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Tuesday, May 29, 2018

A smart way to address small business closures

Local worker ownership an opportunity for Rhode Island

Rhode Island, like many places across the United States, faces trouble ahead. Modest employment gains have come with lower wages and less benefits. Economic inequality is rising

We have more outside ownership and less local businesses.

As our local enterprises disappear, Rhode Island disappears. We are a small state so the sense of what creates the Rhode Island experience is very important. What we are losing is more than nostalgia.

We are losing jobs, profits, tax revenue, local control and opportunity for the future. Eventually we even loose our residents, as a recent Glassdoor study shows Providence topping cities in the nation where workers are looking to leave.

The Local Ownership Opportunity Act (H7799S2871), sponsored by Representative Aaron Regunberg (Democrat, District 4, Providence) in the House and Senator Sandra Cano(Democrat, District 8, Pawtucket) in the Senate, is a step in the right direction.

EDITOR’S NOTE: Charlestown has already had a great experience with a worker-owned business. Sol Power, the company chosen by the town for the Solarize Charlestown effort to get homeowners to install solar panels, proudly describes itself as a “cooperative” that is “employee-owned and democratically run.” Please continue reading to learn more about the proposed legislation that would promote more such local worker owned businesses.

In the event of a mass layoff or closure, piggy backing on the existing federal WARN Act, this bill would require that employees be notified about their right to make a bid to purchase the business. Within 30 days a poll of employees would be conducted to measure interest in a worker buyout.

Based on the results of the poll those employees can then enter into discussion with stakeholders including workers, owners, unions, creditors, liquidators, customers, etc. The goal of the discussion is to develop a future business plan and negotiate a purchase.

If successful the buyers would operate the business as a worker cooperative, defined by legislation passed by the Rhode Island General Assembly in 2017.

This is a pro business bill, just not in the way we normally think. The bill seeks to make it easier for workers to acquire a closing company by normalizing and facilitating that process. The goal is to increase the number of Rhode Island small businesses and business owners. This will create more entrepreneurs in the state.

We need this. Attend any local dissolvent auction and you will see productive equipment, the printing presses, lathes, assembly lines, bakery ovens, and hospital beds, sold off and leaving our state for pennies on the dollar. Drive through any city or town and see the retail spaces and warehouses, which sit empty and degrade.

Rhode Islanders can be part of the solution. We don’t have to go begging others to save us, only to be owned by them.

The “silver tsunami” of baby-boomer retirements is coming. According to a 2004 US Small Business Association study, 85 percent of all business owners do not have a succession plan in place and only 15 percent of businesses are passed along to children. 

Rhode Island has many more businesses with soon-to-be retiring owners causing more local jobs to be lost to closures and out-of-state sales if succession plans are not established.

Combined with the threat of shifting conditions in our economy, as well as the typical fluctuations in business cycles, many local businesses are not well positioned for long-term success.

Business models of the past will not work forever. Changes will need to be made. The greatest opportunities come from turning around struggling businesses.

It is well known in process improvement consulting that some of the most innovative solutions to business challenges can come from the employees doing their work. The challenge is empowering employees and making them feel they have ownership by giving them a direct personal stake in the success of the enterprise.

A worker owned cooperative does all of these things.

The bill provides the owner with a first or second option for transitioning their business. The owner makes the decision about what should happen with their property. There is not any requirement as to whom to sell the business. The bill is about making options and opportunities known of which the owner or employees may not be aware.

This bill is about being fair to loyal employees who have been at a company long enough to form a plan and take action.

There are finance options, such as the Cooperative Fund of New England, available specifically for coop businesses. There are many documented examples (see: 123, and 4) of successful sales of businesses to existing employees.

With the passage last year of a business to incorporate as a worker cooperative, a group of employees may be able to do this today. However, there are some unique hurdles in the road for business owners selling their business to their employees as compared to selling to an existing corporation. The state has an interest in lowering these hurdles, placing the employees on more even footing with other potential buyers when the business owners are looking to sell.

The places in the world, as near as Massachusetts and as far as Italy, where worker coop business sectors have grown the fastest and survived for generations, have been places where there is a supportive legislative structure.

In the case of Italy this meant lower unemployment through the recession. A 2014 OECD paper found that Italian worker cooperatives actually grew 22 percent during the 2008-2012 recession.

We have to start thinking differently about economic development. What Rhode Islanders see being done is give-away tax breaks to out of state and out of country corporations. What we see is the state’s resources being given to wealthy investors not our neighbors and not our co-workers.

Let’s give workers a chance. We have the talent and labor in this state to succeed. We don’t need to try and buy jobs from somewhere else, only to have another state buy them away from us in a few years. This bill ensures employees know what options are available.

It helps employees make that transition from worker to owner, from employee to entrepreneur. Isn’t that the American Dream? If you agree, let your senators and representatives in the Rhode Island General Assembly know.