While I truly believe ESOPs are a greatly under-utilized exit strategy, they are so much more than that. They are a vehicle to change company culture. As a CEPA, one of the core concepts I discuss with owners is the legacy they wish to leave behind when they transition out of their business.
Last week, while attending the 2017 Canadian ESOP Conference I heard two amazing stories about owner legacies. The first story was from an Alberta based company. The founder’s exit goal was to transition the company to his employees. He worked well into his eighties, then completed the transaction to hand over ownership to a broad employee group, and died a week later. Talk about fulfilling your legacy!
The second was that of Beau’s Brewery . As the Ontario based craft brewery was reaching its tenth year, rumours swirled that Beau’s was going to ‘sell out’ to one of the big firms. As the father and son founders thought about what their ten years in operation meant to them, what legacy they wanted to leave when they did exit, and the gratitude they owed to their tremendously loyal employees, they came to a decision. The family decided to expand their previously small ‘family and friends’ employee ownership structure to include the entire company. Now everyone has the chance to share in the rewards, and be accountable to the entire group of owners, namely, themselves. What a tremendously powerful aligning force!
While an ESOP structure may or may not be right for your company, or at least not right at this time, the statistics speak for themselves: Employee Ownership, if combined with ownership culture, can produce a dramatic competitive advantage via a more engaged, more informed, and more customer-focused workforce. In fact, studies in the US by the National Center for Employee Ownership (NCEO) show that ESOP companies are 25% more likely to stay in business, are 4 times less likely to lay off staff during a recession, and pay employees between 5 to 12% more. What’s more, they do this with increases in productivity and increases in sales resulting in an average increase in ROA of 2.7% after implementing an ESOP. Truly remarkable results! And let me correct myself – if share ownership is done right, it’s not a workforce anymore, it’s an owner-force!