Neal St. Anthony
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Twin Cities-based Nexus Community Partners plans to accelerate its worker-owned business initiative thanks to a $1.2 million grant it has received from the Kendeda Fund of Atlanta.

Moreover, earlier this year, Nexus entered into a related partnership with the St. Paul Area Chamber of Commerce designed to get more small-business owners to think about selling to employees as worker-owned cooperatives, rather than to a competitor or institutional buyer such as a private equity fund.

St. Paul is hungry for small businesses downtown and elsewhere and chamber CEO B Kyle has noted that up to three quarters of small-business owners don’t have succession plans and, in many cases, transitioning to local hands, including employee owners, is preferable.

Building equity through employee ownership, including Employee Stock Ownership Plans (ESOPs), has long been considered one of the few ways for workers to build wealth, after a retirement plan and long-term homeownership, in a country where the gap is widening precipitously between the small percentage of wealthy and the working class.

Nexus Community Partners also sees this as a way to close the even more pronounced wealth gap involving minority workers and inner-city vitality.

“The model opens on-ramps for folks that very likely have no other entryway to entrepreneurship,” said CEO Repa Mekha of Nexus. “In many ways, business conversions are like gifts with the capacity to keep on giving.”

And locally owned businesses tend to create more economic vitality, beyond wages and supplies purchased, through the reinvestment of profits in workers and neighborhoods than do out-of-town owners, local business advocates say.

Diane Ives, a fund adviser at Kendeda, blogged last week that the foundation plans to spread $24 million “across four organizations over the next five years — to expand democratic employee ownership.

“Through grants to the Fund for Employee Ownership at Evergreen Cooperative Corp., Project Equity, ICA Group, and Nexus Community Partners we aim to raise awareness of alternative models for wealth-building in America while empowering thousands of workers who have traditionally lacked economic security.”

Elena Gaarder of Nexus said about 26,000 Twin Cities-area businesses are owned by baby boomers, representing 300,000 employees. Only about two-thirds of small businesses are ever sold.

Nexus is working through its “business-transition” program with female-owned Happy Earth Cleaning in Minneapolis on a conversion to employee ownership in a transaction that should be complete this year. Women and minorities, including immigrants, are the fastest-growing component of the small-business world.

The Kendeda funding is designed to accelerate the business-transition pipeline for what is called the Nexus Worker Ownership Initiative that connects business owners with experts who can help sell their companies to employees.

“Employee ownership is a solid exit strategy where owners don’t have to choose people over profits, ensuring they leave a [good] legacy,” Gaarder said. “It is good for business, good for employees and good for communities.”

Gaarder cited studies that show worker-owned cooperatives, including a one-worker, one-vote basis for decisionmaking, see increases in wages, household wealth and job tenure.

Cooperatives are similar to ESOPs, employee-owned companies that are owned partly or fully by Employee Stock Ownership Plans.

ESOPs need independent trustees, under the law, and can be expensive to implement and the company must be growing profitably, generally, to finance the purchase and management structure.

Selling to a cooperative still means a purchase. However, not every employee has to buy in. And, unlike an ESOP, in which a formal estimate of value is done regularly, the value of a worker-owned cooperative doesn’t fluctuate.

Nexus previously estimated that more than $150 million of public and philanthropic money has been invested in economic development projects on the East Side of St. Paul in recent years. Yet median household incomes in East Side neighborhoods still declined.

The bet is that worker-owned companies invest more in their employees, who have additional incentive to work hard and gain wealth than when they are just working for somebody, particularly an absentee owner. Of course, it takes good management and products, regardless of ownership, to keep a business growing and cash flowing.

Nexus tends to look for single-location businesses that pay a median wage of $15 an hour or less, such as janitorial services, a residential-cleaning business or home health care.

It will be interesting to see how the Kendeda-Nexus relationship plays out.

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.