April 2, 2019; Taunton Daily Gazette and Boston Globe
According to Adam Vartikar, founder and chair of the advocacy group Working Wealth, Massachusetts has 42,000 small businesses whose owners are likely to retire in the next seven to 10 years, collectively employing over 750,000 people. Vartikar says that most small businesses choose one of three options when their owner retires: 1) sell to a competitor or institutional buyer, 2) pass the company on to their children, or 3) shut down entirely. Vartikar estimates that two-thirds of businesses end up closing down.
Now, however, state and business officials have announced the revival of a state employee ownership office that had been moribund for over a decade. This, according to Vartikar, means there is now an effective fourth option for exiting business owners. “If you have an employee or you have a group of employees, you have a buyer, and if you live in a community and you love the businesses in that community, they have an option to stay around,” Vartikar explains.
In an op-ed for the Boston Business Journal, Julian Cyr, a state senator, writes:
Thirty years ago, Massachusetts opened the Office for Employee Involvement and Ownership (EIO) to assist with this, but it closed in 2008, the result of budget cuts during the financial crisis. The EIO was critical to building a more balanced economy in Massachusetts—working to assist existing employee-owned businesses in the commonwealth, and work with traditionally structured business owners to see if an employee-ownership model could work for them.
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In an era of a widening wealth inequality, the time has come for the advancement of employee ownership models. That’s why I am thrilled that the EIO will soon be back in business. Over the last two years…the Massachusetts Senate has appropriated funds to recapitalize the office.
Rebuilding the office has been a gradual process. Katie Lannan of the Taunton Daily Gazette reports that, “In the fiscal 2018 budget, lawmakers included $150,000 in funding to restart the office, followed by another $50,000 in this year’s budget.”
Cyr notes that the funding allowed the Massachusetts Office of Business Development to approve contracts in late March with two organizations—the ICA Group and Working Wealth—to promote existing employee-owned companies and support other businesses looking to make the transition. According to Jon Chesto of the Boston Globe, ICA estimates that “Some 28,000 Massachusetts firms with between 10 and 100 employees could be up for sale through 2025 as their owners approach retirement age.”
David Hammer of the ICA Group notes that the first wave of Baby Boomers will turn 75 in 2021, and 10,000 people across the country will turn 75 every day from then on through 2041. “That’s who owns businesses in Massachusetts, that’s who owns the businesses that are going to disappear and close unless we figure out how to save them,” says Hammer. “Unless we really figure out how to integrate business succession planning into business owners’ ideas…we’re going to lose the businesses.”
Of course, even without a state office, many businesses in Massachusetts have shifted to employee ownership. One prominent example is Harpoon Brewery. According to president Charlie Storey, the company employs 148 full-time and 61 part-time workers in Massachusetts. Harpoon began its transition to employee ownership in 2014. It is currently 48 percent employee-owned and expects to be 100 percent employee-owned by 2025.—Steve Dubb
