Reports – Employee Owned America

Jim Bonham–The ESOP Association’s New Leader– Discusses the Future

John Case — Fri, 04 Oct 2019 18:15:56 +0000

The ESOP Association (TEA) has been a major presence in the employee ownership community for more than 40 years. Organized as a 501(c)(6) nonprofit organization, TEA advocates for ESOPs on Capitol Hill and educates its members and the public on the purposes and mechanics of broad-based employee ownership. Today the Washington, D.C–-based organization boasts nearly 3,000 corporate and professional members, 18 state and regional chapters, and a full-time staff of 12. It sponsors three national conferences and a host of other meetings each year, including the upcoming (November 13-15) Las Vegas Conference and Tradeshow.

The ESOP Association also has an affiliated 501(c)(3), the Employee Ownership Foundation. The Foundation has been an important funder for data collection and other academic research about employee ownership over the past three decades. It was one of the initial funders of the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University and currently funds seven research fellowships every year focused on employee ownership.

James Bonham

Now, for the first time in nearly three decades, TEA has new leadership: On March 1, James J. Bonham took over as the association’s president and CEO. (Bonham replaced the retiring J. Michael Keeling, who had led TEA as its chief staff officer since 1991.) Six months into Bonham’s tenure, we couldn’t help wondering: where does he plan to take the organization? What does he see as its assets and its challenges, its opportunities and threats? EOA commissioned contributing editor Christopher Mackin to chat with Bonham and ask him just such questions. What follows is a condensation of that interview, edited for clarity.

EOA: You’ve had time now to assess the organization—your starting point, so to speak. What would you say is its biggest strength?

Bonham: TEA is a very strong, very authentic organization. And I use the term “authentic” intentionally because I’ve found there’s nothing forced about it. The ESOP Association has truly grown organically, especially the 18 state and regional chapters spread all across the nation. It is a bottom-up, volunteer-driven, volunteer-led organization. Our chapters—and I’ve worked with a lot of trade associations over the years— the chapter system that TEA has would be the envy of just about every trade association in the country. It’s a national, geographically dispersed network of employee-owned businesses, enthusiasts, and high-caliber professionals that our members can immediately collaborate with on a local basis. It is very accessible—these are people you can call up and have coffee with locally, that you can go to events with, that you can get to know. So we start with a really strong platform.

I would also say our conferences and meetings are equally strong. The proof of that is in the number of people who come to ESOP Association events year round. This year it will be over 13,000 registered attendees, I believe.

And, of course, TEA is the leading advocacy organization on behalf of all ESOPs nationwide. We are organized under the tax law so we can use our funds to lobby. That is a huge strength.

EOA: What about the immediate challenges?

Bonham: We’re going through a big transition right now. Michael Keeling led this organization for almost 30 years. It’s just like a company—in many ways Michael was part of the founding family of the ESOP movement. Just like when the founders of a company retire and their succession plan kicks in, there’s going to be a transition. We are certainly undertaking a big modernization effort. So we’re really focused on that this year؅—technologically, programmatically. We are taking a hard look at the membership experience and how we can bring greater value to the employee ownership community. We’re also building a lot of capacity, in technology, in human capital. We’re looking at ways that we can help our chapters become more efficient, more expansive, in terms of the communities that they can reach and the effectiveness of the materials and opportunities they put forward.

EOA: “Modernization” applies to TEA’s programs as well?

Bonham: Yes. Our national conferences definitely needed an update. So we started with our Washington conference this spring. I’d only been on the job for two-and-a-half months, but I think if you spoke with anybody who attended, it was a pretty dramatic change from what had been done in the past. And this year for our Las Vegas conference, we are putting together a different experience from top to bottom. We’re still going to have the top-shelf technical executive-focused education in our breakouts, but we’re also bringing in world-class speakers for the general sessions. We started that in Washington, bringing in Frank Luntz to talk about how to better communicate about your ESOP and employee ownership. It was a huge hit. And we’re going to be bringing in really impressive speakers for the Vegas conference.

EOA: The Vegas conference is also a trade show. What about that part of it?

Bonham: We’re also reinventing the way that we run the trade show. In the past, trade shows tended to be booths, draped walls, people bringing in their signs and pamphlets. There was not a lot of excitement to it. But this year we’re creating a second stage, very much like a Ted Talk stage, where people from the community can come in. If you have a topic you want to talk about? Send it in, we’ll take a look at it. We’re going to be broadcasting all of those sessions on our social media channels. We’re also going to be featuring some of our craft breweries with a beer wagon—although we are still wrangling with the fire marshal about what we want to do there! We’ll be providing higher-end coffees and drinks and lounges. So that entire area is going to be a very different experience than in the past.

EOA: Anything else new that we should look for in Vegas?

Bonham: We’re also putting a focus on executive education. Specifically, with CEOs. We’re creating a session where the top leaders of our companies can get together in privacy and network with one another, ask each other questions. It is really about fostering peer-to-peer dialogue and relationships. We spend so much of our effort focusing on employee owners that sometimes you forget that running an employee-owned company, being the man or woman at the top, is different from running an investor-owned or privately held company. So we have designed a program specifically for them. All of our major keynote speakers have agreed—immediately after finishing their keynote address to the entire conference, they’ll come and spend an hour with our CEOs in a private setting where they can drill deeper into the ideas that were presented.

EOA: You’ve also been named head of the Employee Ownership Foundation, which is affiliated with TEA. How does the foundation figure into your plans?

