[Senate Hearing 111-1158]
[From the U.S. Government Publishing Office]
S. Hrg. 111-1158
INVESTING IN AMERICAN WORKERS: THE BENEFITS OF EXPANDING EMPLOYEE
OWNERSHIP
=======================================================================
FIELD HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
ON
EXAMINING INVESTING IN AMERICAN WORKERS FOCUSING ON THE BENEFITS OF
EXPANDING EMPLOYEE OWNERSHIP
__________
AUGUST 26, 2010 (Montpelier, VT)
__________
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
TOM HARKIN, Iowa, Chairman
CHRISTOPHER J. DODD, Connecticut MICHAEL B. ENZI, Wyoming
BARBARA A. MIKULSKI, Maryland JUDD GREGG, New Hampshire
JEFF BINGAMAN, New Mexico LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington RICHARD BURR, North Carolina
JACK REED, Rhode Island JOHNNY ISAKSON, Georgia
BERNARD SANDERS (I), Vermont JOHN McCAIN, Arizona
ROBERT P. CASEY, JR., Pennsylvania ORRIN G. HATCH, Utah
KAY R. HAGAN, North Carolina LISA MURKOWSKI, Alaska
JEFF MERKLEY, Oregon TOM COBURN, M.D., Oklahoma
AL FRANKEN, Minnesota PAT ROBERTS, Kansas
MICHAEL F. BENNET, Colorado
CARTE P. GOODWIN, West Virginia
Daniel Smith, Staff Director
Pamela Smith, Deputy Staff Director
Frank Macchiarola, Republican Staff Director and Chief Counsel
(ii)
?
C O N T E N T S
__________
STATEMENTS
THURSDAY, AUGUST 26, 2010
Page
Sanders, Hon. Bernard, a U.S. Senator from the State of Vermont,
opening statement.............................................. 1
Crystal, Jon, Executive Director of the Vermont Employee
Ownership Center, Burlington, VT............................... 3
Prepared statement........................................... 4
McIntyre, Bill, Director, Ohio Employee Ownership Center, Kent,
OH............................................................. 7
Prepared statement........................................... 8
Voigt, Steve, Chief Operating Officer, King Arthur Flour,
Norwich, VT.................................................... 16
Prepared statement........................................... 17
Turcot, Cindy, Chief Operating Officer, Gardeners Supply Company,
Burlington, VT................................................. 18
Prepared statement........................................... 20
Clark, Jeff, Operations Manager, Chroma Technology Corp., Bellows
Falls, VT...................................................... 22
Prepared statement........................................... 23
McCabe, Tom, Treasurer, Pizzagalli Construction Company, South
Burlington, VT................................................. 24
Prepared statement........................................... 26
Seifer, Bruce, Assistant Director for Economic Development,
Community and Economic Development Office, Burlington, VT...... 27
Prepared statement........................................... 29
Mackin, Christopher, President of Ownership Association, Inc.,
Cambridge, MA.................................................. 30
Prepared statement........................................... 32
(iii)
INVESTING IN AMERICAN WORKERS: THE BENEFITS OF EXPANDING EMPLOYEE
OWNERSHIP
----------
THURSDAY, AUGUST 26, 2010
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Montpelier, VT.
The committee met, pursuant to notice, at 11:06 a.m. in the
Vermont Statehouse, Room 11, 115 State Street, Montpelier, VT
05633, Hon. Bernard Sanders, presiding.
Present: Senator Sanders.
Opening Statement of Senator Sanders
Senator Sanders. We're going to begin the meeting of the
Health, Education, Labor, and Pensions Committee, and I want to
thank Senator Tom Harkin, who is the Chairman of the committee,
for allowing us to hold this hearing on this very, very
important issue here in the State of Vermont, and I want to
thank all of our guests for being here and all the people in
the audience.
The format will be as I'll go on for 2 or 3 hours. I won't.
[Laughter.]
Senator Sanders. I'll be brief, and then we'll open it up
for brief remarks, and then we're going to do an informal
discussion, kind of a roundtable, except we don't have a round
table. It's a rectangle table discussion, and what we want to
do is we're dealing today with an unusually important issue.
I don't have to tell anybody in this room that in the
United States today and in Vermont we're in the midst of a
very, very serious recession, real unemployment, I mean in
terms of those people who don't have jobs, those people who
have given up looking for work, those people who are working
part time when they want to work full time. The unemployment
rate is over 16 percent in this Nation.
Further, millions of American workers today are working
longer hours for lower wages and in the last 30 or so years, we
have seen millions and millions of good-paying jobs in this
country disappear as corporate America has thrown workers in
this country out on the street, moved to China, moved to other
low wage countries where they're getting workers who work for
them for pennies an hour.
We're seeing a decline in the middle class, a significant
gap between the very rich and everybody else, and in fact what
we're dealing with today is, I think, an economic model that
begins to address some of those issues.
We need new economic models which create and retain jobs
here in the United States of America, not in China. We need new
economic models which provide working people with more dignity
on the job and control over what they are doing so that they're
proud and excited about coming to work in the morning rather
than doing it in a resentful and angry way. We need new
economic models so that when companies do well, it is not just
the CEOs and the owners of the company who do well, people on
top, but all people who work in the companies who do well and
that's also what the concept of worker ownership deals with.
In my view, the concept of employee ownership can and will
be an important tool for addressing all of these goals,
creating a more democratic workforce, stimulating our economy,
creating decent-paying jobs.
Holding this hearing here in the State of Vermont instead
of Washington, DC, makes a whole lot of sense because, as all
of you know, Vermont has been a national leader in the area of
employee ownership and it's important that we share our
successes as well as the problems that we've had with our
friends in Washington and all over this country.
Study after study has shown that employee ownership has
been proven to increase employment, increase productivity,
increase sales, and increase wages in the United States. Unlike
large corporations that have been shipping jobs overseas,
employee-owned businesses are not going to shut down and move
their jobs to China, Vietnam, or Mexico.
Further, employee-owned businesses boost morale and worker
satisfaction because workers, as I mentioned earlier, share in
future profits.
So there is a lot to be discussed. I think we have an
economic model now that millions and millions of working people
will be interested in, if they can learn something about it. We
have introduced two pieces of legislation which I think will
help spread the gospel of employee ownership.
The first bill is the Worker Ownership Readiness and
Knowledge Act and that is S. 2909 and that would create an
Office of Employee Ownership within the Department of Labor.
Among other things, this office would be responsible for
providing grants to States to establish and expand what we have
here in the State of Vermont already and what also exists in
Ohio and that is employee ownership centers and when you have
employee ownership centers, they're able to get the word out to
businesses, to workers in their geographical locale and we
think expanding that concept is very, very important.
The second bill that we've introduced is S. 2914 and that
would create a U.S. Employee Ownership Bank to provide loans
and loan guarantees to employees to purchase a business through
an ESOP or worker-owned cooperative. The Federal Government
does a lot of that but it does not do that for businesses that
are worker-owned and we want to see them do that.
So those are the two bills that we have, but there are a
lot of other ideas that are out there and I want to get the
discussion going as soon as possible. So what we'll do is we're
going to hear from people from Vermont. We're going to hear
from our friend from Ohio, short presentations, 3 to 4 minutes,
then open it up. I'll ask some questions and we'll open it up
for discussion by the panel and with the audience, as well.
So this is big stuff. I think the country wants an economic
model that keeps jobs in America, allows workers dignity on the
job, and that's what we're talking about today.
I also want to mention that we have representatives from
Senator Leahy's office here and Congressman Welch's office is
here and we appreciate them being here and I should mention
that Senator Leahy is a co-sponsor of both of these pieces of
legislation.
Let's start off with Jon Crystal, who is the Executive
Director of the Vermont Employee Ownership Center in
Burlington.
Jon, thanks a lot for being here.
STATEMENT OF JON CRYSTAL, EXECUTIVE DIRECTOR OF THE VERMONT
EMPLOYEE OWNERSHIP CENTER, BURLINGTON, VT
Mr. Crystal. Thank you, Senator, for the opportunity to
speak today.
I've been involved with employee ownership since 1979 when
I moved to Vermont to begin working with a company called Guard
Lend which is one of the pioneers in employee ownership in
Vermont. Later, while working with the Industrial Cooperative
Association, I was involved in the early efforts in Burlington,
driven by then Mayor Sanders, to explore employee ownership in
that city, and I was the founder of the VEOC in 2001 and have
been in my current position since 2007.
Our mission at the VEOC, Vermont Employee Ownership Center,
is to promote and foster employee ownership in order to broaden
capital ownership, deepen employee participation, retain jobs,
increase living standards for working families, and stabilize
communities.
We do this by offering a variety of educational outreach
programs involving conferences and workshops but also by
providing direct technical assistance and information to
companies interested in exploring this opportunity.
Since our founding we've had such direct conversation with
over 165 companies in Vermont. A number of those companies have
subsequently implemented some form of employee ownership with a
total of over 550 jobs impacted from this.
Nationally, there are over 10,000 companies in the U.S.
with some form of employee ownership but there really should be
more. In Vermont, 30 to 40 such companies actually, on a per
capita basis are very high and we think that's due in part to
the presence of the VEOC here to help with that process.
In helping to establish similar centers around the Nation,
we believe the Work Act that Senator Sanders just told you
about could contribute significantly to increasing the number
of employee-owned companies.
We think the best evidence in favor of employee ownership
is provided by the real-world examples and you'll be hearing
stories today from some wonderful Vermont companies. We like to
refer to the disproportionate excellence of these companies
because we think that the employee-owned companies of Vermont
seem to gain more recognition and win more awards than their
modest numbers would indicate. We at the VEOC are very devoted
to the objective of helping create more such companies.
A couple of brief comments about the funding realities,
however, of all of this.
While we are not terribly involved in the financial end of
these deals, it's true that most of these transactions do
involve a certain level of bank borrowing. It's our
understanding that both locally and nationally, there's a real
problem now with timely access to capital to make these deals
happen.
We strongly believe that the U.S. Employee Ownership Bank
Act that you just heard about can play an important role in
facilitating such deals and would have positive impact on the
number of successful transactions in Vermont and elsewhere.
Another funding reality is the money to run centers like
ours. Our initial funding came from a variety of grants and
then in 2002 a Federal appropriation that then Representative
Sanders helped us secure. We have since developed a stream of
other sources of revenue, including private corporate
sponsorships, some modest support from the State, and Senator
Leahy helped us obtain an SBA grant that has been instrumental
for the last several years for us.
There's no question in my mind that government support will
remain an essential part of the funding of a center like this
but it's always held very tenuous and temporary. A Federal
grant, such as might result from the Work Act, around which we
could build a budget to provide core funding would really be
very instrumental to our future success.
We believe that statewide programs like ours and the one
from Ohio you're about to hear about have a crucial role to
play in creating more employee-owned companies in this Nation
and may well be the most cost-effective way to do so.
As with the Employee Ownership Bank Act, we have great
hopes for the Work Act, that it will be passed, that statewide
programs will be developed and will flourish, and, most
importantly, that these programs will help create more
excellent employee-owned companies around the U.S.
Thank you.
[The prepared statement of Mr. Crystal follows:]
Prepared Statement of Jon Crystal
BRIEF HISTORY OF VEOC
Our Mission--Why We Were Formed
Too often, a surprisingly small number of business owners take the
necessary steps to prepare for one of the most important decisions they
will face: their departure from the business. As a result of this lack
of planning, the better opportunities may be lost and some owners are
forced to select among a limited number of less desirable options
including liquidation of assets or a sale to outside interests which
may result in the business being relocated. These actions can have a
significant negative impact on Vermonters, their communities and the
State as a whole.
One of the better alternatives is to sell the business to the
employees. Employee-owned companies tend to perform better, pay higher
wages, and provide better retirement and other benefits than non-
employee-owned firms. Ownership of a business by its employees can be
an extremely effective way to increase long-term sustainability with
all the associated benefits to employees, local communities and the
State.
The Vermont Employee Ownership Center, or VEOC, was formed in 2001
to address this need. The VEOC's mission is ``to promote and foster
employee ownership in order to broaden capital ownership, deepen
employee participation, retain jobs, increase living standards for
working families, and stabilize communities.'' Our mission statement is
very similar to that of the Ohio Employee Ownership Center, the
organization on which the VEOC was modeled, which was founded in 1987
and is based at Kent State University. You will hear today from Bill
McIntyre, the Program Director of the OEOC, about the impressive
accomplishments of the Ohio Center. Vermont is a much smaller State,
and our center has existed a much shorter time, but between our two
programs, you have evidence that statewide programs promoting and
fostering employee ownership can be effective under very different
economic and business conditions.
Why Employee Ownership is an Important Economic Development Tool
Why do we care so much about employee ownership? First, we care
because it helps retain local ownership of businesses and the jobs
within them. You hear much about ``sustainability'' these days, and we
believe that this model of business ownership is the most sustainable,
both in terms of retaining jobs and the longevity of the business. In
addition, this approach helps broaden the ownership of wealth. Studies
have shown that broad-based employee stock ownership plan participants
tend to accumulate more than twice the level of retirement assets of
employees in other companies. Finally, we care because it can be a
crucial ingredient in creating high-performance companies that are more
competitive--and that are great places to work. It helps engage
employees in the future of their own companies, and also tends to
create better workplaces.
There are now well over 10,000 companies in the U.S. with some form
of employee ownership, but there should be many more. The 30-40 such
companies in this State represent one of the highest per capita rates,
and that is due at least in part to the work of the VEOC. In helping to
establish similar centers in States around the Nation, the WORK Act
could contribute greatly to increasing the number of employee-owned
companies.
The best evidence in favor of employee ownership is provided by
real examples. You will hear today from some of Vermont's best-known
employee-owned companies, all of which are among Vermont's highest-
performing companies. We sometimes refer to the ``disproportionate
excellence'' of these companies--reflecting the fact that in Vermont at
least employee-owned companies seem to gain a greater share of
recognition and earn more awards than would otherwise be expected by
their modest numbers. We at the VEOC are devoted to the objective of
helping to create more companies like these.
Earlier this year we invited comments from key leaders of some
employee-owned firms in Vermont on the impact this has had on them.
These excerpts provide some of the strongest arguments to go this
route:
``Economic development is about helping companies form or
move to Vermont, grow, and then stay in State as they go
through ownership transitions. Employee ownership targets
company growth and retention. As in our instance, employee
ownership is an incredibly powerful tool to engage employees in
the future of a company, to help drive company success . . .
From just a job retention point of view, we are a compelling
story. I can tell you that if not for employee ownership, Will
Raap's next best option would have been to sell to a strategic
buyer from out-of-state, which with near certainty would have
meant a loss of most of our in-state jobs.''
Jim Feinson, President and CEO of Gardener's Supply
``We just recently completed our transition to 100 percent
employee ownership. This means, among other things, that the
60+ high-paying jobs that we have created in Vermont will stay
in Vermont and that we will continue to grow here . . . Our
company is among many who believe that employee ownership
exemplifies and promotes Vermont's unique values. And, most of
us also believe that increased employee ownership could be
valuable nationally as an approach to preserve and enhance
employment in companies of all types.''
Tom Adler, President of Resource Systems Group
The VEOC's Activities and Results So Far
Since the fall of 2002, when the VEOC embarked on its work, we have
focused on two main types of activity. The first of these is
educational work: getting the word out about employee ownership to
business owners, employees, economic development professionals,
business advisors and the general public. The point at which most
Employee Stock Ownership Plans (ESOPs) are formed is when business
owners are seeking a good way to exit from their companies. If they
don't know about this possibility and its merits, they won't consider
it. Getting ESOPs and other employee ownership structures on the map
for business owners and those who advise them has been one of our main
efforts since the beginning. We have had increasing success of late
partnering with other local and regional economic development
organizations both to support these educational activities and to
provide these professionals with basic tools and understanding of this
option to share with their clients.
We also work to plant seeds more broadly--in college classrooms, at
Rotary Clubs, at conferences and community forums. Our most important
educational outreach activity is an annual conference, which serves
both those just considering employee ownership as well as those in
employee-owned firms. To date, we have presented eight annual
conferences, with strong attendance every year. We also offer a variety
of introductory and intermediate level workshops around the State,
which cover basic business succession issues and the opportunities to
sell to employees.
Our second major activity has been to provide information and
technical assistance to those interested in exploring employee
ownership for their companies. Since our founding, we have had direct
conversations with representatives of over 165 different companies.
Thirteen of those companies subsequently implemented an ESOP or worker
cooperative structure. Another eight of those companies are either well
on their way to an ESOP or co-op or are very strong candidates. Since
this is Vermont, most of these companies are small--several of them
with fewer than 10 employees, several with 30 to 50--but occasionally
we have the opportunity to play a role in a larger company.
There is a manufacturing company with over 200 employees in a small
Vermont town that is on track to become 100 percent ESOP-owned next
month. This is a clear example of how employee ownership can preserve
local ownership and jobs. The husband and wife owners of the company
were considering offers to buy the company from several strategic
buyers from outside of Vermont. After a meeting with the VEOC, their
banker suggested they consider an ESOP and they quickly realized that
this was a way for them to exit and also keep the business operating in
its community, an outcome they very much wanted--and which would have
been very unlikely had they accepted one of the outside offers.
