Several years ago I met Drew Morris, the CEO and primary owner of a 500-person solenoid manufacturing company, at a restaurant within sight of his factory just outside Rochester, New York. At the time he was approaching retirement and had just begun the process of selling his successful business to his employees through an Employee Stock Ownership Plan, or ESOP. As we waited for lunch to be served, a television nearby displayed a Wall Street ticker and a well-coiffed anchor prattling on excitedly about the latest financial news. During a pause in our conversation, Morris, most assuredly not a man of the left, suddenly jabbed his finger at the TV. “That’s not capitalism!” he sneered. He then pivoted in his seat and pointed forcefully out the window toward his plant: “That’s capitalism!”
Morris’s terminology may have been indistinct, but his meaning was very clear. Starting in 1910, his family and other members of that upstate community built something out of nothing. Generations of workers and their families had earned a living at his company. Morris was justifiably proud of what they had created and optimistic about what lay ahead for the business. But he was also angry about the financial culture that had emerged and seemed to take over during his career. That culture, centered on Wall Street, dominating the airwaves, had claimed the mantle of capitalism. But Morris disagreed with the claim. He did not respect that culture; it did not represent him.
Morris is not alone. The National Center for Employee Ownership, in Oakland, California, estimates that 11,000 companies, collectively employing more than 12 million workers, have followed the ESOP path. They operate in all sectors of the economy and range in size from fifty to nearly 150,000 employees. Many of the owners of these businesses are hostile toward or at least skeptical of government. So it is ironic that they learn that the solution to their succession challenge is made possible by federal law. Employees are not likely to have enough disposable cash to purchase the company when their employers decide to sell. ESOP tax laws make the sale possible by permitting the creation of legal trusts, established on behalf of employees, that can borrow the necessary funds. As the loans are paid off, employees take ownership of the firm.
In the thirty-six years since the first ESOP law was passed, the concept has gained broad bipartisan support. California Representative Dana Rohrabacher, one of the most conservative members of Congress, sees ESOPs as a training ground for a property-loving and therefore conservative working class. On the other end of the spectrum, left-leaning Vermont Senator Bernie Sanders sees ESOPs and similarly structured cooperative ownership companies as vehicles for retaining jobs in the United States while striking at the heart of an otherwise plutocratic economic system.
This ideologically ambidextrous quality is one of the core strengths of the ESOP idea. But what may be more interesting than the differences within the movement are the differences between it and the brand of capitalism that we all see on TV. ESOP advocates practice what could be called “responsible capitalism.” This is the capitalism of entrepreneurs and startups; it is the capitalism of consequences. A second, more dominant camp eschews moral language entirely when talking about capitalism. Using the cover of complexity, it dismisses the possibility of making a difference through business.
A healthy contest of ideas between these camps should ensue. It would pit the defenders of pure speculation and a plutocratic status quo against the emerging community of responsible capitalists tethered to their firms, their communities and one another. That would be a struggle worth waging.