[Editor’s note: The launch of an ESOP doesn’t magically transform how employees view their jobs. So how can companies get people thinking and acting like the owners they are? Corey Rosen’s new book (left) offers a wealth of information and examples showing ways to do just that. We present a short excerpt here, illustrating how three companies have developed custom tools to help people understand and use the numbers that drive the business. Get the book at this link–it’s $35 ($25 for NCEO members) and worth every nickel.]

Pacific Outdoor Living

Pacific Outdoor Living is a leading Southern California outdoor living and landscape design and construction firm. It set up its ESOP in 2017. That fit well in an existing open book, high involvement culture. As part of that, Terry Morrill, the CEO, developed a booklet called “Am I Making Money?” It is an easy to read, illustrated guide for all employees, with clever cartoon-like characters. The book walks employees through understanding how much projects are making and what the various components are.

That is the static part. The interactive part is a software system everyone can access. It is essentially a job status board that looks at each project, how it is progressing, who is responsible for each phase, etc. Employees can track material delays, labor hours, labor days, wages paid, gross product and gross product margins, commissions, and sales price. Estimating and scheduling software are also used. From these, employees can track whether projects are making money or not. The schedule board and job management system total the gross profit made at the end of each day, so there is no more waiting for monthly or quarterly reports. If the hours involved are more than what is needed to hit targets, teams can talk about ways to solve the problem. The system has worked so well that they now do coaching with other contractors wanting to see how it is done.

Barclay Water Management

This 100% ESOP-owned company…has more than half its employees in the field on any day selling Barclay’s products. Most of its contracts are for a fixed price and term.

For many years, Barclay paid its sales staff incentives based on total sales. But soon after its transition to an ESOP, it started to pay based on contributions to overhead and profit. Under the prior system, salespeople had an incentive to do whatever was needed to make the customer happy, such as delivering a resupply overnight or providing an additional service at no cost. Under the new system that would reduce incentive pay.

To make this work better, an engineer at Barclay developed an internal software system that every salesperson could use and update on a real-time basis. As any modification was made, the salesperson would immediately see the impact on overhead and profit—and so could all the other salespeople. Salespeople are competitive and started looking at just how well their peers were doing and, even better, trading ideas on what contract changes they could charge for or provide differently without losing customers.

This system operates within a larger structure of a long history of sharing financials with employees quarterly through a newsletter and president’s discussion, as well as a detailed discussion at the annual meeting.

Van Meter

Van Meter Inc. is a 100% ESOP-owned wholesale and electrical supplier in rural Iowa. After building a base level of ESOP understanding for its employee-owners, its ESOP committee saw the next step as finding ways for each employee to contribute to increasing the stock price. To do that, employee-owners need to understand something about valuation. The committee quickly realized that valuation analysis is long and complicated, so they looked for a way to translate the factors that drive value into easy-to-use terms. The result is the “your two cents worth” campaign, which the committee launched in 2005. Based on current numbers and some simplifying assumptions, the campaign is built on a simple formula: improving VMI’s bottom line by $5,000 creates an expected increase of $0.02 in the value of a VMI share. This equation doesn’t capture the complexity of the actual valuation process, but it does close the loop between each employee and the value of the company. It also makes for easy math to show what happens to the value of the stock if all employees do their own two cents worth, something that the ESOP committee emphasizes in monthly updates about operational improvements….

These quick takes provide a variety of more granular ideas on elements of an open-book system. In each company, they are part of a larger process. In your own company, enlist your ESOP committee to help come up with ideas, working with the CFO and team leaders to identify which numbers to share and what to do with them.

It’s Not Just the Money

Finally, companies should not frame sharing and using the numbers solely in terms of people’s monetary self-interest. It’s tempting to do that, but “WIIFM” is not a sufficient framework. People need to know that when employees have ideas that improve the bottom line, they are creating value for all of their coworkers too. Employee-owners are motivatedby the sense of community that employee ownership can provide. Making the lives of their colleagues better is a powerful motivator. In fact, in general, people are motivated less at work by calculations of rational economic return than by, as author Daniel Pink says in Drive, having a sense of purpose, autonomy, and mastery. Sharing and using the numbers can make that happen.

The post Beyond Engagement appeared first on Employee Owned America.

With the news arriving in late December that New Belgium Brewery employees voted to confirm the sale of their company to Kirin-owned Lion Little World Beverages, it is now official: a legendary ESOP story that began in the year 2000 is over. New Belgium Brewery is no longer an employee-owned company.

As news of the sale recedes, it is interesting to contemplate how New Belgium’s 700 employees might feel about the vote. A last-minute controversy surrounding the international business practices of Kirin in Myanmar undoubtedly proved embarrassing. It reportedly had some effect on the vote; however, final results have been kept secret. Even those looking forward to more than the estimated average payout of $100,000 are likely to have mixed feelings. Aside from any concerns they may have about Kirin, they all now know the difference between walking out the door one day as an employee-owner and arriving the next as an employee.

Shared ownership was not just a superficial slogan at New Belgium. Anyone who viewed the well-known employee ownership documentary, We the Owners, could see the culture for themselves. There was pride in ownership, a kind of pride that went beyond money. Management theorists can debate whether or not that kind of pride and commitment can be reproduced with derivative ideas, such as profit sharing and efforts to continue a culture of participation. If I were Kirin, I would not bet the ranch on such a hope. It is at least a rebuttable claim that legal ownership is a necessary but not sufficient condition for creating an ownership culture. Building such a culture does require independent effort beyond the lawyer’s pen. Once achieved however, real ownership serves as a unique binding agent. Ownership offers a reason for resilience, for holding the efforts of people together over time when the going gets rough.

Of course, pioneers cannot always choose their paths. Like many craft brewers, New Belgium founders Kim and Jeff Jordan were industry pioneers and one of the first in their industry to choose an ESOP as their exit mechanism. That choice was both sincere and rational. They believed in the inclusivity and justice of the idea. And they received competitive financial value for the sale of their stock.  Nonetheless, a quote from Kim Jordan on the occasion of the company’s transition to 100% ESOP ownership back in 2013 has a certain poignancy today.

“There are few times in life where you get to make choices that will have multi-generational impact — this is one of those times.”

The sale of New Belgium to Kirin in 2019 means that the impact Kim Jordan described has been limited to one generation of New Belgium workers. That is unfortunate. The decision to sell clearly reflected business challenges in a highly competitive and apparently overvalued craft brewing sector. But this decision also speaks to the limits of the present-day employee ownership financing infrastructure. ESOP sales are not yet functionally competitive with the more familiar route of private equity or strategic industry sales. ESOP sales may be financially competitive but they are not efficient. ESOP transactions are typically installment sales that take time, often over a decade, to execute. And by taking time, they also delay a necessary cultural “turning of the page” from founder sellers to employees and a new generation of leadership.

