we're all about in terms of the kind of concepts and the policies that we're putting forward to say, we know starting new businesses is important and entrepreneurship is important, but we've yet to, I think, convince the economic development community and policymakers by extension to really take seriously the business retention opportunity provided by employee ownership. And as you mentioned, and as we all know, if we're able to steer more business owners towards employee ownership, then we're going to have a much more equitable economy. We're going to have a much more dynamic economy that's better positioned to compete internationally. And we're going to have, I just think, a better society. A more fair and a more inclusive opportunity for all.
So, the question is how do we get more ESOPs, right? We actually know that not only is the ESOP space not growing, we're losing ESOPs by a clip of 4 to 5% a year over the last several years. And so that should really get us all thinking seriously and urgently about not only how do we stop the negative growth rate in employee ownership, but how do we really go on offense? How do we really scale the space and remove the kinds of barriers that will allow us to really become a much more significant part of the American economy?
And that offensive strategy is exactly what our inaugural publication was all about. And so, this was a working group effort led by our board chair, Michael Quarrey, who is an executive at Web Industries, which is a hundred percent ESOP company based in Massachusetts, but also Corey Rosen and Chris Mackin and John Case and others. And they actually got together, just about three or four years ago now, and were asking this very question, right? This is pre-COVID, but how do we really move the needle federally? And what's the policy agenda that could make that happen? And as I got pulled into that process towards the end, I had been thinking myself about why we're not a movement. And my pitch to them essentially was, this is fabulous, but we're not going to get any of this passed until we have a real movement. That's sort of the genesis of Ownership America.
In terms of the policy agenda, the first piece of the strategy is we have a history in this country of using the full faith and credit of the United States to create market opportunity and to do that, whether it's in housing or agriculture or other areas. Credit enhancements are very common, both at the federal and the state level. And so, our marquee proposal in that publication is what we're calling the Employee Equity Investment Act. And what's that designed to do is initially, co-created by Dick May, who is out of American Working Capital who is on our advisory board, Chris Mackin, who I mentioned, and also a Robert Hockett out of Cornell Law School.
And the idea here, and Chris and Dick have written about this in Fifty by Fifty, the progress we've made in the small business framework is really important and needs to continue, but we also have to think more ambitiously about getting into the middle market. We need to think about scale here. And in order to get into the middle market for ESOPs, we can't be in the business of asking sellers to finance the transaction. That is a real barrier to scale. And so, what our federal loan guarantee proposal does is to say, we're actually replicating an existing SBA program, not the 7(A) program, which is where Main Street Employee Ownership Act was focused, but a program called the Small Business Investment Company Model. And what that program does is licenses private equity funds to say, go out and raise some private capital. And when you do that, we'll actually kick in some federally backed debt so that you have a lower cost of capital. And in return, you have to deploy it towards a range of small businesses. We're taking that model and saying, we want to stand up a whole new set of what we're calling Employee Equity Investment Companies.
These are companies that would have a similar arrangement. So, go raise some private capital. Get a federal loan guarantee after you've been screened and gone through a rigorous underwriting process. And then your capital needs to be deployed towards creating more ESOPs and doing that for companies that are in the middle market. So, we're moving out of the small business framework into the middle market. And we're not going to war with private equity or anything like that. We know that private equity, if properly incentivized, can actually play a productive role here. And that's, we've already seen a sort of a nascent or emerging private equity market.
I mentioned American Working Capital. Another is Apis & Heritage Capital Partners and Phil Reeves, one of their co-founders, is on our advisory board as well. And so, part of what we're doing in that policy is also saying, how can we make sure that the deployment of those loan guarantees is done equitably so that we're actually creating inclusive employee ownership.
And we're making sure that a certain proportion of that is going towards businesses that employ significant amounts of underrepresented minorities, and really taking the playbook from Apis & Heritage, which is really their focus on creating employee owners of color.
