For the move­ment to democ­ra­tize the work­place, how­ev­er, this tran­si­tion could also present a tremen­dous oppor­tu­ni­ty. Only around 20 per­cent of retir­ing small busi­ness own­ers find a buy­er , and when they do, buy­ers tend to be com­peti­tors, larg­er com­pa­nies, pri­vate equi­ty firms or preda­to­ry real estate devel­op­ers. The above actors, how­ev­er, rarely have the best inter­est of work­ers and local com­mu­ni­ties at heart, thrust­ing many into pre­car­i­ous work and in some cas­es dri­ving gentrification.

The fed­er­al gov­ern­ment esti­mates that more than 10,000 baby boomers retire every day —4 mil­lion peo­ple every year. Between them, soon-to-retire boomers own 2.34 mil­lion busi­ness­es, with near­ly 25 mil­lion employ­ees. Boomer-owned busi­ness­es gen­er­ate $949 bil­lion in pay­roll, and $5.14 tril­lion in sales. Yet the vast major­i­ty of boomer busi­ness own­ers lack a writ­ten tran­si­tion plan for when they retire, and the com­ing shift in own­er­ship — what some have termed the ​“Sil­ver Tsuna­mi” — could affect one-sixth of U.S. work­ers, dec­i­mate mem­ber­ship in local busi­ness asso­ci­a­tions and cham­bers of com­merce, and have rip­ple effects through­out the entire economy.

But there’s anoth­er way out. Rather than close up shop or be bought up by the high­est bid­der, busi­ness­es can tran­si­tion into demo­c­ra­t­ic employ­ee-own­er­ship, such as work­er coop­er­a­tives — busi­ness­es owned, con­trolled and man­aged by work­ers, and that oper­ate accord­ing to a ​“one work­er, one vote” deci­sion-mak­ing process. The man­i­fold ben­e­fits of this and oth­er types of demo­c­ra­t­ic employ­ee own­er­ship include reduc­tions in intra-firm income inequal­i­ty, increased voice and say by work­ers them­selves over work­ing con­di­tions, increased pro­duc­tiv­i­ty and effi­cien­cy, poten­tial spillover into increased polit­i­cal par­tic­i­pa­tion, and eco-friendliness.

Depend­ing on the state or munic­i­pal­i­ty, there may be legal obsta­cles to tran­si­tion­ing exist­ing busi­ness into work­er own­er­ship, but it is not impos­si­ble. And a num­ber of poli­cies, some of which are already being pushed by coop­er­a­tive and labor move­ments across the coun­try, can ease the process along. Such poli­cies can ensure that the surge in boomer retire­ment doesn’t harm the econ­o­my, but instead puts more pow­er in the hands of work­ing people.

Work­er Own­er­ship Today

To grasp the poten­tial for trans­for­ma­tive future reform, we first must grap­ple with the present state of employ­ee own­er­ship. There are only around 300 work­er coop­er­a­tives nation­wide, and they aren’t easy to build from scratch. For one, devel­op­ing busi­ness­es can require years of train­ing, steady build-up, and effec­tive mar­ket­ing — there is a lim­it to how many work­er coop­er­a­tives can be devel­oped at once. The degree of dif­fi­cul­ty also means that work­er coop­er­a­tive devel­op­ers work­ing in iso­la­tion could eas­i­ly face exhaus­tion and burnout. And even after get­ting off the ground, start­up work­er coop­er­a­tives can remain depen­dent on non­prof­it devel­op­ers for an indef­i­nite peri­od. This helps explain the long-term fail­ure of, for exam­ple, a decen­tral­ized non­prof­it-based start­up work­er coop­er­a­tive devel­op­ment pro­gram from 1976 to 1986 in the Unit­ed King­dom. This ​“ten-year exper­i­ment pro­duced approx­i­mate­ly 2,000 new work­er coop­er­a­tives – – and almost none exist today,” writes Christo­pher Michael, found­ing direc­tor of NYC Net­work of Work­er Coop­er­a­tives and gen­er­al coun­sel for The ICA Group, a non-prof­it con­sul­tan­cy that aims to advance employ­ee ownership.

On the oth­er hand, there are more than 7,000 firms with ESOP (Employ­ee Stock Own­er­ship Plan) sta­tus. An ESOP is an employ­ee ben­e­fit pro­gram where­by employ­er stock is trans­ferred to indi­vid­ual employ­ee accounts with­in a tax-exempt trust. While the work­er coop­er­a­tive sec­tor has expe­ri­enced crests and falls since the 1970s, the total num­ber of employ­ee-own­ers under ESOPs has steadi­ly increased. In total, 13.5 mil­lion employ­ees — or 11.8 per­cent of the total U.S. work­force — work in an ESOP. By con­trast, only 7.4 mil­lion pri­vate-sec­tor work­ers — 6.4 per­cent of entire pri­vate-sec­tor work­force — are union­ized. Among the 7,000 ESOP com­pa­nies, 4,000 are major­i­ty employ­ee-owned; some are even 100-per­cent employee-owned.