Once two transactions which are underway are completed, VEOC will
have directly aided 14 companies to become employee-owned with over 550
jobs impacted.
In addition to these two main activities, we also work with
existing employee-owned companies seeking to expand and improve their
ownership culture and the types and degrees of employee participation.
Much of this takes place at our annual conference, but we are also
currently preparing a shared training series to address these ongoing
needs.
We are now seeing the fruit of our earlier work in outreach and
education. It often takes years from the time when someone first gets
the idea that an ESOP or worker cooperative might suit their situation
until they take action. It is very possible that someone who attended
our conference for the first time this year will help create an ESOP in
2020. This particular pipeline is a long one. It takes persistence and
patience and a reliable funding stream to sustain these efforts.
Funding
Most often the transactions which result in a transfer of ownership
to employees involve a significant element of bank borrowing. While the
VEOC rarely plays a role in the financing aspects of the deal, it is
our understanding that timely access to capital has become a serious
hindrance on both the local and national stage. We strongly believe
that the U.S. Employee Ownership Bank Act can play an important role in
facilitating such deals and would have a positive impact on the numbers
of successful transactions.
Another funding need is that required to operate centers like ours.
VEOC's initial funding came from several foundations and, in 2002, a
Federal appropriation secured by then-Representative Sanders. We have
since developed several revenue streams, including income from
corporate sponsorships and our educational events, modest support from
the State of Vermont and, for the past 4 years, a grant from the Small
Business Administration that Senator Leahy secured for us. Government
support has been essential to the VEOC, but it has always felt tenuous
and temporary. The pursuit of private grants and other funding
continues to be necessary but also a distraction from our core work. A
Federal grant around which we could build our budget would make our
organization sustainable for the long haul.
Over the past 30 years there have been statewide employee ownership
programs in several other States--notably Massachusetts, Michigan, New
York, Oregon, and Washington. One of the main reasons these programs
have disappeared (at least temporarily) was the lack of dependable core
funding.
We believe that statewide programs like the VEOC and OEOC have a
crucial role to play in creating more employee-owned companies, and may
be the most cost-effective way to accomplish this. As with the Employee
Ownership Bank Act, we have great hopes for the WORK Act: that it will
be passed, that statewide programs will be developed and will flourish,
and, most importantly, that these programs will help to create many
more excellent employee-owned companies in the United States.
Senator Sanders. Jon, thanks very much.
We're delighted to have joining us as a State
representative from the Ohio Employee Ownership Center. Bill
McIntyre is here. Ohio has also been a leader in this area.
Bill, thanks very much for coming. Why don't you begin.
STATEMENT OF BILL McINTYRE, DIRECTOR OF THE OHIO EMPLOYEE
OWNERSHIP CENTER, KENT, OH
Mr. McIntyre. Thank you very much for the opportunity to
testify before the committee and to be involved in this
hearing.
I've worked at the Ohio Employee Ownership Center which is
an outreach center at Kent State University, partially funded
by the State of Ohio, partially funded by the U.S. Government,
partially funded by private foundations, donations, and some
fee-for-services rendered.
I have worked at the center for coming up on 8\1/2\ years
and with the passing of our founder and director John Loeb this
past December, I have assumed the role and responsibilities of
Director of the OEOC.
Prior to joining the center, I was Chief Financial Officer
for over 15 years at Comsonics, Inc., a 100-percent ESOP-owned
company in Virginia, where I was able to experience firsthand
how an ESOP could benefit employees on a personal,
professional, and financial basis.
Let me jump to talking about the impact of our center on
jobs. Since the inception of the OEOC in 1987 and June 30th,
2010, OEOC staff worked with 644 companies, employing almost
137,000 people, to explore whether employee ownership made
sense in their cases.
We assisted employees in buying part or all of 89
companies, creating 14,658 new employee owners and retaining or
stabilizing their jobs. Of the 89 employee-owned companies, 63
are still employee-owned. Eighteen were sold as financial
successes. Five were sold in distress and three were shut down.
Considering that 15 of the 89 were initially threatened with
shut down, in other words some fairly bright and insightful
business people analyzed those 15 companies' futures and
decided that the best solution was to shut all 15 of them down,
the fact that only three of the ESOP companies were shut down
out of the total of 89 that we've helped is quite impressive.
If every cent of our budget over our 23-year history were
allocated to job retention, which is a very unfair calculation,
the cost per job retained or stabilized would be about $719 per
job, and if you included only the cost in State support, it
would be $336 per job impacted. These costs are very low in
relation to the usual costs of job retention.
Let's talk about the Work Act and the Bank Act. Officially,
the Ohio Employee Ownership Center at Kent State University
supports the proposed Work Act and the U.S. Employee Ownership
Bank Act. Their passage would facilitate the establishment and
success of more employee-owned companies.
As stated above, the OEOC has had considerable positive
impact on jobs and wealth creation in Ohio. Other State
employee centers should yield similar results in their States.
The Work Act should be passed.
Obtaining financing for ESOP and worker-owned cooperatives
is a continual struggle. The U.S. Employee Ownership Bank Act
will facilitate that financing and will result in the creation
of more ESOPs and worker-owned cooperatives and prevent jobs
from being needlessly lost due to lack of available financing.
It should also be passed.
As supported by several research studies, ESOP companies
perform better than comparable non-ESOP companies. ESOPs and
worker-owned cooperatives are simply a better way of doing
business. Creating more of them will help not only the
individual employees but the companies themselves, their
communities, their States, and the Nation as a whole. Thank you
very much.
[The prepared statement of Mr. McIntyre follows:]
Prepared Statement of Bill McIntyre
The Ohio Employee Ownership Center (OEOC) at Kent State University
appreciates this opportunity to present its views and your willingness
to consider them.
BACKGROUND OF OHIO EMPLOYEE OWNERSHIP CENTER
The OEOC is a State-supported, non-profit, university-based program
established in 1987 to provide information and preliminary technical
assistance to Ohio employees and business owners interested in
exploring employee ownership. The OEOC also provides ownership training
to employee-owned firms. The OEOC is one of only three active State-
supported centers and the only one based at a university. In addition
to receiving funding from the State of Ohio, the OEOC receives funding
from the Federal Government, private foundations, donations and fees
for services rendered.
OEOC MISSION
The mission of the OEOC is to broaden ownership among working
Ohioans and to deepen that ownership through employee participation,
communication and training in the employee-owned sector. Our overall
aim is to anchor capital and jobs locally through participatory
employee ownership. That builds productive assets for working families
and increases community prosperity. Layoff aversion and economic
development are at the heart of the OEOC's mission.
OEOC PROGRAMS
The OEOC coordinates programs in Ohio in the following areas:
Outreach
Business Owner Succession Planning
Technical Assistance in situations where employee
ownership is considered:
Plant shutdowns and distressed companies
Retiring owners
Employee buyouts
Owners desiring cash for a portion of the company
State of Ohio's Prefeasibility Study Grant Program to
avert threatened job loss;
Referral of qualified service providers from professional
member database;
Administration of non-profit Common Wealth Revolving Loan
fund specializing in loans to employee-owned companies or cooperatives
Employee buyout transactions
Employee-owned start-up ESOP companies or cooperatives
Equipment and working capital loans to existing
employee-owned companies
Network of Employee-Owned Companies in Ohio that provides
educational and networking opportunities for the member companies
12-20 programs annually on topics ranging from ESOP
technical administration issues to communication strategies geared
toward audiences ranging from board members to upper management to
middle managers to hourly workers
Annual Conference attended by 400 employee owners and
other interested parties;
Customized training at employee-owned companies
Research on employee ownership
We have designed this as a coherent strategy to promote employee
ownership in one State. Outreach creates a demand for technical
assistance and builds political support. Succession planning is not
only a very cost effective economic development tool (``save jobs that
are already here'') but also helps create demand for employee ownership
technical assistance as selling to employees is one option of
succession planning. Technical assistance develops new employee-owned
companies and builds political support. Rural cooperatives frequently
develop through the succession planning process and also give rise to
some worker-owned cooperatives. Employee-ownership training,
organization development and Network programs all facilitate the
establishment of an ownership culture at companies, thereby helping
those companies realize improved corporate performance that results
from the combination of actual employee ownership and an ownership
culture. Our best-practice Network not only provides training but also
serves as a learning community for companies committed to employee
ownership. CWRLF is serving as a source of capital for some new and
existing employee-owned companies with the prospect of future growth
likely.
One of our projects, The Evergreen Model, in which we are
collaborating with the Cleveland Foundation and the Democracy
Collaborative, is demonstrating how a program can incorporate employee
ownership and be viable in a single impoverished city district with
43,000 inhabitants and be replicable in other cities in the State.
Indeed, the Evergreen Model has received national acclaim as a new
approach to help revitalize and solve some of the economic problems
associated with America's inner cities by employing low income
residents of those inner city neighborhoods in employee-owned
businesses that provide services for the anchor institutions of the
city. Our applied research and publications reinforce our outreach and
technical assistance, offering roadmaps of ``how to do'' participatory
employee ownership (especially in unionized settings) and for setting
up employee cooperatives in small businesses.
IMPACT OF OEOC ON JOBS
Since the inception of the OEOC in 1987 and June 30, 2010, OEOC
staff worked with 644 companies employing 136,958 to explore whether
employee ownership made sense in their cases. We assisted employees in
buying part or all of 89 companies, creating 14,658 new employee owners
and retaining or stabilizing their jobs.
Of the 89 employee-owned companies, 63 are still employee-owned, 18
were sold as financial successes, 5 were sold in distress and 3 were
shut. Considering that 15 of the 89 were initially threatened with
shutdown (in other words, some fairly bright and insightful business
people analyzed the 15 companies' futures and decided that the best
solution was to shut all 15 of them down), the fact that only 3 of the
ESOP companies were shut down out of the total that we've helped is
quite impressive.
If every cent in our budget over our 23-year history were allocated
to job retention, the cost per job retained or stabilized would be
about $719/job (the cost in State support would be about $336/job
impacted). These costs are very low in relation to the usual costs of
job retention.
IMPACT OF OEOC ON WEALTH CREATION
Employee ownership results in significant wealth creation for Ohio
workers. Through 2004-5, the most recent year for which we have
complete data, 64 of the 89 firms reported to the IRS that they had
created about $344 million in net equity for their employee owners,
while paying out more than $6.4 million to retirees that year.
We have analyzed the OEOC's wealth creation impact in studies in
2004, 2006 and 2008, and we have preliminary results from our 2010
study. The results from all four studies are included in the chart
below:
----------------------------------------------------------------------------------------------------------------
Date of OEOC study
----------------------------------------------------------------------------------------------------------------
Item 2004 2006 2008 2010 Prelim
----------------------------------------------------------------------------------------------------------------
Total number of companies with 69................ 79................ 85................ 89
which OEOC has worked that
became employee-owned.
Number of companies for which we 44................ 49................ 64................ 52
have wealth data.
Number of employees at those 4,831............. 9,800............. 11,640............ 5,549
companies for which we have
wealth data.
Fiscal year of company wealth 2001.............. 2003.............. 2004-5............ 2007
reports.
Total Assets created............ $300 million...... $349 million...... $421 million...... $253 million
Net Assets...................... $121 million...... $267 million...... $344 million...... $224 million
Net Assets per Employee......... $25,000........... $27,000........... $30,000........... $40,000
Payouts to ESOP Participants ................ $8.4 million...... $6.4 million...... $72.0 million
during the fiscal year of their
ESOP benefit.
Payouts to ESOP Participants not ................ ................ ................ $16.0 million
including the largest company,
which was making ESOP
termination distributions (the
company was sold).
----------------------------------------------------------------------------------------------------------------
Total Assets includes debt taken on to purchase shares from
retiring owners. The net asset number excludes the remaining
acquisition debt. In the case of new ESOPs which are 100 percent
leveraged initially, not only does the acquisition debt affect the net
value of employee equity, but also the heavy leverage against the
business reduces the business' value as well.
Clearly, employee ownership is a significant tool for wealth
creation for working people. Without employee ownership, these amounts
would all be zero for the employees at these companies.
The Net Assets per Employee figure shows a healthy increase across
the years. Why? Three primary reasons: (1) the general tendency of the
stock price per share for the ESOP companies to increase over the
years; (2) the general tendency over the years for ESOP participants to
be allocated additional shares of company stock into their ESOP
accounts; and (3) the general tendency for the ESOP trust to purchase
additional shares of company stock over time from selling owners; i.e.,
a 30 percent ESOP-owned company becomes a 40 percent ESOP-owned company
becomes a 60 percent ESOP-owned company, etc.
ESOPs are a ``get rich slow'' scheme, and the data appear to be
confirming that notion. ESOPs are not consistent with the ``get rich
quick'' schemes that seem to be so prevalent today, and these schemes
likely will not result in any lasting wealth creation for individuals,
companies or the Nation. ESOPs facilitate the creation of healthy,
lasting wealth.
Please note that the 2010 figures are preliminary, and the number
of companies for which we could obtain data is significantly lower than
the 2008 study. Hopefully, as we dig further into the data, we'll
identify additional companies for which data is available.
ADDED VALUE OF OEOC
As evidenced above, the OEOC has produced dramatic results through
the years. Yet, the impact is even greater when we drill down into the
numbers. General ESOP research has established that an ESOP by itself
does not result in improved corporate performance; however, an ESOP
combined with an ownership culture results in significantly improved
corporate performance in just about every measure of corporate
performance. We have some preliminary evidence that companies that are
members of Ohio's Network of Employee-Owned companies take heed from
our training programs and have more democratic employee ownership with
more employee participation and influence from the shop floor to the
boardroom, and, correspondingly, perform better than non-member Ohio
ESOP companies.
OEOC'S COMMON WEALTH REVOLVING LOAN FUND
The OEOC has managed the Common Wealth Revolving Loan Fund (CWRLF)
since 2004. CWRLF is a separate non-profit, 501(c)(3), entity. CWRLF
has a contract with OEOC to manage the loan fund. Just this week, CWRLF
was awarded $600,000 in funding from CDFI (Community Development
Finance Institution) funds which will bring CWRLF's total assets to
just over $2 million. CWRLF makes loans to employee-owned companies to
satisfy a variety of financing needs--ESOP or employee-owned
cooperative buyout, partial sale by retiring owner, plant or equipment
expansion, working capital, etc. Unfortunately, with its ability to
make a loan to an individual borrower limited to a maximum of $250,000,
CWRLF is unable to contribute in a significant way to many ESOP
transactions. Our objective is for CWRLF to become much larger;
however, currently, it is limited as to what it can accomplish.
Because ESOPs and worker-owned cooperatives have somewhat different
accounting rules than what bankers and other lenders typically see,
many bankers and other lenders are uncomfortable in making loans to
those companies. This often makes financing for ESOP and coop
transactions more difficult to obtain than financing for transactions
involving conventional companies. The idea of a U.S. Employee Ownership
Bank would greatly alleviate much of that difficulty and would, in
fact, provide an incentive for financial institutions to lend to
employee-owned companies.
REPLICATION OF OEOC
The OEOC has served as the model for the Vermont Employee Ownership
Center and is currently assisting the State of New York in re-
establishing its center modeled after the OEOC. An employee ownership
center has recently been established in Australia, again utilizing the
OEOC as a model and OEOC staff as mentors for the Australian staff.
Most recently, this month, representatives from Kentucky visited the
OEOC for a day long series of meetings with OEOC staff with the
intention of replicating the OEOC model in Kentucky.
RISK FOR STATE EMPLOYEE OWNERSHIP CENTERS UNDER CURRENT STRUCTURE
Employee ownership is a concept that is essentially non-partisan.
Elected officials of all political persuasions have supported it. But,
unfortunately, although the OEOC has survived quite nicely since 1987,
other State centers have not done so. To the best of our knowledge, 28
States passed legislation encouraging the creation of employee-owned;
however, Ohio is one of only 8 States that created a State-supported
program to achieve this end. Regrettably, as mentioned previously, only
3 State-sponsored centers exist now. In many cases, change of State
administration meant the end of the employee ownership center.
Historically, the OEOC was funded by the Ohio legislature; however,
due to the State's budget crunch, the legislature did not fund the OEOC
for fiscal year 2010. The OEOC programs are now funded at Governor Ted
Strickland's discretion through the use of Workforce Investment Act
funds administered by the Ohio Department of Development. While we are
very pleased with our current funding from the State of Ohio, we
recognize that when there is a new governor (and there will be a new
governor at some point in the future), there is a risk that the new
governor will deem the OEOC to be a program of the previous governor
and not support it. We are striving to avoid this fate, but we
recognize that it is a possibility.
Federal legislation providing ongoing funding for State employee
ownership centers would do much to eliminate this risk and would allow
us, and other centers like us, to concentrate on our core mission of
saving jobs and broadening employee ownership.
