What are the upsides and downsides of being an Employee-Owned company?
In: Economics
The biggest upside – you directly share in the company’s success as a part owner.
The biggest downside – you directly share in the company’s losses as a part owner. Put another way, since a lot of the assets you would own would be in company stock, your wealth is much more tied to a single company’s fortunes than it would be if you were just investing that money on your own.
It depends on what you mean by “employee-owned”. There are some companies where the ownership is literally a small cluster of employees, like you might read on some r/antiwork articles, and this isn’t very common in the US. In that case, u/lollersauce914’s answer is pretty right, you are a part owner and things could go very poorly for you.
But generally, “ESOP” (employee stock ownership program) are more common, these operate pretty much like a ‘normal’ corporate company, but employees can buy stock shares and non-employees typically can’t.
In this example you *don’t have to buy stock,* in which case there really is no difference for you. If you do buy and/or get compensated in stock the big difference is the stock is harder to trade/sell than on a public company and it’s vary both less variable and less certain.
Public stock prices vary per the market by the millisecond, ESOP stock is fixed by the company (typically under the advice of a third party), and holds usually from a quarter to a whole year. so the price is much more stable BUT the company could always turn around tomorrow and be like, “we were wrong, it’s not worth $550 a share, it’s work *$5.50* a share, sorry”. So if you are saving for retirement and you’re dumping everything into your company ESOP you could be royally screwed in that case ([Enron](https://en.wikipedia.org/wiki/Enron))
There are several different setups and legal definitions (technically, any incorporated company that offers stock can be an ’employee owned company’) so I’m assuming you mean a worker’s cooperative situation where the employees both own a large segment of the company and have a meaningful voice in the company’s operations.
The benefits are that employees will generally get a larger share of the profits, will have a closer impact on the direction of a company, and often are more stable.
The drawbacks are that they tend to be less risk-averse–which means their overall profits tend to be lower. (That stability of a benefit comes at a cost.) Also, if the setup is one of one worker/one vote vs a unified CEO making decisions, it’s not uncommon for divisions to happen rather quickly and for the system to fall apart.
(There’s a reason why most worker collectives are a “hybrid” system where there’s still a C-Suite making decisions, or the system is build on a scaffolding of legal stopgaps to prevent certain things, rather than frequent, direct decisions by the workers. Most US/NA/UK fall under the former, most old-school EU fall into the latter.)
Historically for new coops, things will be fine for a while, but if they aren’t successful they fall apart…but if they *are* successful, there’s usually an inflection point (spend this money to grow to take advantage of opportunities vs pay out to workers now) that cause a divide that cripples the organization.
Obviously, some survive, but there’s a reason why the list of current operating coops is pretty small and the ones that exist are hybrid models.
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