Spurring Employee Ownership

You usually know what to expect at the annual meeting of the Beyster Symposium—the annual gathering of top employee ownership researchers, including the five Louis O. Kelso Fellows funded annually by the Employee Ownership Foundation.

But this year’s event, which was held this week, included a surprise guest who drew an enthusiastic audience despite readily admitting he is neither an expert on employee ownership nor a researcher. He is Michael Gonda, VP of Communications for Chobani. The maker of Greek yogurt made headlines recently when it announced it would award 10 percent of the company to employees via Chobani Shares, which become active in the event of an IPO or sale.

Gonda said one reason the company announced the move is to encourage other businesses to consider employee ownership. He credited the company’s founder, Hamdi Ulukaya, for enduring a two-year process during which numerous legal advisers claimed there was no practical way for the business to share ownership among its roughly 2,000 employees. But Ulukaya was dedicated to the idea of sharing the wealth with employees, so a way was found.

Gonda notes that the approach taken by Chobani may not be readily applicable to other businesses, but that it does work for the company, which faces certain limitations because it is an LLC.

While other firms must find their own way, Chobani wants to help by spurring greater interest in and support of employee ownership. He added that the company is happy to partner with others to help promote employee ownership—a statement that seemed to generate enthusiasm among the researchers in attendance.

When asked about communications lessons the company learned, Gonda said the firm conducted a detailed analysis of the questions employees might ask, and prepared extensively to address those queries. At the announcement meeting, Ulukaya shared extensive information about the current and projected state of the business with employees. Chobani also set up e-mail and phone hotlines for employees who wanted to ask questions confidentially.

Although Chobani employees are not yet owners, one attendee asked if the company had seen any difference in attitudes to date. Gonda replied that the announcement had “an immediate impact.” Shortly after it was made, he said, an employee accidentally dropped the mop he was using. “Hey,” a nearby co-worker exclaimed, “don’t do that to my mop.”

ESOPs: More Than a Retirement Plan

Technically speaking, an ESOP is a retirement plan—nothing more, nothing less. But at some companies—like King Arthur Flour, winner of The ESOP Association 2016 ESOP Company of the Year Award—it is more. Much more.

“It is such a missed opportunity if an ESOP is only a retirement plan,” says Suzanne McDowell, King Arthur’s Chief Human Resource Officer and one of the company’s three co-CEOs. “It is so much more significant to invite people to the table to participate in creating an organization we are all really proud of.”

McDowell admits that when she joined the company 15 years ago, she didn’t immediately understand the full value of the ESOP. And then she saw something that showed her the depth of pride and connection employee owners feel at King Arthur.

Packing a Box
During the busy holiday season, the entire staff lends a hand packing boxes and shipping orders to customers. McDowell was doing her part when she couldn’t help but notice an employee owner nearby.

“The level of excellence she brought to packing this box was just astounding,” recalls McDowell. “She took such care with our product and its presentation. And when I asked her about it, she said ‘Of course I’m going to invest this kind of energy. I’m the last person who is going to touch this box before it shows up on our customer’s doorstep.’

“And that,” says McDowell, “is when I realized the ESOP program here at King Arthur is really something special. And I feel very grateful to be part of an organization like this.”

Adds Ralph Carlton, Chief Financial Officer and co-CEO: “Everyone comes to work feeling it is their company, and that leads to an attitude about work that is just magic.”

A Natural Extension
Before the company started its ESOP in 1996, it was already practicing open book management and enjoying an inclusive style.

“Becoming an ESOP was a natural extension of how the family had run the business for five generations,” says Karen Colberg, Chief Brand Officer and co-CEO.

The company makes it clear that while employee ownership offers benefits, it also comes with responsibilities. All three co-CEOs actively look for feedback—and get it. And that, in turn, means they have a responsibility to communicate clearly and regularly.

“So many people show up with so many good ideas,” says Colberg. “We can’t do them all. You have to pick your path. So we talk a lot about our goals, our performance, what decisions we are making, and why we are making them. We want people to understand the trade-offs involved, because we have to make decisions with the goal in mind of keeping this business and this ESOP running for another 200 years.”

Connecting with Customers
An added benefit of its ESOP is that King Arthur Flour enjoys two additional ways to connect with customers.

The first is direct: Engaged employee owners who work in customer facing positions routinely report back on the feedback and suggestions they hear. That information enables the company to respond quickly to changing customer needs and desires.

The second is more indirect: King Arthur connects with customers by letting them know—at every opportunity—the company is employee owned. They excel so much in this area that they won an AACE this year in the category of Ownership Marketing.

“I think consumers are pleased to know that King Arthur Flour is 100 percent employee owned, and is about empowering everyone in the organization,” says Colberg. “It says we care about our employees, the community they are in, and the longevity of our enterprise.”