Bonham: We’ve just launched a new foundation website. We hope to do a better job using that platform to communicate, to provide a basis for research. The foundation is another big strength of TEA. It has spent millions of dollars over the past thirty years developing data, paying for studies, providing fellowships, germinating the type of academic research that is so critical for promoting employee ownership and persuading policy makers. The foundation has become a growing part of my everyday activity recently, and there is a lot of excitement about some new directions and an expansion of our national profile in the near future.

EOA: TEA advertises itself as the largest advocacy organization in the field. I’m thinking that advocacy will continue to be an important part of what you do.

Bonham: Advocacy is absolutely central to our mission. There, too, we are building capacity. We want TEA to have a much more muscular, robust, full-throated approach to government advocacy. Federal, state, even local. This effort is going to be directly anchored back to our national conference held every May for the last 42 years in Washington. Advocacy is going to become a much more central part of our presence. We’re staffing up internally and externally.

EOA: So what about other challenges? Where are the gaps, and what needs to be done that isn’t being done now?

Bonham: One gap is in the research. We have a lot of good anecdotal understanding about employee ownership companies themselves: how we maximize the culture, how best to run your ESOP, how to deal with the repurchase obligation, and so on. But there is a gap in moving beyond the anecdotes and thoroughly driving into the specifics through case studies or deep, systematic research. Externally to existing ESOPs—for instance—nobody has systematically studied what the actual impediments are to the expansion of the population or adopting an ESOP. Among people who have considered an ESOP for their business, why do they choose not to do it? If we want to start growing, we have to understand who those businesses are that are good targets to become employee owned, what the owners are interested in, and what will persuade them to say, “This is what I want to do.”

EOA: What about on the policy level?

Bonham: Policy ideas come in different buckets. There is a bucket that’s a lot of fun, which is, “Let’s come up with ideas about ways we can use taxpayer resources, or government incentives to encourage more ESOPs.” It’s a lot of fun to think about tax breaks or financial incentives for lenders or programs that use government officers and funding to do community outreach. But the bucket that is most difficult is also probably the most important, which is dealing with some of these pernicious problems, like the way ESOPs are regulated. We’re in the forty-fifth year since the signing of ERISA and we still have no real body of clear regulatory guidance. The US Department of Labor is one of the largest law firms in the world. And, as I look at how the DOL has been approached as a practical matter, I think we may need a different framework. The community has been operating under this philosophy that we need to get the DOL to voluntarily issue guidance and regulations. But the DOL is an enforcement agency, and as frustrating as this may sound, it’s not in the enforcement agency’s interest to bring clarity. The last thing an enforcement agency wants is to limit their investigatory or prosecutorial discretion. I think this cloud created by the unknown risk of a future DOL investigation—meritorious or not—keeps a lot of owners away from selling to their employees. And that is unfortunate, because it is denying millions of Americans from the chance to own a stake in the place where they make their living.

EOA: What’s your timeframe?

Bonham: Five years from now will be the 50^th anniversary of the signing of ERISA, which created the legal framework for ESOPs. So the next five years will be important. Between now and then the entire community has a real ramp to focus on the policies we need to put in place to make the formation and ongoing operation of ESOPs much easier—to provide greater clarity on what the process should be, on how you do valuations, and so on. We want it to be much more of a first option for a retiring owner or a departing owner to sell to their employees, as opposed to what it often is now, sort of a last resort or an afterthought, something that the owners are doing against the advice of their financial and legal advisers. We want employee ownership to be at the top of the list and the obvious choice.

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State Centers: Boots on the Ground

John Case — Thu, 29 Aug 2019 14:34:46 +0000

State-level centers—there are ten active ones right now, plus the Employee Ownership Expansion Network—are on the front lines of the movement for more and better employee ownership. The centers are policy advocates, sources of support and information, places where people who want to learn about employee ownership from local peers can go. So we asked center staff to tell us what they have been doing. What are their biggest challenges? What opportunities lie ahead? Among the answers are new training programs, conferences, even a cartoon video. Here, in their own words (and in alphabetical order), is what those front-liners told us.

California Center for Employee Ownership

The California Center for Employee Ownership has an established network of ESOP companies and service providers across the state. In one of the highlights of this year, we have developed a “train the trainer” presentation and have provided it to advisors who consult in business transitions. Our biggest crowd is with small business development center advisors. The aim is to make employee ownership a regular conversation with business owners. One challenge facing us is scaling up. We have intentions of hiring, and we will need to provide for that in our budget. Contact: Mitch Miller, director, [email protected].

Indiana Center for Employee Ownership

The Indiana Center for Em p loyee Ownership launched in 2017. Our primary focus is to provide education and advocacy on employee ownership to Indiana business owners, state and federal legislators, and our Indiana business schools. Major legislative accomplishments include proclamations from Governor Holcomb and Indianapolis mayor Hogsett in support of employee ownership; working with Senator Young’s office and gaining his support for the Main Street Employment Act; and working with Indiana Senator John Crane on Indiana Senate Resolution 35. This year the center has partnered with the Democracy at Work Institute to foster conversions to democratic employee-owned companies among business owners of color and/or businesses that employ a significant number of people of color. Contact: Rick Van Doel, president and CEO, [email protected].

Massachusetts Center for Employee Ownership

The Massachusetts Center for Employee Ownership (MassCEO) was created by an act of the state legislature to help expand employee ownership and increase employee involvement. This new funding has revived the state’s previous Center for Employee Ownership, which operated from 1989 to 2008.