At New Belgium, the first-stage sale of 41% of company stock took place in 2000. Thirteen years later, just before completing an expansion to a new production facility in Asheville, North Carolina, the transition to 100% employee ownership took place. One can only speculate how events at New Belgium might have played out differently if a 100% sale to employees had been executed back in 2000. By 2019 New Belgium faced both increased competitive pressure and a considerable repurchase liability for that first generation of employee owners, who will be retiring over the next decade. Those challenges are very real. They are also entirely manageable.

There is movement afoot in the ESOP marketplace to create scaled capital institutions that can compete with conventional financing sources. Competing with strategic buyers the likes of Kirin will always be challenging since those buyers will often pay exorbitant prices to dominate their markets.  Competing with private equity financial buyers should be doable. The combination of the tax efficiency of the 100% S Corporation ESOP structure and the demonstrated productivity advantages of employee ownership will enable ESOP funds to win a fair share of bidding contests.

What this new generation of financing institutions supporting employee ownership needs to provide, however, is not merely capital. Like the most successful private equity firms—Blackstone, Bain, KKR, and others whose names are familiar in the business pages—these new entities will need to be able to deploy industry expertise to help employee-owned firms navigate through technology changes. They should also be institutions that can incubate a deep bench of successors, next generation employee ownership-oriented management teams that will be drawn to the vocation of managing in more democratic settings, settings where employees will be their partners and not simply rented humans.

Until the employee ownership field builds this kind of infrastructure, we will continue to lose our most promising and dynamic companies. Family offices, foundation endowments, public and private pension funds, and even sovereign wealth funds from abroad are all possible sources of funding for standing up these next-stage institutions. Evidence from the academic world that documents the performance advantages of employee ownership suggests that this would be a worthy bet, and not just for employees and communities. It would also be a financially prudent choice for investors. January 6, 2020

Christopher Mackin is the founder of Ownership Associates of Cambridge, Massachusetts. He is also a partner at American Working Capital, LLC. He is both a Carey and a Kelso Fellow at the Rutgers University School of Management and Labor Relations. For more commentary on the sale of New Belgium Brewing, check out “Last Call: A Forum on the End of Employee Ownership at New Belgium,” published at Fifty by Fifty’s Employee Ownership News.

The post New Belgium Brewing and the Future of American ESOPs appeared first on Employee Owned America.

But there’s another opportunity that only a few employee-owned companies have so far taken advantage of: shared leadership.

Businesspeople everywhere have grown accustomed to the CEO-as-king model of corporate management. But the model is only a convention called into being by customary structures of ownership. Founders who invest their money and time in starting a business naturally expect full ownership and control. Absentee owners—stock-market investors, venture capitalists, passive family shareholders—want to know that one person is accountable for running the business and delivering results.

Other ownership structures, such as partnerships, some co-ops, and ESOP companies, don’t need this single-point accountability. The owners are on site and involved. They can see who is making any given decision, and they can judge the performance of multiple leaders. Even if they aren’t directly responsible for selecting the board, as in most ESOPs, they can make their influence felt.

This is one reason why many partnerships rotate the managing director role. It’s why some have joint CEOs responsible for different parts of the business. And it’s a reason why a few ESOP companies, notably Eileen Fisher and King Arthur Flour, have been experimenting with shared leadership.

There’s another reason as well. A successful company these days is a complex enterprise. And the management of complexity is hard.

Consider King Arthur Flour, a $150 million business with some 375 employees that is wholly owned by its ESOP. King Arthur’s bucolic headquarters and post-and-beam retail store in rural Vermont mask the fact that it is a diverse and complicated company serving a wide variety of customers across the United States.

One of its businesses is the flour itself, which can be found in supermarkets around the country. King Arthur is a premium brand, so protein content and other quality markers have to be tightly controlled. The company has developed innovative varieties to respond to new consumer tastes, such as white whole wheat flour and gluten-free products. It has also created a line of baking mixes that are finding their way onto grocery-store shelves.

Next is the food-service business, which provides flour and other products in bulk to local bakeries and restaurants. That’s a different market involving more consultative selling. King Arthur has a separate salesforce to call on those customers.

Then there’s the direct-to-consumer (DTC) business, which has grown rapidly in recent years. Through its website and monthly catalogue mailings, the company offers not just flours and mixes but virtually everything related to baking, including specialized pans, utensils, ingredients, recipe books and so on. (Check out the shopping website to get an idea of the diversity.) DTC procurement and fulfillment—plus the necessary brand-building and marketing efforts through catalogue, website, e-mail, Facebook, Instagram, etc.—require wholly different capabilities than the wholesale flour business.

And finally there’s the retail store, known internally as Camelot. “It’s a mini–King Arthur sitting there in one place,” says co-CEO Ralph Carlton—and it has become a destination for baking fans, much the way Bass Pro Shops or L.L. Bean stores are destinations for outdoor enthusiasts. Patrons cluster in the café, snap up the wares on the shelves, sample fresh-baked goods from the bakery, and take classes at the in-house baking school. The Walmart-size parking lot bespeaks an attraction right up there with the famous Ben and Jerry’s ice cream plant, an hour or so to the north.

Why would we ever expect one man or woman to master all these different businesses? When today’s King Arthur Flour was run by one individual—from 1999 to 2014—CEO Steve Voigt relied heavily on leaders such as Suzanne McDowell, head of HR, and Karen Colberg, responsible for marketing and brand development. When Voigt retired, King Arthur’s board decided to formalize the joint-leadership arrangement, eventually naming McDowell, Colberg, and finance chief Carlton as co-CEOs. The troika has indisputably been successful, overseeing a steady five-year increase in the company’s revenue and earnings. By embracing complexity, the three executives have continued King Arthur’s evolution into a unique brand that doesn’t depend on any one market or business model.

Which isn’t to say that things won’t change. At the end of July, McDowell announced her intention to step away from the chief executive role in favor of a new-to-King-Arthur role focused on sustainability and social responsibility. That will leave Colberg, 54, and Carlton, 63, as co-CEOs. Both are committed to maintaining the shared leadership.

So what are the lessons? One, obviously, is that the shared-leadership model can be highly effective, provided you have people with the right values. “This works because of who we are, in terms of our commitment to shared leadership,” says Carlton. “None of us has the ambition to be sole CEO, which is basically a death sentence for the shared leadership model.” Another is that a company has to be flexible. McDowell’s departure may mean that King Arthur stays with two leaders for a while, eventually goes back to a single CEO, or even expands again to three. Says Carlton, “I can imagine X years from now we’re expanding into a new area and there’s a person who’s so influential to the growth of the company, you want that person as co-CEO. I hope the board is open and flexible to determine what’s the best leadership for the company at a given time.”

But there are a couple of other lessons in here as well. Shared leadership is an option not available to most companies, and when it is done right it offers benefits that elude single-CEO businesses. It brings collective intelligence to bear on major decisions. It multiplies the expertise and experience lodged in the proverbial corner office. “You have three minds worrying about the internal complexity and the external complexity,” says Colberg. Shared leadership also mitigates the time-honored challenge of every successful company, which is to find a suitable successor to an effective and respected CEO. When a twosome or threesome takes over—again, assuming they are respected individuals who are committed to the sharing—the new arrangement feels different, and invidious comparisons are less likely.