So, I think there's a real opportunity, a bi-partisan opportunity, for a kind of credit enhancement policy, that doesn't add anything to the deficit. These are things that can be constructed to be budget neutral.
[00:18:19] Bret Keisling: Let me ask this regarding the SBA and David Hincapie, who works for the SBA or the Washington office of the SBA, did two podcasts with me in the fall of 2020. And there are policy problems that you'll hope to address, but with the SBA, there's also execution problems. For example, what David made clear is, oh, the legislation is there that ESOPs, co-ops, and collectives should have benefited, but nobody at the SBA knew about it. Nobody at the state offices knew about it. And apparently, and I don't know if this fits in, I think you might've mentioned them, but lots of states have small business development centers that are geared to interact with the SBA.
How do we make sure that bureaucratically - in other words, we don't want any more legislation passed [that] bureaucratically is dying on the vine because they don't know about it. Does that make sense?
[00:19:09] Jack Moriarty: Absolutely. The legislative process as we've learned, doesn't end when a bill is passed. Implementation is crucial, and we need to make sure that, whether it's at the federal level or the state level, that considering those administering agencies as key stakeholders very early on in the process is an absolute must if we're going to have a successful policy. Because ultimately, we can work really hard and get a bill sponsor and get it passed, but if we don't have it implemented effectively or there are delays, and we've certainly seen those challenges in the past, then we're not getting to where we need to go.
And so, to answer your question, Bret, absolutely. I think one of the key stakeholders, particularly the state level where we're starting to do some work and to help mobilize other coalitions, is making sure that the state economic development apparatus is actually aware of, supportive, engaged, understanding how employee ownership fits within their economic development priorities that are preexisting, right? This is not something else. It is another compelling, strategy to advance your goals to keep jobs in that state, to have high quality jobs, to build wealth. All these things that we know that, from all the great research that's been done, that employee owners should provide.
So, not just legislative, but also, executive branch, regulatory agencies, all of that needs to be part of the picture.
[00:20:26] Bret Keisling: That makes sense. Are there other federal initiatives?
[00:20:30] Jack Moriarty: We have a number of other proposals in our initial white paper, really focused on other opportunities, particularly through tax incentives.
And so, one big example is corporate divestitures. And we know that there's just so much activity in the M&A [Mergers & Acquisitions] markets every year and yet, just a, maybe, a bare sliver of that divestiture market is going towards employee ownership. And so, we're really not well-positioned quite yet to be able to compete and have ESOPs, in particular, employee ownership in general, be a real option for corporations that are spinning off, in some cases, healthy and profitable divisions. There's so many different reasons why these divestitures take place. And that's not to say we need every single one of them to be an employee ownership conversion, I don't think that's realistic, but certainly we should have our eyes set on some proportion of that market.
[00:21:18] Bret Keisling: Jack, let me, forgive me... I'm very excited. Let me just see if I can, like it hit my brain. What you're saying is there should be legislation. There should be law that says, hey corporation, if you're going to spin off a department, if you're going to spin off a branch, or whatever, here are some powerful incentives to spin it off to the employees. Am I saying that right?
[00:21:38] Jack Moriarty: Exactly. Right.
[00:21:39] Bret Keisling: Brilliant!
[00:21:40] Jack Moriarty: It's already what we've done, of course, with individual sellers, right? We all are very familiar and comfortable with 1042. There's no reason, conceptually, that that shouldn't extend to a corporate selling owner. And that's the recommendation that we put forth.
[00:21:54] Bret Keisling: I love that, and forgive my enthusiasm, and I know I got excited. But even in terms of you just saying, Bret, it's really just same thing as a 1042 for the individual. I love that! You have just simplified something that I hadn't really thought about that.
[00:22:06] Jack Moriarty: Glad to hear it! In moving away from divestitures, and I'll tick through some of the other categories here, maybe in a little bit less detail, but Opportunity Zones is another framework that was passed and through the Tax Cut and Jobs Act and still has, there's energy now to improve upon it. It's very unlikely to go away. Right now, ESOPs are not explicitly eligible to participate in the benefits of that framework. That's a real opportunity to move the needle, so we'll be doing some work on that.
