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The Employee Ownership Update

Loren Rodgers

September 15, 2016

(Loren Rodgers)

Missouri Legislature Overrides Veto, Passing Pro-ESOP Legislation

On September 14, the Missouri legislature passed 13 pieces of legislation that had been vetoed by Gov. Jay Nixon (D), one of which (H.B. 2030) provides a tax deduction on qualifying sales to Missouri-based ESOPs. Missouri Chamber of Commerce CEO Daniel Mehan welcomed the passage of the bill, commenting in a press release that it will "help ensure employee-ownership is a viable alternative when business owners decide to sell. Having more owners selling to their employees will help keep Missouri businesses locally-held and growing in our state."

Fewer Cases Involving ESOPs Reach Courts

An article in Bloomberg BNA cites NCEO research in observing that 21 lawsuits that involve ESOPs were filed in the most recent 12-month period, a smaller number than in most years. The article quotes Corey Rosen, who argued that the decline is because of improvements in the economy and the new standards of prudence that resulted from the Supreme Court's 2014 ruling in Fifth Third v. Dudenhoeffer.

Court Rules for Antioch Defendants in Long-Running ESOP Case

In Fish v. GreatBanc Trust Company, No. 09 C-1668 (D.C. N. Ill. Sept. 1, 2016), a district court ruled in favor of the defendants, who included GreatBanc and members of the Antioch Company board and family who previously owned stock outside of the ESOP. Antioch became 100% ESOP-owned in 2003, after being one of the first companies to set up an ESOP in the 1970s. It experienced spectacular growth after acquiring Creative Memories, a scrapbook company, but an equally spectacular decline as digital photo storage and the recession destroyed much of that business.

The plaintiffs argued that the ESOP paid too much for the stock and that the appraisal failed to account for a looming repurchase obligation. The 131-page ruling dismissed all claims, saying that the process the company used met fiduciary standards, that the valuation was reasonable, and the family owners and board were not fiduciaries because they handed over those duties to independent parties. The ESOP transaction involved multiple ESOP advisors and analyses, including both valuation and fairness opinions by separate parties. The long-running litigation has cost over $23 million.

While the decision breaks no new legal ground, and may be appealed, it is perhaps the most detailed analysis a court has ever performed and is worth reading for the depth of the analysis.

One Week Left to Register for CEPI Exam

Registration for the Certified Equity Professional Institute's November 2016 exam closes on September 23. The CEPI program (a series of three exams leading to certification as a Certified Equity Professional [CEP]) is the only path to be certified at managing equity compensation plans.

Media Coverage

The Atlantic ran an article by John Case called "The Life-Changing Magic of Turning Employees into Owners."

The Democracy Collaborative released a 4-minute video called The Pluralist Commonwealth about the potential role of employee ownership in a restructured economy.

A September 6 article in the Wall Street Journal reports on recent meta-analytic research concluding that "employee ownership can boost corporate profits."

Noting that nine of the companies on the Employee Ownership 100 list sell groceries, Forbes blogger Darren Dahl's September 12 post digs into the reason for employee ownership in the retail food industry. Progressive Grocer ran an article on the #1 company on that list, Publix Supermarkets.

Author biography and other columns in this series

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