Finally, it’s worth thinking about the message that shared leadership sends to the organization. “Culturally, it sends a strong statement to your company about collaboration,” says Carlton. “Compared to the CEO as dictator, this sends a message that collaboration is important. And listening. And respect.” Adds Colberg: “It makes so much sense for us because of our culture. Our shared ownership has been in place forever. And open-book management, and transparency, and communication. This model works and fits really well.”

In other words, shared leadership may not be for everybody, and it’s not necessarily forever. But for the right company in the right situation at the right time—King Arthur seems to be one—shared leadership is a powerful option that can turbocharge employee ownership.

The post Shared Leadership: An Opportunity for EO Companies appeared first on Employee Owned America.

An immigrant’s son. Serial entrepreneurship. A grandson’s vision and a family’s bold decision. Somehow it all led to a thriving employee-owned company that has become a regional institution

———————

James Timothy O’Connell was not going to take Latin. That was final. The year was 1903, and the boy was just 14. But he told his family, immigrants from Ireland, that if the priests and the nuns were going to make him study Latin he would quit school. His parents remonstrated with him, to no effect. Leaving school, J.T. set out to become a commercial fisherman.

Newport, Rhode Island, was then the storied home of Gilded Age wealth. The Vanderbilts, the Astors, and others had built their immense “cottages” out along Bellevue Avenue. Down near the waterfront, where a lot of Irish immigrants lived, life was grittier. J.T.’s father ran a bar out of the first floor of the family home. The boy headed out into Narragansett Bay in a sailboat every day, alone or with a crewman, bringing back fish and lobster.

J.T. was a hard worker. He did well. He saved his money. He also noticed a few things. If he salted his catch, he could sell it for a little more in the winter. If he bought his equipment and supplies in bulk, direct from the manufacturers, he could get them cheaper. First he bought copper paint. Then rope. He ordered the material in large lots, storing it in a room behind the bar. He’d sell what he didn’t need to other fishermen.

In 1907, his father died. Now the young man was his family’s sole source of support. He closed the bar and made the space into a ship chandlery, J.T. O’Connell & Company, selling marine supplies. A visiting salesman from Boston stopped by and asked to see the boss. “I’m it,” said O’Connell. He was 18.

If entrepreneurs are born, not made, then O’Connell had the genes. Over the next few decades he expanded the chandlery into lumber and building supplies. He launched a company to bring oil and gasoline up from New York City to fuel Newport’s new bus fleet, along with the growing number of gas-powered automobiles and oil-fired furnaces. He bought real estate on Newport’s waterfront, eventually including a 30-acre estate out on Castle Hill, a few miles away, which had belonged to the son of the naturalist Louis Agassiz.

And then there was the United States Navy, which had a significant presence in Newport and whose steady purchases helped O’Connell weather the Depression. In the late 1930s, he got wind of a massive navy auction at the Brooklyn Naval Shipyard—big winches, bumpers, all kinds of nautical supplies and equipment. He took the train to New York and was amazed to see that he could pick up most of the stuff for pennies on the dollar. He called his bank for a line of credit. He called the New York, New Haven and Hartford railroad to arrange for boxcars. He called his associates in Newport to line up warehouse space. He sold the items steadily but still had plenty left in 1940.

That year, the winds of war were blowing. The navy began expanding. Now it needed a lot of the material back, and price was no object. It was a crisis of conscience for O’Connell: how much should he charge? He consulted with the parish priest. Together they decided that he would figure out his costs and apply his usual business markup. It was an ethical decision—and a smart business move. Navy purchasing agents realized this was a man they could trust. As the war heated up they gave him a series of no-bid contracts.

By the time J.T. O’Connell died, in 1974, his obituary read like a Newport business directory. Oil and coal. Hardware and building supplies. Banking. Real estate. He was a member or director of more than a dozen boards and associations. The obit called him a “business institution in Newport.” The one thing that he wasn’t, says his grandson Tim O’Reilly, was a delegator. Like a lot of entrepreneurs, he had left no obvious successor, and it wasn’t clear what would become of the businesses he had built up. His three daughters and other family members were the board of directors; they hired managers to run the various operations. But finally they put in a call to Tim, the eldest of J.T.’s 26 grandchildren.

O’Reilly had grown up in Newport. He attended college at Notre Dame, graduating in 1961. He served on navy destroyers; he earned an MBA from Dartmouth’s Tuck School. For some years he had been working for Gladstone Associates, an economic consulting firm, in Washington D.C. He wasn’t sure he wanted to return to Newport, let alone run his grandfather’s ventures. “But when your family says they need you, it’s hard to say no,” he says now. He joined the company in 1976 as president.

It wasn’t an easy situation. Tim would have to learn the businesses. The navy was scaling back, moving or closing some of its facilities. It was the 1970s, not a great time to be running any sort of business. Inflation was high. The price of oil was skyrocketing. The Rhode Island economy was rocky. Over time, of course, inflation abated and the economy recovered. Even so, the O’Connell oil business began hitting some strong headwinds. It had come to focus on home oil delivery, and it had built its reputation on reliable service. But newer burners didn’t break down as often. Discounters were undercutting its prices.

And then there was the labor situation. Tim arrived in the midst of an organizing strike in the building supplies business, led by the Retail Clerks union. The Teamsters were trying to organize oil drivers in the region. There was grumbling, animosity, a lack of trust between workers and bosses in both businesses—a microcosm of American labor relations at the time. “I didn’t want to spend my time fighting with my employees,” says O’Reilly. He began to explore profit-sharing. “I wanted to get everyone on the same page, working toward the same goal.”

Somehow, O’Reilly managed to keep things going. As he did, he began to develop a vision of what the company could become.

This wasn’t just any old place, he realized. This was Newport. The city had a strikingly beautiful location overlooking Narragansett Bay and the Atlantic Ocean beyond. It was still a magnet for the rich and well connected. It was a sailing center. It was close to Boston and not too far from New York. It boasted street after street of beautiful colonial-era buildings. Surely tourism was its future. His company—by then rechristened the Newport Harbor Corporation (NHC)—owned valuable properties along the city’s waterfront. Plus there was that big estate out on Castle Hill, whose main building had been leased out as an inn.

He went to work slowly. In 1980, the company created the Newport Yachting Center, which included a marina and the renowned Newport Sailboat Show. In 1981, it opened its first restaurant, renovating a waterfront bar called The Mooring and turning it into an upscale eatery with stunning harbor views. For the next 14 years O’Reilly would look into development opportunities while maintaining the company’s existing businesses. He considered developing the Castle Hill property but couldn’t get the necessary zoning variance. He tried selling the property but couldn’t find a buyer willing to pay what he thought it was worth.

