For more than three decades, I have witnessed firsthand how employee ownership can create business owner liquidity and enable succession planning by building employee wealth. Over time, it has become increasingly clear to me that the transformative power of employee stock ownership plans, or ESOPs, lies in more than just their financial structure. Rather, they are a prime example of how businesses can align purpose, profit, and people in ways that benefit all stakeholders.
Recently, we’ve seen an increase in interest in more mindful and purpose-driven approaches to business. From B-Corps, purpose trusts and ‘conscious capitalism’ to the Tugboat Institute and the Expanding ESOPs Coalition, there is recognition that the traditional shareholder-only model of capitalism is inadequate for the challenges we face in the 21st century.
These movements share a commitment to a more holistic view of business that recognizes the interdependence of financial success, employee well-being, community impact and environmental stewardship. It’s a multi-stakeholder view that closely aligns with the principles espoused in the ESOP community.
I’ve seen a groundswell of interest in more mindful and purpose-driven approaches to business. … [+]
Here’s a closer look at the key players in this space who embrace the notion that profitability and purpose are mutually reinforcing:
· B-Corps: These for-profit companies are certified to meet rigorous standards of social and environmental performance, accountability and transparency. They are legally required to consider the impact of their decisions on workers, customers, suppliers, the community and the environment. B Corps runs the gamut from retailer The Body Shop and shoemakers Toms and Allbirds to opticians Warby Parker and the Taos ski area in New Mexico. KeHE Foods recently became one of the B-Corps owned by the ESOP.
· Purpose trusts: This innovative legal structure enables a company to be held in trust for the benefit of its stated purpose, rather than for the financial benefit of shareholders. It provides a way for mission-driven companies to maintain their values and purpose for the long term. Yvon Chouinard, founder of outdoor clothing company Patagonia, transferred his voting shares to a trust for purposes in September 2022.
· Conscious Capitalism: This movement encompasses the notion of a business having a conscious culture that values being ethical and profitable, benefiting society in the process. Its founders were John Mackey, co-founder of Whole Foods Market, and marketing professor and author Raj Sisodia. Check out their CEO Summit on October 24th, where over 250 leaders will share ideas on business forever.
· Tug Institute: The 11-year-old membership organization supports purpose-driven private businesses committed to “Evergreen” principles that prioritize long-term value creation over short-term profits.
· Expanding ESOPs Coalition: This newly formed group, of which I am proud to be a part, advocates for policies that make employee ownership more accessible and educates business owners about its benefits.
ESOPs were ahead of their time in embodying the principles of employee involvement and wealth creation that align with the core principles of purpose-driven business. That’s because ESOPs inherently create value for multiple stakeholders, creating opportunities for employees to benefit through ownership shares and enhanced retirement savings.
A 2023 study by the National Center for Employee Ownership found that ESOP companies often see attrition rates of their employees at roughly one-third of the national average, increasing productivity and profitability. Additionally, their communities benefit from the presence of sustainable, locally rooted businesses committed to local prosperity.
ESOP companies also tend to take a longer-term view, investing in their people and operations rather than chasing quarterly profits. This aligns closely with the Tugboat Institute’s “Evergreen” principles. Further, by widely distributing ownership among employees, ESOPs create a more equitable distribution of wealth that addresses a major criticism of traditional capitalism, namely, that it concentrates wealth in too few hands.
Data shows that when employees have a stake in the company’s success, they tend to be more engaged and innovative. This creates a virtuous cycle of improved performance and increased value creation. ESOPs are less likely to be sold or moved, providing stability to local communities, which embodies B-Corps’ stakeholder-focused approach and purpose trusts. And the shared ownership model of ESOPs naturally fosters a culture of collaboration and shared purpose that reflects key elements of the conscious capitalism movement.
As these movements gain momentum, a new economic paradigm seems to be emerging. It recognizes the interconnectedness of all stakeholders and seeks to create value in ways that are not exclusive to shareholders. While their numbers are still relatively small, at over 6,500, ESOPs have decades of experience operationalizing many of the principles that newer purpose-driven models aspire to. At the same time, ESOPs can learn and be inspired by the innovations happening in the B-Corp world, the legal creativity of purpose trusts, the focus on conscious leadership and the long-term orientation of Evergreen companies.
By building coalitions and sharing best practices across these different models, I believe the shift to a more mindful and intentional approach to business will accelerate. This isn’t just about feel-good rhetoric – it’s about creating more resilient, innovative and successful companies that thrive in an increasingly complex and challenging business environment.
As we look to the future, I have become more convinced that this coalition of purpose-driven business models—with ESOPs as a prime example—represents the best way forward for creating sustainable and equitable prosperity in the 21st century. Working together, by sharing our experiences and advocating for supportive policies, we can build an economy that really works for everyone. I love the timing, especially as we head into Employee Ownership Month.