NORTHPORT — Founded in 1864 and in its fifth generation of family ownership, Wheeler Insurance Agency, with offices in South Paris and Bethel, has been serving the insurance needs of clients for a very long time. They are also one of the state’s leading personal health insurance and Medicare brokers.
While their business is unique, the dilemma the family faced is not – they had no clear ownership succession plan for the company. There is an active market for buying and selling insurance companies, but the family was concerned first and foremost about maintaining local ownership and control and their longstanding efforts to create good jobs and support the communities of western Maine.
So they chose a path that is unique – selling the company to the employees. The family and employees explored this option for a few years and eventually formed a worker cooperative that purchased the business in December.
Now, those who know the company best – the employees – own the company together, are mutually responsible for its success and will benefit from that success into the future.
Many business owners throughout Maine are facing the same dilemma. According to national surveys, 79 percent of business owners want to retire within 10 years, 57 percent in less than five years and 33 percent in less than three years, yet only 17 percent have a plan to successfully make that happen.
Unfortunately, only 15 percent of businesses successfully transition to the next generation in the family, and only 20 percent of commercial listings actually sell. Too often, the default option is liquidation and closure, and the smaller and more rural the business, the greater the likelihood of that outcome. Because of this, the largest single source of avoidable job loss in the United States is from business closure related to owner retirement.
In short, while thousands of Maine’s business owners want to retire in the next few years, few understand the process and options, and they don’t know where to turn for help. Given the many challenges Maine’s economy faces, we can scarcely afford the additional threat of widespread business closures and lost jobs from this wave of retiring business owners.
We could go a long way toward addressing this challenge by helping businesses understand the employee ownership option, with employee stock ownership plans and worker-owned cooperatives the most common. Research shows that employee-owned firms are more profitable and productive, create more jobs in the good times and lay off fewer workers in the down times.
A recent study showed that employee-owned businesses were much more successful at attracting and retaining young workers and greatly improved their incomes, household wealth and job tenure. Another recent study showed that lower-income workers (particularly workers nearing retirement) in employee-owned companies had dramatically higher household wealth, and employee ownership significantly narrowed the gender and racial wealth gap.
There are many practical steps Maine could take to address this challenge while creating opportunities for workers to build wealth through ownership.
Some states use federal workforce development funds to assist business owners and their workers in transitions to employee ownership. Maine’s Small Business Development Centers could provide some services to companies exploring an employee buyout, as they are now mandated to do by the recently enacted Main Street Employee Ownership Act.
Most importantly, the state could enact L.D. 1520, which would incentivize the sale of businesses to workers and improve education and training for companies that are considering employee buyouts. L.D. 1520 was passed unanimously by the Legislature’s Taxation Committee, Maine House of Representatives and Maine Senate, and is only awaiting the Appropriations Committee and governor to approve the funding.
Acknowledging the difficulty of trying to sell a business, a recent article in Entrepreneur Magazine stated: “Employee ownership could offer you an escape route from this predicament … You’ll be tapping into a pool of ready-made buyers that were right under your nose all along.”
While employee ownership is working for Wheeler Insurance, no one path makes sense for every business. However, where feasible, we should encourage and assist businesses to explore the possibility of employee ownership as a way to sustain the business, deepen local ownership and control and provide more workers an opportunity to build wealth through ownership.
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