Since its creation in May 2019, MassCEO has developed a strong digital presence and brand identity. This groundwork has facilitated the office’s efforts to cultivate relationships with local chambers of commerce, economic development organizations, and business owners. Through these partnerships, five businesses have already entered our employee ownership conversion pipeline. Looking forward, MassCEO will continue to develop strategic partnerships with organizations around the state and broadcast its role as a key resource for business owners interested in exploring employee ownership. MassCEO is fortunate to have received additional budget allocations from the legislature through fiscal year 2020. Having this financial future secured will allow MassCEO to focus on providing exceptional service to business owners and service providers throughout the state. Contact: Adam Vartikar, president, [email protected].

The Rutgers NJ/NY Center for Employee Ownership

The Rutgers NJ/NY Center for Employee Ownership provides technical assistance and educational resources for business owners interested in learning about employee ownership, including ESOPs, equity compensation, and worker cooperatives. Part of the Rutgers Institute for the Study of Employee Ownership and Profit Sharing, the center is led by Rutgers School of Management and Labor Relations faculty and supported by Rutgers staff as well as by volunteer professionals from employee-owned companies and service providers (including the center’s advisory board), and from other educational institutions.

Current projects include planning and preparations for:

A new five-day program in Participatory Management that will debut October 7 through 11, conducted with The Democracy at Work Institute
Our 3^rd Annual Conference on Employee Ownership scheduled for October 29^th in New Brunswick, NJ. Our conference focuses on both ESOPs and equity compensation at publicly traded companies.

We consider our location in New Jersey and the NY/NJ metropolitan area to be a strong positive. We are positioned within a very large area of business activity, with many potential clients whom we can assist. Contacts: Professor William Castellano, executive director, [email protected]; Jim Terez, associate director, [email protected]; Bethany Dennis, senior program coordinator, [email protected].

North Carolina Employee Ownership Center

The North Carolina Employee Ownership Center (NCEOC), formally established in May 2019, serves as the central hub for employee-owned businesses in North Carolina. Its primary mission is to educate business owners and their advisors (lawyers, bankers, accountants, wealth advisors) on the benefits of employee ownership via employee stock ownership plans (ESOPs), worker cooperatives, and employee ownership trusts (EOTs). NCEOC provides resources, case studies and articles, and a list of service providers who can assist with employee ownership transitions. NCEOC serves the entire state of North Carolina, with a particular focus on outreach to minority-owned businesses. Visit our landing page at http://www.nceoc.org. Contact: Anne-Claire Broughton, founder and interim executive director, [email protected].

Pennsylvania Center for Employee Ownership

The Pennsylvania Center for Employee Ownership supports a model focused exclusively on raising awareness about EO in all of its forms. The past few months have been quite busy for us. Here are few of the goings-on:

1. We have just launched the Pittsburgh Citywide Task Force on Employee Ownership in partnership with the Pittsburgh city council and the mayor’s office. We believe this to be the nation’s first citywide model to actively and aggressively convert businesses to employee ownership. With the assistance of the council, we will get into the nine council districts and bring information and resources to create more and more employee owners. The task force includes senior members of council; members of the Pennsylvania state House and executive branch; university scholars and presidents, senior members of banking, business, and capital lending; NGO executives; employee ownership CEOs and EO company employees. It is our hope that this can be a model for municipalities throughout the nation.

2. This month we are launching our third and fourth radio campaigns on both NPR and commercial stations throughout the Commonwealth. These have been tremendously effective in driving people to our website to learn about the benefits of employee ownership. We are seeing close to 500 visitors a month and over 1,000 social media followers in just the past six months.

3. Thanks to the great work of the PaCEO’s Rosalie Evans, we have launched our second YouTube cartoon video. These have been both popular and helpful in sharing the message of EO. Related, we are working with one of Nike’s video producers to create an exciting, engaging, and emotional short telling the human stories of employee ownership.

The challenge, as always, is the lack of awareness surrounding employee ownership. But the numbers suggest that the efforts of state centers are having a real effect. In 2015, the nation saw a decrease of close to 350 employee owned businesses nationwide. But in 2016, we saw an increase of over 500! Some 25 of those were in Pennsylvania, adding over 13,000 new employee owners. It takes a village. Contact: Kevin McPhillips, executive director/CEO, [email protected].

Rocky Mountain Employee Ownership Center

The Rocky Mountain Employee Ownership Center (RME O C) has continued to build on our legislative win of 2017: the center played a leading role in the passage of HB 17-1214, which authorized creation of a statewide revolving loan fund for business conversions to employee ownership models. Since then, we have continued to advance creation of employee-owned businesses as a critical economic driver in Colorado and a way to preserve our local economies. Our work includes: training staff at the Small Business Development Centers around the state on the basics of employee ownership to create awareness and a referral pipeline for technical assistance for business conversions to employee ownership; providing direct technical assistance to businesses to convert; hosting informational webinars; presenting at conferences and workshops around the state; and promoting policy change to support employee ownership.

This year, the Colorado Office of Economic Development and International Trade (OEDIT) launched the Employee Ownership Network, which is housed within the department and aims to strengthen support for employee ownership. RMEOC will be a key partner with the state in rolling out a plan over the next three years to increase the number of employee-owned businesses in Colorado. Colorado governor Jared Polis also appointed a 13-member Employee Ownership Commission, including two RMEOC board members who now serve as commissioners. As awareness of employee ownership increases in Colorado, RMEOC is already experiencing an uptick in referrals for education and technical assistance and will be expanding our staff capacity in the coming year to meet demand. Contact: Amy Beres, executive director, [email protected].