SUPPORT FOR WORK ACT AND U.S. EMPLOYEE OWNERSHIP BANK ACT
The Ohio Employee Ownership Center at Kent State University
supports the proposed WORK Act and U.S. Employee Ownership Bank Act.
Their passages would facilitate the establishment and success of more
employee-owned companies.
As stated above, the OEOC has had considerable positive impact on
jobs and wealth creation in Ohio. Other State employee ownership
centers should yield similar results in their States. The WORK Act
should be passed.
Obtaining financing for ESOP and worker-owned cooperatives is a
continual struggle. The U.S. Employee Ownership Bank Act will
facilitate that financing and will result in the creation of more ESOPs
and worker-owned cooperatives and prevent jobs from being needlessly
lost due to lack of available financing. It should also be passed.
As supported by several research studies, ESOP companies perform
better than comparable non-ESOP companies. ESOPs and worker-owned
cooperatives are simply a better way of doing business. Creating more
of them will help not only the individual employees but the companies
themselves, their communities, their States, and the Nation as a whole.
ADDITIONAL SUPPORTING MATERIAL--WORK ACT
The ``Worker Ownership Readiness and Knowledge Act'' (WORK Act)
seeks to spread ownership of productive assets among American workers
and to deepen that ownership through employee participation. Both
employee ownership and employee participation play major roles in
increasing employee wages, benefits, job security, and assets for
working Americans.
1. Employee ownership creates assets for workers who otherwise
would have less of them, and these assets aren't offset by reductions
in other pension plan contributions by employers.
Data: Only 19 percent of Ohio ESOPs in the 2004-6 study were
conversions from another pension plan; most of those were profit-
sharing plan conversions. So in four-fifths of Ohio ESOP companies, the
ESOP represents an additional pension plan. Moreover, 89 percent of
Ohio ESOP companies maintain at least one non-ESOP pension plan for
employees.
2. Part of the reason for this is employee-owned firms which
provide avenues for employee owners to participate in business
decisionmaking, which share information about business performance with
employee owners, and which do training for their employee owners on
using the participation system and understanding financial and other
business information, systematically outperform employee-owned
companies which don't do that and conventionally owned companies. So,
there's a performance bonus for participatory employee-owned companies
Data: At least a score of studies beginning with the General
Accounting Office's 1987 study have found gains in a variety of
indicators of corporate performance in closely held, participatory ESOP
companies. The gains are greatest in terms of indicators under the
direct control of employee owners, such as productivity and quality.
The 2000 Rutgers University study by Joseph Blasi and Douglas Kruse
found improve in annual sales growth to be +2.4 percent, annual
employment growth to be 2.3 percent and annual growth in sales per
employee to be +2.3 percent in ESOP companies over their previous
performance prior to instituting the ESOP. Our
1992-3 Ohio ESOP study which looked specifically at the relation
between avenues for participation and performance found no magic bullet
but consistent evidence of an additive effect: the more avenues for
participation there were, the greater the impact on performance. Open
book management and employee training play contributory roles but have
little impact in the absence of employee participation.
3. Majority employee-owned companies are more likely to have this
complex of high performance characteristics (especially participation)
than minority ESOPs.
Data: The 1992-3 and 2004-6 Ohio studies demonstrate that majority
employee-owned companies are more likely to evidence these high
performance traits than minority employee-owned companies.
4. Employees benefit: they receive somewhat higher wages, much
higher benefits, and significant wealth accumulation not bought at the
cost of reduction of other pension plans, and they are less likely to
be laid off.
Data: The primary comparative study of wages and benefits in
matched ESOP and non-ESOP firms was the 1998 Washington State study by
Peter Kardas, Jim Keogh, and Adria Scharf. This study, Wealth and
Income Consequences of Employee Ownership, found median hourly wages in
ESOP firms to be 5 percent to 12 percent higher than the median hourly
wage in the comparison companies, and that the value of retirement
plans to be 150 percent higher in ESOP companies ($32,213) than matched
non-ESOP companies ($12,735). The average annual ESOP companies'
retirement contribution per employee per year was about 10 percent of
pay while non-ESOP companies average about 3.0 percent. The 2004-6 Ohio
study had similar findings: 28 percent of ESOP companies paid higher
wages versus 8 percent which paid lower wages, and 47 percent had
higher benefits and 2 percent had lower benefits than their
conventionally owned competitors.
5. Employee-owned companies provide significant community economic
benefits. Relative to their conventionally owned competition, they are
less likely to lay off in downturns, less likely to outsource/off shore
work, and relatively more likely to reinvest locally.
Data: The 2004-6 Ohio Study found that 35 percent of Ohio ESOP
companies outperformed their industry in terms of employment while 9
percent underperformed their industries, 47 percent outsourced/
offshored less work than their conventionally owned competitors and
none outsourced/offshored more, and 31 percent reinvested more while 17
percent reinvested less than their conventionally owned competitors.
6. Most of the publicity for employee ownership in the media
concerns troubled companies. These make up, however, only 2-5 percent
of employee-owned companies. While there have been some well publicized
failures in this group, many have done well. These buyouts save jobs
which otherwise would have been lost.
The reason in part is doing rigorous feasibility studies to
determine whether--and how--the firm or plant can succeed under a
change to employee ownership, whether the employees need outside
partners, how much debt the employee-owned firm can service, etc. This
bill encourages those feasibility studies.
7. Despite the publicity about troubled companies, about 70 percent
of ESOPs are set up as part of ownership succession planning in closely
held businesses. Many business owners nearing retirement without heirs,
however, know nothing about employee ownership as a business succession
strategy. Encouraging the use of employee ownership--ESOPs in larger
businesses, co-ops in smaller firms--in business ownership succession,
a major function of this bill, will increase job retention in small and
medium-sized closely held companies.
Data: The Real World of Employee Ownership, p. 26; 2004-6 Ohio ESOP
survey, question 9.
8. There is an inverse relationship between tax expenditures for
employee ownership and improved company performance. Higher tax-
expenditure ESOP companies (largely publicly traded) tend to have lower
performance impacts. They do, however, create significant wealth for
their employees.
Data: The least participatory employee-owned firms--which include
almost all of the public companies--in the 1992-93 Ohio study
constituted 43 percent of the firms but received about 90 percent of
the tax expenditures for employee ownership. The top 57 percent
received about 10 percent of the tax expenditures (cf., The Real World
of Employee Ownership, pp. 169-72).
9. High impact of peer networks on improving the performance of
companies via the laggards acquiring high performance characteristics.
The ``Worker Ownership Readiness and Knowledge Act'' encourages
formation of peer networks within individual States.
Data: Members of Ohio's Employee-Owned Network, a peer network of
employee-owned firms which approximates a learning community,
outperform non-members by a factor of roughly 2 in terms of
participation, communication, training and employee interest in
decisionmaking in the 1992-93 Ohio Study. They were 7 times as likely
to have non-managerial employees elected to their boards of directors
and 1\1/2\ times more likely to have improved their profitability
relative to their industries (cf., The Real World of Employee
Ownership, pp. 167-69).
10. State programs have a high impact in increasing rates of ESOP
creation in small companies & spreading best practices. But they are
rare. Only Massachusetts, Ohio and Vermont currently have State
employee ownership programs, though New York is actively working to
revive its program. The ``Worker Ownership Readiness and Knowledge
Act'' speaks directly to this need to increase formation of employee
ownership in smaller, closely held companies.
Data: National Center for Employee Ownership studies of the New
York, Ohio, and Washington State programs in the early 1990s found that
these programs increased the rate of ESOP formation in closely held
firms but had no impact in the publicly traded sector.
Data: The OEOC statistics are cited in the body of our statement
above.
These numbers compare favorably with other strategies for creating
wealth for working people because the State program serves as a
catalyst to put productive assets which can multiply themselves into
the hands of Ohio working families.
Sources of data: National data are taken from the National Center
for Employee Ownership's summary of studies, ``Employee Ownership and
Corporate Performance,'' located at http://www.nceo.org/library/
corpperf.html. The 1992-93 Ohio study results were published as John
Logue and Jacquelyn Yates, The Real World of Employee Ownership
(Ithaca: Cornell University Press, 2001). The 2004-6 Ohio study results
are currently unpublished.
additional supporting material--the u.s. employee ownership bank act
Employee ownership is a proven tool for job retention and job
creation and for economic development in Ohio communities. The Ohio
ESOP study cited in The Real World of Employee Ownership (Cornell
University Press, 2001) found that 49 percent of employee-owned
companies outperformed their industries in job creation and retention,
50 percent matched their industries, and only 1 percent under-performed
their industries. Employee-owned businesses clearly contribute to
healthy local economies.
Employee ownership benefits individual Ohio firms and their
communities in many ways. For individual firms, it can create a market
for a departing owner's stock, provide significant Federal tax breaks,
reduce debt service burdens, complement a commitment to participative
management, and improve corporate performance. For the local community,
employee ownership can be an economic development strategy used to
retain businesses that might otherwise be liquidated at the retirement
of an owner without a successor, anchor the ownership of businesses in
the community, secure jobs that might otherwise be moved out of State,
provide additional capital for reinvestment and expansion and increase
the competitiveness of Ohio businesses.
The Cost
Cost per job retained, created or stabilized through the Ohio
Employee Ownership Assistance Program cumulatively through June 30,
2010, in the firms that implemented ESOPs was $336 per job in Ohio
Department of Development funds, a small number compared to the costs,
financial, physical and psychological, associated with unemployment.
The program is highly cost effective because it helps people help
themselves.
As an economic development strategy, employee ownership yields
long-term benefits in four additional areas:
(1) Employee-owned firms reinvest in capital improvements in
existing facilities at a higher rate than other firms. While this is
motivated primarily by the employee-owners' interest in job security,
it helps to increase the competitiveness of Ohio firms and to anchor
capital and jobs in our communities;
(2) Employee-owned firms also reinvest in their human capital at a
higher level than is common in our region. The consequence is a
movement up the scale toward high performance work systems with higher
productivity and profitability.
(3) There is growing evidence that employee-owned firms have a
higher economic multiplier effect in their communities, in part because
of a preference for local suppliers and in part because anchoring the
ownership of productive wealth in a community among employees generally
supports higher levels of home ownership, purchases of consumer
durables and higher retirement benefits;
(4) As cited in the chart in the body of this statement, employee-
owned firms create significant assets for Ohio families. That wealth
creation effect also anchors capital locally and helps solidify our
communities' economic base.
In short, employee ownership has proven to be an effective means to
retain and increase jobs in Ohio. Today, some 350 partially or wholly
employee-owned companies headquartered in Ohio employ more than 300,000
people.
Obstacles
Nevertheless, for many years, the Ohio Employee Ownership Center
has had to struggle with issues of how to obtain adequate loans and
equity for employee-owned companies. In theory, capital looks so easy
to obtain; in practice, however, employee-owned companies and small and
medium-sized companies in general, have trouble getting financing. The
median size of the companies we work with is about 100 employees doing
about $10 million in sales. Of the 75 companies that are part of Ohio's
Employee-Owned Network, only 4 have more than 500 employees. In short,
we work largely with classic small and mid-market companies. And they
are often strapped to get capital for growth.
Every year, in our technical assistance at the OEOC, we have lost
at least one otherwise viable employee buyout because of the lack of
timely, friendly capital. To put it bluntly, almost every year for the
last 15, we have seen at least one viable employee buyout effort fail
with the loss of 100-200 jobs because no one could round up financing
in a timely fashion.
Following are four potentially viable buyouts in Ohio that could
have benefited from a friendly lender:
CSC Steel, Warren, 1,350 employees. The closing of CSC was
announced in the third quarter of fiscal 2001. The ODJFS Rapid Response
program funded a two-stage prefeasibility study. Stage one determined
that the facility was viable and that the shutdown occasioned by lack
of debtor in possession working capital had dramatically diminished the
value of the plant while making a re-start extremely difficult for
employees because of the working capital needs. This stage one study
found employee ownership could work with an outside equity partner.
Stage two determined whether a partner for the employees could be
located and apparently found one in Renaissance Partners, a Pittsburgh-
based investment fund. Throughout the first quarter of fiscal year 2002
Renaissance Partners continued their due diligence for a purchase and
the employee buyout group was optimistic about a successful sale and
re-opening of the facilities. Immediately following the end of the
quarter, however, Renaissance Partners announced that it had ended its
interest in pursuing the purchase of CSC; there were, Renaissance
Partners told the press, better opportunities available for turnarounds
in the aftermath of September 11th.
HPM, Mt. Gilead, 500 employees. In fiscal year 2001 a two-phase
study was commissioned. Phase one reached positive conclusions about
the viability of a restructured HPM provided a partner could be found
for the employees. The second phase of the study then offered three
potentially viable options for restructuring the company. During the
first quarter of fiscal year 2002, however, HPM failed to keep control
of the company. The consequence was that the lender, Fleet/First
Boston, seized HPM's assets, threw the company into bankruptcy and
closed down the plant. Fleet proceeded to sell the assets of the
company to a buyer of dubious ability to perform in terms of keeping
the plant open, or, perhaps, even completing the deal. This was in
preference to selling to the partner whom the employees had found who
pledged to run the company and to sell to the employees as an exit
strategy.
Massillon Stainless Inc. Massillon, 92 employees. Massillon
Stainless, Inc. was a stainless cold rolling operation. Major markets
for stainless steel strips include household appliances, food
processing and restaurant equipment, elevators, architectural trims,
pipes and tubing and transportation equipment. At the request of the
Steelworkers Local Union and members of salaried management, a
prefeasibility study was commissioned. The buyout group selected Locker
Associates to perform the study. While the study was being conducted,
the company announced plans to close the facility.
The study was completed October 24, 2002 and concluded that the
facility could restart and operate profitably if it could find an
outside equity investment partner and assure itself of a supply of raw
materials. The study also noted that a minority ESOP would make sense
given the employees' strong commitment to the company and its excellent
labor-management relations. A supply of raw materials was found,
however, ultimately, an equity partner was not found, and the plant was
closed. The machinery was sold to interests in India.
Cold Metal Products, Youngstown, 116 employees. Cold Metal Products
was a manufacturer of strip steel products for precision parts
manufacturers. The company announced closure of the plant on August 15,
2002 and then filed for bankruptcy the next day. Subsequently, the Cold
Metal Employee Buyout Group filed an application for a prefeasibility
study grant that the OEOC approved.
The Buyout Group selected Kokkinis & Associates to do the study.
The study got underway late in September and was completed in early
December 2002. The study found potential for a successful restart of
the facility, however, because of the capital requirements of such a
restart, it recommended the employees work to get an outside equity
investor involved that would entertain a minority employee ownership
position for the workers. The plant stayed closed, and the equipment
and material was auctioned off in January 2007.
The Proposed Legislation
The impetus behind this draft legislation is the fact that the
United States has lost a couple million good-paying manufacturing jobs
over just the last few years. The loss of manufacturing jobs has been
going on for some period of time, although the pace of job loss has
picked up in the more recent past as we have battled with economic
recession, the crisis in the steel industry and the adverse effects of
massive international trade deficits.
The U.S. Employee Ownership Bank Act is, in essence, aimed at job
retention and job creation and proposes to retain more manufacturing in
America by helping American workers buy their plants, educating them in
employee participation strategies so they can be more competitive while
anchoring capital locally in the process.
The act proposes to establish a ``Bank'' within the U.S. Treasury
Department that will provide grants to the States to provide technical
assistance, participation training, education and outreach along with
loan guarantees and/or subordinated loans to help employees purchase
the business provided a prefeasibility study shows that employee
ownership is a viable alternative. The existence of such a ``Bank''
would, in our opinion, have made a positive difference in the outcome
of the four buyout efforts cited above.
The act also includes a provision that would require an employer
closing a plant to provide 90 days advance notice before such plant
closing and to offer the employees the opportunity to purchase the
business. This provision would have been of particular utility in the
case of Brainard Rivet in Girard, OH. Brainard Rivet is now employee
owned and part of Fastener Industries, a 100 percent employee owned
company in Ohio. However, it was a major struggle to get to that point.
Brainard was part of Textron when the parent shut down this profitable
specialty fastener operation so that it could move the production to a
non-union plant in Virginia. The move didn't work out because the
employees in the Virginia plant did not have the skill level needed to
be competitive. The turning point in Brainard's road to employee
ownership came when it was discovered that Textron was sending much of
the Brainard business to competitors rather than running it at its
Virginia plant. This revelation resulted in political pressure from the
Ohio Congressional delegation as well as from State and municipal
representatives. Since Textron was the recipient of a number of
government contracts, it became more cooperative in the employee's
efforts to buy the facility.
(Contact Information: Bill McIntyre, Program Director, Ohio
Employee Ownership Center, Kent State University, 113 McGilvrey Hall,
Kent, OH 44242; 330-672-3028 (general); 330-672-0332 (direct); 330-672-
4063 (fax); [email protected]; www.oeoc
kent.org.)
Senator Sanders. Bill, thank you very much, and thank you
for the pioneering work you guys have done in Ohio.
