Why Employee Ownership Options Can Be Advantageous for Business

Transcription:

Mark Collier:
Welcome into The Playbook, Marie and Mike.

Marie Davis:
Thank you, Mark.

Mike Davies:
Thank you, Mark.

Mark Collier:
All right. Employee ownership. That’s something I’ve heard of, but I don’t know much about it. What is employee ownership, and how does it work?

Marie Davis:
Well, it was created by Congress in 1974, as a way for small business owners to put aside retirement funds for their employees. The most common form, is called Employee Stock Ownership Program, or ESOP, as we will say today, or we’ll be here all day if I have to say Employees Stock Ownership Program. Basically what happens is, at no cost to the employee, the company sells all, or some of it to the employees, to the ESOP. It’s put aside, tax deferred money, for the employees.

Mark Collier:
Wow. Okay. So the stock that they own, do they have rights to sell it, or is it just an appreciating asset that they hold in their retirement?

Marie Davis:
It’s appreciating asset, and when they leave, they can choose to leave it there or take it with them. Most people, it works so well that they leave it there until they’re ready to retire.

Mark Collier:
All right. You’re at the Georgia Center For Employee Ownership. How many other centers are there around the country, and how many employee owned companies are there in Georgia?

Marie Davis:
I’m glad you asked that question. There are about 6,500 nationwide. Okay. We don’t really know, because the Georgia Center has just started up. We know there are about 138 in Georgia, so we’re way behind. We want to make that multiple, multiple times. For example, I want to tell people this, so they’ll get an idea of what we’re looking at. If you’ve ever walked into a Publix grocery store, they are 100% employee owned and always have been.

Mark Collier:
Very good.

Marie Davis:
If you go on our wonderful website, which I would love for people to do. There’s an interactive map and you can click on your county, Which will tell you a lot of information. You can click on your area, and it will tell you all the employee and businesses in that area.

Mark Collier:
Fantastic. Let’s talk about the Silver Tsunami. I’ve heard that term. Perhaps you can define it for me, and tell me how it’s relevant to what you guys are doing.

Marie Davis:
Well, the Silver Tsunami is very real, and very here, and very now. COVID has really sped that up. On that interactive map on our website, if you click on your county, it will tell you how many small businesses in that county are owned by people 55 and over. In Georgia across the map, that’s 78,000. Over 78,000 are owned by 55 and over. What’s the problem with that? Well, we had something called COVID, and a lot of people just gave up. What that does to a community, or to a business, as you can imagine, is devastating. Most of those people, it’s estimated that 85% of those small business owners in Georgia do not have a succession plan. It’s scary. Worse than that, if they go to sell it, only one in three will be successful.

Mark Collier:
Great. So what you’re saying is that the Employee Ownership Program, operates as a defacto succession plan for— the Silver Tsunami business owners.

Marie Davis:
Yes. It does. Silver Tsunami business owners. It’s a critical tool.

Mark Collier:
All right. Very good. So tell us about your organizational structure. You have the acronym here EOX. So you have to define that for me, and let me know what that’s all about.

Marie Davis:
It stands for Employee Ownership Network. It’s a nationwide nonprofit. They are dedicated to putting state centers in every state. Where people can go, and have access to this information. So they are planting state centers across the nation.

Mark Collier:
So your mission is to get out in front of as many people as possible, especially business owners. How do you do that? What are the methods you use for outreach, in terms of educating business owners on the benefits of employee ownership? Not only for them, the business owners, but for the employees as well?

Marie Davis:
Well, the first thing we do, first thing I did, when I came to Georgia CEO last June, was to go to the Georgia Executive Chamber Convention, and get in front of all the Chamber executives. Then we attended the Georgia Economic Development Association. That’s great, because those people need to hear how to save businesses in their community.

Mark Collier:
Absolutely.

Marie Davis:
We can speak to Rotary Clubs, Bank Associations, any business owner would be great. Okay. We would love to get in front of people and just make them aware that we’re here.

Mark Collier:
You talk to family offices much, who work with family businesses?

Marie Davis:
I do not, but if we can direct people to our website, there’s a question area. I don’t call on businesses. I’ll be happy to direct them. All that we do, is have the information, and direct them to the service planners that they need to get this process going.

Mark Collier:
So you guys are kind of the conduit. Point them in the right direction to the resources they need to not only find out the information, but initiate the process, if that’s what they feel they want to do.

Marie Davis:
Yes. One thing that you ask about, Employee Stock Ownership Plan. There’s also something called Worker Cooperatives, which are the most popular form across the nation. Not our nation, but across the world.It really depends on the structure of the company, how big they are, what their duck structure is, what would be recommended. So it’s important for people to watch the little videos, and to get an idea of what would be right for their company, and then to take the next steps.

Mark Collier:
I love it. Do you see employee ownership as affecting social change? And if so, what are the benefits that you see around that?

Marie Davis:
We see it as one of the most equalizing, wonderful ways for everyone to have a piece of the action. Anybody from the CEO, down to the janitor, of any company that employee owned, owns part of that company. It’s the great American Dream. It’s very much monitored by the labor department, by the trustees of the Employee Stock Ownership Plan, who make sure that everybody gets the right amount of shares for their retirement plan.

Mark Collier:
I can certainly see the benefit, because I think an employee who has a vested ownership interest is going to be a more motivated employee. They’ll be a more happy employee, and a more productive employee.

Marie Davis:
And they’re not going to leave.

Mark Collier:
No, they won’t leave.

Marie Davis:
It’s a wonderful recruitment and retention tool.

Mark Collier:
All right, Mike, I wasn’t ignoring you here.

Mike Davies:
I appreciate that.

Mark Collier:
I just wanted to get all of the pertinent information from Marie. So, thanks for joining me as well. What was your company’s motivation for considering a transfer to Employee Ownership?

