In December 2021, employees of the prominent New York-based architecture firm SHoP \u2014 most famous for designing landmarks like the Barclays Center, the Brooklyn Tower, and 111 West 57th, the thinnest supertall skyscraper in the world \u2014 announced they were seeking to form Architectural Workers United, the first professional architecture union in over seventy years. Organizers told the press that they had been driven to unionize by mismanagement, an inconsistent overtime policy, increasingly unsustainable conditions, and sixty- to seventy-hour work weeks \u2014 one former employee was hospitalized for pneumonia after a 110-hour week.\u00a0<\/p>\n
But the effort soon collapsed. According to former employees I spoke with, the firm\u2019s \u201cpowerful anti-union campaign\u201d pushed an alternative company advisory committee and an employee stock ownership plan (ESOP), even going as far as to incorrectly tell employees that if they unionized they would lose eligibility for the stock plan. Instead of bargaining rights, SHoP workers would get to collectively \u201cbuy\u201d the firm\u2019s stock. In a telling choice of words, management reportedly framed the new model as the \u201cthird way\u201d forward, in lieu of either the status quo or unionization \u2014 the workplace equivalent of the liberal free market politics of Bill Clinton and Tony Blair.\u00a0<\/p>\n
Per the National Center for Employee Ownership, as of 2023 \u2014 the most recent year for which data is available \u2014 there were 6,609<\/a> ESOPs in the United States, comprising about two trillion dollars\u2019 worth of assets and involving over fifteen million participants. The supermarket chain Publix runs the country\u2019s largest ESOP, but few other companies involved are household names. There are forces trying to change that. Over the past decade, politicians on both sides of the aisle have embraced the idea that workers should own more of the fruits of their labor. The Republican Party\u2019s 2016 platform explicitly endorsed ESOPs, saying they \u201cenable workers to become capitalists\u201d and \u201cexpand the realm of private property.\u201d The Democrats didn\u2019t mention ESOPs by name that year, but similarly vowed to \u201cincentivize companies to share profits with their employees on top of wages and pay increases.\u201d Senator Bernie Sanders put forward his own employee ownership model, which would have mandated that large corporations offer their employees stock and have 45 percent of their boards elected by workers. In 2024, the Harris-Walz campaign promised to \u201cmake it easier for businesses to let workers share in their company\u2019s success\u201d through mechanisms like \u201cemployee stock ownership\u201d and \u201cprofit-sharing plans.\u201d\u00a0<\/p>\n The Trump administration has been especially receptive to the ESOP lobby, which spent six figures rallying support for the nomination of Lori Chavez-DeRemer as Secretary of Labor. During a keynote address to the ESOP Association last May, Chavez-DeRemer said that \u201cthe Trump administration recognizes the real transformative power of employee stock ownership plans.\u201d In October, the Senate passed<\/a> the Employee Ownership Representation Act, which would add two new ESOP representatives to the federal advisory council that oversees pension and benefit plans. The Retire Through Ownership Act, which would clarify valuation standards for ESOPs, was also advanced by unanimous vote.\u00a0<\/p>\n The press has cast employee ownership as a balm for capitalism\u2019s troubled soul. Articles and op-eds in favor of the practice have been published in magazines from The American Conservative to Jacobin. Profit-sharing \u201cdeserves to make a comeback,\u201d declared Robert Reich in The New York Times in 2020. The Financial Times concurred<\/a> in 2023: \u201cBusiness leaders have styled themselves recently as stakeholder capitalists,\u201d one editorial read. \u201cWhat better way to demonstrate that commitment than to turn more of their stakeholders into capitalists?\u201d In April 2024, Fast Company asked, \u201cCan employee ownership improve capitalism?\u201d The article\u2019s three authors, all part of the Aspen Institute, answered with a resounding yes: employee-owned companies, they said, \u201cshow we can have an economy that is successful not only in producing great wealth, but also in sharing it with the people whose labor helps create that wealth.\u201d<\/p>\n Yet if history is any guide, experiments with employee ownership typically end up juicing returns for the investor class rather than benefiting workers. Profit-sharing and employee ownership sound like a nice deal for workers as long as there are profits to share. The question is what happens when there aren\u2019t.<\/p>\n \u00a0<\/p>\n The titans of industry who pushed the first experiments with employee ownership in the Gilded Age sought explicitly to overcome \u201cthe seeming antagonism between capital and labor,\u201d as the robber baron Leland Stanford put it in an 1887 interview regarding his advocacy for cooperatives. A generation later, John D. Rockefeller Jr. devised his own scheme to improve \u201crelations between Labor and Capital\u201d when he was beset by bad publicity following the murder, by the National Guard and a hired militia, of over a dozen men, women, and children at a strike at one of his Colorado mines. In collaboration with the consultant William Lyon Mackenzie King (who would later become prime minister of Canada), Rockefeller Jr. advocated for corporations to combine company unions with programs to incentivize employees to buy company stock. Members of the labor movement viewed these schemes with skepticism and even outright hostility. When the stock market crashed in 1929, and workers who had put money into their employers\u2019 stocks lost big, critics\u2019 suspicions were validated.