Vermont Employee Ownership Center

Founded in 2001, the Vermont Employee Ownership Center turned 18 this year, and saw a few milestones and changes. Our annual conference, which brings together folks from existing employee-owned businesses with those continuing to make the transition, drew a record-breaking crowd in June, with 264 people registered, including 30 from Alliance Mechanical, our state’s newest ESOP. We also welcomed the conversion of Nutty Steph’s into Vermont’s newest worker co-op, and we brought on Michele Kupersmith as our third staffer. She has been working hard on outreach to find new opportunities for bringing employee ownership to more Vermonters.

Looking forward, we set our summer intern on the task of doing a comprehensive review of companies in Vermont that are good prospects for an ESOP or worker co-op that will help us with our future outreach strategy, and we are working hard to ensure that the expansion of employee ownership plays a key role in the variety of economic development initiatives in our state. Contact: Matt Cropp, co-executive director, [email protected].

Employee Ownership Expansion Network

We also asked for an update from the new organization dedicated to expanding the number of state centers. Here’s what executive director Steve Storkan had to say:

Having incorporated on July 4, 2018 in Philadelphia, the Employee Ownership Expansion Network (EOX) recently celebrated its first official year as an independent 501(c)(3) nonprofit organization whose sole mission is to facilitate the opening and supporting of state centers for employee ownership. On January 1^st, the five member board of EOX hired its first executive director, Steve Storkan, and in the first six months of operation EOX has been in contact with employee ownership “ambassadors” in 13 states who are interested in exploring the possibility of opening a center for employee ownership in their state.

In early July, EOX officially opened its first state center in North Carolina (the NCEOC) by providing organizational and operational support as well as an initial grant for $10,000 and a follow-up matching granting equal to another $15,000 during the first year of operation. We are looking forward to the opportunity to assist other states in this endeavor and are hopeful that the significant activity in Georgia, Minnesota, Tennessee, Michigan, and Florida helps us reach our goal of six new state centers by June 30, 2020.

EOX would like to thank Loren Rodgers and the staff of NCEO for the years of support they provided the state center task force which facilitated and supported the opening of the PaCEO, the model being used by EOX for the opening of state centers. In addition, we would like to thank Jim Bonham and the staff of the ESOP Association and the Employee Ownership Foundation as well as Kevin McPhillips, executive director of the PaCEO, for their assistance and guidance as we navigated the complexity of creating a 501(c)(3) nonprofit organization.

If you have interest in exploring the possibility of opening a center for employee ownership in your state or you want to find out more about EOX, please visit our website or contact Steve Storkan at [email protected].

Editor’s note: Other state centers are located in Ohio and Maryland.

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What We’re Up To at Certified EO

John Case — Thu, 16 May 2019 18:46:28 +0000

by Adrienne Gehan

Everyone knows that New York City—at 8.6 million residents—is the largest city U.S. But few recognize that far more Americans—approximately 23 million—are employee owners.

What makes employee-owned companies so difficult to see? One reason is that employee ownership spans multiple sectors and industries—manufacturing, retail, healthcare, hospitality, construction, and so on. It’s also spread out geographically. Even some employees of EO companies may clock in each day without understanding their stake in the business.

Seeing this lack of visibility, Thomas Dudley, Kramer Sharp and Isabel Ajuria launched Certified Employee-Owned, a program designed to make employee ownership visible to customers, employees, other businesses, and the wider community. The goal: a future where the benefits of employee ownership are widely recognized and EO is seen as one of the defining aspects of a great business.

“As a PhD student at Stanford Business School, I got interested in how employee-owned companies could become more recognizable,” says Dudley. “Looking at programs like Great Place to Work and B Lab, I saw the power of combining the reach of people who share a value behind a common mark and a common set of messages. Certification is a proven model to start a drumbeat of support that will attract people to our community.”

Since launching in September 2017 with 24 members, Certified EO has grown steadily. In March 2019, the organization welcomed its 100th member. It offers a variety of tools to help members communicate about employee ownership, including handouts, interactive tools, webinars, and 1-on-1 support.

“We think about employee ownership all day, every day, and nothing energizes us more than working with a member to support their engagement goals,” says Isabel Ajuria, director of membership and legal. “We try to design materials for our members that are relevant, informative, and fun.”

One “fun” part of adding new members is seeing how they display the Certified EO mark. Right now it adorns everything from handouts and trainings to EO committee member jackets. Litehouse Foods, a national manufacturer of refrigerated dressings, scaled it to display on the company’s processing plant—a sign employees can recognize as they come to work. WinCo Foods, a grocery chain with 126 stores, includes the mark on every grocery bag. Modern Times, a West Coast coffee roaster and brewery, prints it on their cans. Millions of consumers and thousands of workers have become more aware of employee ownership through our members’ strategic efforts.

Staff members also realized that policymakers could play an important role in making employee ownership visible. Just this year, the organization launched its State Purchasing Preferences Initiative. Local leaders in both California and Texas saw that state procurement from EO companies was ultimately a community investment. If either state’s legislature approves a purchasing preference, it will create a first-of-its-kind victory for the EO community, providing a playbook for future efforts at state and local levels.