Mike Davies:
The essential ingredients was founded over 27 years ago. It started off as two entrepreneurs. Three entrepreneurs. As the company grew, it was very family oriented. It was small. When it came time several years ago now, to look for a transition, there were several options. This one was selected, just because the original owners were so concerned about the families, and the people themselves. With the other alternatives, this one allowed for all of them to continue to be employed, and the company to pretty much maintain that family orientation going forward.

Mark Collier:
What alternatives were available, other than the plan that you guys selected?

Mike Davies:
Like always, there was always the acquisition. The industry, we were continually being asked by people, by other companies, “Can we buy you?” As we know, when a larger company buys a smaller company, the larger one, the bigger fish pre predominates, and you get a consolidation. A lot of the employees would probably lose their jobs. So again, that’s why it goes back to the Employee Ownership. The other option was, just because the nature of essential ingredients, being a distributor, the company could just fold. The people we distribute for, the companies we distribute for, would just find other distributors. So those were the two primary other options.

Mark Collier:
Let’s talk about governance for a minute. How aware are the employees of the difference that Employee Ownership has made? Was there any training involved to educate them as to the process, and the benefits that would be derived?

Mike Davies:
Actually, there was. The official day of the transfer of ownership, from the original owners to the employees, it was a festive occasion, and a training. We took half a day, and went up to Chateau Elan. Had the people that we now, at the Georgia CEO, recommend. Those people that were involved in that transition for essential ingredients, were there. They talked to every employee in small groups about what was going on, what their responsibilities were, and what they could expect from it.

Mark Collier:
And the benefits that would be derived most importantly, I would think.

Mike Davies:
Yes. And it was kind of shocking to the employees, because the realization of they were going to get part of the profit share of the company, And not put anything into it. There was a transition, and it took a while for them to realize that, I’m getting something and putting nothing in.

Mark Collier:
Was there a bit of skepticism by some? You know, the old adage, “Too good to be true, it usually is.” Did you run into some of that?

Mike Davies:
Yes. And what was interesting was, prior to that, we got company bonuses, annual bonuses at the end. There was frustration, doubt, and everything else. Through the process, the amount they received from the ESOP originally, or predicted for, was much lower than their bonuses. It’s like, “Hey, what’s going on here? What’s going on here?” Well, three, four years in, they’re going, “Okay. We like this a lot better than what we were getting before.” There’s also the realization of, with a company bonus that was instant gratification. As Marie said, this is long term. You realizing that you’re going to reap these benefits when you retire. There was a big turnaround.

Mark Collier:
Let me ask you the standard question. What’s it like to be an owner? How does it feel?

Mike Davies:
It feels great. We’ve been at this now about 10 years, or maybe a little longer now. It feels great, because even to this day, even for the employees that have come in since we became an ESOP, you hear it all the time. I am an owner. There is a pride. There’s always a pride when you’re working for a company, or some. It’s a bigger chunk, when you can say I’m an owner. We have executives that we work for, but we all work for each other. You still have bosses, you still have all of that. And as an owner, you don’t necessarily get to participate in the decision making processes. But, there is that background of this feels good. This is who I am. I’m part of this big company.

Mark Collier:
I can certainly see that the morale, probably went through the roof. Probably the productivity of each employee, had a bump as well. Huh?

Mike Davies:
Yeah. They totally agree. There’s also an efficiency thing, where if I do this or do that, or I work with this other group more efficiently, I’m helping the company more. Oh, by the way, I’m also helping myself.

Mark Collier:
That’s right. Cost savings, they trickle right down to the bottom line.

Mike Davies:
Yes.

Mark Collier:
Employees, I can see them having now that ownership mindset of, if I cut costs, that’s going to help me.

Mike Davies:
Right. And to that end, increasing those efficiencies, you become much more of a team player. Rather than just saying nine to five. You become a team player.

Mark Collier:
Do you partner with other organizations? Or are you guys a standalone operation?

Mike Davies:
There’s other groups that we work with. Obviously, we’re part of NCEO, the National. We’re part of the Georgia group, that we’re trying to start up. There’s a couple other groups, Great Game of Business, stuff like that. As an ESOP, there are a lot of ESOPs that sort of play in that space also. Evergreen. We work with other companies. We also have had companies come and tour us, that are interested in an ESOP. What’s interesting is, going to ESOP companies when you’re a business, oftentimes you are in a silo. Here’s the business that we do. As an ESOP, there aren’t a silo. You get all these different companies, and you get to talk to them, and that helps your business, because they do different fields in different industries, and they give you other ideas. We are a chemical distributor. I went to an ESOP meeting, and one of the people I talked to builds crop dusting planes.

Mark Collier:
Okay. So you were able to kind of have an information exchange, with that other company.

Mike Davies:
And different perspectives. This works for us, and it’s completely different industry. It’s very interesting.

Mark Collier:
Tell me this. The environment or scenario, where you feel most effective in presenting this idea to others.

Mike Davies:
Just from experience with the Georgia CEO, I’m the person who has, here’s what we have done. Here’s what’s worked for us. Here’s, just like you’ve asked, all the benefits that we have seen as a company. Sharing that with people. There is a lot of paperwork, and a lot of logistics that you need to go through, that are more difficult than selling a company. But talking about the benefits, what it usually is the companies that care about their employees, are the ones that are most interested and willing to go through those hoops. That’s where I’m there to help, and offer that as an option.

Mark Collier:
All right. Marie Davis, Launch Manager Leader for the Georgia Center For Employee Ownership, and Mike Davies. I want thank both of you taking the time to come in, and just discuss what Employee Owned Companies are all about, and the benefits that can be derived. Most importantly, how companies who consider this type of business model, will gain productivity and better employees.