Let's go now to some of the companies in Vermont that I
think have done an extraordinarily good job becoming a model
for other companies and we're very proud of the work that they
have done.
Let's start with Steve Voigt who is the Chief Executive
Officer of King Arthur Flour in Norwich. Steve.
STATEMENT OF STEVE VOIGT, CHIEF EXECUTIVE OFFICER, KING ARTHUR
FLOUR, NORWICH, VT
Mr. Voigt. Thanks. King Arthur Flour is America's oldest
flour company. It traces its history back to 1790, the year
George Washington delivered the first State of The Union
Address.
Not known as a big business magazine, The Smithsonian
actually did an article on us on our 200th Anniversary.
Building on what is now 220 years of experience, King
Arthur Flour's leadership believes that our next 220 years
needs to be rooted in employee ownership. Similarly, we believe
broader employee ownership will make America stronger.
King Arthur is the No. 1 brand of flour in New England
groceries and the No. 1 whole wheat, organic, and bread flour
across the entire United States. We have a growing catalog and
Web business that carries high-quality specialty flour, mixes,
ingredients, everything you need to bake great stuff and the
information and recipes to help you have success.
We also have a bakery, a cafe, teaching center, classrooms,
all at Camelot. That's our name of our building in Norwich,
Vermont.
In the early 1990s, we had less than 20 employees and
started down a path of open book and participative management.
We used phrases like ``act like an owner.'' So when, in 1996,
Frank Sands, who was fifth generation owner of the King Arthur
Flour Company, decided to sell, he started by selling a part of
it to the employees. It seemed natural. We were already acting
like owners.
ESOP for us was part of succession strategy and part of
foundation for building the type of workplace and the type of
company that we were striving to build. The initial experience
with ESOP went well and 3 years later, the second block of
stock was sold to what was then the majority owner ESOP.
In 2004, we became 100 percent owned by the ESOP and in
less than a year from today, all the debt that we incurred
during that process will be fully paid down.
Today, King Arthur employs 180 year-round with seasonal
employment bringing that total to 400 and we're actively
expanding and seeking permanence as we speak right now to help
our growth.
A little detail about ESOP. You can always make it better
and one of the great things about this State is we share our
ideas about making things better. We're changing or we've
changed recently our ESOP to let anybody in with 800 hours a
year. It used to be a thousand.
The big benefit for us is the seasonal employment. We have
a lot of people between 800 and 1,000 and so they're so
important to us delivering our services during the holidays to
let them participate in the upside of employee ownership is
really critical and that was a great change.
Employee ownership suits us well. We've been growing 16
percent annually for the past 10 years to about 80 million
today. We're among the fastest-growing companies in Vermont
over the longer time frames. King Arthur's available now in
every State and we're bringing more great products to consumers
all the time.
King Arthur's a mission-driven company. We have a higher
amount of creative energies that our employees bring to their
work because they care about the future of their friends that
they have at work and the families and communities that depend
on us.
We do really hard stuff all the time, like balancing the
goals of work, life, small town living, employee ownership,
open book communication, both for all the employees but also
governance, transparency about how we are governed.
On the other hand, ambitions for high long-term
profitability and growth, hard work, growing our market share,
very high professional standards, and tough-minded evidence-
based decisionmaking.
So employee owner productivity at King Arthur is strong. We
think about improvements all the time. We've built a brand
around consistent quality, so building better quality
management systems, not just taking costs out fits our
definition of productivity. Our high bar for quality extends
beyond the product to the info and resources we provide people
who bake and by extension to the team that we hire and motivate
to make this all happen.
When this is working, we have near zero turn-over. Overall,
we've maintained a less than 3 percent employee turnover over
long periods of time. The growth and success of King Arthur has
created opportunities for many internal promotions and career
advancement and hence better compensation.
The larger business base, our sales, increases the dollar
benefit of employees' improvement ideas which then further
justifies higher wages. Completing market competitive wages has
the strong upside potential of both King Arthur stock and
annual profit-sharing, and I have two other quick props.
Senator, one is a Harvard Business School DVD Video, a case
on employee ownership. It was done 5 years ago, and I go down
every fall, I'll be going down in October again to teach three
sections, probably 150 students, about how employee ownership
works.
And lastly, proudly on the top of every bag of flour we say
100 Percent Employee Owned, 100 Percent Committed to Quality,
and in focus groups the public understands that if the workers
own the business, they're not going to put junk in the food.
[The prepared statement of Mr. Voigt follows:]
Prepared Statement of Steven Voigt
King Arthur Flour is America's oldest flour company, tracing its
history back to 1790, the year George Washington delivered the first
State of the Union address. Building on these 220 years of experience,
King Arthur's leadership believes our next 220 years need to be rooted
in employee ownership. Similarly, we believe that broader employee
ownership will make America stronger.
King Arthur Flour is the No. 1 flour brand in the New England
grocery trade, and the No. 1 whole wheat, bread and organic flour in
the United States. Our growing catalog and Web business carries high
quality specialty flours, mixes, ingredients, utensils, and hundreds of
other baking-related items and information to help create great baking
experiences. All this, a bakery, cafe and education center is available
at ``Camelot,'' our retail store in Norwich, Vermont.
In the early 1990s, with less than 20 employees we began using open
book and participative management. The refrain was ``act like an
owner,'' so when in 1996 Frank Sands, fifth generation owner decided to
sell part of his company to the employees, it seemed like a natural.
ESOP for us was part succession strategy and part foundation for the
type of workplace we were striving to build. The initial experience
with ESOP went well and in 1999 a second block of stock was sold to the
now majority-owner ESOP. In 2004, the company became 100 percent owned
by its ESOP and less than a year from now, the debt that financed the
ownership transition will be completely paid down. Today King Arthur
employs 180 year round with seasonal employment bringing that total up
to 400.
Recent refinements to the ESOP includes dropping number of hours
for eligibility from 1,000 to 800 to permit more returning seasonal
workers who are so key to our success during the busy holiday period to
participate in the ESOP as well. We often find some of our best regular
workers from the seasonal pool.
Employee ownership suits us well. We have been growing 16 percent
annually over the past 10 years, to $80 million, and are among the
fastest growing companies in Vermont over longer timeframes. King
Arthur flour is now available in grocery stores in all 50 States and we
are bringing more great products to consumers all the time such as the
only unbleached cake flour and a line of gluten free mixes that
actually taste good.
King Arthur is a mission driven company. We have a higher amount of
the creative energies of our employees because they care for the
futures of their friends at work and their larger families and the
vision of our company. We do the really hard stuff as a matter of
course; such as balancing goals like: work-life balance, small-town
living, employee ownership, open-book transparency in both governance
and communication to employees, and the environment, with on the other
hand, ambitions for: high long-term profitability and growth, hard
work, growing our market share, exacting professional standards,
sophisticated analysis, and tough-minded evidence-based decisionmaking.
Our employee-owner productivity is strong. We think about
improvements all the time. We are a brand built around consistent
quality, so building better quality management systems, not just
``taking costs out'' fits our definition of productivity. Our high bar
for quality extends beyond product to the information and resources we
provide people who bake, and by extension to the team we hire and
motivate to make this all happen. When this is working we have near
zero turnover. Overall, we have maintained a less than 3 percent
turnover over long periods of time.
The growth and success of King Arthur Flour has created
opportunities for many internal promotions and career advancement and
hence better compensation. The larger business base increases the
dollar benefit of employees' improvement ideas, justifying higher
wages. Complementing market competitive wages is the strong upside
potential from both King Arthur stock and annual profit sharing.
(See www.kingarthurflour.com for more background.)
Senator Sanders. Steve, thank you very much.
Cindy Turcot is the Chief Operating Officer of Gardeners
Supply in Burlington.
Cindy, thanks a lot for being here.
STATEMENT OF CINDY TURCOT, CHIEF OPERATING OFFICER, GARDENERS
SUPPLY COMPANY, BURLINGTON, VT
Ms. Turcot. Thank you. Gardeners Supply, for those who
don't know, is the Number 1 gardening direct marketing company
in the Nation and we are primarily doing that through catalog
and our Web site.
We were founded in 1983 by Will Raap and at that time we
had about 10 employees and I was one of those, luckily one of
those employees that started back at that point.
We currently now have four locations in Vermont and we have
275 employees and about a hundred seasonal employees. So we've
had quite a bit of growth over our time and employee ownership
was always a part of our business plan.
For those of you who know Will, he started Gardeners Supply
when he was in his mid 30s and Will did not create an ESOP for
ownership succession at that time. He created it because he
wanted to do shared ownership and shared ownership was really
important to him because he felt like if each of us had a stake
in the company, we'd be more committed, more dedicated, and
more invested in how our company ran.
We started our ESOP in 1987 with that as our premise. Now,
ultimately, 25 years later, we became a 100 percent ESOP-owned
and that was an ownership succession strategy.
How it worked for us is that in 1987, we started our ESOP
and over time for the 12 years we actually did it really
slowly. We didn't have the financing to be able to do it more
quickly. So over 12 years we went up to about 19 percent and in
1999, we did our first leveraged transaction, a bank-financed
transaction, to get to 30 percent. In 2006, we went to 45
percent the same way, and then this past December to 100
percent which was both a seller-and bank-financed deal.
When Will really considered his personal succession plans
to get liquidity, we really did look at different options.
Obviously employee ownership was one of them. We also looked at
should we get acquired, should we bring in outside capital,
should we do a management buy-out?
Ultimately, what we looked at was that if we were bought
out by someone else or brought in outside capital, they would
not have kept us in Vermont. The contact center would have been
moved and consolidated, potentially offshore. Our distribution
center would have been moved to the Midwest. That would have
been devastating not only for us as employees but also for the
community, a devastating loss if we were to be moved out.
So employee ownership became the only answer for us because
we wanted to control our destiny. We wanted to keep our jobs
and we wanted to continue to be the great company that we are.
Gardeners, as many of you may know, is locally and
nationally recognized for our innovative and participatory work
culture. We speak on it, we win awards on it, and we do our
best to make it the kind of environment anyone would want to
work in.
We involve our employees in decisionmaking. We ask for
feedback and we get it and we take action and as our business
has its ups and downs, I think our employees are instrumental
in helping us figure out how to get through it and be more
financially and culturally sound.
Our turnover rate is a third of the national average.
Seventy-five percent or more of our jobs are internally
fulfilled and I can vouch for that as I started in an entry-
level position in 1983.
Our ESOP will eventually become at least three times what
the national average is for 401(k) contribution and we have a
really generous cash profit-sharing plan and part of it we pay
equally because we recognize it's harder to live at the bottom
end of the scale. So as a percent of pay, it's really important
that those people get a higher percentage of cash profit-
sharing than the highest-paid person. We really think that
employees really directly benefit from that and that they
naturally then think and act like owners because they're seeing
what the benefit is for them.
We're a company committed to doing the right thing in all
parts of our business and obviously employee ownership has been
a cornerstone, but it was hard. We started in 1987, we didn't
have the technical resources. We didn't have the Vermont
Employee Ownership Center. So we really learned the ins and
outs and we had to do a lot of that ourselves, although more
recently have had more support to do that.
So when I look at the two bills Senator Sanders is putting
out there, both of them, having employee ownership centers or
bank financing, which we couldn't get in the beginning, are
both key, and I think as new companies come through they need
that help and support so that we can have more employee
ownership and I'll end by saying that I wish that we had had
both when we started.
So thanks.
[The prepared statement of Ms. Turcot follows:]
Prepared Statement of Cindy Turcot
Our Mission--``We are in business to spread the joys and rewards of
gardening, because gardening nourishes the body, elevates the spirit,
builds community, and makes the world a better place. We are the market
leader in developing and marketing innovative, earth-friendly products
and information that help people garden more successfully.''
Gardener's Supply was founded in 1983 by Will Raap and a handful of
enthusiastic Vermont gardeners. Today, we serve millions of gardeners
nationwide offering everything from seedstarting supplies and garden
furniture to flower supports and garden carts. As our company grows, we
remain passionately committed to providing garden-tested, earth-
friendly products that will help our customers have more fun and
success in their gardens. We are a direct marketing company selling
through our printed catalog and our on-line Web site.
We have four locations in Vermont which include a manufacturing
facility in Georgia, Vermont, a Distribution Center in Essex, Vermont,
a Retail Store, Customer Contact Center and Administrative offices in
Burlington, Vermont and a Retail Store in Williston, Vermont. In 1983,
we started with 10 employees. We currently have 275 regular employees
and employ over 100 seasonal employees.
Employee ownership has been a part of our business plan since the
beginning. Although Will Raap was in his mid-30's when he started
Gardener's Supply and not thinking of succession, he already believed
in shared ownership. He wanted to share ownership with all employees
with the belief that if each of us has an ownership stake, we will be
more committed, more productive and more invested in the success of the
company. Ultimately, 25 years later, employee ownership became the
vehicle for succession planning for Will.
In 1987, Gardener's Supply started an Employee Stock Ownership Plan
(ESOP). Over the next 12 years, as profits allowed, the ESOP purchased
small amounts of stock increasing the ESOP ownership to 19 percent. In
1999, the ESOP made its first leveraged (bank financed) transaction
increasing ownership to 30 percent. In 2006, the ESOP made its next
leveraged transaction to 45 percent ownership. Now, 22 years later, the
ownership transition changed from a sharing of ownership with Will to a
succession transition. In December 2009, the ESOP bought the remaining
stock (through both bank and seller financing) and Gardener's Supply
became proudly 100 percent ESOP owned.
When Will Raap considered his personal succession plans and desire
to get liquidity out of his lifelong investment in building Gardener's
Supply, we looked at all of the options in front of us. We looked at
bringing in outside capital, being purchased, a management buyout and
of course, employee ownership. We knew that if we were to be purchased
by an outside company, the likelihood of jobs remaining in Vermont
would be small. The loss of these jobs would have been devastating to
our community. We knew both our Customer Contact Center and
Distribution Center, in the least, would be moved out of Vermont and
consolidated. We wanted to stay in Vermont, we wanted to have control
of our destiny, we wanted to keep our jobs and we wanted to continue
the great company we created. Employee ownership was the only answer
for us.
In addition to being the No. 1 gardening direct marketing company
in the country, we are nationally known for our innovative and
participatory corporate culture. We have an open book policy--we share
financial information in many forms, we have monthly staff meetings,
our President holds annual Town Meetings, we call on our employees to
help us in tough times and we are always asking for ideas for
continuous improvements. We ask for feedback, we listen to feedback and
we take action on that feedback. Employee ownership is the key to
creating an engaging and fulfilling workplace for our employees and for
the company getting maximum input, commitment and contribution from
all.
Employee productivity and satisfaction is high and employee
ownership is the key reason why. We are always finding ways to improve
our processes. And, we share the gains with our employees. We have a
generous cash profit sharing program for all employees. A portion of
the program is paid equally.This gives a higher percentage of profit
sharing to the lowest paid employees recognizing it is harder to live
at the bottom of the pay scale than the top. In addition, the
contributions to their retirement from the ESOP will be significantly
higher than a normal employer match to a 401(k). Because employees
directly benefit as owners from an increased share price, they
naturally think and act like owners and they receive benefits that
exceed those paid to employees in our non-employee owned peer
companies.
For us, employee ownership is at the heart of our corporate
culture. We have won many awards over the years for our communications
excellence and employee satisfaction. We have won the Annual Award for
Communications Excellence from the ESOP Association, Vermont's Best
Places To Work Award, Governor's Work Site Wellness Award, the Chamber
of Commerce Entrepreneurial Spirit Award, the Burlington Business
Association's Business of the Year award and Will Raap has won numerous
awards for his personal contributions to our community.
The effectiveness of our employee ownership culture is evidenced in
our low turnover rate and high rate of internal promotion. Our turnover
rate has ranged between 4-6 percent over the past 5 years, a
significantly lower rate than national averages over any industry but
especially in the direct marketing industry. We have had strong growth
throughout our history. Our employee base has increased from 10 to 275.
We have a strong commitment to internal promotion. The majority of our
positions are filled internally so the opportunity for growth in both
position and compensation has been positive for our employees.
We are a company committed to improving the world through
gardening. We donate 8 percent of our profits to support programs and
organizations that are using gardening to improve the quality of
people's lives and the health of our environment. We started a Garden
Crusader Award which recognizes people across the country who are using
gardening to improve the quality of life in their community. In
Vermont, our company's local donations program helps support more than
50 organizations. We also founded, and continue to be a lead sponsor
for the Intervale Center, which oversees 350 acres of farmland and a
wide range of urban farming initiatives in Burlington, Vermont.
We are a company committed to doing the right thing in all parts of
our business. Employee ownership has been a cornerstone to our success
and to the future of our business. Becoming employee owned has not been
easy. When we started, technical advice and information about ESOPs was
not readily available. Bank financing has been challenging to get. We
have had an ESOP for many years and have learned the ins and outs of
getting to 100 percent ESOP ownership. However, new companies need
access to resources to get them started. Having a State-wide employee
ownership center and having access to funding can be a key piece for a
company to get started.
As a company that worked hard to get to 100 percent employee
ownership, we see the pressing need and support the bills Senator
Sanders is proposing.