So what does this aston­ish­ing base of ESOPs — and the rel­a­tive dearth of work­er co-ops — have to do with the Sil­ver Tsuna­mi of retir­ing boomers? Start­up work­er coop­er­a­tive devel­op­ment need not be com­plete­ly aban­doned. To engage in effec­tive start­up devel­op­ment, how­ev­er, requires build­ing durable busi­ness asso­ci­a­tions and fed­er­a­tions for work­er coop­er­a­tives. Such asso­ci­a­tions and fed­er­a­tions could offer resources for metic­u­lous research, engage in polit­i­cal advo­ca­cy and lob­by­ing, as well as pro­vide an exist­ing con­sumer base for start­up busi­ness­es to con­nect with. One way to build such a foun­da­tion is through con­vert­ing exist­ing busi­ness­es into demo­c­ra­t­ic employ­ee-owned firms — focus­ing on this now would make future start­up co-ops eas­i­er. Why start a new fledg­ling busi­ness in a hyper com­pet­i­tive glob­al econ­o­my when there are exist­ing healthy busi­ness­es that can be converted?

The incen­tive struc­ture is already there. For one, bro­ker fees for con­vert­ing to a work­er coop­er­a­tive are less than a typ­i­cal sale. Also, as not­ed in an ICA report, ​“cap­i­tal gains from the sale to a co-op or an Employ­ee Stock Own­er­ship Plan (ESOP) can be deferred indef­i­nite­ly or com­plete­ly avoided.”

Sec­ond, the mod­el is more appro­pri­ate for grad­ual tran­si­tions. Exit­ing own­ers are not required to sell all-at-once, and future cash flows can be used to expe­dite work­ers’ pur­chase of the com­pa­ny. Instead of a scram­bled and unsat­is­fy­ing exit, small busi­ness own­ers can slow­ly tran­si­tion out, or even secure them­selves an abridged role with­in a major­i­ty demo­c­ra­t­ic employ­ee-owned enterprise.

Third, con­ver­sions to demo­c­ra­t­ic employ­ee-own­er­ship ben­e­fits those small busi­ness own­ers that care about leav­ing a lega­cy behind. Rather than sell­ing to an out­side-pur­chas­er in a scram­bled impromp­tu fash­ion, demo­c­ra­t­ic employ­ee-own­er­ship is like­ly to be more con­sis­tent with for­ti­fy­ing a retir­ing busi­ness owner’s lega­cy. Sim­ply put, it leaves the busi­ness in con­trol to those that know the busi­ness best: the work­ers themselves.

Poten­tial Reforms

But in ESOPs, work­er own­er­ship does not always mean work­er democ­ra­cy. Under the 1974 Employ­ee Retire­ment Income Secu­ri­ty Act (ERISA), which grants ESOPs spe­cial tax sta­tus, ESOP trustees are pro­hib­it­ed ​“from pri­or­i­tiz­ing non­fi­nan­cial ben­e­fits, such as work­ing con­di­tions, job secu­ri­ty, or employ­ee own­er­ship, as ​‘a goal in and of itself,’ ” Michael writes. Effec­tive­ly, ​“fed­er­al law requires ESOPs to pri­or­i­tize employ­ees’ retire­ment income at the expense of employ­ees’ con­tin­ued own­er­ship.” This means that max­i­miz­ing share­hold­er val­ue is pri­or­i­tized over the needs and con­cerns of work­ers as work­ers — or as com­mu­ni­ty members.

One effect of this is that, while it is tech­ni­cal­ly pos­si­ble to struc­ture ESOPs as work­er-con­trolled com­pa­nies (and some do), many ESOPs con­fer few vot­ing rights to work­ers. These are often restrict­ed to major share­hold­er deci­sions, such as a restruc­tur­ing or sale of the com­pa­ny. At the state and local lev­els, reforms can address these lim­its. The point here is not to view ESOPs with sus­pi­cion, as many labor unions have, but to build upon what has been achieved to date — specif­i­cal­ly, by adding the impor­tant ele­ments of work­ers’ vot­ing rights and oth­er demo­c­ra­t­ic procedures.

