ESOPs And The Growing Movement Toward Purposeful Business

For more than three decades, I have witnessed firsthand how employee ownership can build business owner liquidity and enable succession planning while creating worker wealth. Over time, it has become increasingly clear to me that the transformative power of employee stock ownership plans, or ESOPs, lies in more than just their financial structure. Rather, they’re a prime example of how businesses can align purpose, profit, and people in ways that benefit all stakeholders.

Recently, we’ve seen a groundswell of interest in more conscious and purpose-driven approaches to business. From B-Corps, purpose trusts, and ‘conscious capitalism,’ to the Tugboat Institute and the Expanding ESOPs Coalition, recognition mounts that the traditional stockholder-only model of capitalism is insufficient for the challenges we face in the 21st century.

These movements share a commitment to a more holistic view of business that recognizes the interdependence of financial success, employee well-being, community impact, and environmental stewardship. It’s a multi-stakeholder view that aligns closely with the principles championed in the ESOP community.

Here’s a closer look at the key players in this space that embrace the notion that profitability and purpose are mutually reinforcing:

· B-Corps: These for-profit companies are certified to meet rigorous standards of social and environmental performance, accountability, and transparency. They’re legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment. B Corps run the gamut from retailer Body Shop and shoemakers Toms and Allbirds to opticians Warby Parker and the Taos ski area in New Mexico. KeHE foods recently became one of the largest ESOP owned B-Corps.

· Purpose Trusts: This innovative legal structure enables a company to be held in trust for the benefit of its stated purpose, rather than for shareholders’ financial benefit. It provides a way for mission-driven companies to preserve their values and purpose over the long term. Yvon Chouinard, founder of outdoor apparel company Patagonia, transferred his voting stock to a purpose trust in September 2022.

· Conscious Capitalism: This movement embraces the notion of a business having a conscious culture that values being both ethical and profitable, benefiting society in the process. Its founders were John Mackey, co-founder of Whole Foods Market, and marketing professor and author Raj Sisodia. Take note of their October 24 CEO Summit where over 250 leaders will share ideas on business for good.

· Tugboat Institute: The 11-year-old membership organization supports purpose-driven, privately held businesses committed to the principles of “Evergreen” that prioritize long-term value creation over short-term profits.

· The Expanding ESOPs Coalition: This just-formed group, which I’m proud to be part of, advocates for policies that make employee ownership more accessible and educate business owners about its benefits.

ESOPs were ahead of their time in embodying principles of worker involvement and wealth-creating that align with key tenets of purpose-driven business. That’s because ESOPs inherently create value for multiple stakeholders, creating opportunities for employees to benefit through ownership stakes and enhanced retirement savings.

A 2023 study from the National Center for Employee Ownership found that ESOP companies often see voluntary quit rates of their employees at roughly one-third the national average, increased productivity and profitability. Moreover, their communities benefit from the presence of stable, locally-rooted businesses committed to local prosperity.

ESOP companies also tend to take a longer-term view, investing in their people and operations rather than chasing quarterly profits. This aligns closely with the Tugboat Institute’s “Evergreen” principles. Further, by distributing ownership broadly among employees, ESOPs create a more equitable distribution of wealth that addresses a key criticism of traditional capitalism, namely, that it concentrates wealth in too few hands.

Data show that when employees have a stake in the company’s success, they tend to be more engaged and innovative. This creates a virtuous cycle of improved performance and increased value creation. ESOPs are less likely to be sold or relocated, providing stability to local communities, which embodies the stakeholder-centric approach of B-Corps and purpose trusts. And ESOPs’ shared ownership model naturally fosters a culture of collaboration and shared purpose that mirror key elements of the conscious capitalism movement.

As these movements gain momentum, a new economic paradigm appears to be emerging. It recognizes the interconnectedness of all stakeholders and seeks to create value in ways that are not exclusively for stockholders. While their numbers are still relatively small, at 6,500-plus, ESOPs have decades of experience in operationalizing many of the principles the newer purpose-driven models aspire to. At the same time, ESOPs can learn from and be inspired by the innovations happening in the B-Corp world, the legal creativity of purpose trusts, the focus on conscious leadership, and the long-term orientation of Evergreen companies.

By building coalitions and sharing best practices across these various models, I believe the shift toward a more conscious, purposeful approach to business will accelerate. This isn’t just about feel-good rhetoric – it’s about creating more resilient, innovative, and successful companies that thrive in an increasingly complex and challenging business environment.

As we look to the future, I’ve become more convinced that this coalition of purpose-driven business models – with ESOPs as a pivotal example – represents the best path forward for creating sustainable, equitable prosperity in the 21st century. By working together, sharing our experiences, and advocating for supportive policies, we can build an economy that truly works for everyone. I love the momentum, particularly as we launch into Employee Ownership Month.