Thank you for the opportunity to share our story.
(For more information about our company, please visit
www.gardeners.com.)
Senator Sanders. Cindy, thank you very much. Jeff Clark is
the Operations Manager of Chroma Technology in Bellows Falls.
Jeff, thanks for being here.
STATEMENT OF JEFF CLARK, OPERATIONS MANAGER, CHROMA TECHNOLOGY
CORP., BELLOWS FALLS, VT
Mr. Clark. Thank you, Senator. My name is Jeff Clark. I'm
the Director of Operations for Chroma Technology, a 100-percent
employee-owned company in Rockingham, Vermont.
Chroma Technology is a manufacturer of precision optical
filters. Precision optical filters are used in applications,
such as biomedical imaging, DNA sequencing, and fluorescent
microscopy by hospitals, universities, and research facilities.
In 1991, Chroma Technology was formed by six people. These
founders wanted to work for themselves. So they started Chroma
Technology and modeled it after a law firm. It was a
partnership and everyone was equal.
Initially, their salary was $30,000, flat $30,000 a year,
which was a good salary to earn in Brattleboro, Vermont, in
1991. Each founder purchased and received a thousand shares of
stock, had equal vacation, health benefits, and they split any
profits equally twice a year.
When the company started to grow, they added more people.
They continued with the same approach. New employees were
partners, as well, with the same salary and benefits. The
company also paid for the 200 shares of stock for each person
that were allocated each year. Profits continued to be split
equally amongst the owners.
In 1996, there were adjustments to the salary structure.
The adjustments changed the $30,000 flat to $35,000 to $55,000
over the course of 5 years. All the other benefits remained the
same.
In 2000, the salary range increased to a maximum of $75,000
a year, regardless of the job position, and in 2007, because of
market forces, Chroma instituted a four-tier system with
different salary ranges within each tier, based upon the skill
sets needed for the different positions but no one's salary was
cut and most people at Chroma still earned way above market
rate.
So today, Chroma's benefit package includes salary, company
healthcare plan, profit-sharing twice a year, company-funded
SEP IRA, stock distribution, dividends on stock if declared,
vacation 3 weeks after 1 year and 4 weeks after 5 years with 10
personal sick days.
Becoming an employee-owned and operated company allows
Chroma to have a unique approach to management. Since we're
responsible to ourselves, we need to work within the system we
create. This means that we're not forced to take the textbook
approach to management.
Our business structure is a little bit different than most.
We try to minimize management. When the company was smaller, it
was easy to meet as a group, discuss problems and make
decisions. No one person was in charge. However, as we grew to
30, 40, and 50 people, it became more difficult to meet as a
group. Decisions in departments were made by departments but no
one was looking after the company as a whole.
In 2005, the company developed a steering committee. This
committee facilitates information and makes sure the decisions
that need to be made within each department are made. It works
with the departments not as managers but as collaborators. It's
a fine line to walk but when it's done correctly it's the best
way.
Since we do not have direct supervisors, we spread some of
the burden for running the company to all employee owners. This
allows us to minimize the amount of people we need to employ
which in turn keeps our costs and prices down.
Our turnover rate is extremely low in comparison to other
companies within our industry. Chroma's turnover for Fiscal
Year 2010 was 6.74 percent and for the 2009 Department of Labor
statistics for our industry turnover rate was 24.1 percent.
In recent years, Chroma has expanded its footprint. In
2007, we opened our first sales office in Germany. In 2009, we
opened two sales offices in the United States, one in North
Carolina and one in Oregon. In July of 2009, we also opened a
subsidiary in Burlington, Vermont, named 89 North, which
employs five engineers, one microbiologist, and an office
manager, and, of course, it's employee-owned, and, finally, in
2011, we're going to be opening a representative office in
Xiongma, China, for the sales of filters.
Over the past 2 years, Chroma has also won multiple
awards--2009 and 2010, Inc. Magazine named Chroma as one of the
fastest-growing privately-owned companies in the United States;
2009 and 2010, WorldBlu listed Chroma as one of the most
democratic workplaces worldwide; 2010, Inc. Magazine and
Winning Workplaces named Chroma as one of the best places to
work in the country.
Over the past 13 years, I've seen something special. You
can see it in the data and you can hear it in the stories. I'm
proud to have been given the opportunity to work and own such a
company like Chroma.
I'm hopeful that the Work Act and the U.S. Employee
Ownership Bank Act bills are passed so other employees will
have a chance to learn about employee ownership and the funds
will be available to make it happen.
Thank you.
[The prepared statement of Mr. Clark follows:]
Prepared Statement of Jeff Clark
My name is Jeff Clark and I am the Director of Operations at Chroma
Technology, a 100 percent employee owned company in Rockingham,
Vermont. Chroma Technology is a manufacturer of precision optical
filters. These optical filters are used in applications such as
Biomedical imaging, DNA sequencing, and Fluorescent microscopy by
hospitals, universities and research facilities.
In 1991 Chroma Technology was formed by a group of six people.
These founders wanted to work for themselves so they started Chroma
Technology and modeled it like a law firm; it was a partnership and
everyone was equal. Initially, their salary was a flat $30,000/year,
which was a good salary for someone living in Brattleboro, Vermont in
1991. Each founder purchased and received 1,000 shares of stock. They
had equal vacation, health benefits and split any profits equally twice
a year.
When the company started to grow and they added more people, they
continued with the same approach. New employees were partners as well,
with the same salary and benefits. The company also paid for the 200
shares of stock per person that were allocated each year. Profits
continued to be split equally amongst the owners.
In 1996, there were adjustments to the salary structure. The
adjustments changed the flat $30,000/year to a range of $35,000 to
$55,000/year over 5 years and all the other benefits remained the same.
In 2000, the salary range increased to a maximum $75,000/year over
10 years regardless of the job position.
In 2007, because of market forces, Chroma instituted 4 ``tiers'',
with different salary ranges within each ``tier'', based upon the skill
sets needed for the different positions. No one's salary was cut and
most people at Chroma continue to earn above market rate.
Today Chroma's benefit package includes:
Salary
Company funded health care plan
Profit Sharing twice/year
Company funded SEP IRA
Stock distribution
Dividends on stock if declared
Vacation: 3 weeks after 1 year, 4 weeks after 5 years and
10 Personal/Sick days
Being an employee owned and operated company allows Chroma to have
a unique approach to management. Since we're responsible to ourselves,
we need to work within the system we create. This means that we are not
forced to take the ``text book'' approach to management. Our business
structure is a little different than most. We try to minimize
management. When the company was smaller, it was easy to meet as a
group, discuss problems and make decisions. No, ``one'' person was in
charge. However, as we grew to 30, 40 and 50 employees, it became more
difficult to meet as a group. Decisions in departments were made by the
departments, but no one was looking after the company as a whole. So,
in 2005, the company developed the steering committee. The committee
facilitates information and makes sure the decisions that need to be
made within each department are made. It works with the departments;
not as managers, but as collaborators. It's a fine line to walk, but
when done correctly, it's the best way.
Since we do not have direct supervisors, we spread some of the
burden of running the company to all employee/owners. This allows us to
minimize the amount of peoples we need to employ, which in turn, keeps
our costs and prices down.
Our turnover rate is also extremely low in comparison to other
companies in our industry. Chroma's turnover in fiscal year 2010, was
6.74 percent while the 2009 department of labor statistic for our
industry is 24.1 percent.
In recent years, Chroma has expanded its footprint. In 2007 we
opened our first sales office in Germany which is staffed by an
Applications Scientist. In 2009 we opened two sales offices in the
United States; one in North Carolina and one in Oregon. They are
staffed with OEM Sales Engineers. In July of 2009 we also opened a
subsidiary in Burlington, VT, name is 89 North. It is employee owned
and has 5 engineers, one microbiologist and an office manager. They
design, manufacture, and sell fluorescent-based light sources. Finally,
in February of 2011 we will be opening a representative office in
Xiamen, China. It will be staffed by an OEM sales engineer and an
Applications Scientist.
Over the past 2 years Chroma has also won multiple awards:
2009 and 2010 Inc. Magazine: Named Chroma as one of the
Fastest Growing Private Companies in the United States; (Aug. 2009 and
Aug 2010).
2009 and 2010 WorldBlu: Listed Chroma as one of Most
Democratic Workplaces Worldwide: (April 13, 2010).
2010 Inc. Magazine/Winning Work Places: Named Chroma as
One of the Best places to work in the country: (June 2010).
Prior to coming to Chroma, I worked for some other large
corporations. They were very efficient at manufacturing products,
cutting costs and keeping an eye on the bottom line which was good for
their stockholders. Chroma has these same concerns, but we also
consider the impact of our decisions on our employee owners and local
communities.
Over the past 13 years at Chroma, I've seen something special. You
can see it in the data and hear it in the stories. I'm proud to have
been given the opportunity to own and work at such a company. I am
hopeful that the WORK Act and the United States Employee Ownership Bank
Act bills are passed so other employees will have a chance to learn
about employee ownership options and the funds will be available to
make it happen.
(Jeff Clark, Chroma Technology, 10 Imtec Lane, Rockingham, VT
05101: 1-802-428-2527; [email protected].)
Senator Sanders. Jeff, thank you very much.
Tom McCabe is the Treasurer, Pizzagalli Construction
Company in South Burlington.
Tom, thanks for being here.
STATEMENT OF TOM McCABE, TREASURER, PIZZAGALLI CONSTRUCTION
COMPANY, SOUTH BURLINGTON, VT
Mr. McCabe. Thank you, Senator Sanders, and thank you for
championing the cause of ESOPs in Washington.
We're a $400 million general contractor. We're located in
South Burlington. Our company employs approximately 750
employees in about 10 States.
The employee owners of Pizzagalli celebrated 50 years of
business in the Spring of 2008. The company was founded and
continues to be headquartered in Vermont. It's grown from
humble beginnings with two young brothers who installed a flag
pole foundation at the Post Office in Bilbury, Vermont.
It's grown from there to regularly employing nearly a
thousand people to construct buildings and water treatment
plants throughout the United States.
In 1998, the owners began to transition the management of
the company to a new generation of leadership and in 2001
formed an ESOP to transition ownership. In 2009, the company
also became a 100-percent employee-owned.
The founders decided to sell the company to the people who
had helped them make their business a success rather than an
outside firm. They wanted the employees to reap the benefits of
ownership, to continue what they helped create, and take
control of their own destiny.
Employee ownership has been a foundational element of who
we are and the decisions we make every day. Because employee
owners share in the benefits of the company's success, they've
come to understand what they do directly impacts the company
and what impacts the company impacts them.
I have a couple examples of how our employees, for
instance, keep costs down to improve their share value. We made
a presentation a few years ago to all of our employees as an
effort to make them understand that what they do has a positive
impact on how we run the business and we compared the increase
in net income, the company's net income, from saving a third,
one-third of a penny on every dollar we spend in the field, the
cost of constructing a project, versus saving 10 percent of our
overhead or our back office costs.
The saving of a third of a penny on every dollar in the
field increased our profitability by 20 percent and saving 10
percent on our overhead just had a marginal increase in our
profitability.
So a few months after that, one of our vice presidents was
out at a project and he noticed three craft workers, the guys
in the field, sort of hustling across the field rather quickly
and the health and safety of our employees is paramount to us,
particularly in the construction industry. It's very important.
So he called out to the men and told them, he said, hey,
slow down, you've got to think about safety first. So they
wandered over to him and said, hey, wait a minute, we're just
working on our third of a penny.
[Laughter.]
Mr. McCabe. True story. Another example is our health and
wellness program. Employee ownership helps people have a
greater sense of control over their company, their jobs, their
selves, and because we're constantly talking about how things
they do have an impact on them from work and the company
standpoint, we use the same concept to promote a state-of-the-
art health and wellness program which our employees have taken
a significant responsibility for their own health.
Prior to implementation of the program, 40 percent of our
employees over a 2-year period didn't use healthcare systems at
all. Forty percent never saw a doctor, never had a mammogram,
never had a physical, nothing. In contrast with that today,
just 3 years after implementing the program, over 90 percent, a
little different stat, but 90 percent of our employees who were
identified by an independent party as being high risk for
future health programs are engaged with a health professional,
a coach, provided to the employees at no additional cost who's
helping them deal with their problems, if you will, and it's
not a doctor visit to deal with sickness. It's a visit with a
healthcare professional, someone who is not sick and wants to
stay that way.
We've seen the number of employees with high cholesterol
drop 12 percent during that period and obesity is down 5
percent. Most impressively, our cost per month per employee for
health insurance has not increased in 3 years.
The last example would be overall company performance and
how it translates into employee owner stock price and
retirement benefit. We've had our best years in the history of
the company in terms of bottom line in 2007, 2008, and 2009.
We are scheduled, we are on track to have a similar type of
year in 2010. While the rest of the stock market's been
faltering, we've thrived and flourished, and we attribute much
of that success to the employee owners who are ensuring our
engine is firing on all cylinders.
Thank you.
[The prepared statement of Mr. McCabe follows:]
Prepared Statement of Tom McCabe
Employee owners at Pizzagalli Construction celebrated 50 years of
business spring of 2008. The company was founded and continues to be
headquartered in Vermont. It has grown from humble beginnings with two
young brothers installing a flagpole foundation in Middlebury, Vermont,
to regularly employing nearly a thousand people who construct buildings
and plants throughout the United States.
In 1998, the founders began to transition management of the company
to a new generation of leadership and in 2001 formed an ESOP to
transition ownership to the employees. In 2009, the company became 100
percent employee owned.
The founders decided to sell the company to the people who had
helped make their business a success rather than to an outside firm.
They wanted the employees to reap the benefits of ownership, to
continue what they had helped create, and to have control over their
destiny.
Employee-ownership has become a foundational element of who we are
and the decision we make every day. Because employee-owners share in
the benefits of company success, they have come to understand what they
do directly impacts the company and what impacts the company impacts on
them.
Several examples may help. We made presentations a few years ago in
an effort to help employees understand how they could make a positive
impact on the value of the company. We compared the increase in net
income of saving \1/3\ of a penny on every dollar spent in the field
versus saving 10 percent of our overhead costs. In essence, saving a
\1/3\ of a penny on every dollar spent in the field increased our
profitability over 20 percent whereas saving 10 percent on overhead
only marginally increased profitability.
One of our vice presidents was visiting a project a few months
after the presentation. He noted three craft workers moving rapidly
across the project. The health and safety of our employees is of upmost
importance so the vice president yelled out to these men that they
needed to slow down and think safety first. The three walked over to
the vice president and politely told him that they were just working on
their \1/3\ of a penny.
My second example is about our health and wellness program.
Employee ownership helps people have a greater sense of control over
their company, their jobs, and their self. Because we are constantly
talking about how the things they do have an impact on them, from a
work and company standpoint, we used this same concept to develop and
promote a world class health and wellness program in which our owners
are taking significant responsibility for their own health.
Prior to implementation of the program, 45 percent of our employees
over a 2-year period did not use the healthcare systems at all. These
employees did not get a physical, mammogram, colonoscopy . . . nothing.
I contrast that with what is happening today, just 3 years after
implementing the program. Over 90 percent of our employees identified
by an independent party as being at high risk for future health
problems are engaging with an independent professional health coach
provided at no cost to the employee. This is not a doctor visit to deal
with sickness. It is a visit to a healthcare professional by someone
who is not sick and wants to stay that way. We have seen the number of
employees with high cholesterol drop 12 percent and obesity is down 5
percent. Most impressively, our cost per month per employee has not
increased in 3 years.
For my final example, I'll use overall company performance as it
translates into an employee owner's stock price and retirement benefit.
We have had our best years, in terms of bottom line results, during
2007, 2008 and 2009. It appears we are on schedule to have a similar
year in 2010. While the rest of the stock market has been faltering, we
have thrived and flourished. I attribute much of this success to owners
who are ensuring our engine is firing on all cylinders.
Senator Sanders. Tom, thank you very much.
I think in our State we have a lot to be proud of from the
stories that we've heard and there are other stories out there,
but I just want to thank the four companies who have been here
today.
Now I want to turn to two people who have years and years
of experience in the concept of employee ownership. I remember
when I was Mayor of Burlington, Bruce Seifer helped me put
together a meeting where we had hundreds of people coming out
in the auditorium at City Hall there which made me realize that
this really was a potent issue.
So, Bruce, why don't you say a few words about your
perspective on employee ownership?
Bruce is the Assistant Director for Economic Development in
CEDO in the City of Burlington.
STATEMENT OF BRUCE SEIFER, ASSISTANT DIRECTOR FOR ECONOMIC
DEVELOPMENT, COMMUNITY AND ECONOMIC DEVELOPMENT OFFICE,
BURLINGTON, VT
Mr. Seifer. Thank you, Bernie. Thank you for the
opportunity to testify at the hearing.
I have worked, as Bernie mentioned, in employee ownership
since 1983 when I was hired by the City of Burlington and
Bernie was Mayor at that time. I started in 1983. The City of
Burlington worked with Chris Mackin, who you will hear from in
a minute. Chris worked with the Industrial Property
Association, with Jon Crystal, and we created a long-term
economic development framework that focused on local ownership
with a preference for employee ownership.
