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The Employee Ownership Update

Loren Rodgers

November 2, 2015

(Loren Rodgers)

New Report on Employee Ownership from the Center for American Progress

Last week, the Center for American Progress released a second policy-oriented report on employee ownership, this time focusing on understanding the scope and policy implications of risks associated with retirement-based employee ownership. In Mitigating Risks to Maximize the Benefits of Employee Ownership, Karla Walter and Danielle Corley argue that employee ownership "could promote broad-based wealth creation, thereby fostering sustainable economic growth and reducing inequality."

They note that one of the major impediments to stronger support from policy makers is a concern about risks associated with employee ownership, and their report is intended to both investigate the extent to which this concern is legitimate and to propose three policy solutions: limiting company stock in 401(k) plans, allowing early diversification when an ESOP involved wage or benefit conditions or when a company's only retirement plan is an ESOP, and better-targeted regulatory oversight of ESOPs. Walter and Corley note that their recommendations are "targeted to address the minority of companies with employee ownership where workers face undue risk. In sum, this report aims to start a dialogue about how to better protect workers while still offering the benefits of inclusive capitalism."

Fiduciary Claim Against GreatBanc Dismissed

In Allen v. GreatBanc Trust Co., No. 1:15-cv-03053 (N.D. Ill. Oct. 1, 2015), a district court dismissed a lawsuit against GreatBanc Trust in its role as a fiduciary in an ESOP transaction at Personal-Touch Home Care. Plaintiffs argued that the stock dropped to 78% of its pre-transaction value after the transaction and that the ESOP borrowed money at 6.25% instead of the 4.25% rate plaintiffs said was the going rate for ESOP loans. The court said the allegations were merely conclusory, not backed by evidence. Although the stock fell even further over time (to 55% of the transaction price), the court ruled that it must make its determination as of the transaction.

Notably, the Court referred to the Dudenhoeffer Supreme Court case in ruling that "Absent an allegation of special circumstances regarding, for example, a specific risk a fiduciary failed to properly assess, any fiduciary would be liable for at least discovery costs when the value of an asset declines. Such a circumstance cannot be the intention of Rule 8(a), or Dudenhoeffer. An allegation of a special circumstance is missing in this case—in fact, we know absolutely nothing about the financial situation of Personal-Touch."

Twenty-Six-Year ESOP Company Sells to Equity Firm

Marco, a St. Cloud-based firm with 920 employees in Minnesota and five other states, announced that it will end its 26 years as an ESOP company through a sale to the investment firm Norwest Equity Partners. Marco's CEO, Jeff Gau, noted that the company has been extremely successful, with a compound annual growth rate in its stock price of 51% over the past five years. Marco, which began as a typewriter company, has expanded into copiers, then into telephone and a variety of IT services, partly by acquiring other companies—including 15 acquisitions in the last three years. Gau said the timing of the sale reflected the company's current strong performance, but also worry about its ability to fund its repurchase obligation in the future. "To be good stewards of our employee-owned company, I think the timing factor . . . would be to get on that now," he said.

IRS Releases 2016 Pension Plan Limitations

The IRS adjusts the limits for contributions to retirement plans for inflation each year, and its most recent release shows that most of those limits remain unchanged from the 2015 limits.

PBS NewsHour: Special Segment on Employee Ownership and New Belgium Brewing

On October 22, the PBS NewsHour's weekly economics segment (7 min., 42 sec.) focused on employee ownership, using the sale of New Belgium Brewing to its employees as an example.

NCEO Board Nominations

Annual elections for the board of directors of the National Center for Employee Ownership (NCEO) will take place in January, and members in good standing are invited to nominate themselves or other members during the nomination window, from November 4 until December 18. Nominees should review the online resources for board candidates. The NCEO's board is actively engaged in many of the organization's activities, from contributing to the content of our research and publications to assisting at the annual conference and finding new members.

Job Opening: Rocky Mountain Center for Employee Ownership

The Rocky Mountain Center for Employee Ownership has launched a job search for an executive director. The application deadline is November 15, and the target start date is January 1.

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