\u00a0<\/p>\n After World War II, during the so-called golden age of American capitalism, profit-sharing and employee stock ownership regained momentum, with some union leaders pushing for plans that provided bonuses tied to companies\u2019 successes. Modern profit-sharing models emerged in the 1970s, after the Employee Retirement Income Security Act of 1974 created a retirement scheme allowing employees to own shares in their companies: the ESOP. Louisiana Senator Russell Long became an important advocate for the bill in Congress after the idea was introduced to him by the lawyer and political economist Louis Kelso. Over dinner, Long reportedly gushed to Kelso that it would \u201cmake haves out of the have-nots without taking it away from the haves\u201d and called it \u201cthe kind of populism I can buy.\u201d A few years later, the senator told a think tank that ESOPs would \u201cmake our form of government and our concept of freedom prevail over those who don\u2019t agree with it.\u201d\u00a0<\/p>\n The advent of ESOPs decidedly did not accomplish that, but the program did allow owners who sold their companies to reinvest the proceeds in other securities, deferring capital gains taxes. This made ESOPs incredibly attractive to private equity firms, as they could use ESOPs to delay \u2014 or perhaps even avoid altogether \u2014 significant capital gains tax liabilities. \u201cA private equity firm could theoretically defer taxes almost indefinitely by continuing to roll sale proceeds into new transactions,\u201d explained Pete Stavros, then a business student at Harvard, in a 2002 paper. And ESOPs held an additional advantage for corporations beholden to large, organized staffs. \u201cESOPs were used to save struggling companies in unionized industries,\u201d Stavros continued. \u201cUsing an ESOP, a company near bankruptcy could often convince its labor union to accept certain cost-cutting measures such as lowering wages and\/or closing plants.\u201d The idea was that employees, by becoming owners, would be trading present-day concessions for future stock appreciation. This manipulative tactic was soon used to hasten the dismantling of unionized companies entirely.\u00a0<\/p>\n For instance, in 1985, famed corporate raider Carl Icahn promised employees of TWA that if the company chose him over a despised rival bidder, he would form an ESOP. The airline\u2019s two primary unions, the machinists and the pilots, took roughly $145 million in annual wage concessions in exchange for a share of the profits and twenty percent of the company\u2019s stock through the promised ESOP. When TWA filed for bankruptcy in early 1992, that ESOP became worthless. Despite running the company into the ground, Icahn left with hundreds of millions of dollars in profit.<\/p>\n United Airlines \u2014 which became the country\u2019s largest ESOP in 1994 \u2014 soon followed the same playbook. Faced with layoffs, staff unions agreed to convert nearly five billion dollars in promised wages and benefits into employee-owned stock that became worthless when the company filed for bankruptcy less than a decade later. ESOPs, as Stavros put it, were \u201ca means of achieving liquidity\u201d when private equity firms and corporate raiders were stuck with companies \u201cfor which the public markets have limited interest.\u201d\u00a0<\/p>\n After the 2001 collapse of Polaroid and Enron, which both had ESOPs, it looked like the programs had finally been unmasked as the scam that they were. Enron had used its ESOP to match employees\u2019 retirement contributions with fraudulently inflated company stock. At that point, the Department of Labor began to clamp down on the abuse of ESOPs, especially the practice of overvaluing companies, which can leave employees with inflated and toxic assets. All this, according to Stavros, made \u201ca resurgence in ESOP activity unlikely.\u201d<\/p>\n \u00a0<\/p>\n About two decades after he graduated from business school, Stavros would become global cohead of private equity at the investment firm KKR. In 2022 he led the effort to raise $19 billion \u2014 the group\u2019s largest fund until that point \u2014 to acquire companies in which he then installed a \u201cflagship employee stock-ownership program.\u201d (The following year, KKR acquired the publishing house Simon & Schuster, giving its 1,600 staffers the opportunity to become \u201cemployee-owners.\u201d) He also founded a nonprofit called Ownership Works, which, according to its website, partners with private equity firms including KKR, Leonard Green & Partners, and Warburg Pincus to implement its proprietary employee ownership model across portfolio companies \u201cnot only because it\u2019s the right thing to do, but because it\u2019s also good business.\u201d In 2024, Stavros started an entirely separate company, Expanding ESOPs \u2014 which, though still in its early stages, aims to promote ESOPs by advocating for legislative and regulatory change. Per the website, Ernst & Young, Deloitte, and JP Morgan are among its \u201ccoalition members.