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The Employee Ownership Update

Loren Rodgers

May 15, 2017

(Loren Rodgers)

Four Progressive Senators Introduce Pro-Employee Ownership Legislation

Sens. Bernie Sanders (I-VT), Patrick Leahy (D-VT), Kirsten Gillibrand (D-NY), and Maggie Hassan (D-NH) introduced two bills to support employee ownership. The first, the WORK Act, would provide $45 million to establish and support state employee ownership centers, modeled after the Vermont Employee Ownership Center. The second bill would create a U.S. Employee Ownership Bank, designed to provide $500 million in incentivized loans to support the creation of ESOPs and worker cooperatives.

First Bankers Trust Will Stop Accepting ESOP Transaction Clients

In the wake of its loss in the federal District Court of New Jersey, First Bankers Trust announced in a May 8 open letter that it had "decided to suspend the engagement of our services for transactions related to new ESOPs," although it will "continue to provide our full compliment of services to our existing ESOP clients." In Perez v. First Bankers Tr. Servs. the district court ruled that First Bankers had allowed the trust to overpay for shares in a $16 million transaction at SJP Group Inc. by accepting a flawed valuation of company stock. The court ordered First Bankers to pay $9.95 million.

An IPO with an Employee Ownership Twist

On Friday, May 12, Gardener Denver, a 6000-person industrial firm based in Milwaukee, WI, went public. On the same day that its stock started trading on the New York Stock Exchange, the employees also learned that they were becoming owners. Employees in the U.S., Europe, Australia, China, Africa, India, and South America will receive deferred stock units, in some cases worth up to 40% of their annual compensation. The private equity firm KKR bought Gardener Denver in 2013 and remains the majority owner following the IPO. On its opening day, the stock was up 5.5%; and as we write this note, it's up 10% over its opening price.

District Court: Employee of an Independent Trustee Can Be Treated as Fiduciary

In a decision that appears to the first of its kind for ESOPs, a district court has held that Michael New, an employee of Evolve Bank and Trust, can potentially be deemed personally to be a fiduciary for an ESOP in a disputed valuation case. In Hugler v. Vinoskey, a district court in West Virginia refused to dismiss New's argument that as an employee of Evolve he was not himself a fiduciary.

Boston Program Supports Employee Ownership

The City of Boston has a new program to "build and grow your worker cooperative or employee-owned firm." The program plans to provide technical support and capital, encourage conversions, and develop promising industrial sectors.

Four Employee-Owned Firms Named to Forbes 25 Small Giants List

ESOP companies Dansko (shoes), Essential Ingredients (personal care products ingredients), H.B. McClure (HVAC contracting), and SRC Holdings (diversified manufacturing) have all been named to the 2017 Forbes Small Giants list. The 25-company list, created by Bo Burlingham, a former keynoter for the NCEO conference, is comprised of firms that "have sound models, strong balance sheets and steady profits—all privately owned and closely held. They contribute to their communities. They have been acknowledged as outstanding by others in their field. And they do things any business can learn from." All four of the ESOP companies are majority-owned by their plans, and all are NCEO members.

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