As 400,000 European businesses every year face ownership transitions in the context of an increasingly financialized and globalized economy, the future of millions of jobs and the strategic autonomy of the EU hang in the balance. In the next ten years, we are facing a generational transfer of wealth by changing ownership of European businesses. The question of strategic importance is about the future ownership of these enterprises. European leaders may choose between two diverging paths – the further financialization of ownership or localization of ownership.
The Challenge
Research suggests that we are currently witnessing an unprecedented change in the ownership structure of European private businesses driven by the aging population. According to the European Commission (EC), around 400.000 businesses change ownership every year, with business continuity being threatened in roughly a third of the cases.[1] The 2022 Study on Family Businesses in Europe states that, in some industries, 30% of business owners are older than 55 years. A recent Austrian report states that 30% of business owners are without a succession plan, with comparable numbers in countries like Poland, Spain, and Finland.[2] The German Development Institute estimates that around 100.000 jobs are threatened annually due to lack of suitable succession options for closely held businesses.[3] Recent research by University of Ljubljana indicates that almost 40% of all business owners are retiring in 10 years (with additional 25% being unsure about whether they will be retiring within the same time frame), while only 24% of business owners have a clear succession path. This may accelerate the existing trend of deindustrialization and further destabilize economic security and autonomy of European countries.
The Threat
The EC has long been warning about the threats brought about by ownership transfers in the SME sector. A major threat that may be under-recognized among the EU leadership is the lack of viable, socially responsible, and forward-looking succession options. Global financial buyers (private equity, large competitors etc.) are actively increasing their presence in the European SME sector, which could be detrimental to the immediate stakeholders of businesses, to the environment, and in a broader sense, to our economic and political autonomy. Without a clear and directed political strategy on succession, businesses may close doors, sell assets, fire workers. In the case of foreign buyouts, investors will appropriate intellectual property, technology, and added value. A new type of SME ownership landscape will change the attitudes to local communities, financial buyers are expected to diminish the accountability and concern for stakeholders. A realistic scenario supported by numerous examples world-wide is a progressive extraction of value, which leaves the businesses depleted and fragile, and the erosion of tax base and social programs in affected communities. In some cases, this process takes a much more aggressive form, with the buyer absorbing the company’s customer list and best (“key”) employees and relocation of production to regions with lower wages and weaker labor protections (social dumping).
The Opportunity
Surveys indicate that European owners are willing to think outside the conventional corporate finance box – an increasing number of businesses are moving in the hands of workers and local communities, where sustainable and socially responsible business practices are part of the organizational DNA. Indeed, research shows that employee ownership is not only socially responsible, but also a good for business – employee-owned firms have been found to enjoy higher productivity, growth rates, crisis resilience, lower employee fluctuation rates, while usually taking better care of the communities where they are embedded.
The US (1974), the UK (2014), and Canada (2024) all have dedicated legislation that allows the employees of a business to collectively purchase the shares from the departing owners through a special purpose vehicle and a financial leverage. Since workers do not need to invest their own personal financial assets, the so called Employee Stock Purchase Plan (or ESOP) model has been adopted broadly in the US and the UK in the past years – in the US, 10% of the private workforce works for ESOP companies (the majority of around 6000 privately-held ESOP firms have been transferred to employees to address the succession problem),[4] whereas in the UK, ESOP buyout has been the second most popular option among business owners to address the succession challenge in 2023.[5]
The research conducted by University of Ljubljana shows that employee buyouts would be the third most popular option for exit among Slovenian business owners – right after the family succession and competitor takeover. With appropriate legislation, institutional support, and systemic advocacy campaigns, the number is expected to increase drastically.
The Pilot Initiative
Currently introducing an innovative employee buyout mechanism for addressing the succession challenge, Slovenia is establishing itself as a pioneer in the development of solutions that would help to promote employee ownership in mature companies. Between 2018 and 2022, The Institute for Economic Democracy (IED) has conceptualized the so-called European ESOP model,[6] which is today implemented in multiple Slovenian businesses (including an engineering company with 120 employees and soon, in an industrial company with 210 workers). The model has been recognized by the Slovenian government as a suitable tool for facilitating transfers of mature companies to employees, with legislation now being introduced to regulate the model and incentivize its widespread adoption.[7] The Slovenian experience with the employee ownership as such, with the legal implementation, and with financing of employee buyouts could further inform other interested EU stakeholders interested in innovative ways to address the generational ownership transfer.[8]
Call to action
Europe’s generational transfer presents a strategic opportunity to promote employee ownership as a driver of economic autonomy and sustainability. Building on existing official EU documents[9] and on Slovenia’s successful pilot of the European ESOP model, the EU should prioritize scaling this approach through directed projects that establish national EO chapters, provide technical expertise, and support enabling legislation. By integrating EO into industrial policy and leveraging EU funding, member states can replicate Slovenia’s success, fostering resilient, locally rooted economies across Europe.
[1] European Commission, 2022, Study on Family Businesses in Europe.
[2] WIFO, 2023, Succession Challenges in Austrian SMEs
[3] DIE, 2021, Economic Consequences of SME Ownership Transition Failures.
[4] https://www.nceo.org/articles/employee-ownership-by-the-numbers
[5] https://www.evelyn.com/media/4c2p3yd4/business_exit_report-may-23-final-web.pdf
[6] https://link.springer.com/article/10.1007/s43546-022-00363-7
[7] https://www.gov.si/novice/2024-07-10-vlada-potrdila-izhodisca-zakona-o-lastniski-zadrugi-delavcev/
[8] To a degree, dissemination is already taking place but should be further supported. For example, the discussion are taking place on the topic at events at Oxford University, in Washington DC, through EU-finance projects in LATAM countries, and in many European countries, including Denmark, Ireland, and France. Within the “IED Network” pilot project, the organizational knowledge is currently disseminated to IED Germany, Croatia, and Serbia.
[9] In the past 2 years, there has been a lot of official EU and governmental documents referential to the ESOP model and the Slovenian precedens:
- The PEPPER V Report Benchmarking Employee Participation in Profits and Enterprise Results in the European Union, the United Kingdom and the United States (2024)
- ESF+ study supported by European Commission investigates potential for Worker Buyouts (2024)
- Sustainable by Design: Industrial Policy for Long-Term Competitiveness in the EU – Amsterdam Centre for Transformative Private Law – University of Amsterdam (2024)
- Slovenian government confirms the outlines for the Employee Ownership Cooperative Act (2024)
- Transition Pathway on Proximity and Social Economy by the European Commission (2022)
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