He also had to confront the age-old problem of family businesses: what to do about ownership. The building supplies business by then had 36 shareholders, all of them his relatives. The oil business had more than twice as many, including the heirs of J.T. O’Connell’s original partners. Some members of both groups were getting older; they wanted liquidity. Others were third generation, in their twenties and thirties, with little interest in the business—they just wanted out. One of O’Reilly’s cousins was interested in buying the building supplies business, but he didn’t yet have the money.

In retrospect, the fateful year was 1995. A big Connecticut oil distributor was buying up local and regional companies, hoping to consolidate a leading position in New England. It offered cash on the barrel for O’Reilly’s oil company, an offer he and his board decided to accept. Meanwhile, the innkeeper’s lease on the Castle Hill property was up. Newport was reviving, and the beautiful location looked like a prime spot for a newly renovated luxury inn and restaurant.

By then, too, O’Reilly had attended a conference of the ESOP Association and learned about something called an employee stock ownership plan. An ESOP, he saw, would be an ideal vehicle for providing the shareholders with liquidity and for getting employees and management on the same page. Not everyone in the family agreed with the idea right away, but most did. That year, O’Reilly sold 32% of the company to Newport Harbor Corporation’s newly created ESOP.

In Bob Dylan’s words: the stone it was turned, the die it was cast. The oil business was gone. O’Reilly’s cousin would buy the building supplies business. NHC’s future would be in hospitality. And it would someday be a company wholly owned by its employees. “We were always aiming at 100%,” says O’Reilly.

                                                            —————-

Today, you might be taking a walk along Newport’s picturesque southwestern coast, out by the Castle Hill Lighthouse. And you might come across the Castle Hill Inn, which has indeed become a world-renowned luxury hotel and high-end restaurant. The Stars and Stripes flies on the big flagpole right outside the inn. Right next to it is the blue-and-white ESOP flag, a sign that there could be something a little different about this company.

Different it may be—but no one should overlook the similarities between Newport Harbor Corporation and the countless other family enterprises sprinkled all over the United States. There was that matter of buying out the shareholders, for example. And there was the often-vexed issue of succession. As Tim grew older, he didn’t want to make the same mistake that his grandfather had, running the business until the day he died with no one ready to take over.

Tim’s son, Paul O’Reilly, had graduated from St. Michael’s College in Vermont in 1988 and took a job in IT sales. But he had worked summers at NHC’s marina, and the executive responsible for the marina wanted to offer him the manager’s job. Tim demurred: company policy said that no family members could be hired into management positions unless they had managerial experience elsewhere. The executive chastised him: if he wasn’t your son, you’d let me hire whoever I wanted to. You’re practicing reverse nepotism.

So Paul came on board and worked his way up. He served as sales manager of the oil company until it was sold. He managed Castle Hill. He directed NHC’s marketing efforts. Eventually he became executive vice-president and then, in 2006, CEO. He was a driving force behind the company’s move into restaurants. And he bought wholeheartedly into the idea represented by the ESOP. “Members of [Paul] O’Reilly’s management team say he infused the company with a set of values that are both pragmatic and idealistic,” wrote journalist Brian C. Jones in a 2012 profile of the company. The values are “described in four principles: ‘Employees rule. Customers guide us. Profits matter. Do the right thing.’” The principles appear to this day on the company’s website, accompanied by a famous quote from Mark Twain: “Always do the right thing; this will gratify some people and astonish the rest.”

Principles, of course, don’t fund a payroll. And Tim, Paul, and everyone else in the company were learning the restaurant business on the fly. The company opened 22 Bowen’s Wine Bar and Grille in 2001. It launched 22 Portside in 2002 and the Boathouse, in nearby Tiverton, in 2005. There would be others to come, in Providence and elsewhere, including the 2012 purchase of a small chain of Italian restaurants in Massachusetts known as Papa Razzi. But it was a slog. “We grew too fast,” says Paul. “We made a lot of mistakes. It was trial and error. It took years to get [some of the restaurants] profitable.”

Eventually the profits did come. Along with them came the ESOP. Funded by company cash—not by debt—the plan acquired more and more shares, finally reaching 100% in 2018. The acquisition of Papa Razzi, moreover, increased the size of the company by about a third and forced it to develop managerial capabilities that it had lacked. “It was everything,” Paul says. “HR, accounting, IT, sales and marketing, the oversight of restaurants. Now we’re scaled up and ready to take on a regional role.”

Scaled up, indeed. The company last year did $82 million in sales. It employs about 1,200, including roughly 800 full-timers. Any employee who works more than 800 hours is eligible for the ESOP. Numerous veteran employees, including front-line workers, have substantial balances in their retirement accounts. Turnover is estimated at 14%, a fraction of the average for the restaurant business. The company is “investing locally, and building community wealth, rather than sending those dollars to absentee shareholders,” wrote Karen Kahn in a recent article on the company.   

It has been a long road from J.T. O’Connell’s Latin aversion to today’s Newport Harbor Corporation—which, by the way, is opening another new restaurant in June 2019. But it’s a quintessentially American saga, with an egalitarian twist. The entrepreneurship, the family business, the pivot to a new industry, the ESOP, the principles enunciated and implemented by Tim and Paul O’Reilly— all augur a strong future for the company. It’s a business that shows the potential for a well-managed family enterprise—and for employee ownership.

The post An American Story appeared first on Employee Owned America.

Stewart’s launched an ESOP in 2001, and its 5,000-plus employees now own close to 40% of the 355-store company. It recently announced a $17 million contribution to the plan, $6 million more than a year ago. That amounts to nearly 20% of an ESOP participant’s salary, the company said.

Employees also saw their existing stock balance increase by 13%, including dividends. After six years with the company, a typical employee’s balance amounts to more than a year’s pay. Almost 1,000 partners (as the company calls its employees) have balances greater than $100,000.

And then there are some millionaires—75 of them at last count. The youngest one, a store manager, is only 46 years old. About a third of the group started out as hourly employees.

Stewart’s ESOP participants also receive paid maternity leave, half-priced YMCA fitness and day care memberships, and access to a scholarship fund that provides $300,000 a year to partners’ dependents. The Albany (NY) Times-Union named the company to its 2019 list of top workplaces and gave president Gary Dake its annual leadership award.

“We…believe in sharing with our co-workers,” said Dake, “both by using the Golden Rule and not asking people to do what we wouldn’t do; and financially through our ESOP, an incentive-based manager pay system, and a growth-sharing pool for partners at the shop level.”

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What’s interesting about TDIndustries, a big mechanical construction and facilities-services firm, isn’t just its business results, though heaven knows those results are impressive enough. Founded 73 years ago in Dallas, TD has expanded across Texas and now has operations in Arizona and Colorado as well. Its payroll has grown to 2,500, its revenue to $630 million. Its projects include such Dallas landmarks as the American Airlines Center and the still-under-construction Globe Life Field, the Texas Rangers’ new 2020 home. Plans are on the drawing board for further expansion—and for more big projects.

