Impressive progress in the employee ownership sector in the UK is evident, with reports indicating the establishment of one new employee-owned business daily. To foster similar advancements in the EU, we can draw insights from various sources, such as Yugoslav self-management, the cooperative sector both in Europe and worldwide, ESOPs in the US, and of course the recent UK experience with EOTs. These accumulated insights offer valuable guidance for effectively scaling and sustaining employee ownership within our economies.
Outlined below are some key principles for achieving this goal:
- Establish a Special Purpose Vehicle (SPV) and permit leveraged buyouts. The inclusion of leverage and the option for partial conversions will help scale up employee ownership, as it will make it significantly easier for companies facing the problem of succession to transition to employee ownership. Furthermore, the SPV will help sustain employee ownership across many generations of employees.
- Develop specialized financial instruments and supportive infrastructure. Establish guarantees for loans and funds, offer state loan instruments through national developmental banks or other institutions, and incorporate employee ownership financing in Environmental, Social, and Governance (ESG) standards. Encourage the growth of the employee ownership sector by supporting professional organizations in building expertise.
- Emphasize inclusivity and employee participation. Foster broad-based employee ownership and encourage workplace participation, which are crucial for nurturing a healthy ownership culture, enhancing employee well-being, and improving corporate performance.
- Regulate profit distribution and introduce capital appreciation rights. Set a maximum ceiling on differences in profit sharing among workers; typically, within-firm wage differences provide a a good indication of what that ceiling should be. Implement an individual capital account structure to roll-over the acquisition debt’s cost across generations of workers and prevent imbalanced reinvestment incentives. Develop a systematic approach for managing repurchase liabilities.
- Offer tax incentives to key stakeholders while discouraging sell-outs. Provide sellers with reduced capital gains tax as an incentive. Encourage banks to finance employee buyouts by reducing tax rates on interest paid by employee-owned firms to finance buyouts. Establish a tax-clawback mechanism to deter the demutualization of employee ownership.