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The Employee Ownership Update

Corey Rosen

October 1, 2009

(Corey Rosen)

Five of Fifteen Top Small Workplaces in 2009 Are Employee Ownership Companies

Five of the 15 winners of the Wall Street Journal and Winning Workplaces Best Small Workplaces Award in 2009 are employee ownership companies, and all five are NCEO members. Three have ESOPs. That means that 15 of the last 45 winners have been NCEO members. All of the employee ownership company winners over the last three years have been NCEO members.

The NCEO member winners are:

Analytical Graphics: This 263-employee aerospace and defense software company in Exton, Pennsylvania, uses its profit sharing plan to invest in company stock. One unusual perk is that the company offers free breakfast, lunch, and dinner. Families are welcome to come by. Employee ideas are solicited through quarterly town-hall meetings. Fridays, employees have "Storytime," where they can shares stories of their work with other employees.

Bailard Inc:
This 49-employee Foster City, California, private investment firm allows employees to buy stock with loans from the company or, in some cases, from customers. An internal market helps provide liquidity. The company is currently looking at other ownership options as well. The offices have no doors, and every morning at 9:05 the staff gathers to discuss company news and projects. An open-book policy even extends to salaries.

Heavy Construction Systems Specialists, Inc: This 106-employee construction software company in Sugar Land, Texas, was an NCEO Innovations in Employee Ownership Award winner for the unique way it combines an ESOP with stock appreciation rights (SARs) targeted at new employees to give them more parity with more senior ESOP participants. The company is very open-book, with regular opportunities for employee input into decisions. It also has an extensive wellness program, including a jogging trail and gym on site.

Skyline Construction: This 50-employee San Francisco construction company became ESOP-owned in 2005. The plan includes unionized employees. The move to an ESOP brought a major cultural shift to a highly inclusive management style. It practices extensive open-book management and has regular meetings to discuss workplace issues. Each fall, one employee from each department attends a two-day strategic retreat.

Railroad Associates Corp. is a Hershey, Pennsylvania-based railroad engineering and contracting company with 33 employees. Its ESOP owns 40% of the company. The company does not hire middle managers to handle field calls from job sites but rather pushes decisions down to front-line employees.

Assistant Secretary of Labor Says ESOPs a Priority

Phyllis Borzi, the Assistant Secretary of Labor of the Employee Benefits Security Administration (EBSA) in the U.S. Department of Labor, told the audience at the ASPPA/DOL Speaks conference on September 17 that she will be taking a hard look at both compliance and enforcement issues for plans the U.S. Department of Labor covers. While major issues will be delayed remittances of contributions to 401(k) plans and criminal prosecutions for embezzlement of plan funds, ESOP valuations will also be one of the priorities.

New Directory of Professionals to Help Employees Deal with Their Equity Grants has developed a specialized directory of financial, legal, and tax advisors with an expertise in stock compensation. It features a growing range of experts, including financial planners, lawyers, CPAs, and accountants who can help anyone receiving stock compensation. It is free for employees with stock compensation to use it to find advisors or for other experts to find referral sources. To try the directory, go to this link.

Efficient Markets: My Own Definition

Over the last few decades, the dominant theory about a lot of the economy has been the so-called efficient market theory, which assumes that markets can operate in ways based on the simultaneous and well-informed calculations of numerous players, each making value-maximizing decisions. Events of the last two years have thrown this theory into question. So here is my alternative definition:

Efficient Market: A myth created by economists using outmoded assumptions about why people behave the way they do in economic transactions, but that produces neat and comforting formulas subject to elaborate mathematical manipulation for which PhD's can readily be granted. The myth is based on the almost universally false assumption that all actors have perfect information, that access to information is at the same time for all participants (see "automated computerized trading models"), that people value short-term losses and long-term gains equally, that people are not influenced by the behavior of others (see "herd behavior"), that people are able to value risks in mathematical ways and have a good intuitive sense of probability theory, and that no player is providing false or misleading information. The stock market is a good example of inefficient markets.

NCEO Seeks New Executive Director to Start in 2011

As part of a very long-planned transition, I will step down as executive director at our 30th annual conference in Denver in April 2011. As I explain in the note below, I will not be retiring from the NCEO; I will, however, be changing roles to continue as a member of the staff.

We are now seeking applications for the executive director position. Among other qualifications. candidates must have a strong background in the field, excellent written and verbal communication skills, and the ability to work effectively within the NCEO's highly consensual staff structure. For details on the job and how to apply, go to this link.

A Personal Note on My Upcoming Change of Roles at the NCEO

At our annual conference in April 2011, I will step down as executive director of the NCEO, a post I will have held at that point for over 30 years. I will not, however, be retiring from the NCEO. I plan to continue to work here for what I hope will be many more years.

This has been my plan for 15 years. It was premised on two ideas:

First, 30 years seems like a long time to have the same director. A new director will bring in new perspectives and energy.

Second, I was reasonably confident that by the time I reached 62, I would have saved enough money for retirement that I would no longer have to draw more than nominal compensation from the NCEO. That will free up enough money to hire an additional staff person and give me the flexibility to work on some projects that might not bring in revenue but will help spread employee ownership in ways that are currently challenging, such as to lower-income workers or outside the U.S.

I will reduce my schedule somewhat, but still be here most of the time. I would very much like to serve on one more ESOP company board as well.

From the time I decided to start the NCEO in 1979 (we incorporated in the fall of 1980), this has been a passion and a hobby, not a job. It still is. I love the work I do and, even more, feel a very strong sense of community with and gratitude towards the people I work with, both on the staff and the larger employee ownership community. The median tenure on the staff is now over 10 years (not counting me). I deeply respect, admire, and like the people I work with and would miss them dearly if I left the NCEO. The broader community has been wonderfully supportive, and I have met a seemingly endless number of good people working to make the lives of employees and communities better. So since I am having a lot of fun doing this, and greatly enjoy the people I do it with, it would be foolish for me to just leave.

At the same time, I want to be clear that when I do step down as director, I will not be peeking over the shoulder of the new one. We have a unique culture here that, unless you have watched it up close, is hard to fully appreciate. The staff is so experienced, committed, and qualified that the organization needs precious little of my "direction." We make decisions about just about everything as a group (even compensation) by consensus. Once people have been here for a while, they run their own jobs and make their own decisions, although they regularly seek input from colleagues. But they do not need my approval. The next director's key job is to preserve that culture, which has made us exceptionally efficient and productive. The director will also become the leading voice for the NCEO to the public and take a leadership role in coming up with new ideas here we can all get on board with. I am fully confident, as is our board, that this transition will go very smoothly.

Finally, I want to thank everyone for the gift you have given me by making it possible for me to realize the dream I had 30 years ago. I hope that I have been able to at least partially repay it, and intend to try to continue to do so for many years.

Author biography and other columns in this series

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