Building supply chain resiliency through ownership conversions
by Karen Kahn
Kaiser Permanente — one of the country’s largest integrated health systems — has launched a unique initiative focused on educating their suppliers about employee ownership and, for those who are interested, helping those businesses transition to worker cooperatives or other forms employee ownership such as Employee Stock Ownership Plans (ESOPs). Kaiser Permanente provided a grant to Obran Cooperative and Project Equity, two organizations experienced in converting businesses to employee ownership, to do the outreach, education, and conversions.
Kaiser Permanente’s ‘Business Resilience through Employee Ownership’ initiative is giving thousands of businesses the opportunity to consider whether employee ownership will work for them.
First Employee Ownership Transition
The first business conversion occurred this spring, when Courier Corporation of Hawaii (CCH), a logistics and “last mile” delivery service that serves Kaiser Permanente in the Hawaiian islands, was acquired by Obran. Obran, which is a cooperative conglomerate, converts businesses to worker cooperatives through a novel acquisition and conversion model. Every CCH employee is now eligible to become a member of Obran, joining nearly 300 worker-owners who work in a variety of sectors, including health care, content creation, and construction.
Nick Smallwood, owner of CCH received an outreach call from Obran late in 2021. He was intrigued by the idea of employee ownership and worked with Obran over three months to finalize a deal. The Obran Acquisition Fund, a $30 million private credit fund, financed the deal. Smallwood both received fair market value for the firm he built over 20 years and secured the company’s future for its employees.
“As an entrepreneur, if there is a legacy I can leave, it’s that my employees, their families, and my community as a whole are thriving because of what we built,” said Smallwood. “Enabling my employees to become owners of our business will make us stronger.”
Kaiser Permanente’s Commitment to Diverse Suppliers
CCH, a business that predominantly employs Native Hawaiians, is one of thousands of diverse and inclusive small businesses that are part of the Kaiser Permanente supply chain. According to Ije-Enu Udeze Nwosu, vice president of Market Operations, Performance and Impact, Kaiser Permanente was “one of the first” health care organizations to make a commitment to supplier diversity. “Economic opportunity is the foundation of healthy communities,” she says.
Through its impact purchasing department, Kaiser Permanente is proactive in directing nearly $3 billion of its spending toward sustainable, eco-friendly businesses as well as businesses owned and operated by people of color, women, and other marginalized groups in the communities it serves.
Kaiser Permanente has been groundbreaking in its approach to impact spending. This is the first public commitment to increase spend with employee-owned businesses.
–Hilary Abel, cofounder and chief policy and impact officer, Project Equity
“At the end of the day, we are driving both business and social value through that spend, says Nwosu. “We target suppliers in the communities we serve because it addresses environmental and economic disparities in those communities, and all those things are driving health outcomes.”
As a result of the pandemic, Nwosu says, Kaiser Permanente initiated conversations with its suppliers, looking for ways to help them strengthen their businesses and retain employees. In those conversations, some business owners made it clear they were ready to sell their companies. “They would say, ’I’m exhausted. It’s time for me to hang up my hat but I want to make sure my employees are taken care of.’ It was clear, they were ready to transition,” says Nwosu, “but they wanted to do so in a meaningful way.”
The Kaiser Permanente team began to look more seriously at how an employee ownership strategy might be used to help these business owners, while at the same time strengthening the resiliency of Kaiser Permanente’s supply chain and the health care giant’s impact on the local level.
The Impact Purchasing Commitment
To increase its impact “outside the walls” of the institution, Kaiser Permanente is part of the Healthcare Anchor Network (HAN), a newly independent nonprofit organization (as of January 2022) that was originally incubated at The Democracy Collaborative (TDC). HAN has implemented TDC’s anchor institution strategy within the health care sector. It supports its members in leveraging their economic resources, hiring, and purchasing more intentionally to create inclusive local impact. President and founder Dave Zuckerman says, “we help our members think differently about their role in community economic development and community wealth building.”
In June 2021, HAN announced its Impact Purchasing Commitment, which it developed in partnership with Kaiser Permanente. The idea, says Zuckerman, was to design a “best in class” framework around impact purchasing that would help systems focus their strategies in three areas: supplier diversity, sustainable purchasing, and community wealth building. Twelve health systems signed on.
