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The Employee Ownership Update

Loren Rodgers

July 1, 2016

(Loren Rodgers)

Missouri Governor Vetoes Pro-ESOP Bill

On June 28, Governor Jay Nixon (D) of Missouri vetoed House Bill 2030. The bill, passed with bipartisan support, would have allowed the deferral of state capital gains taxes for qualifying sales of stock to an ESOP. In his explanation of the veto (PDF), Gov. Nixon described it as "a costly solution in search of a problem." The Missouri Chamber of Commerce and Industry supported the bill, and its president Daniel Mehan said, "The benefits of employee ownership are proven by research and illustrated by powerful anecdotes from employee-owned Missouri companies."

Today Is Employee Ownership Day in the United Kingdom

The UK is celebrating its fourth Employee Ownership Day today, July 1. Events around the country include celebrations by employee-owned companies and public events to raise awareness. In building the case for employee ownership, the UK's umbrella organization, the Employee Ownership Association, notes that employee-owned companies represent 30 billion ($40 billion) in sales annually, that productivity and sales grew faster among employee-owned companies, and that the number of employee-owned companies is increasing at nearly 10% per year.

New Data on Corporate Governance in ESOP Companies

The NCEO's most recent survey of corporate governance practices in ESOP companies shows the current status of boards of directors, ESOP trustees, and governance policies for ESOP companies. For example, 74% of responding companies reported that they have at least one independent director on their board. The three most common board committees are compensation/personnel, audit/finance, and governance/nominating. With regard to trustees, ESOP companies have a diversity of practice, with outside trustees being the most common form reported (43% of respondents), although that number is likely higher in the context of trustees during a stock transaction. The survey also looked at a variety of governance policies. For example, although many professionals advise ESOP boards to adopt policies about how they will manage offers to purchase the company, only 35% of respondents report having such a policy.

More findings will be in our member newsletter and future publications.

IRS Questions Change in Determination Letters

The IRS' Advisory Committee on Tax Exempt and Government Entities said in a June 2016 report (PDF) that the planned overhaul of the determination letter system is a mistake, although it recognized that making further changes would be unlikely.

Recent Media Coverage of Employee Ownership

A June 25 article in the New York Times featured employee ownership at King Arthur Flour, noting its growth, culture, and ability to attract workers.

The South Dakota television station Keloland Television produced a 2-minute news video about employee ownership and Showplace Wood Products, a 550-person ESOP-owned company.

An online article at Forbes.com looks specifically at employee ownership in manufacturing companies and discusses the story of NewAge Industries, an ESOP company in Southampton, Pennsylvania. The article quotes company president Ken Baker: "If you are going to make something while facing global competition, it just can't be management's job to reduce scrap or to be more productive, you need every rank-and-file person in your company to be rowing in the same direction."

The Wall Street Journal covered the uses of ESOPs in a June 16 article.

Author biography and other columns in this series

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