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Mini-cast 229: The Employee Equity Investment Act

Bret Keisling discusses the Employee Equity Investment Act introduced in the US Senate by Sens. Van Hollen (D-MD) and Rubio and in the House by Reps. Phillips (D-MN) and Moore (R-UT), which directs the SBIC (of the SBA) to provide loan guarantees for investment funds that are devoted to expanding EO.

The Employee Equity Investment Act supports private sector investors who proactively pitch selling business owners on employee ownership transactions and provides financing, so the seller does not need to do so themselves. This is expected to "flip the script" from the current transition process, which usually sees the selling shareholder take the initial steps towards a transaction.



Mini-cast 229 Transcript

[00:00:00] Bret Keisling: Welcome to the EsOp Mini-cast. Thank you so much for listening. My name is Bret Keisling, and as it says on my business cards, I'm a passionate advocate for employee ownership. There is exciting and important news for employee ownership coming out of Washington DC. Earlier this week, the Employee Equity Investment Act was introduced in both the US Senate and House of Representatives.

[00:00:31] We often talk on the podcast how employee ownership seems to be the only issue that both major political parties agree on. That certainly is the case with this legislation, as the act was introduced in the Senate by Chris Van Hollen, Democrat of Maryland, and Marco Rubio, Republican of Florida. Primary sponsors in the House of Representatives are Dean Phillips, Democrat from Minnesota, and Blake Moore, Republican from Utah. And meanwhile, additional co-sponsors from both parties have already signed on to the proposed legislation.

[00:01:06] According to a press release issued by Senator Van Hollen's office, the legislation is intended to make it easier for private companies to transfer ownership of the business to their employees. It notes that over 40% of US corporate stock is owned by foreign investors and foreign corporate ownership may well increase as the baby boomer generation retires and sells their companies.

[00:01:32] Before I tell you what the legislation does, I want to point out that I was struck by the reference to foreign investment. We often talk about how employee ownership is a great way to deter companies from being sold and leaving their communities, but in all the conversations I've had, we've focused on communities and by extension the states they're in. So, I thought it was really interesting to see the argument expanded as a way to keep share ownership, and therefore shareholder profits, in the United States, which clearly would make the US economy stronger.

[00:02:03] Again, quoting from Senator Van Hollen's press release, "the bill works through the longstanding Small Business Investment Company [or] SBIC program at the Small Business Administration [(SBA)], which provides loan guarantees to investment funds that invest in small businesses [....] [T]he Employee Equity Investment Act uses the SBIC program to support a new generation of investment funds that are devoted to expanding employee ownership at small and mid-sized businesses. These investment funds would finance and facilitate the process of selling a company to its employees, and sustain and expand existing employee-owned firms. As under the current SBIC program, loan guarantees would be provided on a zero-subsidy basis with fees paid by the investment funds, in order to expand access [to financing] without cost to the taxpayers."

[00:02:55] The proposed legislation runs 40 pages and without diving deep into the text, what it does is provide much-needed access to capital. All too often, selling shareholders are expected to self-finance ESOP transactions, and this provides a vehicle that should turbocharge investment funds and allow them to seek out employee ownership transactions without all of the financial risks being borne by the selling shareholder.

[00:03:23] I understand from social media that Jack Moriarty and his colleagues at Ownership America played a great role early on to get the legislation rolling. And more recently, the folks at The ESOP Association played a critical role as well. There have also been numerous advisors, employee owners, and executives at employee-owned companies who've played a pivotal role in helping this come about as well as numerous organizations that are adjacent to the employee ownership field.

[00:03:51] We'll include links in our show notes to the press release from Senator Van Hollen, text of the legislation, a one-page fact sheet, as well as a list of organizations who have endorsed the legislation so far.

[00:04:04] The introduction of this legislation has followed an exciting year across the country where states and now the federal government have taken important steps to support and grow employee ownership. And that's good for all of us.

[00:04:16] I'm hoping to have Jack Moriarty of Ownership America come back on the podcast before long. If you don't already, follow him on social media, please do. The man is everywhere and working really hard for all of us.

[00:04:28] With that, we'll wrap up this episode of the Mini-cast. Thank you so much for listening. This is Bret Keisling. Be well.


[00:04:35] 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, 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 cannot guarantee the accuracy of the transcription. Please refer to the original audio when citing sources.

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