Since the 1980s, some ESOPs have been run as work­er-con­trolled ​“Demo­c­ra­t­ic ESOPs” (DES­OPs), with one work­er, one vote. Unlike a work­er coop­er­a­tive, a 100-per­cent employ­ee-owned DES­OP does not pay any fed­er­al income tax. This makes the DES­OP more finan­cial­ly attrac­tive than incor­po­rat­ing as a work­er coop­er­a­tive. The down­side is that due to ERISA law require­ments that ESOP trustees pri­or­i­tize finan­cial ben­e­fits, DES­OPs are some­times com­pli­cat­ed and cost­ly to struc­ture. Anoth­er option is cre­at­ing a one work­er, one vote Employ­ee Own­er­ship Trust (EOT). EOTs fall out­side of ESOP law, and also lever­age tax-exempt loop­holes. Gov­ern­ments and civ­il soci­ety can make it eas­i­er to tran­si­tion exist­ing firms into DES­OPs and EOTs by build­ing on exist­ing incen­tive-struc­tures with new legal mech­a­nisms, insti­tu­tion­al sup­port, and capac­i­ty-build­ing programs.

Specif­i­cal­ly, both state and local gov­ern­ments should: (1) expand tax incen­tives for employ­ee own­er­ship; (2) estab­lish a financ­ing pro­gram for employ­ee-own­er­ship suc­ces­sions through loan guar­an­tees; (3) give pref­er­ence to employ­ee-owned busi­ness­es in con­tract­ing out work, e.g., con­struc­tion, clean­ing, cater­ing, etc.; and (4) estab­lish an employ­ee-own­er­ship cen­ter that favors DES­OPs and EOTs.

On this fourth rec­om­men­da­tion, through its Work­er Coop­er­a­tive Law Project, The ICA Group pro­pos­es cre­at­ing Cen­ters for Demo­c­ra­t­ic Employ­er Own­er­ship that acquaint busi­ness own­ers with dif­fer­ent mod­els of employ­ee own­er­ship. Cen­ters would dis­sem­i­nate knowl­edge of tax-exemp­tions and ben­e­fits to retir­ing busi­ness own­ers, and could pro­vide pro­fes­sion­al assis­tance with the process of trans­fer­ring busi­ness own­er­ship to workers.

These could be struc­tured to encour­age full, demo­c­ra­t­ic employ­ee own­er­ship with one work­er, one vote rights — as opposed to only par­tial non­vot­ing employ­ee own­er­ship — through pro­vid­ing tax-exemp­tions on ​“earn­ings attrib­ut­able to any por­tion of com­pa­ny stock under demo­c­ra­t­ic employ­ee own­er­ship.” ICA also pro­pos­es a full cap­i­tal gains exemp­tion for ​“a busi­ness own­er who trans­fers a por­tion of a firm’s vot­ing shares to demo­c­ra­t­ic employ­ee own­er­ship.” This could also be struc­tured along a scale: The more shares turned over into demo­c­ra­t­ic employ­ee-own­er­ship, the more favor­able the cap­i­tal gains tax exemption.

Incen­tives should focus on the grad­ual tran­si­tion of enter­pris­es — e.g., over sev­en or more years — toward one work­er, one vote employ­ee own­er­ship. Grad­ual tran­si­tion could be more appro­pri­ate for pri­vate busi­ness own­ers who do not intend to retire right away. It is also an effec­tive means by which busi­ness own­ers could pass on insti­tu­tion­al knowl­edge and pro­vide their own train­ing. Grad­ual tran­si­tions min­i­mize and elim­i­nate con­flict by leg­is­lat­ing a smooth pas­sage of con­trol to the employ­ees after the busi­ness own­er is ful­ly divest­ed of their own­er­ship. The point is not sim­ply to pass into demo­c­ra­t­ic employ­ee-own­er­ship, but to do so in a healthy and last­ing way.

Con­vert­ing Firms Now

Pass­ing such poli­cies will take time and effort, but many efforts have already begun. The New Haven chap­ter of Democ­ra­cy at Work (D@W) is advo­cat­ing for many of the above-men­tioned poli­cies (full dis­clo­sure: the author is a mem­ber of D@W’s New Haven chap­ter). The ICA Group is push­ing for such poli­cies across the North­east as well as the nation­al lev­el. In Con­gress, Sen. Bernie Sanders (D‑Vt.) him­self has intro­duced employ­ee-own­er­ship leg­is­la­tion mul­ti­ple times over the last decade. Most recent­ly, as report­ed by In These Times, Sanders, Sens. Patrick Leahy (D‑Vt.), Kirsten Gilli­brand (D‑N.Y.) and Mag­gie Has­san (D‑N.H.) intro­duced two com­ple­men­tary pieces of leg­is­la­tion this May that would ease the tran­si­tion to employ­ee own­er­ship. Iden­ti­cal leg­is­la­tion has been intro­duced in the House by Rep. Jared Polis (D‑Colo.).