The company doesn’t reveal its earnings, but they are no doubt healthy. The stock price rose 18% in 2015, 19% in 2016, and 25% in 2017. TD’s employees—Partners, as the company calls them—own all the shares through an employee stock ownership plan, or ESOP.

Even more interesting than the performance itself is TD’s business model, which explains how the company delivers its remarkable results.

“In the construction industry,” says Hattie Peterson, senior vice-president of marketing, “a specialty contractor can be looked at as a commodity. Who can do it the fastest, who has the lowest bid.” At TD, she continues, “we recognize that price is always a factor, but it’s more important for us to build relationships with our clients. We want to be known as the trusted partner of the general contractor and the building owners we serve—and not just for the project, but for the building’s lifecycle.” To that end TD offers construction, maintenance services, facilities management, and special-projects work such as renovation or expansion.

Think for a moment about the challenge that model presents. A company doesn’t get to become a trusted partner just by saying so. It has to provide top-quality work. It has to have highly skilled, utterly reliable people on every jobsite and in every function—engineering, fabrication, and so on. It must attract and retain all those people and ensure that they upgrade their skills over time. It must ensure that everyone on the payroll understands the importance of going the extra mile for customers and for each other.

Unless it can meet those challenges, the business model breaks down. So let’s look at how TDIndustries keeps the model humming.

Employee ownership. Unlike a lot of employee-owned companies, TD asks people to buy in to the ESOP through payroll deductions. About 80% have done so. Every year, the company contributes 15% of its profits into ESOP accounts and another 15% to 401(k) accounts. (The contributions have amounted to about 65 cents per employee dollar in recent years.) So people who stay with the company can expect to build up a comfortable nest egg. “Employee ownership is huge,” says HR director Tara Albertson. “It’s definitely a recruiting and retention tool.” Employees are Partners from day one. They are eligible to participate in the ESOP after 30 days.

Employee ownership has another advantage as well: the company can invest heavily in its people because there are no absentee owners clamoring for dividends. “TD is free to make decisions that serve our customers and empower our employees,” says Bob Wilken, a 25-year TD veteran whose title is president of select markets and acquisitions—“as opposed to the next earnings call with outside investors.”

Training. If you’re an apprentice plumber and you want to become a journeyman and eventually a master plumber, TD will pay for the appropriate night-school courses. If you’re an engineer looking for a master’s or a doctorate in a relevant field, TD will pay for that, too, so long as it makes good business sense. The company provides many of its employees with “learning maps” showing the steps they need to take to boost their skills and thereby increase their pay.

This emphasis on education seems to pervade the place. “We have our core classes, developed in house,” says HR’s Albertson. “They’re about our culture. There are five or six classes that every Partner will take.” (We’ll get to TD’s memorable culture in a moment.) The company also runs a leadership development program, hires specialized firms to teach trade classes on site, and offers a “Learning in the Morning” program, open to any Partner, that explicates a TD process. We could go on, but you get the idea.

Best practices. The company operates a 6,000-square-foot facility (with class 1000 cleanroom capabilities) in nearby Richardson for the higher-purity construction required by clients such as pharmaceutical or semiconductor companies. But its main fabrication shop is an 85,000-square-foot facility located at its Dallas headquarters and staffed by 90 Partners over two shifts.

The Dallas shop is where TD bends and shapes sheet metal into ductwork, builds the complex plumbing fixtures required for large-scale buildings such as a stadium, and does all the necessary welding. Some years ago the shop plunged into the tools and techniques of Lean, and the evidence is everywhere. A tour led by production manufacturing manager Jason Hogan reveals clean and uncluttered work areas, minimal inventories, and well-organized workflows. Charts on a bulletin board track things like manufacturing overhead expenses and savings from process changes. Employees are recognized for continuous-improvement suggestions. Rogelio Aguilar, for example, created a rotary table in the assembly area to hold different size dampers so he and his coworkers wouldn’t have to fetch each one from the warehouse. Estimated savings: upwards of $3,000 a year.

The TDIndustries Culture

This item gets the big heading because there are so many different elements that contribute to it. For instance:

• Servant Leadership. TD founder Jack Lowe Sr. discovered Robert Greenleaf’s well-known management philosophy in the early 1970s. After discussing it with other company leaders for a couple of years, he introduced it to TD, and the company has practiced it ever since. Leaders learn the principles in classes. They learn to ask rather than tell. They learn that “it’s about caring for the person, building the person, the Partner, versus climbing your way up the ladder,” as Hattie Peterson puts it. She adds: “The only way you grow at TD is by growing others around you.”
• Core values. A lot of companies trumpet their values; TD seems to take them more seriously than most. Five “core values”—relating to safety, excellence, trust, servant leadership, and “the power of individual differences”—appear on the back of everyone’s business card. They’re illustrated on wall-size posters at headquarters. “The first class you take at TD is ‘Catch the Spirit,’” says Peterson. “That’s where our Partners learn about our servant leadership culture and dive into the meaning of our core values. So every Partner knows them. They’re repeated in our huddles. Even our individual performance reviews are based around living the core values.”
• Intensive reviews. Those reviews take place four times a year, for every partner. They might last an hour or more, with only the first few minutes devoted to an assessment of past performance. From then on it’s a conversation about the Partner’s goals and plans. “With young people, I urge them to go to school,” says Bill Avalos, manufacturing production manager. “It’s the best way they’re going to get a pay raise.” Employees also review their managers, once a year, anonymously.
• Communication and transparency. TD runs Catch the Spirit training not only for every new employee but for employees of companies that TD acquires. It operates an intranet called the Pipeline that lets everyone see the state of the company—jobs under way, financial performance, and so on. Another intranet is called TDWiki. “That’s where all the documents are housed to help you do your job,” says Dennis Washington, a production specialist who helped design and develop the system. “The forms, the instructional stuff, like that.”
• Symbols. Walk into any TD facility and the first thing that hits you are the walls filled with photographs of employees. Every Partner with at least five years of service appears on those walls. Other walls show the core values and the mission statement, along with inspirational messages (“We have a diverse, people-centered culture built on a foundation of trust.”) Oh, yes: the org chart is printed the reverse of the usual way, with CEO Harold MacDowell at the bottom—serving those above him, so to speak. In 2017, MacDowell was #7 on Inc. magazine’s list of the world’s top 10 servant leaders. Symbols, like words, matter.
• Fun. “TD can party!” says HR director Albertson. “We like to have a good time.” There’s the big enterprise-wide TD Barbecue, a celebration for Halloween, another for Flag Day. MacDowell dresses for the occasion: Uncle Sam on Flag Day, a leprechaun on St. Patrick’s Day. Last year, that was when he announced the new stock price—the “pot of gold.”

Fortune has named TDIndustries one of its 100 Best Companies to Work For “Legends”— the company has made the magazine’s famous list for 21 consecutive years. If TD’s business strategy and its future depend on its people, it seems to be doing a lot of things right.

