Guidelines for Equitable Employee Ownership Transitions

Best practices for impact investors, asset managers, and professional advisors structuring employee ownership deals

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Developed in a fieldwide collaborative process led by the Democracy Collaborative, Soros Fund Management, and the Open Society Foundations, Guidelines for Equitable Employee Ownership Transitions is intended to ensure maximum social and economic benefits for workers and their communities in employee ownership transitions.

In explaining the need for the guidelines, Jessica Rose, co-founder of The Democracy Collaborative’s Fifty by Fifty initiative, and Hilary Irby, head of impact strategy at Soros Fund Management, noted, “Employee buyouts can be opaque to newcomers. [The Guidelines] help guide investors, asset managers, and professional advisors in structuring deals that maximize positive impact for employees.”

The guidelines identify five goals for employee ownership transactions:

• Design equitable deal structures: Balance the interests of sellers, investors, and employee owners by setting a fair price and ensuring the deal is structured to sustain employee ownership for the long run. Importantly, this means ensuring investors don’t leave the firm over-leveraged with debt upon exit.
• Embed broad-based ownership and support employee participation: Create substantial—at least 30 percent—employee ownership and ensure it reaches throughout the organization, from executives to front-line employees. Then build a participatory culture by sharing information and supporting employees in developing financial and business skills.
• Promote quality jobs and working conditions: Improve job quality by ensuring that every employee earns a living wage, has access to meaningful benefits, works in a safe environment, and is supported to grow professionally.
• Consider prioritizing deals that impact marginalized communities and workers: Whenever possible, look for firms where employee ownership would benefit low-wage workers, people of color, women, immigrants, or others without meaningful access to good jobs or asset ownership.
• Measure and report on employee impact: Establish goals and metrics to measure outcomes for employees alongside company and investor performance—and then report progress to a wide group of stakeholders.

The Guidelines break these goals down into actions relevant to each deal stage: sourcing/selection, due diligence and valuation, deal structuring through closing, and post-transaction operations. This makes the document an important how-to guide for social investors, asset managers, foundations, family offices, and any other party helping to structure employee ownership transitions.

Hear Jessica Rose talk with Impact Alpha about the role of impact investors in scaling employee ownership.

Read more about the Guidelines in Impact Alpha and Employee Ownership News.