Finally, we’re committed to helping EO firms find new ways to connect. Our happy hour conference networking events have been a hit with both members and the broader EO community. We’re also developing new platforms for our members to connect across industries and state lines.

Adrienne Gehan is membership manager at Certified EO.

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A Powerful Path to Ownership for Employees of Public Companies

John Case — Fri, 03 May 2019 15:12:51 +0000

“Aaron
Shapiro’s quest to rethink employee stock purchase plans began with a startling
insight: if only his mother had participated in one, she’d be a millionaire
today.”

So begins a recent article in Bloomberg News. It describes an innovation that may change the importance of employee stock purchase plans, or ESPPs.

ESPPs
are a device used by publicly traded companies to enable employees to buy stock
through payroll deductions. The stock is priced at a discount from market,
usually 10% or 15%. In some plans, employees must hold the shares they buy for
a certain period of time. In others, they are free to sell them right away for
an (almost) guaranteed profit.

A no-brainer, right? Except that only about one-third of eligible employees take advantage of their companies’ ESPP. Some aren’t aware of the plan or don’t understand it. Many can’t afford to have the necessary funds deducted from their paychecks.

Aaron
Shapiro’s mother, an employee of UnitedHealth Group, could have bought into her
company’s plan years ago. Shares of the company have returned almost 4,000% in
the past two decades, according to Bloomberg, “meaning that his mother missed
out on gains of more than $1 million.”

Now Shapiro has founded a financial technology firm he calls Carver Edison, after George Washington Carver and Thomas Edison. Its motto says that it helps “employees build wealth through company stock ownership.”

Carver
Edison will offer loans to ESPP participants to buy shares. It will then sell
enough shares to cover the cost of the loan plus a small fee. The firm makes
money. The worker comes out ahead, and can either sell her shares for cash or start
building a nest egg.

Despite the idea’s appeal, Carver Edison “will still have to figure out how to get people to understand and buy into its concept, which adds another layer of complexity to a topic that many companies already struggle to explain to their workers,” says Bloomberg, quoting NCEO’s Corey Rosen. Shapiro has formed a partnership with Aon, an HR consulting firm, to sell the idea to ESPP companies.

About
4,000 US companies offer ESPPs, and millions of workers are eligible. If the
concept catches on, it could have a noticeable effect on employee compensation
and household incomes.

One
stumbling block: providing more shares to employees dilutes existing
shareholdings and increases companies’ compensation costs. Still, Aon’s Jon
Burg said he has already seen interest from some clients and expects “to see a
wave of quick followers” once the concept has been tested.

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Money in the Bank for Low-to-Moderate-Income Employees

John Case — Thu, 02 May 2019 12:43:35 +0000

Imagine peering into a couple of dozen ESOP companies to learn how workers with low and moderate incomes are faring—and hearing about what ownership means to them.

That’s essentially what a team of Rutgers researchers did over the past few years, and their findings are remarkable.

For example, the low-to-moderate-income workers in the study have ESOP accounts ranging from $15,000 to $6 million. Sure, the latter figure is an outlier—probably a longtime employee of a highly successful business. But the median employee in this group had $165,000 in his/her ESOP account. By contrast, the study notes, the typical American household has just $17,000 in savings.

Employees closest to retirement—ages 60 to 64—were also doing well. As a group, they had ten times more wealth than the average American in that age group.

The study, supported by the W. K. Kellogg Foundation, was carried out by Rutgers University’s Institute for the Study of Employee Ownership and Profit Sharing. Joseph Blasi and Douglas Kruse led the investigation; Janet Boguslaw and Lisa Schur wrote the report.

The researchers identified 21 ESOP companies in 16 states with low-to-moderate-income workers, particularly women and people of color. They conducted interviews with 195 employee owners, including 92 who earned less than the 2017 national household median of $61,372. About three-quarters of this group had been with their company for at least 15 years.

ESOP participation narrowed but didn’t eliminate gender and racial wealth gaps among these lower-income workers. For example, African-American men had a median ESOP account value of $180,000, compared to $323,500 for white men. The proportional gap for women was larger still.

Still, ownership seemed to have had a substantial effect. The ESOP “changed my life,” said a woman in her fifties who worked as a heavy-equipment operator. “And, it’s a really big help because sometimes we, the employees, can’t save for retirement or save money in general because they can’t afford to. So the company helps us to be able to save up our money. It’s like winning the lottery.”

An African-American man with a high school education said, “When I started here I didn’t have much at all. I guess you can call it, I was a poor man. By today’s standards. I think I’m pretty well off right now, considering. I’ve come a long way. And ESOP has done good by me.” He had $180,000 in his ESOP account, the median for his demographic group.

Some people borrowed against their ESOP account for medical bills, college, and the like. A white woman in her fifties said this:

My company was here for me and for others when there were hard times. Like when my mother was sick and I had to go to the hospital a lot and had some big extra expenses, they made me a small no-interest loan, and then it got paid back out of my paycheck. That really helped my family keep from going in debt with credit cards and all that. And, I borrowed from my account to help my daughter with college, so still paying back into that.

This woman was earning $22 an hour. She had $266,000 in her ESOP account.

The research involved a relatively small group of people, and the companies involved were not a representative sample of ESOP firms. (They were chosen because they had a pool of veteran low-to-moderate-income workers.) “This was a proof of concept study, and we found the proof,” said coauthor Janet Boguslaw. “Low and mid-income employees who have the opportunity to share in the capital built through their labor have greater wealth than their non-employee owner peers. Period.”

