Today, we welcome David M. Davidson Jr., Chief Financial Officer of C.S. Davidson, Inc. located in York, Pennsylvania. C.S. Davidson is a member of The ESOP Association and will be celebrating 90 years in business this year. In this guest post, Mr. Davidson shares his thoughts on the value of employee ownership. Congratulations to C.S. Davidson on a successful 90 years.
C. S. Davidson, Inc: From Family-Owned To Employee-Owned Business
By David M. Davidson Jr., P.E., P.L.S., Chief Financial Officer, C.S. Davidson, Inc.
In 1923, Carl Schaefer Davidson opened a modest surveying and engineering business in Hanover. He later moved to York and, in 1948, incorporated the business as C. S. Davidson, Inc. This is the story of a company that spanned three generations of the Davidson family, and continues to this day as an ESOP, or employee-owned, business.
Things were much more straightforward in the early years. There were no regulations to speak of, and zoning was a concept that had only recently been introduced in New York City. Engineers were hired for their imagination, creativity and ability to design. Calculations were done painstakingly by hand – our archives are filled with hand-lettered calculations and meticulously drafted diagrams that reflect the time that could be spent on the design of a project. Labor was cheap back then – old invoices show surveyors’ billing rates of less than a dollar an hour.
From the very beginning, C. S. Davidson, Inc. was very much a family-owned and family-operated business. Carl’s sons David and Bayard and I, his grandson, got our introduction to “engineering” by working on survey crews, cutting brush and carrying bundles of stakes. My father, David Sr., became president of the firm in 1965, and I in 1983.
At some point, every business owner has to deal with “ownership transition.” The options are limited: internal sale, external sale or closing the doors – although there are many variations within each option. We initially attempted a direct sale of stock to a limited number of employees. As is usually the case, the value of the business exceeded the financial resources and/or risk tolerance of the prospective purchasers. We could see that a straight cash sale would never accomplish the intended goal.
We have never considered a sale to an outside interest, although we receive many inquiries. Acquisition by another firm—no matter how similar in services and size—would inevitably lead to the loss of the culture that makes us uniquely “CSD.” Even though we’ve become a large firm (by local standards at least), we’ve managed to retain the feeling of a much smaller firm. We like that.
An ESOP (“Employee Stock Ownership Plan”) seemed to be the answer. Not only does it provide a mechanism to gradually transfer ownership to employees, it doesn’t require any investment (other than their continued hard work!) on their part. It has the added advantage of a tax-deferred sale (to the owners), a tax-deferred retirement benefit (to the employees) and a tax deduction (to the corporation).
In addition to the tax advantages, it has a less tangible (but in my opinion, more important) benefit of educating everyone to think like they’re an owner. It may seem an insignificant distinction, but as time goes on it is essential that the sense of ownership, as well as the actual ownership, changes hands. It’s the only way that CSD can expect to enjoy continued success for, hopefully, another 90 years.
All in all, an ESOP seemed like the right thing to do from a variety of perspectives. It was expensive, time-consuming and difficult – but in the long run it will be one of the best investments we’ve ever made.