Grantee: Vermont Employee Ownership Center
We’ve all heard about Vermont’s aging demographics, the threat of brain drain, and Vermont companies moving out of state. Many of Vermont’s entrepreneurs are closing in on retirement and they’re looking for options to exit their business – such as selling to another Vermont owner, employee ownership, or passing it on to a family member. The Vermont Employee Ownership Center (VEOC) is one organization in Vermont dedicated to helping Vermont companies move successfully into employee ownership and stay in Vermont.
In 2001, there was little expertise in Vermont in business cooperatives or employee ownership, and Don Jamison, VEOC founding Executive Director, was convinced that if people only knew about them, there would be more. Don was tracking the numbers – companies without ownership succession plans either sold to out-of-state interests or closed their doors. VSJF’s seed grants of $20,000 in 2001—and two additional grants in 2004 and 2006—helped VEOC build organizational capacity and leverage $190,000 in federal funding in those early years.
Today, VEOC's outreach efforts have grown dramatically, demonstrating the need for and value in employee ownership structures. Research has shown that employee-owned businesses out-perform and are more sustainable than their competitors in the same industries. VEOC has provided direct assistance to 44 Vermont business owners (with 981 employees) who were interested in selling their business to employees, and assisted groups representing 354 employees (in 14 companies) interested in buying the business in which they work.
Several years ago, VSJF interviewed Don Jamison, Program Director of VEOC, as well as representatives of some of Vermont’s most well-known employee owned companies—Frank Sands of King Arthur Flour, Paul Millman of Chroma Technology, Jack Davidson of The Trust Company of Vermont, Cindy Turcot of Gardener’s Supply Company, Dave Hallam of Hallam Associates, and Bill Carris of Carris Reels—to gain a better understanding of employee ownership. Each person shared their organization’s rationale for choosing employee ownership, described the benefits to businesses, employee-owners, and communities as a result of employee ownership, and gave advice for other businesses considering succession options.
Employee ownership comes in a variety of forms, including worker cooperatives and broadly owned Limited Liability Companies. The most usual form in the U.S. is the Employee Stock Option Plan (ESOP). According to The National Employee Ownership Center, ESOPs are trust funds into which businesses put new stock or cash to buy existing stock. ESOPs can also borrow money—which can be used for any business purpose, the most common of which is to buy stock from retiring owners. Stock is distributed into employees’ accounts within the trust. As employees accumulate seniority with the company, they acquire a right to the shares in their account. When employees leave or retire they receive their stock, which the company must buy back from them at its fair market value, as determined by an annual outside valuation. The threshold for businesses considering an ESOP is generally around 20 employees. Approximately 11,000 businesses in the United States (with about 40 in Vermont) have ESOPs.
Employee Ownership in Vermont
Although employee ownership is commonly used as an exit strategy for retiring business owners, it can be implemented at any stage of a business’s life cycle: From start-ups such as Chroma Technology, winner of Vermont Business Magazine’s 5x5x5 award, to mature businesses like King Arthur Flour, the oldest flour company in the United States, as well as businesses like Island Pond Woodworkers and The Trust Company of Vermont, which formed in the aftermath of a plant shutdown and corporate takeover, respectively. Likewise, employee ownership is not an all-or-nothing option: interviewees described a variety of ownership ratios with, for example, 30% employee ownership at Gardener’s Supply Company and 100% employee ownership at Chroma Technology. Employee ownership blurs political lines, with liberal views and conservative views and everything in-between represented by these six interviewees. Some people are interested in employee ownership because the ESOP laws favor owners who sell their companies to their employees, while others are interested because they care about workplace democracy.
Employee ownership comes in a variety of forms, but the people interviewed for this article have in common a deep and abiding trust in and respect for employees; a strong work ethic; a fierce independence; a concern for the health of their communities; and a commitment to leaving a positive legacy.
For family businesses like King Arthur Flour and Carris Reels, spreading ownership to employees was a natural enlargement of their own families. Frank Sands explained, “When you’ve worked with a company as closely as I and other members of my family have, we feel that it’s an extension of ourselves. So, when it does well we’re proud of that. If you have that sort of a feeling then one of the finest ways to ensure that legacy and invigorate the company, if it needs it, is to have it employee-owned.” For Bill Carris, “Employee ownership, philosophically, made a tremendous amount of sense. I felt strongly that the success of the business was a result of the employees, so they ought to get the just rewards of ownership ultimately.” Dave Hallam reflected on his father’s experience owning a consulting-engineering firm and how it influenced his decision to pursue employee ownership: “He did not share in the ownership and I think it hurt him physically. And I did not want that to happen to me. I did want the company to go on, so I felt that I needed to nurture leadership and share responsibility. I wanted to live a balanced life, no 100-hour weeks.”