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ESOPs and Social Responsibility

John Case — Wed, 01 May 2019 22:00:54 +0000

Are employee-owned companies more likely to embrace social responsibility than conventional firms? The evidence so far isn’t definitive, but it points in a positive direction.

Case in point: a study by Anne-Laure P. Winkler and her coauthors, published last year in the Journal of Business Ethics. The researchers examined companies that had completed an assessment from the nonprofit B Lab, which certifies B corporations. You can’t get even think about being a B corp without a lot of socially responsible practices, so that part was a given. But companies with employee ownership scored higher than others on “external stakeholder engagement”—meaning (in part) involvement with the environment and the surrounding community.

The most recent evidence comes from a new research report from Fifty by Fifty, a nonprofit dedicated to spreading the word about employee ownership. This one found that employee-owned B corps achieved scores on environmental and social impact that averaged 20 points higher than similar firms without employee ownership. The scores were double those of conventional businesses.

The F×F researchers identified 45 US companies that were both B corps and employee owned, noting that 37 of them had been awarded the “best for the world” designation by B Lab. Employee ownership and a socially responsible mission amount to a new “enterprise design,” say the researchers—an alternative to conventional investor-owned corporations.

Among the companies that are briefly profiled in the report are Eileen Fisher, Recology, and Gardener’s Supply.

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The NCEO Conference—and the Prospects for Employee Ownership

John Case — Fri, 12 Apr 2019 15:35:42 +0000

By John Case

The United States economy is apparently booming, but it can’t seem to correct its all-too-familiar problems. Stagnant wages for the majority of the population. Vast inequalities of wealth and income. Whole sections of the country seemingly left behind.

But there’s another economy waiting in the wings and ready to go on stage—an economy that could begin to remedy all of these problems. It’s called employee ownership.

That’s the feeling that came over me as I wandered through the most recent of the NCEO’s annual conferences.

The first such meeting, cofounder Corey Rosen reminded me, was held at Harvard University in 1982. It attracted 170 people, many of them students. This one, held in the beautiful but cavernous David L. Lawrence Convention Center in Pittsburgh, attracted something close to 2,000 people, virtually none of them students.

The David L. Lawrence Convention Center

Rather, the attendees were economic practitioners from a dozen different walks of life. Bankers and investment bankers. Attorneys, accountants, consultants. Chief executives, finance experts, engineers, marketers, and front-line workers, nearly all from employee-owned companies. You had the sense that these individuals and those they mentor could expand their purviews tenfold, if only there were that many employee-owned companies needing staffing and advice.

Some day there may be. On the conference’s first day, NCEO executive director Loren Rodgers gave a stimulating speech outlining ten reasons why the future of employee ownership is bright. Reason #1: it works. Reasons #2 through #10: the climate for the idea is changing. There’s favorable legislation afoot, at federal, state, and local levels. Companies are teaching and learning from each other, figuring out the financial and cultural challenges of employee ownership. There are new people and new organizations involved, new resources coming on line, new research coming out. A wide variety of companies and nonprofits have created fertile ground for employee ownership initiatives.

Eternal optimism, of course, is an occupational hazard for employee-ownership advocates. (I plead as guilty as anybody.) The idea makes so much sense. It is market tested. The bugs have been worked out (most of them, anyway). When you see employees learning to think like businesspeople, as they do at Web Industries and other companies, and when you hear about employees retiring with million-dollar nest eggs, as some have done at Windings Inc. and other companies, it makes you weep in frustration that most Americans don’t have such opportunities.

And yet. Despite the efforts of the people at the conference and many others, employee ownership still isn’t on a lot of people’s radar. “My students have simply never heard of it,” one business-school professor told a breakout group. Only a few political leaders around the country have made it a priority. When companies are put up for sale—or even before—the men and women from private equity firms and corporate M&A teams are johnnies-on-the-spot, waving large amounts of money and requiring no seller notes. “ESOPs face stiff competition,” an investment banker noted drily.

So what would it take to move employee ownership from the wings to the main stage? More of the same, yes—the day-to-day activities of the NCEO, the state centers, and other advocates are indispensable. But it wouldn’t be hard to help it expand. All that’s really needed are some small nudges in three directions:

1. A little more federal legislation. Never underestimate the power of incentives. ESOPs wouldn’t exist at today’s scale without the 1042 rollover and other tax advantages. When Congress allowed lenders to deduct part of the interest they earned on ESOP loans back in the 1980s, banks suddenly set up ESOP desks and began peddling the concept to their clients. (The provision was later abolished.) The modest policy initiatives developed by the Lake Quinsigamond group—a few new institutions, a few new tax incentives for corporate divestitures and private-equity sales to ESOPs—could make an enormous difference over the next ten years.

2. A few more agents. To date, virtually every ESOP has come about because an individual company owner or family decided to sell their company to its employees. Who else might take the initiative? Jessica Rose of Fifty by Fifty suggested in one session that impact investors might themselves begin to act as agents, working through private equity firms to invest in ESOPs, particularly in depressed areas (see this article). But let’s take that idea one step farther. Suppose some latter-day Warren Buffett established a permanent revolving fund to buy up companies, fix them up as required, and then sell them to the employees. Our ESOP-Buffett would make a lot of money, have a sizable impact on the companies and communities involved, and possibly inspire a whole lot more socially minded investors to make this their mission.

