Home » Columns »

The Employee Ownership Update

Loren Rodgers

April 1, 2019

(Loren Rodgers)

Colorado State Government Creates Employee Ownership Commission

A March 22 article in the Denver Post noted that Colorado Governor Jared Polis (D) is working to promote employee ownership in Colorado. He is creating an Employee Ownership Commission that will be housed within the Office of Economic Development and International Trade (OEDIT) and will be responsible for advancing employee ownership statewide. It will be responsible for helping develop a strategic plan, which may include additional legislative recommendations. The Rocky Mountain Employee Ownership Center will be a part of the state commission. OEDIT will have two employees whose main responsibilities will include employee ownership.

John Kovacs, program analyst for the state's Employee Ownership Commission, told the Denver Post, "we are looking to make Colorado the Delaware of employee ownership."

Two years ago the state legislature approved a fund that can provide loans up to $10,000 to companies to help cover the cost of accounting and legal services involved with forming an ESOP or a worker cooperative.

Developments in ESOP Litigation

On March 28, the Department of Labor sued Wilmington Trust N.A., alleging that it relied on a flawed valuation in a $46 million ESOP transaction involving Stargate Apparel Inc. and Rivstar Apparel Inc. The suit alleges that the appraisal firm had ties to the selling owner and that it was based on unrealistic projections. Wilmington Trust declined to comment, noting that the litigation is ongoing.

That suit follows on a March 21 ruling by the Fourth Circuit Court of Appeals that upheld a $29.8 million judgement against Wilmington Trust. The district court had ruled that an ESOP overpaid for stock in Constellis Group Inc., finding that in the $201.5 million transaction Wilmington had failed to ensure that its reliance on the valuation report was reasonably justified.

In a March 25 article in Bloomberg, Wilmington Fine Points to Lack of ESOP Guidance, Attorneys Say (subscription required), reporter Warren Rojas notes that "The guidelines for determining the fair market value of ESOP shares have been a work in progress since the tail end of the Reagan administration," and quotes numerous ESOP experts calling for final regulations.

Forbes: Employee Ownership and Innovation

Forbes writers Jim Ludema and Amber Johnson wrapped up their series on creativity and innovation at work with an article about Crafts Tech, a manufacturing company that puts employee ownership at the foundation of its innovation strategy. Ludema and Johnson write that "the ESOP model, and the ownership mindset that resulted, was instrumental in moving to a culture of innovation." They also cite CEO Jeff Taylor, who wrote, "If you want to turn up the gas, get it all going, you have to get their intellect, give them equity, and give them ownership."

Recent Sales Involving ESOP Companies

In late March, three ESOP companies announced that they would be acquired. Entertainment Partners will be acquired by a private equity group, TPG Capital; this comes in the midst of a wave of consolidation in both the entertainment industry and the payroll services industries, both of which apply to Entertainment Partners.

Another industry experiencing consolidation is book printing, and ESOP-owned book printer Thomson-Shore has an agreement to be acquired out of bankruptcy by CJK Group.

By contrast, the Vermont-based publisher Chelsea Green has finished an eight-year transition to 100% employee ownership. An article in Publishers Weekly quotes Chelsea Green production director Patricia Stone: "What would have happened otherwise if [company founders] Margo and Ian didn't want to continue running the company and wanted to sell their stocks? The other option would have been to sell the company to someone else and that wouldn't have been my first choice."

Finally, an ESOP acquired 100% of the shares of government services company Phacil, and in March Phacil was acquired by the systems integrator By Light.

Author biography and other columns in this series

Return to regular version