What about that future? The company gets frequent buyout offers, MacDowell told Contracting Business in 2015. But it isn’t for sale. “If we sold out to somebody else, they’d want to run the number up, flip it, and take it public. And I haven’t seen many of those operations preserve the cultures of the great companies that were bought out.

“We’re focused on generating the wealth through the ESOP,” he concluded, “without killing the culture.”

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What do the three have in common? All are elected representatives to the corporate steering committee at Carris Reels, a Vermont company that is wholly owned by its employees through an ESOP.

Then there’s Frank Donovan, a maintenance electrician at the plastics plant, a man whose rangy arms and grease-stained fingers suggest his skill at pulling machines apart and making them work again. Donovan serves on the five-person trustee committee, the legal fiduciary responsible for overseeing the ESOP.

The steering committee—composed of elected representatives from every facility in the company, plus corporate and site managers—vetted and formally nominated Donovan for his position. It did the same for Shanna Sharum-Plis and Mike Arias, who currently occupy the positions reserved for an hourly employee and a salaried (but non-corporate-officer) employee on the company’s eight-member board of directors.

Make no mistake: Carris Reels is not a small-scale cooperative that can make every big decision democratically, one person one vote. It is a good-sized multinational business with manufacturing or distribution facilities in nine US states, Canada, and Mexico. Annual revenue is in the neighborhood of $100 million. Overall head count comes to about 750. Yet the company is at least a partial representative democracy—and then some. “Employees are involved in all aspects of Carris Reels’ governance,” writes Cecile Betit, an independent scholar who has studied Carris for years, in a forthcoming book. “The governance structure has become a drive shaft and steering mechanism for the company.”

As for what it took to reach this point, well, as the Carris folks might put the matter, it was one man’s vision and a hell of a lot of hard work.

A different kind of company

In the beginning, which is to say 1951, was Henry Carris. Henry, born in 1912, was a transplanted Iowan who settled in Vermont after serving in the US Marine Corps during World War II. He did a little teaching. He worked in several manufacturing jobs. Before long, he founded Carris Reels. For startup assets he had one employee, two thousand dollars borrowed from his father, and a handful of power tools. By the end of the first year he had six employees and was cranking out a thousand reels every day.

Reels, should you be wondering, are the spools used to package wire, rope, or cable. Reels come in a variety of sizes and materials—big wooden ones with plywood cores all bolted together for heavy-duty use, smaller plywood ones with Ted Gould’s cardboard cylinders at the center, small plastic ones with components created on injection-molding machines. It’s a pint-sized but critical industry: buyers such as cable and telecommunications companies are utterly dependent on a steady supply of reels. One of Carris’s large customers receives between ten and twelve truckload shipments from a Carris facility every day.

Large reels at a Carris facility

By 1980, Henry’s son Bill Carris was ready to take over the business. Henry had been a hard-nosed Vermont businessman. His favorite expression, according to company lore, was Get the wood out, meaning Move product out the door. Bill was a child of the sixties. Though a savvy reel man who had grown up in and around Carris’s plants, he wanted to know what the company’s purpose was. Who received the wealth it created? Who benefited from its operations? Was it fair? Bill began to study different corporate forms and management methods, and to commit his restless musings to paper. By 1994, after no fewer than 17 major revisions, he produced the final draft of the new Carris Reels’ founding document: The Long-Term Plan for the Carris Community of Companies.

The plan was nothing if not ambitious. Carris would be a values-driven organization, operated with a concern for the community and informed by the Golden Rule. It would be employee owned and employee governed. It would share profits with its employees and with charitable organizations. At the same time it would be a serious, profit-minded, growth-seeking enterprise run by skilled professional managers. Bill Carris offered to sell his stock, over time, to a newly created ESOP at half its appraised value. “It is extremely important to me that the future we have outlined in this Long-Term Plan be achieved—and used as an example for others,” he wrote.

The next 24 years brought a truly staggering amount of change to Carris, as Bill began to implement his vision. The company grew rapidly, including starting up a new facility in Mexico to serve the local plants of US customers. The ESOP bought chunks of Bill’s stock, culminating in 100% ownership in 2008. Bill retired as CEO in 2005, passing the torch to the company’s longtime vice president, Mike Curran. Carris struggled mightily through the dot-com bust in 2001 as major cable and telecoms companies retrenched or collapsed, and it struggled again (though not as mightily) during the 2008-2009 financial crisis. Along the way it acquired some companies and divested others, opened up new markets, and gradually became a leader in its industry. Dave Ferraro became CEO in late 2013 and continued the growth, acquiring reel makers in Quebec and Texas.

A Carris employee-owner manufactures reel components

Meanwhile, Carris experimented with democracy. The corporate steering committee, with its elected representatives, came into being in 1996, and took a while to become a smoothly functioning unit. (“Used to be, we’d focus on one issue and gum it to death,” says Ferraro with a laugh. “It’s better now.”) Rank-and-file employees were first appointed to the ESOP trustee committee in 1995, and to the board of directors in 2014. Writes Betit in her forthcoming book: “In the practical, everyday sense, as the goals for 100% employee ownership and governance were met in the LTP [Long-Term Plan]—the employees became the successors in the Carris family business. In addition to becoming corporate shareholders their roles were made essential within the infrastructure and daily life of the company.”

Works in progress

Carris’s democratic structure, as executives such as chief financial officer Dave Fitz-Gerald are quick to note, is an ongoing journey, not a finished product. Some parts of the system work well. Others are under development.

Elections to the corporate steering committee, for instance, seem to go remarkably smoothly. “If you want to run, you can,” says Tina Bell, the office employee, who is serving her second three-year term on the committee. Now, she says, she’d like to get somebody else interested: “It’s quite an experience, and I want everybody to have a chance.” One obstacle to participation: members have to report back to their plants on what the steering committee discusses, which means speaking before a large group. “I wouldn’t want to do that,” confesses one employee.

As for its substantive responsibilities, the steering committee reviews and discusses measures to improve safety. It examines the company’s financial statements. It makes decisions about benefits such as health insurance. It also serves as a sounding board, both for employee concerns and for new ideas. These are no small matters, but the committee also has a larger role: it is “keeper of the flame,” as Carris people say, where the flame is the Long-Term Plan, and it is guardian of the company’s culture. Right now, it is about to take up Carris’s next strategic plan. “We discuss what the future holds for the company,” says Dan Pomykala. “We had a 2020 plan, now we’re working on a 2025 plan.”

But the steering committee isn’t involved in every major decision, mostly because of the nature of business. A sizable acquisition, for example, is a big strategic decision for any company. But acquisitions by their nature involve strict confidentiality agreements. When Carris acquired Texas-based Lone Star Reels, in 2016, CEO Ferraro made sure to inform every Carris plant, by video, at exactly the same time. But he was not able to discuss the prospective acquisition beforehand with anyone other than the board and a handful of senior leaders. “It was a little against our culture,” he acknowledges, “but that’s the way it had to be.”

