WASHINGTON BUSINESS JOURNAL: ‘Shared capitalism’ reaps rewards

September 14, 2012

Home News WASHINGTON BUSINESS JOURNAL: ‘Shared capitalism’ reaps rewards

‘Shared capitalism’ reaps rewards

By Jean Gilson

Employee ownership is a business model that continues to show success, both for companies and their workers. When employees own the business, workers’ interests align with the company’s, giving employees an extra incentive to perform, sometimes make hard choices, and do whatever they can to drive success. Employee-owners like those at Bethesda-based DAI know that the company’s success is literally our success. Our experience tells us that business and policy leaders alike would do well to look at and find ways to support the employee-ownership model and other business approaches that have yielded the greatest economic benefits in the current, challenging economy.

Private companies that are employee owned — most often through so-called S corporation employee stock ownership plans, or “ESOPs” — give shares of the company’s stock to the workers and hold those shares in trust for them (in the ESOP). In effect, the shares become a valued long-term savings plan; workers accrue more shares with time at the company; shares accrue more value as the company charts its success.

This model of “shared capitalism” generates impressive benefits.  DAI’s more than 600 employee-owners have enabled the company to surpass its business goals, growing steadily over the past 40 years and helping build meaningful retirement savings for workers – savings funded wholly by our company –who otherwise would not have the opportunity to set aside those kinds of funds for the future.

This week we were excited to see a  new study by Alex Brill, who had been an advisor to the bipartisan “Simpson-Bowles” deficit reduction commission, reaffirm that DAI isn’t alone. According to Brill’s An Analysis of the Benefits ESOPs Provide to the U.S. Economy and Workforce, S ESOPs grew jobs by 60 percent in the decade ending in 2009 (which included some of the toughest years in American economic history) while jobs in the rest of the U.S. economy were flat. Mr. Brill noted that the unique alignment between the interests of the company and workers has been well established, and that in private ESOP companies, where workers often own 100 percent of the company (as they do here at DAI), this alignment is a powerful force underlying extraordinary business success.

It is no surprise that there is a correlation between employee commitment and firm performance. Private employee ownership is beneficial because the culture of ownership increases worker retention, productivity, and economic growth. One of our core values at DAI is to hire and retain the very best people; we want DAI to be a great place to work for our excellent group of employees. Our company is innovative, alert, and forward-looking – and driven by a powerful sense of corporate purpose. Employee-ownership has allowed us to adhere to this core value at the highest level.

Nearly 15 years ago, Congress saw fit to modify tax laws in a way that allows private companies like ours to be owned, partly or wholly, by our employees through an ESOP. Mr. Brill’s study this week reminds us of what a shrewd decision that was. The thousands of S ESOP companies that have proliferated since then tell us this is a model that works. In Washington and around the country, we should be doing all we can to preserve this high-return business model.

Employee ownership is helping secure the future for thousands of Americans across the country, while also providing consistent economic growth and international competitiveness for local economies. At a time when our economy is slowly on the mend, it is critical to preserve and expand models that have been shown to succeed, even in rough economic times.

Jean Gilson is the Senior Vice President for strategy and marketing at DAI, an employee-owned global development company with a record of delivering results in 160 countries. She resides in Bethesda, Maryland, where DAI is headquartered.

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