Add New York City to the list of places that believe ESOPs can be an invaluable tool for keeping businesses running—and employees employed. (A previous blog post focused on efforts to tap ESOPs to keep businesses running in North Carolina.)
A report from the office of Letitia James, the Public Advocate for the City of New York, estimates that—every year—the city loses 114 businesses that each have sales of more than $1 million.
The reason those businesses close: The owner retires.
The annual cost to the local community: 2,220 lost jobs.
James knows now what the ESOP community has known for some time—that ESOPs can offer retiring business owners a great potential buyer for their mature companies.
And ESOP Association President J. Michael Keeling—who attended a panel discussion on ESOPs immediately following the press conference on James’ report—ensured everyone in attendance knew about the latest research that shows ESOPs outperform conventionally-owned companies at retaining jobs.
Benefits such as these must not have been lost on James, who wants to push for expanded efforts to establish ESOPs in the Big Apple. Her report states: “New York City should encourage business owners nearing retirement to consider transitioning to employee ownership.”
James is encouraging the city to provide education and support for business owners who are considering retirement. She wants the New York City Small Business Services to create a Succession Planning Unit that will reach out to businesses whose owners are nearing retirement age, and educate them about succession planning and services.
She further suggests that this unit perform basic feasibility analyses that would help businesses identify their best succession options—including employee ownership.
While being aware of ESOPs is a key first step, James also understands that creating an ESOP can take work—and money. So she wants the City to help business owners find funding to launch an ESOP.
The report states: “The city should also create a program that would provide financing for business owners that wish to transition to employee ownership. As more Baby Boomers reach retirement-age, these transitions will become an even more important job retention strategy.”
To help manage the costs associated with becoming employee owned, James wants one of two things to happen: New York State to renew funding for its Employee Ownership Assistance loan program, or the New York City Economic Development Corporation to create a program that would provide financing for companies that transition to employee ownership.
Letitia James, NYC Public Advocate