Shop-floor involvement—regular participation by hourly workers in decisions affecting working conditions and processes—is also a work in progress. A consultant, Ownership Associates, helped Carris create a grid of decisions—which ones should be made on the shop floor, which by supervisors or site management, and so on up the ladder. “It has been interesting to hear employee owners asking, ‘Why are you making this decision? Where’s the decision grid on that?’” says Alex Moss, president of Praxis Consulting Group, a firm that has worked closely with Carris on governance over the years. Carris has also implemented a systematic method called Ideas in Motion for gathering employees’ suggestions and ensuring that they are followed up. Gould, who serves on the West Rutland plant’s ideas committee, cites one example:

Up in tube winding, we had these racks, we had to get a forklift to move them. One guy had an idea to put wheels on the bottom of them, we can roll them right out of the way. It makes our job so much easier. Simple things like that, management wouldn’t even think of, they’re not in the area working. In the ideas committee we’ve been finding that the people running the stuff have more of a grasp on what needs to be tweaked here and there, just small things that make the process run so much smoother.

Gould concludes: “People love it when they can see their idea being put to work. They feel they have input, and they feel like an owner.” That’s a goal that the company had from the beginning of the Long-Term Plan.

Democratic participation of all sorts, of course, has to be learned. As we have seen throughout our country’s history, it waxes and wanes depending on the issues at hand. Carris is no different. The company’s people have been—and still are—learning the rights and responsibilities that go with ownership and participation in governance. They are also learning more about the business. Though these processes are far from complete, there are at least two reasons to believe they will continue.

One is the ESOP itself. “In the beginning, I was young, I was in no way thinking of retiring,” says Bell, who has worked at Carris for 32 years. “But then you see your stock statement and it’s like, Wow! When you can have people retire early because of their ESOP account, it’s just amazing.” Ownership of a sizable stake encourages employees to take seriously how their company operates. Over time, the number of people with sizable stakes will increase. So will the stakes themselves. The company also shares 18.6% of its yearly profit with employees, issuing checks every February. That’s another stake that tends to focus the mind.

A second reason for optimism is less tangible: organizational democracy is based on trust, and on a belief that if you invest your time and effort you will be treated fairly. Several employees volunteered an appraisal along these lines. “It’s like a family here,” says Donovan, the electrician. “They care about you. You don’t get that at larger companies.” Says Pomykala, the IT specialist: “The atmosphere here, it’s hard to describe, but it’s different. Friendlier.” And Gould: “I love this company. I do my job, come to work every day. Even though I might not enjoy my day-to-day job every day, I love this company. I’m striving to make it better for everybody.”

The source of this culture? “Bill and Barb Carris,” says Donovan, firmly. “But I believe it will continue for a long time, especially with the leadership group we’ve got right now. That legacy is instilled in them.”

Carris is unlikely to diversify its business. “We are diversified geographically, and we have a diversified customer base,” explains CFO Fitz-Gerald. That doesn’t mean that growth is over. Ferraro, the president, says the company continues to experience some organic growth, and he confirms that other reel-industry acquisitions may be in the offing. So the company’s twin challenges will remain: run a thriving, growing, profitable business with skilled professional management—and do so as democratically, and as fairly, as possible.

Just what Bill Carris wanted.

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Like a lot of construction-related companies, Commercial Casework went through hard times during the Great Recession. Since that time it has grown steadily, from about $7 million in annual revenue in 2009 to $26 million today. Its share value has appreciated from $25.77 in 2001, when the ESOP was launched, to $107.62 at its most recent valuation.

But Commercial Casework isn’t a standard-issue employee-ownership company. It’s unionized, and employees’ status relevant to the ESOP depends on where they work

The 50 employees who work in production and installation, including a few of the company’s engineering staff, are members of the United Brotherhood of Carpenters. Most are highly skilled veterans, and even the newcomers have typically been trained by union professionals. All of these workers receive union-scale wages and benefits, and they can look forward to a generous union-sponsored pension when they retire.

Nearly all the rest of the company’s 85 employees are participants in the company’s ESOP. They include project managers, assistant project managers, most of the engineers, office personnel, and executives. As of last year, the ESOP owns 100% of the stock.

You’d think this split might be a recipe for divisiveness. But it doesn’t seem to be at Commercial Casework, which has developed a rollicking, all-in-this-together culture based on complete open-book management and an innovative recipe for sharing the wealth. Silicon Valley Business Journal named the company one of the region’s best places to work for 2017.

The open-book approach goes back to cofounder Bill Palmer, who served many years as the company’s chief executive. Workers see the status of every job, including budget, cost by labor code, and progress to completion. Managers do weekly projections of revenue and profit, shared and discussed with every employee. Customers can see the philosophy right on the Commercial Casework website: “A business should be run like an aquarium, where everybody can see what’s going on – what’s going in, what’s moving around, what’s coming out. That’s the only way to make sure people understand what you are doing, and why, and have some input into deciding where you are going.”

The company offers a generous bonus plan, paid quarterly to all employees. The bonus pool depends on profits,

CEO Nick Palmer

and each person has so many shares in the pool, depending on position and seniority. So when the company projects its profits for the quarter, everyone can calculate exactly what he or she is likely to make in bonus.

In good times, the bonus adds a significant amount to everyone’s paycheck. “If we make our numbers, production employees will get upwards of $6,000 this year,” says current CEO Nick Palmer, Bill’s son. The numbers are higher for nonunion people—because, Palmer explains, they don’t get overtime pay even though most average about 50 hours a week. “The bonus bridges the gap.”

Like most companies in Silicon Valley—indeed, like most across America—Commercial Casework’s main challenge right now is finding talented people.  “In 2011 I’d post an ad and get 50 to 100 resumes for a project manager or assistant project manager position,” says Nick Palmer, somewhat wistfully. “I’d make phone calls to ten, call in five for interviews. Now I’m lucky if I get one or two resumes.” The union helps the company find production employees, but finding engineers and other skilled people remains difficult.

Still, Commercial Casework has an advantage that many companies don’t. “We’re letting them know, we’re hiring you with the intention of you making this a career,” Palmer says. “By being an employee-owner, you have a stake. We want you to think and act like an owner—because that’s what you’ll be.”

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And SRC itself? “The company is worth $135 million. Earnings are the best they’ve been in a long period of time.” SRC, which in 1983 was a struggling castoff of International Harvester with 116 employees and sales of $16 million, now employs 1,400 people, includes 12 business units, and generates more than $600 million a year in revenue. Its stock value has grown from 10 cents to a split-adjusted value of $612.

But Stack and his colleagues aren’t finished. “We want to build a 100-year-old company,” he says.

Whew. With 65 years still to go, that’s quite an ambition, and most of us won’t be around in 2083 to see whether SRC makes it. But given the company’s track record so far, would you really want to bet against it?

Jack Stack (right) and coworkers at SRC

Any business that wants to survive and prosper over a century or more faces countless challenges. It must adapt to changing markets and technologies. It must continue to attract and retain talented employees. It must survive the inevitable recessions. An ESOP company, of course, faces one additional difficulty, and it’s a big one: the need to buy the shares of retiring employees. The more successful the company, the greater this repurchase liability and the bigger the drain on the company’s cash.