3. A little more publicity. The kind of nationwide marketing campaign described by our mythical visitor from the future might be a stretch. And organizations like Certified EO are already doing a great deal to make employee ownership more visible to the public. But what about some experimentation in other directions? One of the states that are leading the employee-ownership charge—Ohio, say, or Colorado (where an official has said he wants the state to be “the Delaware of employee ownership”)—could initiate a statewide marketing effort designed to make employee ownership part of everyday conversation. The money required wouldn’t be huge, and could be provided at least in part by private donors and employee-owned companies.

The people who have been developing and advocating for employee ownership over the past few decades have created something astonishing: a different kind of economy, one that would make for a more equitable form of capitalism and that could serve as a model for the world. But now we need to take the next steps, and turn the concept from an understudy into a star. The ideas mentioned here aren’t so radical, and they could be effective. Other, better ideas will surely come along as well—perhaps at next year’s NCEO conference.

The post The NCEO Conference—and the Prospects for Employee Ownership appeared first on Employee Owned America.

EO Index Fund More Than Doubles S&P 500 Return

John Case — Tue, 29 Jan 2019 16:28:01 +0000

By Corey Rosen, NCEO

Employee-Owned America publishes a lot of articles on why employee
ownership works. But can EO advocates put their money where their keyboards
are? Results from the first U.S. mutual fund created to test this idea suggest that
the answer is yes.

On June 19, 2017, the National Center for Employee Ownership created the Employee Ownership Index, a collection of 28 publicly traded companies. To make the cut, companies had to meet two qualifications: (a) broad-based employee ownership; and (b) winning at least one of three major national employer-rating awards, each of which puts a high emphasis on employee engagement (Fortune’s Best Companies to Work for, the Gallup Engagement Index, and the Enterprise Engagement Alliance awards). The “broad-based employee ownership” criterion included ESOPs with an average account balance of at least $30,000 and companies that provided equity grants to most or all full-time employees.

In its first year, the Employee Ownership Index had a 30.3% return, compared to a 15.5% return for the S&P 500. The index was expanded to 30 companies in June 2018. As of mid-January 2019, the relative return is 28% to 12%. More tellingly, the index has outperformed the S&P in every time period—one month, three months, six months, one year, and since inception.

Research has overwhelmingly shown that companies with broad-based ownership and high employee involvement in work-level decisions outperform other companies. This is the first time, however, that an index has been created that people can invest in.

The fund is available at Motif, an online trading platform that allows users to create their own “motif,” or basket of stocks. Investors can make a motif an option for other users to buy. When you buy a motif, you are not buying a fund but rather are investing in all the stocks and/or ETFs that make up that motif. To invest in the Employee Ownership Index, simply go to the Motif website and open an account. Once you have done that, you can trade the Employee Ownership Index.

The post EO Index Fund More Than Doubles S&P 500 Return appeared first on Employee Owned America.

New Network’s Aim: More State-Level EO Centers

John Case — Mon, 17 Dec 2018 19:30:56 +0000

Here’s the ambitious five-to-six-year goal: a million more employee owners. And here’s the strategy: help to establish employee-ownership centers in states covering 70% of the US population.

The newly formed group with these objectives calls itself the Employee Ownership Expansion Network. “It’s all about grass-roots marketing,” says Cecil Ursprung, former CEO of Reflexite Inc. and now chairman of the expansion network’s board. “We want to increase the number of employee owners, and we think the way to do it is through more state centers in a linked network with a common business model and strategy.”

Some of the thinking that led to the network will be familiar to people in the EO community. Employee ownership strengthens American democracy. It creates more opportunities for people to achieve the American dream. Employee owners earn more, save more, and have higher net worth than nonowners. A company owner who sells to the employees keeps the enterprise independent, providing jobs and wealth-building opportunities to the local community and the people who helped build the business.

What’s new here is a practical business model that fills a strategic gap. Existing state-level employee ownership centers are scarce—there are currently half a dozen active ones—but are highly effective. They work with political leaders to foster a supportive environment. They provide information and hands-on assistance, much of it from peers, to company owners who are considering a sale to employees. There tend to be more employee-owned companies per capita in states with well-established centers than in states without. Still, no national organization has launched a sustained, full-scale effort to expand the number of such centers, or to support them through a national network.

Enter the new organization, which goes by the abbreviation EOeX (pronounced E-O-X). Its business model, as Ursprung describes it, “takes some pages from the franchise book and some pages from the joint-venture book.” The goal is to make the parties—national network and state centers—“really need each other.”

Cecil Ursprung

As part of the groundwork, Ursprung and his colleagues worked closely with the Pennsylvania Center for Employee Ownership, or PaCEO, founded in 2016 with the assistance of the NCEO. In its two-year life, PaCEO has introduced the idea of employee ownership to hundreds of Pennsylvania companies and political leaders, and is already helping several owners begin the transition.

This work has enabled EOeX to begin developing operating manuals, timelines, standard charts of accounts and so on, all of which should enable fledgling state organizations to scale up quickly. That’s the franchise part. The joint-venture part is that the centers spawned by the network will mostly operate independently, while the national organization coordinates efforts and provides expertise.

Right now, the new network has a five-member board, including Ursprung and others with expertise in employee ownership. The board has raised some seed capital,and it recently appointed an executive director, Steve Storkan, who comes to the network from a job as director of ESOP administration at Alerus Financial in Minnesota, where he was responsible for much of the firm’s ESOP business.

