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The Employee Ownership Update

Loren Rodgers

August 15, 2014

(Loren Rodgers)

Employee Ownership and Veteran-Owned Businesses

ESOP companies generally have a hard time qualifying for various minority and other special set-aside programs if the plan owns more than 49% of the shares. Rules almost always require that a majority of the stock be owned by qualifying individuals, no matter what the demographic composition of the ESOP is. The Veterans Administration (VA), however, has rules that are easier to meet.

The Veterans First Contracting Program created by the VA provides set-asides for veteran-owned businesses competing for contracts for the VA. Peter Ford of Pillero Mazza PLLC, writing on the JD Supra site on August 8, says that "for the VA Program, stock held in an ESOP Trust will be treated as 'excluded stock' provided that five or fewer persons (i.e., individuals, estates, or trusts) own 50 percent or more of the total combined voting power of the company. Thus, if two individuals collectively own 50 shares of a VOSB [veteran-owned small business] and an ESOP Trust holds 50 shares, the stock held by the ESOP Trust would be treated as excluded stock, and the veteran would be required to individually own 51 percent or more of the outstanding stock (excluding the ESOP stock) or, in other words, at least 25.5 of the 50 individually-owned shares."

"Conversely, if there are six individuals who collectively own 60 shares and the remaining 40 shares are held through the ESOP Trust, the ESOP stock would be treated as outstanding stock. Thus, under that scenario, the veteran would be required to individually own 51 percent or more of the outstanding stock (including the ESOP stock) or, in other words, at least 51 of the total 100 shares—which is always the case under the SBA Program."

ESOPs still could not own 100% of the company, but they could own a large majority of it.

United Steelworkers Support Employee Ownership

At its 2014 convention, the United Steelworkers union passed a resolution supporting union worker cooperatives and employee ownership more broadly, including explicit support for the U.S. Federation of Worker Cooperatives. The full resolution describes the union's collaboration with the Mondragon cooperatives, discusses the relationship between employee ownership and inequality, and refers to the power of the assets held by union members' retirement funds. The union resolved that "Our Union will continue to promote and develop unionized, worker-owned Union Co-ops, as well as other forms of worker-ownership, as a profitable and sustainable means to create jobs and support our communities."

Twenty-One ESOP Lawsuits Decided in Last 12 Months

The NCEO just released its annual review of litigation involving ESOPs and 401(k) plans with company stock, which found 21 lawsuits involving ESOPs decided in the most recent 12 months. The Supreme Court's Dudenhoeffer decision was a major departure from prior court rulings, but it broke no new major ground on other issues. In most years, about 10 to 25 lawsuits concerning ESOPs are decided out of the several thousand plans in existence in any one year.

The NCEO Is Hiring!

The NCEO's outreach coordinator will be involved in implementing and designing some of the NCEO's most interesting projects, all designed to provide high-quality information to audiences that are not aware of employee ownership or that have misconceptions. We are currently accepting applications for this full-time position in our Oakland office, and the job description and application process are available online.

Gathering of Games: September 3 to 5

The 22nd Annual Gathering of Games, a conference for companies and practitioners focused on open-book management, will take place September 3-5, 2014 in St. Louis, MO. Roughly 500 attendees and 30 breakout sessions cover topics for beginners and experts, including education, engagement, take-away practices, and keynote speakers Jack Stack and Alan Beaulieu.
Register for the conference at a and use code ggobnceo to receive $100 off your conference registration.

Employee Ownership Management Program October 12 to 15

The Beyster Institute at UC San Diego's Rady School of Business will again host its program for owners, executives, and managers in employee-owned companies. The course covers legal and regulatory issues, corporate governance, marketing, financial management, and ownership culture. The course will be October 12 to 15 in San Diego.

Oxford to Host Employee Ownership Course

Oxford will host an innovative four-day program on employee stock ownership plans, covering topics from fiduciary issues to sustainability. The course will use an interactive and interdisciplinary approach.

Author biography and other columns in this series

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