Paul Millman started Chroma Technology as an employee-owned company because he found with previous jobs that “I was doing a really hard job and people were benefiting from my work and I wasn’t.” Millman, who explained that he has been fired more times than most people will in their lifetimes, now has job security. Sands described the pleasure he found when he noticed King Arthur’s employees working as hard as he did. “My philosophy is that you’re spending the majority of your waking hours at your job, so it should be a meaningful thing. When I used to send Christmas gifts, I would write ‘I hope your work here is meaningful to you.’ I knew how I worked and how I never stopped thinking about the business and we had people that were just that way: they were acting like owners. The leverage that you can get when people act like that is geometrical as far as the effectiveness of your company.”
Declaration of Independence
For all of these employee-owners, independence from corporate buyouts was a key motivating factor. “How many times do you pick up the paper to read about a company in Vermont that was bought out by an out-of-state firm?” asked Hallam, “And then within six months or a year they’re moving operations to North Carolina. If you want to keep jobs in Vermont you’ve got to keep control in Vermont.” Cindy Turcot explained Gardener’s Supply’s rationale, “We want to have control of our destiny. We don’t want to get bought by a larger firm that then can send all the jobs out. So it’s really about keeping jobs in Vermont. It’s about us having a stake in the company. It’s about having a say in our company.” As a result of the culture developed at Gardener’s Supply, Turcot reported enhanced customer relations, “We go above and beyond in how we treat our customers. I think if you’re happy in your job you treat people well and that’s our goal.”
All of the interviewees described being approached by merger and acquisition brokers. But, Jack Davidson observed, “They don’t even get a chance to make a presentation. It’s not about money. It’s about basically controlling your work environment and being able to work under your terms.” Sands was vehement in his opposition to corporate takeovers, “I didn’t like the natural drift of things where these big guys come up, absorb these other companies, suck everything that they can out of them, and just sort of leave them like a deflated balloon. I didn’t want that to happen. I thought there could be some future for this company.” King Arthur Flour is now the number three retail flour company in the United States, according to Sands.
Community Health & the Long View
The issues of location of ownership and community health were intimately linked in the minds of many of these employee-owners. Millman shared a sobering anecdote about driving through the town in Massachusetts where Mattel started “…and you see the great big giant rocking horse that was there and there’s no remnants of Mattel any longer in that town. But they still call themselves ‘Toy City.’ This was a company started and operated by local people and then somebody came along and said ‘Here’s a bunch of money, let me buy it and take it out of this local community.’” Millman has no doubt that once an employee owned company is established “Your commitment to the community is that much greater because you live there. Outside owners, like every other equity owner that doesn’t work in their community, even ones that do work in their communities, their interest is maximizing their own return. I mean, you’ve got to decide that that’s not your major interest.”
Although King Arthur, Chroma, Carris Reels, Gardener’s Supply, the Trust Company, and Hallam Associates are works in progress, each interviewee is determined to see their organizations endure. The combination of strong work ethics, employee ownership, independence and community commitment help these organizations take a long-range view. Explains Davidson, “It turns out when you do control your fate frequently you make good long-term decisions. All the decision-making here is long-term. When you make good long-term decisions you’re going to end up finding that you’re going to get a pretty good return on your investment.”
The Vermont Employee Ownership Center: Resource & Ally
Businesses contemplating employee ownership have a resource and an ally in the Vermont Employee Ownership Center (VEOC). Jamison was troubled by the implications of absentee ownership for Vermont’s communities and businesses. He was intent on finding an analogue in economic development for the kind of work that the Burlington Community Land Trust does. Land Trusts effectively take land off the market to let communities figure the right use for the land. With employee ownership, Jamison found a concept that made Vermont’s economy more stable and less prone to capital flight by passing ownership of businesses to other Vermonters, to the employees or both. For Jamison, “Employee ownership is a great way to root the businesses in the community through widespread ownership. It does—and it’s measurable in its effect—create healthier businesses, and ones that are more likely to stay.”
In 2000 Jamison met Steve Magowan, a Burlington lawyer who was doing a lot of work with ESOPs. They discussed the idea of creating a statewide educational center devoted to employee ownership. As a result, VEOC was established as a nonprofit in 2001, with Gardener’s Supply’s Cindy Turcot as Board president. Federal funding from U.S. Representative Bernie Sanders and the hiring of co-director Patty Wood in 2002 got VEOC off to a good start. VEOC provides information on employee ownership options of all kinds, convenes a conference every June, provides technical assistance, and makes referrals to companies and consultants that have employee ownership experience.
Jamison and the others interviewed offered two key recommendations for people considering employee ownership:
Plan ahead. According to Hallam, for those CEOs or business owners considering retirement “You need to plan at least 10 to 15 years prior to your departure. Absolutely. And really look at all the different options. You have to develop leadership. I think the best advice my father ever gave me was to never be afraid to hire somebody that could do your job. Because without that you can’t move forward.”
Contact VEOC. State agencies and the VEOC are often not aware when a Vermont business is thinking about selling. As Jamison emphasizes, “Sharing ownership is not something that is a scary thing. It can be done in a very controlled way that doesn’t jeopardize good management but that makes a good business better and makes a good workplace into a better workplace with more enthusiastic employees.”