Understanding Barriers to the Adoption of Employee Ownership
A new paper takes a closer look
The concept of employee ownership, particularly through Employee Stock Ownership Plans (ESOPs), holds promising potential for creating more equitable workplaces. Despite recent increases in attention to this model, significant barriers hinder its widespread adoption. A recent publication, Employee Ownership in the US: Some Issues on ESOPs—overcoming the Barriers, highlights several key obstacles based on insights from experienced interviews and discussions about barriers to ESOP growth. Quoting the factors listed:
Public opposition to the idea of employee ownership
Lack of supply of companies to convert
Lack of credit for employee buyouts
Investment banking models of ESOPs that are not attractive to retiring business owners
Lack of infrastructure to carry out ownership transactions through technical assistance
Excessive cost, complexity and regulation
Lack of support from political parties and social movements
Lack of support from Wall Street, the major financial services firms in the US and the growing private equity sector
The sale of employee-owned companies because of financial considerations
Governance structures that are not appealing to the working middle class in the US
Evidence that ESOPs replace wages and benefits
Lack of implementation, slow-walking or sheer outright opposition of employee share ownership initiatives within Presidential administration and Federal agencies
In order to overcome these barriers and harness the potential of ESOPs, we need to continue making supportive environments for ESOPs through policies, finances, and education. However, we also need to more empirical studies that focus on the different barriers to employee ownership including ESOPs.
In the publication, the authors emphasize the need for both quantitative surveys and qualitative interviews targeting retiring business owners in closely held companies, along with CEOs of publicly traded companies, to gain a clear understanding of the barriers impeding further growth of employee ownership. They highlight the Rutgers Institute for the Study of Employee Ownership and Profit Sharing (with which Dr. Hand is a fellow), noting its current research agenda aimed at providing a better understanding of these barriers.