The overarching economic development approach focuses on
jobs and people and the concept of local ownership. The focus
is on fusing local business opportunity with employee
development. It's a smart approach to root businesses and the
workforce in our community and have them become part of our
economy for generations to come. We're hoping for 220 years.
We are still following this overarching economic
development framework 27 years later because we have a firm
belief that this supports and fosters a strong local economy.
As we heard from Cindy, Gardeners Supply is a shining
example. They have benefited from this approach which has in
turn served our community.
We started working with them over 23 years ago at the
conference Bernie talked about, Bill came, and they worked
diligently over the years when they were a small little company
and they've grown tenfold since that time and recently, as you
heard, sold their company to all their workers. That's
something I'm truly proud of.
The City of Burlington provided financial and technical
resources to support the establishment and development of the
Vermont Employee Ownership Center. Senator Sanders provided
funding and Senator Leahy, as well, follow-up funding which has
provided, I think, the State of Vermont an opportunity for
companies to work together in this industry and to foster the
growth and development of those firms.
Through the efforts of the Employee Ownership Center in
Vermont, a number of firms have decided to become employee
owned and also, importantly, they've provided information to a
broad range of business people to help them consider employee
ownership as an option to seriously consider.
When I studied accounting in college, they didn't teach
employee ownership. I'm glad to hear that Steve goes down to
Harvard. It's not part of the lexicon in the colleges or in
high schools and I think it needs to become so people can
understand that this is a viable opportunity.
Vermont and the Nation, I think, would benefit if there
were more financial and technical resources available to
support employee ownership in States around the Nation. The
choice of employee ownership is derived from the following
assumptions that we've looked at over the years: that
successful employee-owned companies over the long term provide
for stable employment opportunities since key corporate
decisions will tend to be made by residents with a long-term
interest in the future of our local communities, that
successful employee-owned companies will strengthen their local
economy as they both retain wages and profits and are more
likely to be retained and invested by the employee owners.
You heard Gardeners Supply have four locations in Vermont.
They were 15 when we started working with them.
That successful employee-owned businesses are more familiar
with local resources and institutions developing a higher-
trained and promote local residents, thereby promoting a higher
percentage of quality employment opportunities for local
residents.
I asked Cindy when I got here, are you the Cindy Davis? I
looked at an old article. She was quoted as Cindy Davis and now
she's been promoted to somebody who's helping to run the
company, but back then she wasn't.
Employee-owned and controlled companies should particularly
be encouraged because of their demonstrated potential and
performance potential, the breadth of local ownership which
they can provide and the quality of employment opportunity
which affects the business over time.
Two bills that Senator Sanders has proposed will be a big
step forward for rooting our firms in our communities and
leading to better-quality jobs and spread economic democracy.
The communities in the United States will benefit by retaining
and growing businesses, thereby creating more jobs. In this
way, our political democracy would also support our economic
democracy.
Lastly, I'd say employee ownership is a growing trend in
Vermont that can spread across the Nation. This would help to
stabilize local communities by creating jobs, preserving and
growing the tax base, and providing opportunities for common
people to build wealth.
Thank you, Senator Sanders, for the opportunity to testify
and I welcome the opportunity to respond to any questions.
[The prepared statement of Mr. Seifer follows:]
Prepared Statement of Bruce Seifer
Thank you Senator Sanders for the opportunity to testify at this
hearing.
My name is Bruce Seifer. I am the Assistant Director for Economic
Development for the City of Burlington's Community and Economic
Development Office or CEDO. I have worked on employee ownership since
1983 when I was hired by the City of Burlington. Senator Sanders was
Mayor of Burlington at this time.
Starting in 1983, the City of Burlington, working with Chris Mackin
of the Industrial Cooperative Association, created a long-term economic
development framework that focused on Local Ownership with a preference
for Employee Ownership.
The overarching economic development approach focuses on Jobs and
People and the concept of locally owned businesses. The focus is on
fusing local business opportunity with employee development. It is a
smart approach to root businesses and their workforce in your community
and have them become part of your economy for generations to come.
We are still following this overarching economic development
framework 27 years later, because we have a firm belief this supports
and fosters a strong local economy. Gardeners Supply is one example of
a company which has benefited from this approach and which in turn has
served our community. We started working with them over 23 years ago
when they were still a small company. They have since grown tenfold and
recently sold 100 percent of the company to their workers.
The City of Burlington provided financial and technical resources
to support the establishment and development of the Vermont Employee
Ownership Center (VEOC). VEOC is a good example of having the employee
owned businesses work together through an organization that fosters
their growth and development. Through the efforts of VEOC, a number of
firms have decided to become employee owned. They also have provided
information to a broad range of businesspeople to help them consider if
employee ownership is an option to seriously consider.
Vermont and the Nation would benefit if there were more financial
and technical resources available to support Employee Ownership in
States around the Nation. The choice of employee owned businesses
derives from the following assumptions:
That successful employee owned businesses will, over the
long-term, provide more stable employment opportunities since key
corporate decisions will tend to be made by residents with a long-term
interest in the future of local communities.
That successful, employee owned businesses will strengthen
their local economies as both wages and profits are more likely to be
retained and reinvested by employee owners.
That successful employee owned businesses, being more
familiar with local resources and institutions, are more likely to
hire, train, and promote local residents, therefore promoting a higher
percentage of quality job opportunities for local residents.
Employee owned and controlled businesses should be particularly
encouraged because of:
Their demonstrated performance potential. Studies have
found employee owned businesses to outperform conventionally owned
business structures on measures of productivity and profitability;
The breadth of local ownership which they can provide--in
placing long-term strategic decisions that could affect the local
economies in the hands of a broader number of local actors than one or
two local entrepreneurs;
The quality of the employment environment they can create
by involving local residents in decisions which affect companies that
they own; and
The fundamental equity and fairness of employee ownership
as a business structure--which helps distribute the gains of economic
success to the people most responsible for that success--the blue,
white and green collar employees working under the same roof together.
The two bills proposed by Senator Sanders would be a big step
forward in rooting our firms in our communities and leading to better
quality jobs that spread economic democracy. The communities in the
United States will benefit by retaining and growing businesses thereby
creating more jobs. In this way our political democracy would also
support economic democracy.
Employee ownership is a growing trend in Vermont that could spread
across the Nation. This would help to stabilize local communities by
creating jobs, preserving and growing the tax base and providing
opportunity for the common people to build wealth over time.
Thank you Senator Sanders for the opportunity to testify, and I
welcome the opportunity to respond to any questions.
(Contact Information: Bruce Seifer, Assistant Director for Economic
Development, City of Burlington Community and Economic Development
Office, 149 Church Street, Burlington, VT 05401; Tel: (802) 865-7179/
email: [email protected].)
Senator Sanders. OK. Bruce, thank you, and thank you for
the work you've been doing for years.
Last but not least is somebody I've known for almost 30
years. I don't want to embarrass him but he is one of the
fathers, if you like, of the worker ownership movement in the
United States of America. He has been active on this issue
successfully for so many years.
Chris Mackin, thank you very much for being with us.
STATEMENT OF CHRISTOPHER MACKIN, PRESIDENT, OWNERSHIP
ASSOCIATES, INC., CAMBRIDGE, MA
Mr. Mackin. Thank you, Senator Sanders. My name is
Christopher Mackin. I have worked professionally in the field
of employment since 1978. It's been 32 years.
I run a private consulting firm based in Cambridge,
Massachusetts, by the name of Ownership Associates, that
provides assistance to the community of employee-owned firms
nationwide.
I serve as a member of the core faculty of the Harvard
Trade Union Program where I teach an annual course on this
topic called Capital Strategies for Labor, and I'm a Special
Advisor to American Working Capital, LLC, a merchant banking
firm providing financing for employee-owned firms.
In addition to those vantage points on the field, during
the time period 1998 through 2008, my company managed the
Massachusetts Office for Employee Involvement in Ownership or
Mass EIO, a State program regarding employee ownership
analogous to the Ohio and Vermont programs.
Mass EIO was funded entirely with State dollars and was
closed or, perhaps more optimistically, frozen in 2008 as a
result of the State budget crisis in Massachusetts.
There remains strong interest in providing this
Massachusetts office and hope that S. 2909, the Work Act, will
provide a means to achieve that goal.
I've been asked by hearing organizers to comment on how the
legislation introduced by Senator Sanders might strengthen our
local and national economies and contribute to decent-paying
jobs.
In order to respond to that request, I'd like to first
comment on my role as practitioner, advising companies of
various sizes and shapes around the country, and, second,
comment in my role as a contributing academic to something
called the Shared Capitals and Research Project, a 13-year
research project funded by the Russell Sage Foundation and the
Sloan Foundation, and based at the National Bureau of Economic
Research.
I served as one of the original organizers for this
research project in 1997 and contributed to one of the newly-
published studies to be found in a book published earlier this
year by the University of Chicago Press, Senator Sanders' alma
mater, that I'd like to present to Senator Sanders. This book
is called Shared Capitalism at Work: Employee Ownership,
Profit-Sharing, and Gain-Sharing in the American Economy. If
you would hand that to him?
First, if I might, a couple of observations from my own
personal experience in the field.
In my role running the State office I provided assistance
to a community of approximately 125 employee-owned businesses
that collectively employed 25,000 Massachusetts residents. Most
of these firms were organized as ESOPs but half a dozen were
organized as industrial or workers cooperatives.
According to the last formal Census performed in 2006, the
median size of these companies was 110 employees. The
overwhelming majority of these cases follow the standard
profile: privately-owned closely-held businesses where owners,
motivated by a combination of tax incentives and belief in the
concept of employee ownership, have sold these businesses
gradually through an employee stock ownership trust
representing their employees.
Three observations about these cases. First, these
companies are largely successful, typically representing the
life's work of the owner entrepreneurs. Second, because these
firms are successful, the owners have alternatives in the form
of active suitors who wish to absorb them into existing
business platforms, and, third, following this last point, had
these companies not been sold internally to employees, the
overwhelming majority of the jobs that they created would be
gone quietly and without a trace.
Business failures, plant closings where people lose their
jobs make headlines. The everyday sale of businesses, even the
sale internally to employees, do not. To the accepted public
policy rationale of using employee ownership to increase
productivity and company performance we should therefore add
the important fact of job preservation.
Few of the businesses helped by employee-ownership
legislation already on the books or under discussion today,
involve the rescue of companies near commercial extinction.
Many, if not most, of these businesses and the jobs associated
are extremely viable but instead at risk of a more quiet form
of extinction of being absorbed elsewhere, including overseas,
unless this internal option, the employee ownership option,
remains viable. Both of these pieces of legislation would serve
to address that problem.
The second point I'd like to make based on my experience as
a practitioner is that this is a vignette really and it's a
formative interaction that I have that I was sharing ahead of
time with our friends from King Arthur Flour.
It's some work I did 15 years ago for a company called G.W.
Lisk Corporation in Clifton Springs, New York. G.W. Lisk
manufactures solenoids which are complex starter devices used
in the automobile and aeronautical industry.
In 1995, my company was hired to deliver introductory ESOP
training to the company's 600 employees. The CEO of this
company, a gentleman by the name of Drew Morris, watched over
every one of our sessions with an eagle eye. It seemed that
this rather forceful and flinty Republican CEO had a concern or
two about these Cambridge consultants, likely Democrats or
worse, that he was about to let loose on his workforce.
Fortunately for us, Mr. Morris was sufficiently satisfied
with what he saw during the Monday morning sessions and he
invited my colleague and I to lunch. As we waited for our meal
to be delivered at a nearby restaurant, one could see out the
window to a large community hospital that Mr. Morris had helped
to found.
Next to it sat several buildings of the Lisk Corporation.
Slightly above our heads in clear view to all was a television
screen broadcasting the nonstop business news with the Wall
Street ticker crawl streaming across the bottom of the screen.
During a lull in conversation and some babble from the
television commentator about the stock market took over the
room, Mr. Morris pointed forcefully towards the television
screen and literally sneered. ``That's not capitalism,'' he
exclaimed. He then pivoted in his seat towards one of his
company buildings and pointed once in the direction of the
plant. He said, ``That's capitalism.''
I swallowed hard. Because of that incident I felt a
connection with this flinty Republican businessman who'd begun
the process of sharing ownership of his family business with
employees that exceeded the connection I felt with many of my
liberal Democratic fellows in Harvard Square.
The point is a simple one and I will conclude with this.
Employee ownership is an ideologically, ambidextrous issue.
That quality may be the single most important strength as we
look forward to using this idea as a plank in any future
economic policy. It's safe to say, and there's an entire book
in front of you, Senator, that the research is close to settled
on this issue, that this is a high-performance strategy that
creates value and creates jobs and the two pieces of
legislation you've introduced would help mightily to bring this
issue further into other parts of our country.
Thank you.
[The prepared statement of Mr. Mackin follows:]
Prepared Statement of Christopher Mackin
My name is Christopher Mackin. I have worked professionally in the
field of employee ownership since 1978, a span of 32 years. I run a
private consulting firm based in Cambridge, Massachusetts by the name
of Ownership Associates that provides assistance to the community of
employee-owned firms nationwide. I serve as a member of the core
faculty of the Harvard Trade Union Program where I teach an annual
course on this topic called Capital Strategies for Labor and I am a
Special Advisor to American Working Capital, LLC, a merchant banking
firm providing financing for employee owned firms.
In addition to those vantage points on the field, during the time
period 1999 through 2008, my company managed the Massachusetts Office
for Employee Involvement and Ownership or MASSEIO, a State program
promoting employee ownership analogous to the Ohio and Vermont employee
ownership centers. MASSEIO was funded entirely with State dollars and
was closed, or perhaps more optimistically, frozen in 2008, as a result
of the State budget crisis in Massachusetts. There remains strong
interest in reviving this Massachusetts office and hope that S. 2909,
the WORK Act might provide the means to accomplish that goal.
I have been asked by hearing organizers to comment upon how the
legislation introduced by Senator Sanders might strengthen our local
and national economies and contribute to decent paying jobs. In order
to respond to this request, I would like to first comment in my role as
a practitioner, advising companies of various sizes and shapes around
the country and second comment in my role as a contributing academic to
something called the Shared Capitalism Research Project, a 13 year
research project funded by the Russell Sage Foundation and the Sloan
Foundation and based at the National Bureau of Economic Research. I
served as one of the original organizers of this research project in
1997 and contributed to one of the newly published studies to be found
in a book published earlier this year by the University of Chicago
Press that I would like to present to Senator Sanders. This book is
called Shared Capitalism at Work: Employee Ownership, Profit Sharing
and Gain Sharing and Broad-Based Stock Options.
First, if I might, a couple of observations from my own personal
experiences in the field. In my role as a contractor to the State of
Massachusetts to manage the Massachusetts Office for Employee
Involvement and Ownership I provided assistance to a community of
approximately 125 employee owned businesses that collectively employ
over 25,000 Massachusetts residents. Most of these firms are organized
as ESOPs, about a half dozen are organized as industrial or workers
cooperatives. According to the last formal census performed of these
firms in 2006, the median size of these companies was 110 employees.
The overwhelming majority of these cases followed the standard profile;
privately owned/closely held businesses where owners, motivated by a
combination of tax incentives and belief in the concept of employee
ownership sold these businesses gradually to an Employee Stock
Ownership Trust representing their employees.
Three observations about these cases. First, these companies are
largely successful, typically representing the life's work of founding
owner/entrepreneurs. Second, because these firms are successful, their
owners have alternatives in the form of active suitors who wish to
absorb them into an existing business platform and third, following
from this last point, had these companies not been sold internally to
employees, the overwhelming majority of jobs they had created would be
gone, quietly and without a trace.
Business failures, plant closings where people lose their jobs make
headlines. The everyday sale of businesses, even a sale internally to
employees, do not. To the accepted public policy rationale of using
employee ownership to increase productivity and company performance we
should therefore add the important fact of job preservation. Few of the
businesses helped by employee ownership legislation already on the
books or under discussion today involve the rescue of companies that
are on the brink of commercial extinction. Many if not most of these
businesses and the jobs associated with them are commercially extremely
viable but instead at risk of a more quiet form of extinction of being
absorbed elsewhere, including overseas, unless the internal option, the
employee ownership option, remains viable. Both S. 2909, the WORK Act,
that can help ensure that business owners are made aware of this
alternative and S. 2914, the Bank Act that can help finance necessary
transactions decrease the risk of job loss and promote job
preservation.
The second point I would like to make based on my practical
experience in this field stems from a particularly memorable, even
formative, interaction that took place 15 years ago at a company called
the G.W. Lisk Corporation in Clifton Springs, New York. G.W. Lisk
manufactures solenoids, complex ``starter'' devices used in the
automobile and the aeronautical industry. In 1995 my company was hired
to deliver introductory ESOP training to G.W. Lisk's 600 employees. The
CEO of this company, a gentleman by the name of Drew Morris, watched
over every one of our sessions with an eagle eye. It seemed that this
rather forceful and flinty, Republican CEO had a concern or two about
these Cambridge consultants, likely Democrats or worse, that he was
about to let loose upon his workforce. Fortunately for us Mr. Morris
was sufficiently satisfied with what he saw during the morning
sessions. He had invited my colleague Loren Rodgers and I to lunch.
