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.”