Adds Carlton: “We didn’t become an ESOP to realize a consumer benefit. But there is a clear trend out there towards consumers asking not just about your product, but who it is coming from. That is a great opportunity for us to talk about the fact we are owned by our employees, that we are a B Corp. That might not have mattered 10 or 15 years ago. It increasingly matters to consumers today.”

Parting Thoughts
King Arthur has enjoyed tremendous growth and financial success since becoming an ESOP. It may be coincidence, but the growth is real.

Says Colberg: “Wealth creation comes from people managing the organization and themselves as owners. We don’t talk about it every day. It’s intangible, but it is pervasive.”

But when asked what advice they would offer to businesses thinking of starting an ESOP, King Arthur’s triumvirate of CEOs returns to culture and leadership, not money.

“Recognize that an ESOP happens to be a financial transaction, but first and foremost it is a cultural transition,” says Carlton, King Arthur Flour’s CFO. “It’s a very, very exciting way to govern, to lead, and to build a business. Oh, and by the way, it happens to be a retirement plan.”

Everything You Think You Know Is Wrong

Okay, so we exaggerated a bit in the title. Not everything you know about everything is wrong, but certainly several things you think you know about The ESOP Association’s Annual Conference are wrong.

For example:

You don’t know where this year’s Annual Conference is being held. Sure, you’ve been to the Annual Conference before, and it is always at the same hotel.

Except for this year! The conference will be at the JW Marriott Washington DC.

You don’t how to get there by Metro. Or, at least, you might not know how to get there by Metro. One TEA staffer, who is a native of the DC area and whom we’ll just call “Patrick”—got off the Metro train and walked into the nearest Marriott, blissfully unaware he’d walked into the wrong hotel.

And it’s conceivable you could make the same mistake. Why?

The station closest to the JW Marriott Washington DC is Metro Center, and when you exit that station you might immediately see a sign for a different Marriott hotel—the aptly named Marriott Metro Center.

You can visit that hotel if you like. You can even wait in the lobby for half an hour before you realize you are in the wrong place. (Not that we know anyone who did that.) But if you do, you’ll miss all of the sights and sounds of the Annual Conference, which is only a few blocks away.

There is never a photo booth at the Annual Conference. Wrong again! This year, for the first time, the Annual Conference will feature a photo booth where you can pose for a picture with your new-found ESOP friends and in front of a backdrop featuring the Capitol. No need to bring your selfie stick or stretch your arms to their limits: A photo booth operator will be on site.

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Take your photo in front of the Capitol, without leaving the hotel. 

You really don’t know how to use an elevator. After years of absentmindedly pushing elevator buttons and having them do exactly what you want, the elevators at the JW Marriott Washington DC (remember that name?) will challenge your alertness.

In most elevators, you push an “Up” or “Down” button outside the elevator; once inside, you push a button for the floor you want to visit.

That’s not how it works at the JW Marriott Washington DC. There, you select the floor you want to visit by pushing a button outside the elevator. A sign then tells you which elevator (for example, elevator D) will take you to that floor, and you go that elevator.

elevators

What are these buttons doing outside the elevator?

Think of it this way: The new elevators are more like riding in a cab (which takes you to the destination of your choosing) than a bus (which makes every stop).

Once inside the elevator, there’s nary a button in sight. And even the digital counter that tells you what floor you are on is in a different spot—on the side of the elevator where the doors slide open.

You never thought you could see so much text devoted to pushing an elevator button, did you? Neither did we.

New Annual Conference Experience, Website

This year you will be seeing several improvements in your Annual Conference experience. In fact, there were so many new improvements that we couldn’t fit them all into our existing web page for this conference.

So, we created a new one! Visit it now for the latest conference information: www.esopassociation.org/annual-conference.

For example, demand has been so great that The Association’s room block sold out early. We’ve arranged for a second, limited block of rooms at another hotel. To get one of these rooms—and to see other hotel options—visit our new page for Hotel & Travel information.

While on the new Annual Conference site, you also can:

  • Download a schedule for all ownership culture sessions. (There are nearly twice as many as last year.)
  • Download a schedule for all technical sessions.
  • Get a fillable PDF form to register for the conference.

What do you think? Do you love it? Hate it? Let us know.

DOL Subpoena Approach Comes Under Scrutiny

ESOP companies that are willing to cooperate with the Department of Labor got some good news this month.

There have been several reports that the Department opened investigations of ESOPs by subpoenaing ESOP trustees and company executives. That’s a rather drastic approach: A subpoena—which carries serious significant legal weight and repercussions—is the “big stick” in an investigation, and typically is used only when companies refuse to cooperate.

At a March 16 hearing of the House Committee on Education and the Workforce, Congressman Brett Guthrie voiced his concern about the approach to Labor Secretary Thomas Perez.