As we waited for our meal to be delivered at a nearby restaurant
one could see out the window the large community hospital that Mr.
Morris had helped to found. Next to it sat several buildings of the
G.W. Lisk Corporation. Slightly above our heads in clear view to all
was a television screen, broadcasting non-stop business news with the
Wall Street ticker crawl streaming across the bottom of the screen.
During a lull in the conversation as some babble from the television
commentator about the stock market took over the room, Mr. Morris
pointed forcefully toward the television screen and literally sneered.
``That's not capitalism'' he exclaimed. He then pivoted in his seat
toward one of his company buildings and pointed once again, this time
in the direction of the plant. ``That's capitalism!''
I swallowed hard. In that instant I felt a connection with this
flinty Republican businessman, who had begun the process of sharing
ownership of his family business with his employees, that exceeded the
connection I felt with many of my liberal democratic pals in the coffee
shops of Harvard Square. The point here is a simple one. Employee
ownership is ideologically ambidextrous issue. That quality may be its
single most important strength as we look forward to using this idea as
a plank in any future economic policy.
While it is ideologically flexible, what employee ownership also
appears to do is to distinguish what we might call ``responsible''
capitalism from its almost purely speculative, finance-driven evil
twin, ``irresponsible'' capitalism. Responsible capitalists can be
found in companies across this country and its proponents can be found
in both of our major political parties. So can irresponsible
capitalists. I therefore applaud the efforts of Senator Sanders to take
the lead on this issue and urge him to find common ground with leaders
of the Republican party who are ready to make similar and necessary
distinctions. In the wake of the financial crisis of recent years, S.
2909 and S. 2914 are two pieces of legislation that contribute toward a
species of ``responsible'' capitalism that is needed today more than
ever before.
Finally a few short words in my role as a part-time academic and
academic organizer that are relevant to the proposed legislation. In
May of 1997, Professor Richard Freeman of the Harvard Economics
Department and I organized the first Shared Capitalism Research Project
conference at the Madison Hotel in Washington, DC. Among the luminaries
we attracted to that inaugural conference included Alan Blinder of
Princeton and the Federal Reserve, Doug Kruse and Joseph Blasi of
Rutgers and Ralph Nader. Thirteen years later, that project produced
the aforementioned book, Shared Capitalism at Work: Employee Ownership,
Profit Sharing and Gain Sharing and Broad-Based Stock Options.
Research is never definitive but this body of data is compelling.
On page 12 of this book, Exhibit 1 presents a table that summarizes six
``take-away'' findings from this research on shared capitalism. I will
not take the time to summarize all six findings here but will instead
pull out three:
First, shared capitalism improves the performance of firms.
It is associated with greater attachment, loyalty and
willingness to work hard; lower chances of turnover; worker
reports that co-workers work hard and are involved in company
issues; and worker suggestions for innovations. Shared
capitalism is most effective when combined with employee
involvement and decision-making and with other advanced
personnel and labor policies.
Second, the risk of shared capitalist investments in one's
employer is manageable. Portfolio theory suggests employee
ownership can be part of an efficient portfolio as long as the
overall portfolio is properly diversified.
Third, shared capitalism improves worker well-being. It is
associated with greater participation in decision-making,
higher pay, benefits and wealth, greater job security,
satisfaction with influence at the workplace, trust in the firm
and assessment of management and better labor-management
relations practices.
The message to take away from these findings is that the public
policy outcomes that S. 2909 and S. 2914 seek to promote stands on firm
research ground. It is prudent public policy that helps both our
economy and our workforce. More research is necessary because it will
always be necessary, particularly research that can uncover mistakes in
implementation that must be discovered and reversed. There should be
little doubt however that the overall public policy trajectory of these
ideas, started in 1974 in the 93rd Congress by Senator Russell Long and
his contemporaries, remains sound. These two bills under discussion
today will productively build on those earlier achievements.
(Contact: Christopher Mackin, Ownership Associates, Inc. 122 Mt.
Auburn Street, Cambridge, MA 02138; Tel. 617-868-4600; email:
[email protected].)
Senator Sanders. Chris, thanks very much.
What I want to do now is just have an informal discussion
with the folks up here. I'll throw out a couple of questions
and we'll go from there.
I think it's fair to say that in this country there are a
whole lot of employees who are kind of demoralized, who go to
work every day because they need a paycheck but not happily,
not feeling part of the process, not with a lot of pride.
What I was very interested in hearing from all four of you,
I believe, is employee morale, low turnover, people's pride in
being part of the process.
Can each of you or whoever chooses say a few words about
what happens to an employee in an employee-owned operation? How
does that change his or her life?
Tom, why don't you start off.
Mr. McCabe. I think a lot of people didn't understand in
our situation, didn't understand what an ESOP was, and we had a
very interesting--another strange situation where we had our
pension--our administrative principal handles our ESOP and our
401(k) and we had him out in the field interviewing people,
talking about retirement benefits, explaining the benefits to
them again, and hard to believe, a particular individual he had
with him never really understood what his 401(k) and his ESOP
contribution was going to or where and he found out during the
course of the conversation that he had $30,000 balance in his
account and he broke down in tears, and we have never
experienced that. Remarkable that somebody wouldn't know that.
It's incredible.
I can't say that that's a very small unique situation that
they wouldn't know that, but I think people really look upon an
ESOP in our company has they work hard, it's for their futures,
it's for their retirement plan, and it's a significant benefit
to them when it comes to retirement and you can see that in the
examples I used already in just the way they approach work.
Senator Sanders. You see the difference.
Mr. McCabe. You do. You do. And people are aware of it.
We're actively promoting it. I think people like Cindy and
Steve, I will tell you, do a much better job because they're a
more mature ESOP company than we are in promoting it and making
their employees understand it, but I think we're starting to
get the drift of how to do it and it's working.
Senator Sanders. Jeff, you talked about low turnover. How
does the work at Chroma seem to be different than other
employees in the area, in your judgment?
Mr. Clark. After they've learned how Chroma operates as in
minimizing management and it might take some employees 6
months, it might take some employees 5 years, to understand
that we're paying a salary to people that are way above market
rate because we spread the decision-making process for their
departments back to them.
Some employees coming from large companies or more
regimented companies with supervisors, managers, and what have
you just don't get it right off. It takes years to understand
that we're paying extra because someone's not going to make
that decision for you. If you need extra equipment, if you need
to alter your work habits, work time or do whatever needs to be
done, you need to either make that decision or help others make
that decision.
Senator Sanders. Do you find people stepping up to the
plate in that regard?
Mr. Clark. Some people that you wouldn't even expect. Ideas
come from the quietest person in the company. If you give them
the opportunity and it might take comment cards, it might take
conversations, it might take barbeques or what have you, but
the ideas come. You've just got to be able to be open to
listening.
Senator Sanders. OK. Cindy, what's your experience in terms
of employee morale, ideas coming from people in your business?
Ms. Turcot. I think we've probably become masters of
getting input from people. I'd like to say that our business
has always been steady state, always growing and doing great
and, unfortunately, we've been a fluctuant company.
So for me, it's all about how do we get input and how do we
hear the input and maybe some of these guys want to talk to
that, but for me it's always giving those opportunities so
people have the opportunity, whether it's staff meetings, town
meeting.
Senator Sanders. Do you do town meetings?
Ms. Turcot. Town meetings, yes, small groups where Jim
Fines, our president, meets with groups of 15 and just have
smaller discussions about whatever it might be that's coming up
and so the feedback comes in many ways and you're right. You
have to have different forums for that so that people know how
to give that input and have the guts to give it.
But I see that more people give it and are willing to give
it, the more other people are willing to give it, and I'll give
one example right now, which is that we had a tough spring and
we're doing better now, but we took a tough spring. So our top
managers took a pay cut. Our ESOP Committee is doing a surprise
lunch for them to thank them and so for me, even the employees
are willing to say, hey, thank you, managers, for doing that.
They don't have to do that. They came up with their own idea.
It was a surprise and that's why there aren't more people here
today, but it's those kinds of things that are always happening
that made you realize people get it and care about everybody,
no matter who you are.
Senator Sanders. I visited Steve's operation at King Arthur
over a year ago and he had a whole lot of workers out there and
people just are very comfortable. I mean, it was just a very
nice environment where I think people felt--you got that
feeling that they believed they were part of the process.
Steve, what's your observation here?
Mr. Voigt. Well, I was thinking about that same visit and
Laurie used to work at the telephone company. She'll remember
the conversation with you forever. But it was a very dramatic
moment where she was fired from the phone company. Compare and
contrast it, what it was like for her to work there versus to
come and actually help people have success baking, whether it
was helping them on the phone or helping them in the store. She
showed up with an energy and enthusiasm, that we talk about
health and wellness, and I think that's a topic in and of
itself that's really interesting, just what ESOP companies are
doing there and how that might also be other benefits to a
broader community.
But Laurie was a different person working for King Arthur
and then the other example I thought of is on the anniversary
of every employee's joining King Arthur, I go around, thank
them. Each year we have a little something different, you know,
a travel coffee mug or a license plate holder that talks about
King Arthur employee-owned and stuff like that, and in a recent
one, somebody in the Fulfillment Center was saying, You know,
this is the longest I've worked at any place. I said, You know,
King Arthur's the longest I've ever worked, and after 5 and 6
years you just feel like it's yours and it's part of your life
and you think about how to make things better on weekends and
you care about the people there and your energy is devoted
towards making things better and it's not just for the bottom
line. It's for all the other things you heard.
So it's a totally different sort and some of these measures
that were quoted here today get to it, but it's way bigger than
that.
Senator Sanders. Steve, thank you very much. Let me ask the
experts over here. There is great concern in this State and all
over this country about the outsourcing of jobs. I think people
feel very uncomfortable that increasingly it is difficult to
buy a product manufactured in the United States of America and
they look over their shoulders to whether their job is going to
end up in China or India or some place else.
Obviously people who have control over their own jobs, who
own the companies that they're working in are not going to move
that company to China.
How significant is the issue of outsourcing in terms of
providing motivation for employee-owned companies in the United
States? Who wants to start? Jon, you want to start with that?
Pass it on down.
Mr. Crystal. I don't think that there's been a really
comprehensive study of that issue, but we have heard
anecdotally stories of employee-owned companies during the last
year or two when the economy's been so tight and where cuts
were faced who have turned around and have started to outsource
certain services and they've turned that around and brought
them back in-house. Employees at the company that otherwise
might have been laid off to complete those services that had
been out-sourced previously.
Maybe some of the others----
Senator Sanders. Well, Bill, maybe you could. Ohio has been
hit very, very hard. I mean, Ohio is a major manufacturing
State and the economy is in rough shape and outsourcing. I know
Sherrod Brown is the co-sponsor of this legislation and he and
I chat about this all the time.
What's going on there, Bill?
Mr. McIntyre. Ohio has been devastated in the last few
years with the loss of manufacturing jobs, many of them going
overseas.
In the ESOP world, though, we've seen fundamentally during
that same time period an increase in jobs at ESOP companies. If
all of the companies in Ohio were employee-owned, who knows,
the picture may be somewhat different because other people have
said it. Employee owners simply don't send their jobs offshore.
They do what they can to keep their jobs intact.
I'll echo Jon's comments that anecdotally, what we have
seen is that employee-owned companies are much more reluctant
to lay off folks. They will, in the true example of
participative management, they'll figure out some way to cut
back everybody's hours or somebody will say I'm 58 years old, I
have tons of money in the bank, you're 26, you're married, you
have three kids, you work, I'll lay myself off, things like
that happening for the greater good of everybody that you're
working with and working for the company.
It's, as I mentioned before, in the long run, it amounts to
a better way of doing business and your one-third of one cent
really does add up.
Senator Sanders. Well, let me ask--I'll ask Chris and Bruce
their view. Outsourcing is, I can tell you, a major concern in
this country. Is ESOPs and worker-owned companies an antidote
to that?
Mr. Seifer. I think there was a study done in Vermont in
2005 by the Sustainable Jobs Fund and it looked at communities
in Vermont that have a dominant employer as one employer in
their community and the risk of ownership transition of the
owners getting near retirement age and so there's 60 or so
different communities that were reliant on one company and a
number of those companies have turned over some of that time.
I think our Nation needs a national study to look at, you
know, retiring owners and what do they do as an option, and I
think local ownership, employee ownership is a good strategy to
root our companies, those companies. You could plan ahead. We
heard about ownership over time is being sold to their workers
and I think if you strategize with those employers, we've heard
examples of people having that forethought that we need market
research and then the follow-through and that requires the
employee ownership centers.
Senator Sanders. Right. But the choice here would be an
owner could sell to a large company which could eventually shut
down that plant to be more profitable operating in China or
that owner could sell to a worker-owned company that would stay
in the community.
Mr. Seifer. Without a doubt, and I think, you know,
Gardeners Supply is a good example, you know. That could have
been sold many times over to an out-of-state firm and they've
sold it to their workforce and they're growing at this point in
time.
Senator Sanders. All right. Chris, your thoughts about
this?
Mr. Mackin. Yes. A couple of vignettes come to mind as
examples. The largest ESOP we have in Massachusetts is a
company called Nypro. They manufacture plastic injection molded
pieces. They start with the Gillette throwaway razor actually
and they make medical equipment and sell phone casings and the
like. They've got 1,100 people in Clinton, Massachusetts.
They have been able to minimize offshore. They're a
worldwide company. So they actually do have to follow some of
their customers around the globe and set up across the street
from where they're doing plants, but I just heard from them
that they've had their best year ever and, interestingly, their
Massachusetts operation, their Clinton operation, which is
their largest operation, is out-competing China and what that
company has done, which is ownership alone is obviously not
going to solve all these problems, they've invested heavily in
training for their employees so that the higher value-added
stuff, the breaking technologies, if you will, in their
business is happening close to home and that's how they have
been able to avoid it.
One other thought that is probably applicable to Vermont. A
company called Light Control that manufactures architectural
lighting fixtures, fantastic company, 200 people down near
Plymouth on the way to Cape Cod, has manufacturing that can be
servicing government procurement, you know, out-of-state and
Federal level and there are--I would urge my colleagues at
Vermont, if you haven't done it already, to go about that
business and to look at what your community of employee-owned
companies does already and see about how our tax dollars at the
State and Federal level might go to keep the jobs.
Senator Sanders. Excellent, excellent point.
I want to thank Ted Brady from Senator Leahy's office and
Fred Raymond from Congressman Welch's office. We thank them for
being here, as well.
What I want to do now is open it up to any questions or
comments from anybody in the room. Just stand up, give us your
name.
Mr. Hazlett. Jeff Hazlett. I feel like I've come into the
light here hearing all of you talk. I'm so glad I came.
It brings to mind a quote from Abraham Lincoln when he
talked about his concerns for the money power corporations. I
like to call them the empire corporations. I've got a new word
``you're the employee corporations.''
So my question is what impact would we have on our
democracy if we had more--because the values that you have, the
core values that you have fundamentally would change the
eroding democracy that we all live in. So is there a central
organization, okay, an alliance of you or you as a special
interest, you as lobbyists in Washington could try to offset
the onslaught of the empire corporations having on our society
because you could be a tremendous hope for reversing the trends
against our democracy and bringing about wellness for people
and so I compliment all of you for the hope you've given me.
Senator Sanders. Well, thank you for the question, Jeff. I
see these guys in Washington every year, right?
So, Cindy, I see you. Cindy leads a delegation. Cindy, you
want to respond to Jeff's question.
Ms. Turcot. Oh, I'm trying to think of the best way to
respond. It's difficult because what we're trying to do is to
be the spokespeople or to work with the VEOC to be also doing
what we're doing now which is to--and we do it all the time.
We're out there as employee-owned companies sort of
preaching to whoever will listen to us, that this is the way to
go, and so we're all involved, whether it's the Vermont
Employee Ownership or at the national level with the Employee
Ownership Foundation, to sort of spread the message and how do
we get out there?
The only thing I feel like we can do right now is to be
teaching the classes or to be out there doing what we can do
just one at a time, the power of one. How do we get out there
and get the message out there? That's the only way I feel like
I can do it.
So I do bring the whole delegation. We all meet with you,
whether----
Senator Sanders. We have a great time every year.
Ms. Turcot [continuing]. You want to meet with us or not,
we meet with you. We might say the same things but he meets
with us and there's new people and there's new employees that
are coming through always that you're trying to spread that
message so that when they move on to the next place, maybe
they'll think about it.
Senator Sanders. This is Warren Gunnels. Warren has worked
on this issue with me for years. We have a number of co-
sponsors on some of these legislations. That's because people
all over the country are putting a little bit of pressure on
their senators. Senator Leahy has been very strong on this
issue. Senator Shaheen, Senator Sherrod Brown of Ohio has been
very strong on it.
