In a notable shift within the business landscape, Softstar Shoes in Oregon has recently transitioned to employee ownership, a move that reflects a wider trend among retiring business owners in the United States. Tricia Salcido, the previous owner, decided to sell the company to her 30 employees as she gears up for retirement at the age of 56. This decision not only preserves local jobs but also fosters a culture of innovation and accountability among employees eager to contribute to the business’s success.
A New Era for Softstar Shoes
The change in ownership has sparked a renewed enthusiasm among the staff at Softstar Shoes. Since the transition in January, employees have actively engaged in proposing new ideas and strategies for the business. “I’m receiving personal emails from employees suggesting ways to improve operations that I hadn’t considered before,” Salcido remarked, highlighting a previously untapped reservoir of insights. This collaborative spirit is emblematic of employee-owned businesses, where workers share in both the risks and rewards of ownership.
Salcido’s decision to sell to her staff is part of a growing trend across the U.S. In fact, a recent study indicated that up to 600 companies are sold to employees each year, with the financial backing for such transactions increasing significantly—up 78% in just one year to $865 million. Employee ownership not only motivates staff but also has been linked to higher productivity, reduced layoffs, and better wages.
The Silver Tsunami: A Wave of Business Transitions
Salcido’s case is not an isolated one. Many U.S. entrepreneurs, particularly those from the “baby boomer” generation, are approaching retirement and are faced with the dilemma of what to do with their businesses. According to a report from McKinsey, approximately six million small and medium-sized businesses will change hands by 2035 due to retiring owners—a phenomenon some have dubbed the “silver tsunami.”
Ethan Rouen, an associate professor at Harvard Business School, notes the increasing number of owners seeking alternatives to traditional sales. Many owners are concerned about the future of their business under external buyers, and employee ownership presents a viable solution. “I can’t recall a week passing without discussing this topic with an owner looking to sell,” Rouen said.
Models of Employee Ownership: EOT and ESOP
There are various schemes in the U.S. that enable employees to acquire ownership of their companies. At Softstar Shoes, an Employee Ownership Trust (EOT) was utilised. This model allows a trust to take ownership of the business on behalf of the employees, thereby eliminating the need for them to purchase it outright. The former owner receives payment over time through a share of the company’s profits, adding a layer of risk and reward for both parties involved.
In contrast, William Stockwell, who transitioned his business, Stockwell Elastomerics, to his employees, opted for an Employee Stock Ownership Plan (ESOP). This approach involves placing the business in trust ownership, with employees receiving shares that they can cash in only upon leaving the company. “I’m accepting payments over ten years,” Stockwell said, acknowledging the financial sacrifices involved in ensuring his employees have a stable future.
Emerging Trends and Future Prospects
The trend towards employee ownership is gaining traction not only among older founders but also among younger workers who seek more equitable corporate structures. Harvard’s Rouen emphasises the potential of this model, stating, “The only way to truly create wealth in this country is through ownership of capital. This is a way to democratise that.”
However, the complexity of setting up EOTs and ESOPs compared to traditional sales can deter some owners. Many are unaware of these options and the benefits they can provide. Salcido herself has noted the lack of awareness surrounding these schemes, stating, “No one’s heard of them.”
Fortunately, there is increasing political support in Washington to simplify the process of transitioning to employee ownership. The U.S. Department of Labour has launched an Employee Ownership Initiative to promote awareness and provide guidance to interested business owners. With bipartisan backing in Congress, the path to employee ownership may become more accessible, potentially leading to a rise in successful transitions in the coming years.
Why it Matters
The shift towards employee ownership represents a significant cultural change in the business world, reflecting a deeper commitment to sustainability and community welfare. As more business owners consider this route, it not only protects jobs but also empowers employees to take an active role in shaping their workplaces. This model fosters a sense of unity and purpose, vital for the long-term success of businesses and their communities. By embracing employee ownership, we may witness a transformation in how businesses operate, prioritising people alongside profits.