The rising trend of employee-owned businesses
There are tried-and-tested ways for employees to become co-owners of their organisation, whether through partial or full ownership.
They range from employee stock ownership plans to ownership trusts, to direct ownership and cooperatives.
Recent studies have shown companies where workers are co-owners or investors in their employer tend to do better – in terms of productivity and ESG metrics – than businesses owned primarily by external stakeholders.
How employee-owned businesses are gaining ground
In a 2023 study, employee-owned businesses (EOBs) were found to be 8% to 12% more productive based on the gross value added by each employee.
Overall, EOBs pay higher minimum wages, are less likely to make employees redundant and provide greater benefits in terms of health care, flexible work, and upskilling/reskilling.
However, the most significant shift seen in EOBs may be more psychosocial. EOBs have more highly motivated (83%) and highly satisfied (73%) employees than their counterparts.
“What we found is a rapid rise in employee- and worker-owned businesses that is driving a quiet revolution in responsible and sustainable productivity,” said Campbell McDonald, CEO of Ownership at Work. “This is a supply-side phenomenon that deserves more attention in an economy crying out for a better kind of growth.”
Better at ‘building worker wealth’
The benefits of being an employee co-owner also extend into retirement. Overall, because of the equity workers in EOBs enjoy throughout their tenure, they can walk away with greater retirement savings.
“You have employees [at EOBs] with retirement accounts that are about three times that of comparable employees in companies that have retirement accounts,” said Corey Rosen, co-author of Ownership: Reinventing Companies, Capitalism, and Who Owns What. Rosen believes EOBs are better at building worker wealth.
In the past three years, the cost-of-living crisis that has hit major economies has only exacerbated the difficulties of accumulating wealth when one chooses to remain an employee.
“There doesn’t seem to be much hope that wages are going to start rising faster in any meaningful way than the cost of living. That only gets fixed if people can be owners, too,” Rosen told Katherine Klein, a management professor at Wharton, in a podcast.
Shared ownership and sustainability
Apart from higher productivity, employee engagement and retention rates, employee ownership has also been associated with improved ESG outcomes. EOBs are likely to express commitment to environmental protection and sustainable business practices.
“Recent research finds that ESOPs enhance the employees’ capacity and willingness to hold their management accountable for environmental responsibility, thereby aligning long-term interests between employees and their executives,” said Turner ESG Fellow Kristin Tingle.
“These researchers even found that employee ownership supports stronger environmental performance than providing environmental-based incentives in firms without ESOPs.”
Given their aim of achieving equity at work and in business, EOBs drive towards the social aspects of ESG with greater intention.
“Employee-owned firms particularly excel when it comes to social welfare for their employees and their communities,” Tingle said.
Citing data from the WE Upjohn Institute for Employment Research, Tingle found employee ownership has enabled firms to “maintain their standing even in times of market downturns”.
The employee ownership model in Asia Pacific
Employee ownership, particularly through ESOPS, is steadily increasing in the US (6,500+) and UK (1,400+), but Asia Pacific isn’t far behind.
In Japan, where some businesses face the problem of succession planning, American startup Teamshares helps them to transition to the EOB model. The startup acquires companies before “gradually handing over” the business to employees through stock grants.
Meanwhile, in the landmark study, State of ESOPs in Southeast Asia, Saison Capital and Svested said: “Companies that introduce, structure and continuously refine employee stock options will win the war for talent. But there’s a little more to ESOPs than that.”
Founders who want to share the reward (and risk) of building ventures in the region are starting to introduce ESOPs for the right reasons – to retain talent (87%) and to build culture and create a sense of ownership (86%) – but “they need to take a longer-term view to maximise their utility”.
Beyond the basics, startups in Southeast Asia appear to have a limited understanding of ESOPs. “While most founders understand ESOPs’ vesting schedules, the majority do not understand how to translate ESOPs into cash (through buybacks),” analysts said.
“This means challenges exist for founders and employees to fully realise the value of their ESOPs and limits the realisation of potential upside.”