But I think it's fair to say that these don't quite have
the clout of Wall Street. I think you probably haven't put many
hundreds of millions of dollars into lobbying and campaign
contributions the last few months, right?
Steve, what's your experience in terms of the political
process?
Mr. Voigt. Well, I agree with you on the opportunity and in
a way it's been kind of a head-scratcher why it hasn't taken
some more, and I think maybe Chris mentioned that the media
headlines grab at the failures but don't talk about the
successes, the nice warm story really doesn't sell a lot of
papers, and so a combination of the grassroots that Cindy
talked about.
There is an ESOP Association in DC which brings us down
there. There's an educational-oriented, research-oriented one
on the West Coast called NCEO. I think Chris and I were talking
before just how much has changed even in the last 5 years in
terms of academic interest in ESOP whereas before it was a
total wasteland. There was nothing and now there are classes
actually taught at business schools, undergraduate and graduate
level, on this. There's a sharing of case studies. The Aspen
Institute's involved.
So maybe some of these think tanks are beginning to spread
the ideas which then may catch on like a brush fire on a windy
day and take off that way, but the classic, as the Senator
said, dollar for dollar, can't really win that battle.
Senator Sanders. Anybody else want to comment how we're
doing politically in spreading--yes.
Mr. Mackin. Well, I can project here. I don't know if it's
for the record.
Senator Sanders. It's for the record.
Mr. Mackin. OK. Well, that's fine. The gentleman raised a
really interesting point and one that I've been thinking about,
about how we convert these ideas from something more than an
interesting little business trend to something that's a
challenge to what's wrong about what's going on.
If there's one U.S. Senator in the Congress who's not
afraid of that, it's this gentleman, and I think it's fair to
say, and here's a distinction that's been coming to me, we're
talking about a kind of responsible capitalism here and that's
to be distinguished deliberately from irresponsible capitalism
and I think it's time that responsible capitalists banded
together and spoke about what they're doing that's good, like
the people around this table and many others who are not here.
We made some distinctions about the kind of capitalism that we
think is good and we found a capitalism that isn't and that
kind of general normative and moral framing of this issue
hasn't happened yet.
I mean, I'm toying with creating a center for responsible
capitalism for this very purpose because that's sort of beyond
technical lobbying. That's more of a kind of a challenge to
what's going on, but the challenge wouldn't be happening, this
hearing wouldn't be happening unless Senator Sanders saw
through this, and again it's one of the most interesting
things.
This is the first left wing person in the U.S. Congress and
there are Republicans who love this idea, too. And there are
some decent Republicans who can also make that distinction
between responsible and irresponsible. So we'll see.
Senator Sanders. OK. Other questions.
Mr. Maynard. I'm a product engineer at IBM and I went
through those two layoffs.
Senator Sanders. Your name, if you could, please?
Mr. Maynard. Robert Maynard.
Senator Sanders. Robert.
Mr. Maynard. There was one time where I was trying to look
for work afterwards and there was a number of us decided to go
into business for ourselves and so some of them, in conjunction
with one another and some of them by ourselves, and I want to
bring up another perspective on layoffs and some of this
unemployment.
You've got jobs going overseas but you also have
manufacturing jobs being lost overseas, as well, because you
have new technology because you have a segment of our
technology revolution that is doing more with less. So that is
a challenge for employment but it's also an opportunity because
the new technology that's making companies lay off also makes
smaller companies be able to do things that they weren't able
to do before in terms of reaching for market.
So there's a shift with this new technology and information
age coming I think, potentially away from big companies towards
smaller companies and the tendency of a smaller company, you
know, because the entrepreneur tends to hear you're trying to
start a company, there's risk involved. So the idea of sharing
the risk is something--is not only a nice idea that you have to
convince people, it's practical, too, because if you have self-
ownership, if you have employee ownership, you're going to
share the risk involved.
So instead of one person all alone risking this new capital
venture, which is a very scary thing, I can tell you, I've been
through it, you share the risk. So there's a practical reason
for it, but there's also the reality of the percentage of
start-ups that go bankrupt.
It's hard for a small company to compete with a large
company in an environment, in the political environment you're
talking about, the lobbying. There's a lot of us that haven't
got the time for that or the inclination and it would be a lot
easier if we didn't have to lobby if there was a little bit
leaner--we can't hire tax lawyers and lobbyists and things like
that.
If the process was leaner and the government officials
recognized we're not in the industrial age anymore, we don't
have massive bureaucracies, so whether they be government or
private sector, it's not the leading edge. There's streamlining
regulations, taxes, stuff like that.
I've been involved with these federations of independent
small businesses and it's killing them. You know, it hurts big
business but it kills the small business and if we really want
to have employee ownership, we want to have all these creative
ideas, then the encouragement of small business start-up is a
good idea and one of the best ways that you can encourage them
is to get out of their way because the kind of obstacles that
the big businesses face, it's a barrier to them, it's a much
bigger barrier to the small business which is not set up to
deal with that kind of thing.
Senator Sanders. OK. Robert, thanks very much. Other
thoughts? Ma'am? Please stand up. Your name, please.
Ms. Constantina. Hi. I'm Constantina from the Vermont
Sustainable Jobs Fund, and mainly today you've spoken about the
social fabric that's built through employee ownership and yet
we see quiet shutdowns or sales of businesses all the time,
sometimes with employees finding out about it in the paper
alongside everybody else, and so it speaks to me of barriers
with the idea of the sales of businesses.
I'm wondering if some of you can speak to what you will do
to address, proactively addressing those barriers when
companies decide to sell. I understand the finance one is a big
part of it, but if you could describe other ways you could
address that.
Senator Sanders. Jon.
Mr. Crystal. I think one of the greatest barriers is the
lack of information in a timely fashion. One of the real
focuses of our work is to educate business owners and employees
about the opportunities that may exist in employee ownership
and while it doesn't fit all situations of a potential plant
closing, there are many, many situations where if the owners of
a business knew sufficiently in advance about what they could
do through employee ownership and had time to act on that, they
could have avoided the kind of situation you're describing.
So I think the Work Act that Senator Sanders is proposing
that would set up centers like the VEOC around the Nation, that
would help educate business owners and employees about these
opportunities is one of the most proactive things that could be
done.
Senator Sanders. I mean, would you guys think it's fair to
say that if some entrepreneur started a business and was
successful, he was aging, that he would have--and he was going
to leave the business, that he knew about or she knew about the
option of employee ownership, they would take a look at that
and many just don't know about it? Is that a fair statement?
Mr. Crystal. Absolutely.
Mr. McIntyre. In Ohio, probably 75 percent of the ESOPs
that we've helped create have been succession planning
situations and that's the reality and another reality is that
the baby-boomer generation aren't babies anymore. They've been
running their businesses for 30, in some cases 40-some years
and they're ready to retire and there's an outstanding
opportunity for employee ownership right now, to have many of
those conversions lead to sales to the employees and form ESOP
companies or worker-owned cooperatives.
As Jon said, the problem is that the business owners don't
know about this option. A service provider, an attorney,
banker, accountant type of person mentioned to us about 4 years
ago that no service provider is going to recommend to a client
something that they don't have a fundamental understanding of
themselves and that the problem is that the service providers
don't understand ESOPs or worker-owned cooperatives.
So in our State, we've expanded our succession planning
program throughout the entire State and, frankly, we're
focusing on educating the service providers with the thought
that they will be the ones who are for every accountant they
know 30 to 50 small businesses in their area who are their
client and when they face succession planning situations,
they'll have heard about an ESOP and say yes, that might be
something that would apply.
The act does provide for the individual State employee
ownership centers to provide succession planning training which
is absolutely terrific and right on the mark and I think will
be unusually successful.
Senator Sanders. Other thoughts on that one? Yes, ma'am.
Ms. White. Hi. Abby White with NRG Systems. Many of you are
familiar with our company. We're not employee-owned but we do
have an active profit-sharing program and I just wanted to
share with you the challenge that we face and that is our
company has been around for a long time and our relative size
compared to other companies that are in our industry is
shrinking. So our relative power compared to like GE or
Mitsubishi, companies that are now flocking to this industry is
changing and so I'm just curious to hear from you all if that's
an experience that you've faced, as well.
Our company is a very mission-driven company. We care very
much about doing the right thing and we're employee-driven and
having employee incentives. So, a company likes ours, how do we
use that to our competitive advantage and how have some of your
companies addressed this?
Senator Sanders. I think I hear two questions there. One is
the smaller company trying to compete in a climate where
there's increased concentration of ownership.
Ms. White. Yes.
Senator Sanders. The second, I don't know this or not, but
the second part of your question, which I think is interesting,
it's been touched on, maybe we can elaborate on it, I find, you
know, many Americans see (a) a product manufactured in the
United States of America, everything being equal, they would
like to buy that product and I think we also heard that if a
company--you guys are advertising that you're a worker-owned
company and I've seen that certainly in other areas.
My guess would be that that is a marketing advantage,
right? Would I rather buy a product manufactured in the United
States by a worker-owned company or a product manufactured in
China?
Ms. White. Although I think the environment is somewhat of
a different kind of pitch that you would be making. We're a
manufacturer of technical products that we sell to others. So I
think it's somewhat different than your example of the
injection molding company which still needs to outsource but
they have a global market the same way we have a global market
but that they brought more of those higher skills, higher wage
jobs and they've grown at a faster pace.
Senator Sanders. Who wants to respond to Abby's question?
Mr. Mackin. Well, I think one--it's a complicated question,
but there's a couple key words here, buzzwords. Remember the
word ``modernize.'' If you want to understand how worker
ownership could look,----
Senator Sanders. This is very interesting. He and I talked
about this 30 years ago. Listen closely.
Mr. Mackin. Right.
Senator Sanders. Because this concept, you know, didn't
start with King Arthur Flour.
Mr. Mackin. That's right.
Senator Sanders. Talk about Spain just a little bit.
Mr. Mackin. Sure, sure. My hair was a different color back
then.
Well, in Northern Spain, the Basque region of Spain, it's a
very high-tech federation of democratically-owned industrial
cooperatives and I've been over there several times and they
invest--they have the power of having all of the companies that
are part of their group pool their capital and they started
their own bank called the Caja de Ahorros de Galicia, which is
now the 12th largest bank or 10th largest bank in Spain.
They pooled their research and development function so that
they're able to do all this and help the university base which
could be done in a place like the University of Vermont, some
other places like that, because the problems with high-tech/
high value-added companies are rather unique and they require a
lot of capital. They require a lot of technical expertise but
those are problems that can be solved, as well, if you do the
proper kind of organizing.
In Northern Spain, it happened to have been a priest who
fought resistance against Franco who came back and devastated
part of his--of the world who said, you know, I've got to do
something for my people here and he started an engineering
school and then he didn't want to just enable his young
engineers to go out and be capitalists and exploit other people
but they actually went to work for the few capitalist companies
in the area in the '50s and they were interested in the sort of
social philosophy that the priest taught about worker
participation and the like.
When they weren't getting anywhere with those companies,
they came back to the priest and the priest said, well, the
hell with them, we'll start our own companies but we're going
to do it in a way that's not just going to be owned by the 11
of you, we're going to set up a structure that's in perpetuity,
will be owned by people around----
Senator Sanders. And how many people, how many employees?
Mr. Mackin. There are now about a 150,000, I think, or
somewhere around between a 100-150,000 companies and they're
the largest producer of white goods, consumer durables of that
kind. They're big in software, as a matter of fact, and
research in that.
It's a little bit of a bigger picture visioning here that
has to happen. If you're interested in doing this, you have to
begin to develop the infrastructure around universities, around
financing, around that kind of research, in addition to--we've
been talking here largely about how do we hold up the companies
we've got, but it's possible to marry these ideas with enough
advance thinking with the same kind of values.
Senator Sanders. OK. Other questions? Sir? Bruce, briefly,
though.
Mr. Seifer. What I think about that, if I could, I was on
the Board of the Montclair Ocean Center for about 7 years, the
first 7 years and there's a number of business people who
served on that Board and represent the companies you see at
this table and the one thing I found is I work for the
government, so I guess I'm an employee to some degree, you all
make--but we own each other, but the thing I found out about
is, to get to your point, it's like a sorority or fraternity.
People who work with employee-owned companies, it's like a
secret handshake.
So I think to get to Chris's point is if you work with
other like-minded companies that are employee-owned, they
realize that there's something bigger than just going to work.
Mr. Mackin. And this structure does appear to provide an
unusual appetite for collaboration across different platforms
and stuff.
Senator Sanders. Sir? Name?
Mr. Thrail. I am thoroughly in love with ESOPs.
Senator Sanders. Your name, please, sir?
Mr. Thrail. Bill Thrail, Advanced Illumination, Rochester.
We attended the briefing and all-day session in Burlington and
so we're really interested in doing it.
One reason we want to do it is so that we can keep the jobs
in Vermont. I want to throw that out. We've taken people that
are basically untrained and have trained them to perform
various tasks and we've been offered to move the company twice,
one to Massachusetts and once to New Jersey, for ownership.
But I'd like to know more about what you're going to be
introducing in 2914. What kind of--do you have any details on
that yet?
Senator Sanders. I'll let Warren speak about that.
Mr. Gunnels. Simply, S. 2914 is the United States Employee
Ownership Bank and it would authorize $500 million in funding
to create this bank to provide loans, loan guarantees,
technical assistance, to employees that want to start their own
business.
Before they would get the loans or loan guarantees, they
would have to get third party feasibility study that would show
that if they receive those loans or loan guarantees to start up
their own companies or an ESOP or worker-owned cooperative,
that those companies would be able to make a profit. They would
become successful and they would be able to pay back those
loans and loan guarantees.
So that's really the essence of the legislation.
Senator Sanders. In essence, the government provides
billions of dollars right now in loans and loan guarantees to
various types of economic activity but not to those people,
those employers who want to convert to employee ownership or
workers who want to move in that direction. So we think that
that economic model also deserves some Federal help.
Ma'am.
Ms. Messick. I'm Carrie Messick, and I'm part of the Ohio
Worker-Owned Network, and I was on their Web site and I noticed
and listening to the man who was talking about the company
start-ups and I noticed that in Athens, they have an incubator
there to help companies start up to deal with their overhead
costs. Do you know how that's going and is that something that
Vermont should know about?
Mr. McIntyre. Actually, I'm sorry to say I don't know about
the incubator in Athens. There are several business incubators
around the State. I thought you were going to talk about the
worker-owned cooperative restaurant in Athens.
Ms. Messick. I know about them, but no.
Mr. McIntyre. One topic that has not come up is, and it
works very well with the whole idea of employee ownership, and
that is buying locally and it's a nice transition to that or
segue because it's a worker-owned cooperative restaurant that
has arranged with the local farmers to grow the things that
they're going to be using in the restaurant and back when you
were asking about the outsourcing, there have been some studies
done that have indicated that if you have employee-owned
companies, that the multiplier, the number of times that the
cash revolves around the community is higher for an employee-
owned business than for a regular domestically-owned business,
certainly higher for a business that's offshore. It's another
positive impact of employee ownership.
Senator Sanders. All right. Maybe one or two more
questions, if there are any.
Mr. Maynard. Small technical question. You talked about
outsourcing. If ESOPs outsource, is there any reason that they
don't outsource with employee ownership overseas?
Mr. Mackin. That's been tried and I think that the state-
of-the-art is relatively--well, a couple points there.
The people who've done it best and in fact they've done it
through trial and error. They have acquired businesses in Latin
America and not so much here in the United States that some of
them were owned by--seemingly in contradiction to their
philosophy, right, and they have decided that that's not the
way to go, that when they need to expand and go into other
markets, they're going to use the same structure.
Now this is one of the reasons why Leo Girard of the United
Steelworkers has taken an interest in Montergand, as well, as
this sort of new model because there's no incentive to not
saying you don't have to operate around the globe. I mean, this
is a global economy and you've got to be able to sell into
those markets. You need to understand what's going on.
How you actually do that in Montergand is probably at the
leading edge. It's complicated because there are different
legal regimes. We have one that's ESOP that doesn't apply in
China. So you have to do the work of figuring out how to invent
something in that country and into your structure.
So there's thought going on about that but the Basques are
ahead of everyone else.
Senator Sanders. Let me just thank our panelists for being
here and thank all of you for being here.
I think, especially given the state of the economy right
now and all of the anxiety that workers are feeling from one
end of this country to the other, the model that we are looking
at, that we're talking about now, the legislation that we have
introduced is going to gain increased interest. So I think the
purpose of this hearing is to stimulate some interest. This
will become part of the record of the Health, Education, Labor,
and Pensions Committee. We'll be talking to Chairman Harkin
about it. We have some pretty good support in the Senate,
trying to get some hearings in Washington, trying to get some
kind of legislation like this passed as soon as possible.
I want to thank all of you for being here. This is an
enormously important economic issue and let's go forward
together.
Thank you all very much.
[Applause.]
[Whereupon, at 12:37 p.m., the hearing was adjourned.]