The exchange was cordial and positive.

Rep. Guthrie said he had heard reports, “not rare occurrences, but more common,” that the Department was issuing subpoenas before notifying ESOP companies they were even under investigation.

“If that is occurring,” he asked, “would you be willing to review the process?”

ReGUTHRIE 3p. Guthrie noted that “we have to be careful” about using the federal government’s subpoena power, and that companies should first have the opportunity to willingly comply with requests for information.

“There needs to be oversight, but if we can do it mutually, working together, as opposed to the adversarial” approach, that is more desirable, he said. He also noted that if a company proves combative, “we obviously have the right and the power to” issue a subpoena later.

Perez said he was not aware of the issue and would be “happy to look into this.” He noted tPEREZ 3here is no substitute for discussing an issue and finding a pathway forward.

“My team will reach out to your staff after today,” he told Rep. Guthrie.
The promising exchange brought a troubling situation to light and offers hope that an unnecessarily burdensome enforcement tactic may soon come to an end.

(The entire dialogue is available on YouTube.)

ESOP Companies Round Out Best Place to Work List

Look at the most recent list of the “15 Best Workplaces in Manufacturing and Production,” and you’ll see something noteworthy: a strong showing by ESOP companies.

Both W.L. Gore (holding down the 6th spot on the list) and Schweitzer Engineering Laboratories (at number 12) are ESOP companies and members of The ESOP Association.

And neither company is a stranger to such accolades. Schweitzer Engineering was named to the same list in 2015. Gore has been named six times to various lists—all of which are compiled by the Great Place to Work Institute and rely heavily on anonymous employee surveys.

The results from those surveys suggest that both of the ESOP companies that were honored have succeeded at creating safe, trustworthy environments. High percentages of employee owners (97 percent for Gore, 95 percent for Schweitzer) felt the business was a safe place to work. At both firms, 94 percent of employee owners felt layoffs would occur only as a last resort.

(As we pointed out in a recent post, when companies create a sense of safety and job security, greater employee innovation among may result.)

The findings from the Great Place to Work surveys match up well with data on employee owned firms as a whole.

At The ESOP Association’s Conference in Las Vegas last fall, Rutgers Professor Douglas Kruse shared 2014 data showing that in the prior year, employee-owned companies were 7.3 times less likely to lay off staff than conventionally-owned businesses. What’s more, employee owners are more likely to feel their colleagues can be relied on for help and to work hard. And if their colleagues aren’t working well, employee owners are more likely to approach them about their efforts.

ESOPs: Naturally Built for Innovation?

Research suggests that well-run ESOPs may have a big advantage when it comes to spurring employee innovation.

A recent Harvard Business Review article cited several research studies showing that companies tend to be more innovative when:

  • They treat workers well.
  • Workers feel they have job stability.
  • Businesses offer stock options to non-executive employees.

The article speculates that these factors give workers the peace of mind to take short-term risks in the interest of supporting the business’ long term health. HBR Senior Editor Walter Frick writes: “If failure in the short-term is acceptable or even rewarded, and if workers have a stake in the company’s long-term performance, they should be more likely to innovate.”

So treating workers well, giving them job stability, and incenting them to focus on the long term health of the company all spur innovation? Than ESOPs should be innovating in spades.

Here’s why:

ESOPs—and other employee owned firms—provide better job security. During the Great Recession, companies with employee stock ownership were four times less likely to lay off workers than those without such ownership, according to research conducted for the Employee Ownership Foundation.

Data from June 2015, when the economy was clearly out of recession, are even more compelling: Companies with employee stock ownership were more than seven times less likely to lay off workers than other companies in these economically healthier times.

ESOPs focus workers on the long term—perhaps more effectively than stock options. When employees become owners, they are more likely to be focused on the business and its long term interests. And ESOPs might be more effective at these goals than stock options.

ESOPs—because they are retirement plans, conceptually similar to 401(k)s and pensions—are generally easier to understand than stock options. What’s more, workers get these funds when they leave the company, or retire—long term decisions made by them, not the business.

And because ESOP funds are distributed only upon leaving the business or retiring, they encourage workers to focus on the business for the duration of their tenure, or even their careers. Long term, indeed.

Well-run ESOPs treat employees like owners. (In other words, well.) ESOPs may be well run or poorly run, but the ones that are run well encourage participation among employee owners, solicit their feedback, empower them to improve the business, and educate them on the financial inner workings of the firm.

When employee owners participate in running the business, they generally treat themselves well and with respect. (They would be foolish to treat themselves poorly, wouldn’t they?)

So by doing what they do naturally, ESOPs should do a superior job of spurring innovation. Just one more piece of evidence showing that ESOPs are good for employees and businesses alike.

(This article originally appeared in the January 2016 ESOP Report.)