Employee-owned businesses foster healthier local economies

Nick Smallwood is the CEO of Courier Corporation of Hawaii, a logistics and “last mile” delivery services provider in Honolulu, and a longtime supplier for Kaiser Permanente.

In late 2021, he received an interesting call.

It was an organization called Obran Cooperative, reaching out on behalf of Kaiser Permanente about the Business Resiliency Through Employee Ownership initiative. The caller wanted to gauge Nick’s interest in transitioning his small business to employee ownership.

While there were many details to understand — such as what the benefits would be to him, to his workforce, and to the community he has been operating in for more than 30 years — the proposition piqued Smallwood’s interest almost immediately. Over the next 6 months, he learned more about employee-owned companies — in which the majority of a company’s shares are owned by the employees (rather than by a single person, family, or third party) — and decided to move forward with Obran to make that happen.

“As an entrepreneur, if there is a legacy I can leave, it’s that my employees, their families, and my community as a whole are thriving because of what we built,” said Smallwood. “Enabling my employees to become owners of our business will make us stronger.”

At Kaiser Permanente, we know that health, economic opportunity, and wealth are linked, and small businesses create vital jobs and thriving local economies. During the last 2 recessions, employee-owned enterprises experienced 50% fewer layoffs and consistently outperformed traditionally owned firms. Furthermore, a 2020 study by the Employee Ownership Foundation and Rutgers University School of Management and Labor Relations found that employee-owned companies have been 3 to 4 times more likely to retain workers during the pandemic compared with traditional companies. Employee-owned companies report faster growth, less turnover, and greater recession resilience while the employees themselves, who share ownership in their company, report greater income and wealth.

Employee-owners report

• 33% higher median income
• 53% longer median job tenure
• 92% higher household net worth

Businesses report

• 8.5% higher profit margins
• 2% faster growth in sales and employment
• 3 to 4 times more likely to retain staff

Kaiser Permanente began this business resiliency initiative with Project Equity and Obran to help small businesses struggling as a result of the pandemic and to help rebuild and reinforce the communities in which they operate. Project Equity is a nonprofit that raises awareness about and engages stakeholders in support of employee ownership, and helps businesses transition to employee-owned models. Obran is an employee-owned conglomerate corporation that acquires profitable businesses, transitions them to employee owned, and then operates them on behalf of the larger employee-owned business. Through this partnership with Kaiser Permanente, supplier companies are invited to consider various potential pathways to employee ownership: an independent transition supported by Project Equity or a conversion via acquisition by Obran Cooperative.

“As a large organization in our communities, we have an opportunity to drive wealth and health,” said Ije-enu N. Udeze Nwosu, executive director of Kaiser Permanente’s impact spending program. "Impact spending helps improve the economic health and well-being of our communities by ensuring Kaiser Permanente works frequently with small suppliers and businesses owned by women, people of color, and other underrepresented groups. By focusing on our vast supplier network and using our significant purchasing power to encourage and support employee-owned businesses, we can address economic, racial, and environmental inequities and contribute to the success and resilience of our communities.”

Smallwood’s business was one of 3,200 Kaiser Permanente suppliers run by people of color or other underrepresented groups that was contacted to discuss the benefits of becoming employee-owned.

In Nick Smallwood’s case, when presented with the benefits of participating in Kaiser Permanente’s business resiliency program, he chose to work toward making his business employee owned. He and Obran engaged in a due diligence process that resulted in Obran extending an offer to purchase the business at a fair market rate. Courier Corporation of Hawaii employees were then given the option of becoming members (meaning employee-owners). In these transitions, no one is required to become a member or penalized if they choose not to.

After the sale, there is no significant change to the employees’ daily work. However, employees who become members share in the profits of Obran Cooperative (the holding or parent company, which consists of multiple small businesses). Members also receive added benefits as Obran grows, including the ability to run for board positions and vote in company elections.

As of late April 2022, roughly 50% of Courier Corporation of Hawaii employees have chosen to become members of Obran Cooperative.

As far as the future of the initiative, 4 additional companies, representing 305 employees, are interested in becoming employee owned as a result of the initial outreach by Obran and Project Equity, while more companies continue to express interest.

“We’ve seen that the acquisition part can work,” said Nwosu. “Now we look forward to seeing more companies transition to employee ownership, and the increase in productivity, community empowerment, and wealth creation that comes with it".