And we also wanted to put forward the idea that, I think has been discussed in some circles, but trying to make the case that if they're going to be government funded privileges of any kind, whether that's tax benefits or tax cuts, in some cases, that the contingency framework can be in place. If you're going to get a certain tax benefit, some proportion of your equity needs to be shared, establish an ESOP. And one of the insights is Michael Quarrey and others that were early advisers, that they were writing this as the Tax Cut Jobs Act was passing and they had the discussion, how transformative would it be? If the reduction in the corporate tax rate was contingent upon ESOP formation? And so, that's an idea that we've put forth as well. And I think is a concept that can be applied in a number of settings.
And then finally, again, we're not just focused on ESOPs. Co-ops are part of our federal loan guarantee proposal, and also employee stock purchase plans, as another opportunity to spread ownership, particularly in public companies. And we've put forward a tax deduction for seeding those plans.
[00:23:35] Bret Keisling: And, Jack, I appreciate your pointing it out and where you can, that you're looking at other aspects of the EO sandbox beyond ESOPs. But the reality is, for example, if someone wanted to focus on, incentive money, and there are states that do this, and it's been talked about, but incentive money for brand-new employee-owned companies, and it's almost impossible to be a brand-new ESOP. So, there are certain policy things like in that the ESOP world would be excluded from.
So, there are some things that you're doing where it can be covering the gamut of employee ownership. You're doing that, but you do on your website, you acknowledge starting out, there is a - I don't want to say a primary focus, but obviously there are 6,400 ESOPs in the United States and about four or 500 co-ops. So, you're focused on where the lion's share of employee ownership is.
[00:24:24] Jack Moriarty: That's right. And we want to make sure that even if we, as we focus on ESOPs given that sort of unique opportunity, I think if we want to get where we want to go in terms of an economy that is characterized by broad equity participation, that will necessarily take many different forms. And, we think, ESOPs are, well-positioned in very specific context and we want to increase the use cases for ESOP formation. We want co-ops to be really strong, particularly, but not limited to, small business as well. And in public companies, the equation looks a little bit different.
So, I think in terms of how we think about a movement, the key is to get the idea across that ownership of equity is something that needs to be democratized. It needs to be broadly shared not only as a moral issue, not only as an issue of not literal, but figurative, equity. But also making the case that this is a performance benefit, too. Even if you're not as concerned about, the, sort of, the value judgment around employee ownership, we know across all of these different kinds of economic contexts, that employee ownership leads to superior performance.
And so, I think that's something where we have the sort of the business case and also the moral case for employee ownership. Those are the ingredients to me that can really fuel a movement. Where we're not talking about, we're not leading with sort of various structures, but really making the case that ownership needs to be the policy objective.
And that's really what Ownership America is all about.
[00:25:52] Bret Keisling: I you enjoyed Part One of my conversation with Jack Moriarty. There is so much more to come, which we will wrap next week on The EsOp Podcast.
Check out our show notes for various links, check out all of the episodes in our archives, there's almost 360 of them, at www.ESOPpodcast.com. And check out the brand-new Owner to Owner Podcast, part of EO Podcast Network.
Thank so much for listening. This is Bret Keisling. Be well.
[00:26:22] Bitsy McCann: We'd love to hear from you. You can find us on Facebook at EO Podcast Network and on Twitter @ESOPPodcast. This podcast has been produced by Bret Keisling for the EO Podcast Network, production assistance by Victoria Huerta, original music composed by Max Keisling, branding and marketing by BitsyPlus Design, and I'm Bitsy McCann.
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.
A note on the transcript: This transcript was produced by Descript, an automated transcription service. While it has been reviewed by The EsOp Podcast, we can not guarantee the accuracy of the transcription. Please refer to the original audio when citing sources.