Privately-held companies in Long Beach that are 20-years-old and older represent more than 2,500 of the city’s businesses and employ almost 47,000 individuals, according to data released by the nonprofit Project Equity. That’s an estimated 36% of the jobs in the city’s private sector, according to Evan Edwards, the organization’s director of strategic partnerships and business engagement.
“It’s really important that we preserve these businesses and these jobs, and Long Beach is one of those core communities that has long-standing industries,” Edwards explained.
Project Equity helps retiring business owners transfer ownership of their companies to their employees, and plans to begin local outreach this month. The organization is attempting to get ahead of the “silver tsunami,” a popular term used to describe the wave of retirements among the Baby Boomer generation that is anticipated to sweep across the United States over the next two decades. For businesses without succession plans, these retirements could have a major impact on local economies.
According to Edwards, owners tend to establish or acquire their businesses in their late twenties or early thirties. This is why Project Equity’s research focused on businesses that were formed 20 years ago or more, as their owners are more likely to be considering retirement. For potential retirees who do not plan to leave their businesses to a relative or successor, Project Equity offers what is essentially a “buyout” on behalf of the employees.
For the next two years, Project Equity is partnering with the City of Long Beach, the Local Initiatives Support Corporation (LISC) and Citi Community Development to identify and meet with businesses that are interested in transitioning into a worker-owned cooperative. Citi has committed $300,000 to the effort, Edwards said.
“It’s a significant investment because they see the value in this work, both from the perspective of preserving local economies but also through the lens of creating greater equity for workers,” he went on.
James Alva, senior vice president and market manager for Citi Community Development’s Southern California and Texas operations, said his division focuses on ways to expand economic opportunity for lower-income and underserved households. For this population – and most of America – building wealth was traditionally achieved through homeownership, which has become increasingly expensive. “Particularly for communities of color,” Alva pointed out.
The second-best way that households can build wealth is through small business ownership, and employee ownership is an innovative approach to achieving that quintessential American dream, Alva said.
When Project Equity was looking to expand into the Southern California area, it was Alva, a former Long Beach resident, who suggested it focus on Long Beach. After meeting with city staff to discuss the possibility of bringing Project Equity to the table, Alva said he was impressed with the economic development department and its efforts to promote economic inclusion.
“One of the brilliant things that the guys at the Long Beach Economic Development Department have figured out is – as valuable as incubators and other resources that apply to startups are – the real crown jewels of a city’s business ecosystem are its long-time business residents,” Edwards said. “The city wanted to make an investment in ensuring that its business ecosystem is sustainable.”
To achieve this goal, Project Equity offers businesses three succession options: employee stock ownership plans (ESOPs), worker-owned cooperatives and employee ownership trusts. ESOPs offer tax advantages for companies of about 20 employees and $2 million in revenue by transferring a company’s shares into a trust for the employees. These shares are free to employees and gifted as a retirement benefit.
Worker-owned cooperatives establish a board of directors that is primarily comprised of employees, who then have equal votes on strategic decisions. Employees pay an equity buy-in. By contrast, an employee ownership trust does not require employees to pay for their ownership benefits and provides them with a share of the company’s annual profits. These shares are not circulated, but stay within the trust.
Edwards’ organization operates on three basic tenets, he said: providing a fair market value exit for current business owners, job stability and economic resiliency for employees, and the preservation of economic resources for communities like Long Beach. “A part of our commitment to the city is to keep these businesses rooted in the community,” Edwards said.
Historically, worker co-ops were viewed as “sort of communistic,” Edwards said, but Project Equity’s mission is to serve all of the stakeholders involved, from the retiring business owner to the employees and their customers. “[Owners] don’t want to see their folks lose their jobs,” he said. “By the same token, if they want to sell their business, they can’t be sure the new owner is going to take care of them. So this gives business owners an opportunity to exit, see a return on investment, and make sure that their long-time employees stay in place.”