July 31, 2020

How Having an ESOP Is Helping Companies Weather the Pandemic

Our recent ESOP Topics Survey asked companies to reflect on how employee ownership is affecting their ability to respond to the coronavirus pandemic. The responses show some encouraging perspectives on how an ESOP and an effective culture of ownership can help companies survive and thrive in crisis.

The survey received 160 responses from a fairly diverse group of ESOP companies. Two-thirds of respondents said that being employee-owned has had a very or somewhat positive effect on their handling of the COVID-19 pandemic. Most of the remaining third reported neutral or no effects, and just 3% of respondents reported negative effects.

Respondents elaborated on their answers in written comments. A few common themes emerged from the 88 responses.

Buy-in and trust. Many respondents said their ESOP has created a sense of common purpose and cohesion, a sense of being “all in this together,” that is helping the company adapt. Some comments focused on the concrete financial incentives for employee-owners to work to keep the business healthy, while others pointed to effects on morale, pride, and trust. Employee-owners may have more trust in management than they would at another company that did not share ownership, allowing the company to be more nimble and creative in changing course.

  • “Very much a 'we are in this together' mentality.”
  • “Employees are more understanding of measures when the company you are trying to save is one they have an ownership interest in.”
  • “Employees seem to express belief that we're all looking out for each other.”
  • “The culture of employee ownership has created a confidence among our employees that we will take care of their financial needs first during this crisis. It has helped keep us together and helped us to be patient.”
  • “Everybody gets that we are working together. Folks are going above/beyond to help and make sure they are contributing to the company's top line revenues.”

Culture is key. A number of respondents cited their ownership culture, not just the ESOP itself, as a major boon in keeping their business healthy. Conversely, some respondents with newer ESOPs or without a developed culture of ownership are not getting full the benefit from their ESOP.

  • “I feel our strong ownership culture has provided common ground in our transition to everyone working from home to support the firm and our clients.”
  • “With so many employee owners working from home or in some cases, still working in the field, we depend on our ownership culture to keep everyone engaged and productive.”
  • “ESOP ownership culture had a team willing to implement necessary changes needed.”
  • “Employees have not received their first contribution statement, so being an ESOP is not widely felt yet at the individual employee level.”
  • “We did not have a strong employee ownership culture outside of long term employees. Hard to mobilize the culture now.”

Communication and transparency are paying off. Companies that have been proactive in sharing key financial information, via open-book management or other means, are seeing increased employee trust and understanding.

  • “We have been very open with the financial performance of the company with the employees, therefore it is easier to explain our status and to validate our decisions.”
  • “We practice open book management and get active participation from employee owners to improve our financials.”
  • “An ownership mentality and transparent communications on challenges and successes allows everyone to feel like we are in the current circumstances together, and we'll move forward to a brighter future, together.”
  • “The employees see the value of their contribution to the success of the company.”

Idea generation. Several companies said that employees have helped devise creative solutions for maintaining a safe work environment and continuing operations. Having a preexisting culture of participation was cited as key to this.

Notes of caution. A few respondents noted that being employee-owned hasn’t proved an unalloyed good during the pandemic. One respondent noted that their ESOP loan is a cashflow burden, and that senior owners could previously have provided a cash buffer to ride out the crisis. Another expressed concern that the drop in share price from the pandemic would be a morale drain, and might make it necessary to do layoffs or pay reductions to keep the share price from falling too far. The ESOP posed a temporary issue in a PPP loan application for one company (though all companies in the survey who applied for a PPP loan were ultimately approved).

These responses shed hopeful light on employee ownership's role in keeping companies healthy in times of upheaval. In the words of one employee-owner: "Employee ownership might not make that much of a difference in good times but it really helps in bad times."

See our previous posts and summary results on the ESOP Topics Survey, and stay tuned here for more.