By Richard Eidlin
Voluntary corporate sustainability initiatives and social enterprises are essential but are not game changers by themselves. In addition, we need laws and regulations that guide our economy toward sound, long-term decision-making, with full recognition of social and environmental externalities. As business leaders, we can and must support policy changes to help make the economy more sustainable.
A sustainable economy will depend on policies that will help advance change on a societal level. Here are three important policies that will help–and specific actions you can take.
1. A Sustainable Future for Retirement
Experts say the typical worker approaching retirement needs about $250,000 in a 401(k). Most don’t come close. The average is closer to $98,000–only a bit more than a third of the recommended amount. This is only one aspect of the growing retirement crisis facing our economy and our nation. Social Security expects future shortfalls since more workers are collecting benefits while fewer are paying in; the recent financial crisis forced many workers to collect early on 401(k) plans; and of course, state pension programs are going underfunded. Seventy-five million Americans do not have a retirement plan, and 50 percent of all Americans have less than $10,000 in savings.
According to polling of small business owners commissioned by the American Sustainable Business Council (ASBC) and the Main Street Alliance last year, 70 percent of small business owners identified the lack of retirement security as a critical issue to their business interests. Yet the same poll showed that only 30 percent of small businesses offer a retirement plan. The most common reason given for not offering a plan was cost, which means that most small employers want to offer a plan but believe that they cannot afford it.
What’s at Stake
Sen. Tom Harkin (D-Iowa) announced a new retirement bill at a press conference in Washington, D.C. recently. The introduction of the USA Retirement Funds Act came on the heels of President Barack Obama’s proposal of a new IRA plan in his State of the Union address this year. Sen. Harkin’s plan would create an automatic enrollment and deposit system, where workers could designate part of their paychecks to go into a low-cost, easy–to-administer retirement plan.
What You Can Do
- Contact Sen. Harkin and your own senator on the committee
- See the USA Retirement Funds Act bill summary
- Read a PEW study that outlines retirement security across generations
2. Innovation for Ownership Models
One path to more economic sustainability in business is through expanding the use of different ownership models.
An Employee Stock Ownership Plan, or ESOP, is a strategy to give some ownership of a company to its employees as part of a transition from one owner to another. Rather than selling a company to new owners who may consolidate or close it – resulting in job losses – ESOPs allow owners to give employees more control over the company and more of a stake in its success.
According to the New York Times, more than 10,000 firms–including other ASBC business members like Dansko and Eileen Fisher–across almost all sectors operate with an ESOP in place. The National Center for Employee Ownership (NCEO) notes that those companies employ 13 million people.
Another model is represented by cooperative organizations, or co-ops. As the name suggests, co-ops are controlled by customers and employees who work together (in cooperation) to benefit each other and the community at large. They can be large or small businesses, and contrary to a popular perception of co-ops as being mostly grocery stores, they can exist in any sector, including finance, energy and agriculture.
Cooperatives tend to operate with a more democratic structure, with larger groups of stakeholders involved in the decision-making process. The intention is that decisions are made for the benefit of the community, rather than shareholders, whose only goal is maximizing profit.
The economic benefits are significant: Cooperatives in the U.S. boast more than $3 trillion in assets and employ 1 million people, paying out $25 billion a year in wages and benefits. These benefits go directly back into the community, creating broadly shared opportunity and spurring even more job creation.
What’s at Stake
Under current laws, an ESOP in an S corporation is not eligible for the same tax benefits as those offered by C corporations. This reduces the incentives for those company owners to offer ESPOs. A Senate bill, the Promotion and Expansion of Private Employee Ownership Act (S.742), was introduced last year that would expand the tax code to cover ESOPs for S corporations.
Since co-ops remain a well-kept secret, a U.S. House bill, introduced by Rep. Chaka Fattah (D-Pa.), would create a Department of Housing and Urban Development program to promote cooperative development.
What You Can Do
- Send supportive messages to the sponsors of the ESOPs legislation
- Find four business reasons to expand ESOPs by Dansko CEO Mandy Cabot
- Contact the sponsor of Creating Jobs Through Cooperatives Act (H.R. 2437)
- Learn about a recent U.S. Department of Labor meeting on Workers Cooperatives
3. More Investment and Ownership Opportunities with Crowdfunding
Crowdfunding refers to raising investment funding in small increments from a large number of people, often through Internet marketing. Currently, crowdfunding exists mostly in the form of websites like Kickstarter and Indiegogo, where funders can support a project in exchange for rewards like early access to products or services, but not an ownership stake in the company.
What’s At Stake
When done correctly, crowdfunding has the potential to be a very useful tool in opening up access to capital for business, especially in the context of community-based financing of local projects. In much the same way as cooperatives, they can offer a path for individuals to invest in community businesses, giving them a chance to make money from an ownership stake and offering local businesses a new funding stream.
However, Securities and Exchange Commission (SEC) rules have previously made this type of small dollar investment cost-prohibitive due to registration and reporting requirements at both the state and federal levels. Following the passage of the JOBS Act in 2012, the SEC began developing final rules for how crowdfunding would be regulated.
What You Can Do
- Read these comments (PDF) on crowdfunding regulations under the JOBS Act
- Read about some possible changes to the SEC’s proposed regulations
- Visit a crowdfunding platform created by the South Carolina Small Business Chamber of Commerce and the American Sustainable Business Council
Image credit: Flickr/LendingMemo
Policy Points is produced by the American Sustainable Business Council. The editor is Richard Eidlin, Director – Public Policy and Business Engagement.