\u201d\u00a0<\/p>\n Stavros has routinely told a personal story to explain his career-long interest in employee ownership. On a 2022 episode of \u201cMeet the Leader,\u201d a World Economic Forum podcast, Stavros said that his father, a unionized construction worker, often complained that there was \u201cno incentive\u201d and \u201cno alignment\u201d between management and laborers at his job. \u201cMy dad always wanted profit sharing in his union,\u201d Stavros concluded. He\u2019s repeated this anecdote in interviews with the media teams of firms like McKinsey & Company and Goldman Sachs, and in news outlets including NPR, Bloomberg, and The New York Times. The Wall Street Journal parroted this origin story almost verbatim, calling Stavros \u201cthe son of a road grader for a construction company who sought but never achieved profit sharing.\u201d\u00a0<\/p>\n Stavros is not alone in framing employee ownership as a boon for the working class. \u201cWorkers power our economy,\u201d the website of private equity supergiant Blackstone declares. \u201cBlackstone believes that being attentive to the wellbeing of its portfolio companies\u2019 employees is foundational to building successful businesses.\u201d To that end, Blackstone announced a broad-based employee ownership program for \u201cmost\u201d employees of any large U.S. companies it buys out in the future. Blackstone started with Copeland, an HVAC company that employs 18,000 people, making it \u201cthe largest-ever shared ownership initiative at a private-equity backed company,\u201d per the fund\u2019s website.\u00a0<\/p>\n Sometimes, the messaging appears to be the point. At the 2022 Milken Institute Global Conference (nicknamed \u201cDavos West\u201d), a panel called \u201cThe Future is Employee Owned\u201d featured a partner at Leonard Green and a private equity advisor (formerly a union president), as well as the executive director of Ownership Works. The moderator was the conference\u2019s namesake, Michael Milken \u2014\u00a0the \u201cjunk bond king\u201d famous for developing markets for high-yield, high-interest debt in the eighties. \u201cThe future of the free enterprise system as we know it,\u201d Milken told his audience, depends on \u201cmaking people feel they are part of the process.\u201d\u00a0<\/p>\n \u00a0<\/p>\n By this logic, regulators are the ones standing in the way of the future of free enterprise. The Department of Labor, Stavros claimed in 2022, has \u201cscared some folks off\u201d from converting companies into ESOPs. But with the second Trump administration has come a new regulatory regime. Daniel Aronowitz, who was appointed last year as chief of the Employee Benefits Security Administration, promised to \u201cend the war on ESOPs\u201d during his appointment hearing. \u201cCongress wants ESOPs and everybody is for ESOPs except for the DOL for the last twenty years,\u201d he said. \u201cI\u2019m going to put an end to that.\u201d\u00a0<\/p>\n While regulation is still technically in place, alternate worker-ownership models that can operate with less oversight have sprung up. Teamshares, a startup founded in 2019, was named one of Fast Company\u2019s \u201cMost Innovative Companies of 2024\u201d and, as of this writing, is anticipated to go public this spring via a \u201cSPAC\u201d deal that valued the company at more than half a billion dollars. (A SPAC, or special-purpose acquisition company, is essentially a shell company that merges with a private business to take it public, circumventing the more traditional regulatory scrutiny associated with IPOs.) Teamshares\u2019s goal, per the company\u2019s mission statement, is to put a \u201cdent in wealth inequality.\u201d In order to do this, Teamshares buys up small businesses and converts them into worker-owned entities. But that process can take up to twenty years, according to Teamshares\u2019s website. In the meantime, the companies are run by Teamshares-trained presidents, who are typically recruited from, as CEO Michael Brown puts it, \u201csome really great companies \u2014 McKinsey, USAA, Tesla, and Amazon.\u201d Acquired companies also serve as captive customers for Teamshares\u2019s suite of \u201cproprietary software, education, and financial products,\u201d including a \u201cneobank,\u201d which exists completely virtually, without physical locations or ATMs, as well as credit cards, business insurance, and health insurance.\u00a0<\/p>\n In other words, Teamshares is best understood, in the words of a Glassdoor review by one of its software engineers, as \u201cprivate equity with a smile.\u201d Even though the \u201cmission is positioned as transformative,\u201d a separate review by a former employee explained, Teamshares \u201cresembles a PE firm with a different narrative.\u201d That review pointed to Teamshares\u2019s habit of bringing on \u201ccorporate-trained managers, who rely on spreadsheets and data-driven models rather than deeply understanding the business, its culture, and its people.\u201d<\/p>\n Unhappy employees of Teamshares-owned companies also took to Reddit in 2024 to complain. Their comments describe incompetent presidents (\u201cHe spend [sic] all his time on a computer or on the phone with his boss\u201d), poor distribution of shares (\u201cI quit 6 months ago. Just got an email today that they \u2018forgot\u2019 to issue my shares\u201d), and all-around mismanagement. \u201cBefore they bought the company they told us how everything is going to stay the same and we\u2019re going to get dividends from the company\u2019s profit and will be able to retire with the money from our shares,\u201d one contributor explained. \u201cI never got a single dividend.\u201d\u00a0<\/p>\n \u00a0<\/p>\n