The first bill — also intro­duced by Sen. Eliz­a­beth War­ren (D‑Mass.) — is the Work­er Own­er­ship, Readi­ness, and Knowl­edge (WORK) Act. If passed, funds would be pro­vid­ed for edu­ca­tion, out­reach, tech­ni­cal assis­tance and train­ing (to both employ­ees and employ­ers) to democ­ra­tize the work­place. The sec­ond piece of leg­is­la­tion is the Unit­ed States Employ­ee Own­er­ship Bank Act. This leg­is­la­tion would pro­vide direct loans and loan guar­an­tees for com­pa­nies to become at least 51 per­cent employ­ee-owned, whether as an ESOP or a work­er cooperative.

For­tu­nate­ly, we need not table con­vert­ing exist­ing busi­ness­es until such reforms are passed. In fact, there are already some tax incen­tives for such con­ver­sions, and the process is tried, test­ed and effi­cient if done with the right legal coun­sel. The ICA Group and the Nation­al Cen­ter for Employ­ee Own­er­ship (NCEO) offer pre­lim­i­nary con­sul­ta­tions for busi­ness own­ers inter­est­ed in con­vert­ing their enter­prise. Democ­ra­cy at Work Insti­tute launched a ​“Work­ers to Own­ers” pro­gram to smooth tran­si­tions to work­er own­er­ship as boomers retire. What is still lack­ing, how­ev­er, is the fund­ing to mas­sive­ly scale such tran­si­tions, par­tic­u­lar­ly for the nec­es­sary outreach.

Munic­i­pal­i­ties can act now to sup­port con­ver­sions. They could track and report local busi­ness clo­sure rates, with impor­tant asso­ci­at­ed con­tent such as the num­ber of jobs lost. Look­ing at busi­ness licens­es on-file they can deter­mine which and how many busi­ness­es have been oper­at­ing for at least the last 15 years. This would allow Cen­ters for Demo­c­ra­t­ic Employ­ee Own­er­ship to con­duct tar­get­ed out­reach, such as through con­tact­ing busi­ness own­ers on the verge of retirement.

Out­reach can take on many dif­fer­ent forms. It could mean reach­ing out to busi­ness bro­kers and local eco­nom­ic devel­op­ment agen­cies so as to famil­iar­ize them with mod­els of demo­c­ra­t­ic employ­ee-own­er­ship. It should also mean pri­or­i­tiz­ing out­reach to local cham­bers of com­merce and busi­ness asso­ci­a­tions, whose mem­ber­ship may also plum­met with mass turnover in small busi­ness own­er­ship. If these groups want to main­tain a healthy mem­ber­ship, joint­ly host­ing sym­po­siums, sem­i­nars and train­ings on demo­c­ra­t­ic employ­ee-own­er­ship could go a long way.

Con­sid­er­ing the free fall in pri­vate-sec­tor union mem­ber­ship, labor unions would be wise to get on the employ­ee-own­er­ship band­wag­on. They could help ensure demo­c­ra­t­ic employ­ee-owned firms would be union­ized, offer­ing orga­nized labor anoth­er source of dues-pay­ing mem­bers as well as increased lever­age with cap­i­tal­ist firms. In those cities and states were ​“eds & meds” indus­tries dom­i­nate, for exam­ple, and unions seek to tip the local bal­ance of pow­er in their favor, demo­c­ra­t­ic employ­ee-own­er­ship could even be a means by which orga­nized labor and busi­ness stand togeth­er. This could take place through coali­tion build­ing between work­er-owned busi­ness­es and labor unions, such as through coop­er­at­ing on pro­gres­sive push­es for city coun­cil and may­oral elec­tions. This in turn could trans­late into greater bar­gain­ing pow­er for work­ers with­in union­ized cap­i­tal­ist enterprises.

Uti­liz­ing the net­works and knowl­edge of labor unions, demo­c­ra­t­ic employ­ee-owned firms would be able to scale while guard­ing against the poten­tial for self-exploita­tion (which man­i­fests in start­up work­er coop­er­a­tives as ​“sweat equi­ty” with mem­bers ini­tial­ly work­ing long hours for less than desired pay). This has prece­dent: There are at least thir­teen union­ized work­er coop­er­a­tives in the Unit­ed States, includ­ing the largest work­er coop­er­a­tive in the coun­try, Coop­er­a­tive Home­care Asso­ciates.

A part­ner­ship between labor unions and demo­c­ra­t­ic employ­ee-owned firms is a return to the labor movement’s roots in fight­ing for self-man­age­ment. If labor unions and bud­ding work­er coop­er­a­tive fed­er­a­tions were to join togeth­er, labor and asso­ci­at­ed com­mu­ni­ty groups could gain deci­sive orga­ni­za­tion­al pow­er not only in gov­ern­ment, or ​“eds & meds,” but in civ­il soci­ety and the broad­er polit­i­cal eco­nom­ic land­scape. And the Sil­ver Tsuna­mi may pro­vide just the open­ing need­ed to make that happen.