PBCs a natural fit for ESOPs

Two well-known names to Colorado beer lovers—Odell Brewing of Fort Collins and Left Hand Brewing of Longmont—recently adopted employee ownership stock ownership plans (ESOPs). With this move, which restricts company ownership stakes to employees and management, the two companies joined the state’s largest craft brewer, Fort Collins’ New Belgium Brewing, which became employee-owned in 2013.

Nationally, the ESOP Association, a Washington-based trade group, estimates that there are approximately 10,000 companies with ESOPs in the U.S., although it acknowledges that the privately held nature of many of the companies makes it difficult to determine a firm number. Nonetheless, of the estimated 10,000 companies committed to employee ownership, the association estimates that in about 70 percent, the ESOPs are large enough to influence strategy and culture and in about 50 percent, the ESOP controls the majority of shares.

Stock ownership by employees has also been identified as a leading approach to what’s known as shared capitalism. This concept is explored in the 2010 book Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options. The book, edited by Douglas L. Kruse, Richard B. Freeman and Joseph R. Blasi, concludes that shared capitalism improves the performance of companies and worker well-being, and generally leads to worker-friendly policies and practices.

Meanwhile, adopting an ESOP generally makes it tougher for a company to be acquired, and a number of studies have shown that companies with employee ownership and greater employee input into management decisions achieve improved financial results. Additionally, many small- and mid-sized business founders have found that an ESOP can smooth transition plans.

Shared ownership fits the PBC mindset

Given all of the attributes that ESOP supporters tout, the core differentiator between these companies and conventionally structured corporations is the prominence of the employee. Considering this key philosophical difference, Colorado-based companies committed to their employees should consider converting their legal structure to a public benefit corporation (PBC).

An option for for-profit companies since April 2014, the PBC formally ingrains multi-stakeholder impact into the corporate DNA by requiring that the articles of incorporation state the purpose(s) for which the corporation was formed. The purpose(s) must reflect the public benefit the company intends to provide.

As such, the PBC falls within the gap between S corps and C corps, which only state maximizing shareholder profit as a purpose, and non-profit entities, which fulfill altruistic goals. When the only shareholders of a company are its employees, who belong to the community in which the company is based, the stakeholder roster shares a number of ties.

Therefore, a broader purpose beyond profit creation seems natural for employee-owned enterprises, as do the resulting definitions of success. Accounting for such non-traditional thinking, a PBC seems like an ideal fit for ESOPs.

A richer business mindset

Last October, U.S. Secretary of Labor Thomas Perez called out the promise of B Corps—a designation that PBCs may achieve in addition to the legal status—and ESOPs in a speech about shared prosperity. In that presentation, he concluded that such companies and others “believe you don’t have to be a bottom-feeder to serve the bottom line.”

Individually, employee ownership and PBCs send strong messages to the community about the intent and purpose of a company’s overarching reason for being. In tandem, the two solidify that commitment.

And that’s something worth toasting for all Colorado companies working toward building more purposeful business models.