But SRC seems to have overcome all these challenges at once, simultaneously developing a strategy for long-term survival and solving the repurchase conundrum. As Stack and other company leaders tell it, the system rests on three fundamental insights.

A business is more valuable than a product. Build a product and sell it, and you pocket a modest amount of money. Build a company and sell it, and you pocket a ton of money. SRC has developed or acquired more than 60 businesses over the years. Some failed; some are still struggling; but many have been wildly successful. Of that latter group, several are still around—Newstream Enterprises, for example, which is a $100 million entrant in the packaging, kitting, and distribution business. But many others were sold. Two joint ventures with John Deere, for instance, were sold to Deere just prior to the last financial crisis. Result: SRC entered the Great Recession with a strong balance sheet and plenty of cash to buy out any departing employees.

Starting and acquiring businesses has another great virtue: it offers talented leaders an opportunity to expand their horizons and eventually run their own shows. “We had some great people who wanted to go places,” says Stack, “and we had to create places for them to go.” SRC often buys business that are in adjacent markets, then assigns up-and-comers in its own organization to run those businesses. It also invests in homegrown startups, typically in return for a chunk of the equity, and usually buys out the founder once the business gets off the ground. SRC is “known for its skunkworks projects,” says Rich Armstrong, head of a company division and a member of the investment council. “They give young talent a chance to experiment.”

There’s no substitute for operational excellence. Several years ago, a large Japanese manufacturer decided to move its remanufacturing operation from Lexington, Kentucky, to southeast Asia. The plant manager called Stack, saying that his 90 employees were about to lose their jobs, and would SRC be interested in stepping in? SRC was. Back then, the plant served only its parent company and did about $14 million a year in revenue. Today, SRC Lexington remanufactures heavy-equipment components for a diverse roster of customers and brings in about $40 million in revenue.

The key to SRC’s operational excellence, of course, is the world-famous open-book management system known as the Great Game of Business. Employees learn the basics of their unit’s finances. They track and forecast key numbers. They take part in the company’s system of high-involvement planning. The result is that people throughout the organization learn to think and act like the owners they are. When SRC sets up a joint venture with the likes of Deere or CNH Global, explains executive vice-president Scott Dalenberg, it usually relies on its large-company partner to provide sales and distribution capabilities. SRC’s job is operations. “We bring the structure—our open-book management system,” he says. “That’s what makes the difference in the plant.”

Tomorrow is key—and tomorrow may be ten years away. “We are not living in the present,” says Stack firmly. “We are living five to ten years out. My business job today is 90 percent about 2021, 2022, 2023.” SRC knows that there will be periodic recessions in all of its businesses. But the company sees recessions as more opportunity than threat—an opportunity to acquire assets and businesses at bargain-basement prices. So it deliberately builds up a large cash cushion in anticipation of the next downturn. Following this strategy, the company developed a ten-year plan in 2009 to stockpile $100 million in cash. Today, nine years later, it has $86 million for this purpose on its balance sheet, and it is already looking into investment opportunities for when the economy next heads south.

This carefully timed cycle of investment in businesses and eventual sale (of many of them) provides SRC with exactly what any successful employee-owned company needs: a rich source of cash that can be drawn on whenever necessary. SRC also extends the strategy to other assets—real estate, for instance. Like savvy pension-fund managers, the company’s executives make sure they have the assets they will need to cover their repurchase obligations. That’s what has enabled SRC to buy out so many departing employee-owners and pour so much wealth into Springfield, Missouri, and the surrounding area.

Will this built-to-last, wealth-generating machine really endure for 100 years, as Stack and the others hope? There’s no way to know. But even if it doesn’t, SRC has already made the economic world a better place.

The post A 100-Year-Old Company? SRC’s Amazing Wealth-Generating System appeared first on Employee Owned America.

PFSbrands has grown steadily, from 34 employees eight years ago to 135 today. Revenues have increased at double-digit rates for 19 consecutive years and are on track to hit approximately $70 million in 2018. The stock value has jumped from $1 a share when the ESOP became the company’s owner—January 3, 2017—to $5.88.

Next, you could go on to examine the company’s business model, although you might end up a bit confused. PFSbrands is sort of a franchisor, though it charges no upfront franchise fees and no ongoing royalties. Supermarkets and convenience stores sign up with the company to put one of its branded hot-food programs inside their existing businesses. (Champs Chicken is the flagship product; others are BluTaco, Cooper’s Express, and private-label brands.) PFSbrands will help not just with setup, marketing, and training but with ongoing support designed to help customers maximize sales and profitability. It contracts with manufacturers and wholesalers to provide the stores with product.

But PFSbrands is also a manufacturer itself: its PFS Blends division makes breading for fried chicken and other uses, not just for PFS’s own products but for other customers. The company runs a logistics division with its own fleet of trucks. It sells new and used equipment for commercial kitchens. It operates a printshop that can provide all the banners and brochures a customer might want.

“It’s kind of a unique business model,” says Shawn Burcham, chuckling. CEO Burcham, now 47, founded the company with his wife some 20 years ago.

A third path to understanding: watch some of the employee testimonials on a YouTube video. Sure, the video is a company-sponsored production—but it would be hard to fake the enthusiasm and excitement that people exhibit on camera. “The culture is something I’ve never seen before in my life,” says Andrew Reinkemeyer, a production assistant. He smiles broadly. “I didn’t really know that corporate environments like this existed.”

What is that culture? Employees use words like family a lot. They mention the laughter, the birthday lunches, the mutual support. Just the other week, PFSbrands celebrated 20 years in business and the opening of a new office facility with a big family picnic and fireworks. But it’s also a business-focused, results-oriented environment. Everyone learns financial basics through the company’s open-book management system. “We want people who are willing to set high standards, to be accountable, and to take risks,” says Burcham.

Finding those people is the primary job of Carla Dowden and her team. Dowden heads up PFSbrands’ “People Success” department. “We don’t call it Human Resources,” she explains. “That has the connotation of going to the principal’s office. We’re here to help people succeed.”

Recruiting, Dowden is quick to explain, is everybody’s job, not just the responsibility of her department. You can be in the warehouse, in sales, wherever—PFSbrands expects you to keep an eye out for individuals who can help the business grow. The company accepts applications all the time. It uses a lengthy career-history questionnaire and interview template to identify people who would be a good fit. If there are no openings at the moment, it will develop “bench players” whom it stays in close touch with. “When a job opens up, we want to be able to say, ‘We have six bench players, and here are their skill sets,’” says Dowden. “Then we can find the right one out of that group.”

Next steps for PFSbrands? More growth. Dowden expects to add 15 or 20 new people in 2019. Burcham has his sights set on nonstop business expansion over the next couple of decades, including diversifying into new markets. “We think we can go from $70 million to $1 billion in 20 years,” he says. “There’s lots of opportunity.”

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