Small business owners are facing catastrophically bad choices these days, with half predicting they will be forced to close as a result of the COVID-19 economic crisis. Meanwhile, nearly 40 million workers have lost jobs and are struggling to get by, as evidenced by miles long lines at food banks and a brewing eviction crisis. Impact investors and other capital providers could be the agents who help square this circle – stepping in to turn the misfortune that has overtaken the old economy into a new era of shared prosperity.

Rather than standing by as a wave of corporate buyouts and consolidations undermine local economies and further exacerbate wealth inequality, social impact investors could become the agents of a sweeping economic transformation anchored in broad-based employee ownership. They could turn the current moment from crisis to opportunity, by ensuring that workers are positioned to receive a fair share of the wealth they help create and that Main Street economies continue to be anchored by locally owned enterprises.

Even before COVID-19, foundations and other impact investors had begun to seed a handful of new employee ownership investment funds designed to test the theory that taking employee ownership to scale could begin to address the growing wealth gap in the U.S. Proposals to use federal policy to advance employee ownership have also been gaining steam: for example, the Main Street Employee Ownership Act, called “the most significant employee-ownership legislation in two decades,” became law in the summer of 2018, increasing access to capital in the form of federally backed financing. And while we heartily endorse this trend, here’s the caveat we would add: capital investments must be done right. To prevent this from becoming simply another opportunity for maximum capital extraction, proper guardrails and protections that ensure worker benefit are needed.

Those protections — in practical detail — are outlined in the new “Guidelines for Equitable Employee Ownership Transactions.” These guidelines embody the insights of a working group of employee ownership and impact investing experts we at Soros Fund Management (SFM) and The Democracy Collaborative convened with our colleagues at The Open Society Foundations. SFM, a family office, helped lead this work out of our own interest in piloting these guidelines. Now, other groups investing in employee ownership conversions have agreed to pilot them, and our hope is more will join.

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