The Impact Purchasing Commitment is unique in its articulation of community wealth building goals. The signatories made a commitment to establish and track progress toward specific five-year spending goals with vendors that are 1) locally owned and operated and 2) majority employee owned, cooperatively owned, and/or nonprofit owned. By embedding employee ownership side-by-side with other impact purchasing goals, Zuckerman says, HAN hopes to raise awareness of the strategy.
By embedding employee ownership side-by-side with other impact purchasing goals, the Healthcare Anchor Network hopes to raise awareness of the strategy.
Kaiser Permanente, says Zuckerman, has been interested for several years in how a health system could support employee ownership, learning from the anchor institution strategy that undergirds the Evergreen Cooperatives in Cleveland. There, the Cleveland Clinic and University Hospitals have played key roles in helping to create Evergreen Cooperatives, including contracting with Evergreen Cooperative Laundry. In developing its own approach, Kaiser Permanente’s “Business Resilience through Employee Ownership” initiative is testing an alternative in which thousands of businesses are being given the opportunity to consider whether employee ownership will work for them.
Outreach and Education
Kaiser Permanente provided Project Equity and Obran with a list of about 3000 small businesses in their supplier network. Project Equity has been leading the education work with business owners, increasing their familiarity with the benefits of employee ownership and how it can work as a succession strategy.
Says VP Nwosu, the webinars and forums have been particularly effective. “Bringing people in who have successfully transitioned their businesses and having those conversations in safe spaces business owner to business owner has been key,” she says. It’s an opportunity to “talk about what it really takes. How did the business owners make it work? How did they ensure they were safe and whole and so were their employees?” There were some phenomenal conversations and exchanges, says Nwosu, which has resulted in a network of support among participants. Ultimately, she says, “it was a win-win across the board.”
If business owners express interest in employee ownership, they can work with either partner to support an independent transition to a worker cooperative or another form of employee ownership such as an Employee Stock Ownership Plan (ESOP). Additionally, Obran can transition the business using its acquisition and conversion model, which looks very much like a typical business acquisition. “We really focus on the business fundamentals and the benefit we can deliver to our members, customers, and community,” says Joseph Cureton, chief coordinating officer of Obran Cooperative. “Through our acquisition process we can quickly execute the deal.” Post-transaction, Obran spends a lot of time on “leadership development, cooperative education, and member development” as it integrates the business and new members into the cooperative.
Long-Term Impact
Says Hilary Abell, cofounder of Project Equity and chief policy and impact officer, “Kaiser Permanente has been groundbreaking in its approach to impact spending. This is the first public commitment to increase spend with employee-owned businesses. Figuring out how exactly employee ownership fits into the procurement process is part of what we are doing together—and that goes beyond how many companies we transition.”
Over the long-term, Abell hopes that the Kaiser Permanente initiative will impact government spending as well — “public purchasers could make a similar kind of commitment to employee ownership, recognizing the synergies with their commitments to minority- and women-owned businesses,” she says.
Focusing on employee ownership as its own impact spending strategy is a force multiplier for that spend.
–Joseph Cureton, chief coordinating officer, Obran Cooperative
Cureton is hoping that more health care anchors will begin to see the benefits of an employee ownership strategy. He notes, “the beauty of the strategy is that it isn’t asking the organizations to do something different—it’s a real confluence of interest. The purchasing department continues to buy from the same supplier, but who benefits from that spend—i.e., the workers—changes. “It’s an incredibly novel strategy,” he notes. “Most organizations have some Diversity, Equity, and Inclusion (DEI) goals, or some minority spend set asides, but focusing on employee ownership as its own impact spending strategy is a force multiplier for that spend. It’s something that is needed all across the country.”
HAN plans to promote the strategy throughout its network. Says President Zuckerman, “This is a multiple dimension opportunity. It ensures that diverse-owned businesses can remain part of the supply chain—they aren’t absorbed by private equity or another business when successful. It keeps these businesses in the community, where they can continue to provide quality jobs; and it grows the pipeline of potential diverse vendors because often the employee at these companies are significantly more diverse than the original owners.”
Zuckerman continues, “It gives anchor institutions an alternative way to support expanding employee ownership beyond simply the Evergreen model of start-up coops. At scale, it could be super transformative.”
Karen Kahn is a communications consultant and the editor of Employee Ownership News.
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