Mass Leadership

Whoever owns the company makes the rules, right? But what happens when a company has hundreds or even thousands of owners?

It’s a fine line leaders of America’s employee stock ownership plan companies face every day.

“There are differences, there is no doubt, but just because employees own the company, doesn’t mean they run the company,” said J. Michael Keeling, president of the Washington, D.C.-based ESOP Association. “Think about it like a publicly traded company. Just because you buy stock in Apple doesn’t mean you get a say in how it operates.”

Springfield is home to several employee-owned companies, including newly-created ESOPs Anderson Engineering Inc. and Gold Mechanical Inc.

Pryamid Foods Inc., parent company of the Springfield-based Price Cutter grocery store chain, is among hundreds of supermarket ESOPs nationwide. Supermarket chains hold the top two spots on the National Center for Employee Ownership’s list of 100 top ESOPs with Lakeland, Fla.-based Publix Super Markets’ 160,000 employees claiming the top spot and West Des Moines, Iowa-based Hy-Vee Inc. coming in second with 69,000 employees.

Two Springfield ESOPs rank in the top 100 largest nationwide: Penmac Staffing Services Inc. comes in seventh with about 18,000 employees and SRC Holdings Corp. ranks 99th with about 1,200 employees.

Nationwide, Keeling estimates 10.3 million Americans – or about 10 percent of the private workforce – are part of some 10,000 ESOP companies, collectively with $869 billion in assets.

However, there is no precise way to measure accurately because the overwhelming majority of ESOP companies are privately held and not required to file public reports with the Securities and Exchange Commission. Only about 3 percent of ESOPs nationwide are publicly traded.

“Ten thousand sounds like a lot of companies,” Keeling said, “but there are about 4 million companies nationwide. Weed out the one-, two- and three-man operations and that probably leaves you with a couple million. Ten thousand in a couple million is still very small.”

HVAC design and installation company Gold Mechanical rolled out its ESOP four months ago. During establishment of an ESOP, company owners sell their stock back to the business and stock ownership then is transferred to the employees. Chief Operations Officer Ron Bogart said the company is still gauging employee reaction while the details are hashed out.

“About 80 percent of them thought it was fantastic,” he said.

“There are always going to be skeptics or undecideds, but there is a high trust in management and that carries through.”

Changing roles
Richard Ollis, president and CEO of Springfield-based ESOP Ollis & Co., said in addition to everyday decisions needed to run a company, ESOP leaders also must constantly be aware of shareholder value.

“You have to make sure as a CEO you are creating and expanding value,” he said. “Look beyond your decisions at the broader picture. Is this going to increase value and loyalty to the company?”

Ollis & Co. turned ESOP in 1984, just as Ollis joined the family firm. Promoted to president and CEO in 2008, he said leading the 129-year-old insurance company is all about perspective and balance.

“We are very employee centric and want everyone’s opinion,” he said of the company’s 34 employee owners. “But just because you buy stock in a company, it doesn’t catapult you into the executive decision role.”

Bogart agreed, saying owning part of a company doesn’t change your position as an employee.

“Everyone has a job to do and we have to maintain those roles for the success of the company,” he said, of Gold Mechanical’s 180 employees. “Nothing about becoming an ESOP changes your daily work.

“We are all on the same team, but a few of the roles have shifted. The people who used to be in the owner’s box are on the field now playing the role of quarterback. We are all on the same team and we all have to play our parts to win.”

Not a democracy
Keeling said it’s important for leaders to be extremely open and honest with employees about final decisions, but executives and employees must maintain the knowledge that decisions are final and not open for discussion. “This is not a democracy,” he said. “Employees have a voice, there is no doubt, but the CEO is still the leader and knows what is best for the company.”

Keeling recommends leaders seek input on employee-level issues, but be vigilant that input does not constitute a vote.

“I had one company that moved the lunchroom without talking to employees and it created an uproar,” he said. “A company is not going to rise or fall on the lunchroom configuration, so that is the perfect place for employee input.

“You can ask, ‘What do you guys think?’ when doing something like opening a new facility, but that is not the sort of decision that’s made by a vote.”

Ollis said it’s all about sharing in the success.

“Employee shareholders have a stake in the outcome,” he said. “All decisions should perpetuate that success, whether they are made by someone in a leadership role or by the group.”

Creating a culture
Ollis said operating in an ESOP isn’t for everyone. The benefit plan requires a certain company culture.

“People who want to be engaged and are driven to succeed are a good fit,” he said. “It’s not all a bed of roses, though.

“It takes a certain mindset to be a good employee-owner. Someone who just wants to put in their hours and go home isn’t going to perpetuate a good company culture.”

Ollis said it’s his job to stay positive with shareholders, but also lay it on the line when necessary.

“The price of shares isn’t always up – life is life,” Keeling added. “If the employees are not prepared to understand that through company culture and education, then they blame management. That’s a road nobody wants to go down.”

Keeling said having an empowered workforce can be more difficult to manage, but it’s more rewarding in the end.

As Gold Mechanical continues to iron out the details of its ESOP during the course of the next year, Bogart said the company will continue to “thrive in trust.”

“Gold is made up of smart, hardworking people,” he said. “They have worked hard for the benefit of the team without a stake in the outcome; going ESOP only benefits them more directly and promotes that culture.”

Structured under Virgina-based Blue Ridge ESOP Associates and administered for less than $10,000 a year, Bogart said the company now is 100 percent employee owned – exactly the way founder Darin Gold wanted it.

“Benefiting our employees is why we made the switch. The best way to show gratitude is to give them the keys to the kingdom,” he said. “When a founder considers retirement, he has a handful of options. Giving the company to the people who built it is an elegant way of saying thank you for everything.”[[In-content Ad]]