Our economy is not creating a livable society for most people. It is fueling climate change, worsening wealth inequality, seeding the conditions for emerging threats to democracy, and disempowering working class communities and communities of color.
Many argue compellingly for changing our economic system completely, while others lobby for reform from within. Regardless of one’s perspective on system change, there is an important underlying economic feature that is often overlooked: the structure and ownership of the enterprise. Who owns an enterprise, and what rights are associated with that ownership, determines who controls and benefits from the economy.
The traditional enterprise ownership model–and the investments that are designed for it–are creating an economy that works for the few, not the many. Fortunately, there is a rich body of work which is building new possibilities: Alternative Ownership Enterprises (AOEs).
Alternative Ownership Enterprises are firms that significantly shift economic value and decision-making power toward the non-investor stakeholders they impact, such as workers, producers, consumers, community members, or even a non-financial purpose. Alternative Ownership Enterprises is a term that encompasses Employee Ownership models, Multi-Stakeholder Ownership models, Steward Ownership models, and their many variations and hybrids.
There is a special moment now to embrace AOEs. Not only are cracks in the economic system causing a variety of economic actors to consider alternative models, a clear case for AOEs’ ability to address our mounting crises is emerging. The "Silver Tsunami" is a major phenomenon where over $10 trillion in assets are expected to change hands as baby boomers retire and look for succession plans for their businesses. At the same time, we are seeing an increase in activity in the space from more conventional and surprising players. Meanwhile, employee ownership models are gaining traction in the policy arena, with bipartisan support for the proposed Employee Equity Investment Act, which would provide financing for AOE conversion funds.
And yet, despite the transformational potential of AOEs, the existing financing infrastructure is too thin to provide the capital needed to make the most of this moment. Our research has surfaced key barriers to the field’s growth, including lack of education for investors, the business community, and other stakeholders, a mismatch between the capital of asset allocators and the needs of financial intermediaries, and a need for more catalytic capital (i.e. lower cost). There is a widespread need to educate investors on these models, to spread the narrative on their impact, and to mobilize significant capital to AOEs directly via funds and novel financial structures yet to be launched.
With an influx of capital from asset allocators, new funds will build on their track records, impact data and deal structuring experience will support fund growth, and positive signals will be sent to more areas of the finance world to encourage them to add AOEs to their impact strategies. Newly capitalized enterprises will create opportunities to build wealth and power for ordinary people and to reprioritize the purpose of business to support a more just, equitable, and healthy world.
Transform Finance is supporting the ecosystem to make that possible. We are building a campaign to educate and mobilize investors towards deploying capital towards AOEs, and helping to develop the infrastructure to make that happen. In doing so, we are partnering with AOE practitioners, field building organizations, investors and the networks that organize them, and other stakeholders – if you are interested in joining this campaign, reach out!
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