The priorities now, says Ursprung, are raising money—“we want to crush the funding issue”—along with fleshing out the staff and developing informational programs for nascent state centers to offer their clientele. The initial programs will focus on telling stories about employee-owned companies, from the perspective of people throughout the organizational ranks. Technical details about ESOPs can come later.

Big ideas like employee ownership spread slowly—until they reach a tipping point, and then they spread faster than anyone could have imagined. If EOeX can successfully pursue its ambitious mission and implement its strategy, those million new employee owners should provide a critical push toward that tipping point.

The post New Network’s Aim: More State-Level EO Centers appeared first on Employee Owned America.

Next Steps in Employee Ownership Legislation

John Case — Fri, 26 Oct 2018 19:03:07 +0000

By Corey Rosen, NCEO

For the first time in many years, there seems to be rising and serious interest among some members of Congress in making employee ownership a much more prominent policy objective.

While the immediate impetus is coming from the offices of Representative Velazquez (D-NY) and Senators Gillibrand (D-NY) and Baldwin (D-WI), employee ownership has always been a bipartisan effort. This was recently demonstrated by the unopposed passage of the Main Street Employee Ownership Act, which was spearheaded by Velazquez and Gillibrand with cosponsorship by Senators Risch (R-ID), Collins (R-ME), and Young (R-IN).

An informal group of employee ownership advocates, the Quinsigamond Group, has published a white paper outlining a series of ideas for next steps. (NCEO staff have been involved in this process as well.) The core theme of the paper is that for ESOPs and other forms of broad-based employee ownership to reach the next level, they need to be able to compete more effectively against private equity firms in their ability to purchase both existing private companies and divestitures from public companies.

The proposal that seems most likely to gain traction is the creation of Employee Owned Investment Corporations, or EOICs. Modeled after existing Small Business Investment Corporations, EOICs would be privately funded but could borrow a portion of their capital from the federal government, generally up to twice what the EOIC’s investors commit. The current rates on SBIC loans are between 9% and 16%. EOICs would address the gaps in subordinated debt and transaction expertise that currently hinder employee ownership transactions, especially for corporate divestitures.

EOIC investors would qualify for a 50% reduction in taxable interest income for investments in ESOP companies where the ESOP owns a meaningful share of the equity. This incentive is analogous to that provided in prior legislation, repealed in 1992, that gave banks a 50% exclusion of interest income from loans to ESOPs. The current proposal, however, focuses specifically on subordinated debt. A handful of private equity firms now focus on ESOPs, but their total capital is a fraction of one percent of the total available to private equity funds doing traditional leveraged buyouts–buyouts that often leave employees at risk.

A variant of this idea was presented in October at a Harvard Law School Forum lecture by Christopher Mackin of Ownership Associates and Rutgers University. (The lecture is available on YouTube here.) Focused on larger firms—and inspired by the Federal Home Loan Bank Act of 1932—the Employee Equity Loan Act (EELA) “proposes that over a ten-year period, the Federal Government provide an annual guarantee of $100 billion to SBA/EDA certified lending institutions for the purpose of lending to certified broad‐based employee ownership trusts. The guarantee should apply to the full spectrum of ‘lower middle market’ privately held businesses of up to $300 million in revenue and employing up to 3,000 employees.”

A second idea would extend tax incentives to corporate sellers of a division to an ESOP. In 2016, over $100 billion in divestiture sales took place, compared to a a maximum of several hundred million per year in ESOP transactions. For a divestiture team, selling to an ESOP is rarely attractive; the corporate owners usually can get a higher price by selling to an outside buyer or private equity firm. To help level the playing field, some portion of the taxable gain on the sale (up to a reasonable limit such as the first $20 million to $50 million) could be exempt from tax. As in Section 1042 of the current tax law, the ESOP would have to hold a minimum percentage, such as 30%, after the sale. There would also be a minimum holding period for the sold shares or assets and a clawback of avoided gains by the seller if the acquiring firm fails to retain a significant percentage of employee ownership over a meaningful period.

Finally, private equity and investment firms could be given a tax incentive to incorporate ESOPs into their transactions, something that very rarely occurs now. Rules would be similar to those for divestitures.

These ideas are intended as a complement to legislation now before Congress, H.R. 2092 and S. 1589, the Promotion and Expansion of Private Employee Ownership Act. These bills, which now have 71 House and 39 Senate sponsors, would:

Allow owners of S corporations to receive a tax deferral on the sale of stock to a qualifying ESOP under the same terms currently allowed for sales of stock to a C corporation
Allow banks to deduct 50% of the interest income they receive from loans to S corporation ESOPs that own more than 50% of the stock.
Provide needed technical assistance through the Department of the Treasury to companies that may be interested in forming an S ESOP
Ensure that small businesses that become ESOPs retain their SBA certification

What Next?

Other than H.R. 2092 and S. 1589, these ideas are just that—ideas. Over the coming months, the Quinsigamond Group plans to flesh out the details and consider changes. Working with congressional staff, we will be seeking additional support from both parties. Meanwhile, we would welcome both feedback and involvement. (For contact information, see the white paper.)

The time seems ripe for this new effort. Economic inequality–more specifically wealth inequality and the accompanying economic insecurity–are key issues for both parties. Other ideas to address these problems have little chance of becoming law. Employee ownership is a practical solution that does.

Contributing editor Corey Rosen is founder and senior staff member of the National Center for Employee Ownership.

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