Proof for employee ownership

Proof for employee ownership

The best way to protect your business and workers during COVID-19?

Study shows it’s employee ownership

Employee-owned companies have protected their workers’ jobs four times better than other firms and suffered fewer cuts to hours and pay during the COVID-19 pandemic, according to a new study. They also outperformed traditionally-owned firms during the last two recessions. There may be no one-size-fits-all method to make a business recession-proof, but the data is clear: if you want to give your business the best odds of surviving a tough economy, turn your employees into owners.

In times of unprecedented challenges, business owners face difficult questions.

How do I keep my business intact?

How do I protect my workers?

How do I ensure we can come back from this?

Protecting jobs is critical for surviving a recession. It is much more expensive and labor-intensive to hire and train new employees than to keep the ones you have. Employees who already know the ins and outs of your business can help you recover much faster than a competitor that first has to rebuild their staff from the ground up.

A groundbreaking study published in 2017 by scholars at the Institute for the Study of Employee Ownership and Profit Sharing at the Rutgers School of Management and Labor Relations showed that companies with broad-based employee ownership—particularly those with Employee Stock Ownership Plans (ESOPs)—tend to be substantially more successful at protecting their workers’ jobs than companies without employee ownership. During the 2001 and 2008 recessions, ESOP companies experienced 50% fewer layoffs than other businesses.

Now, new data from the Institute shows that employee-owned companies have outperformed other firms by an even wider margin during the COVID-19 pandemic.

Employee-owned firms retain 4 times more jobs

In October 2020, the Institute, in partnership with the Employee Ownership Foundation, released a new study, “Employee-Owned Firms in the COVID-19 Pandemic.” They examined 247 majority or 100% employee-owned companies with ESOPs and 500 companies without employee ownership. Their findings? When it came to protecting jobs during the pandemic, the employee-owned companies outperformed their traditionally-owned counterparts at a rate of four to one.

The study showed that, compared to traditionally-owned businesses, employee-owned companies were:

  • 3.63 times more likely to retain non-managerial staff

  • 3.95 times more likely to retain managers

Incredibly, the majority of ESOP companies that received no funding from the Paycheck Protection Program (PPP) still laid off employees at a rate 3.2 times lower than traditionally-owned companies that did receive PPP funding. This suggests that employee ownership is more effective than even federal loans at helping businesses keep jobs intact. 

Employee ownership may be more effective than federal loans at helping businesses keep jobs intact.

ESOP companies with no PPP funding laid off employees at a rate 3.2 times lower than traditionally-owned companies that did receive funding.

Additionally, the study found that majority ESOP companies were:

 

  • Significantly less likely to cut hours for employees: 35.5% of majority ESOP companies cut hours compared to 62.9% of other companies
  • Able to confine scheduled cuts to fewer employees: 16.4% of the workforce at ESOP companies vs. 25.7% of the workforce at other companies
  • Less than half as likely to cut employees’ pay: 26.9% of majority ESOP companies implemented pay cuts vs. 57.3% of other companies

When majority ESOP companies did have to issue pay cuts, they often cut a larger percentage of the affected salaries, on average, than at non-ESOP companies: 41.3% vs. 21.6%. The study’s authors believe that the pay cuts were more substantial at ESOP companies because they were more likely to include cuts to manager-level salaries, which are larger to begin with. In essence, when pay cuts were unavoidable, employee-owned companies were more likely to share the pain across all levels of the organization.

This speaks to why employee-owned companies have outperformed other firms during the COVID-19 pandemic, as well as during the past two recessions. It is not that employee ownership automatically imparts any kind of magical immunity to economic upheaval. Rather, when employees have a genuine stake in their company’s future, a voice in its direction and an understanding of the challenges it’s facing, they are more likely to be willing to come together, make sacrifices and find creative solutions to help one another through hard times.

When employees have a genuine stake in their company’s future, they are more likely to come together and find creative solutions to help through hard times.

Companies that embody a worker-first mentality under normal circumstances are, perhaps unsurprisingly, also more likely to take proactive measures to protect their workers in a crisis. The study found that employee-owned companies were more likely than other firms to have already enacted protective measures by the time the pandemic was declared in March 2020, more likely to let employees work from home and more likely to provide personal protective equipment to employees who had to be on-site.

The benefits of transparency

For a prime example of the employee ownership mentality in action, look no further than Project Equity’s recent interview with commercial food service equipment manufacturer Hatco® Corporation, a 100% employee-owned company since 2007. 

When Hatco’s sales dropped significantly in the early months of the pandemic, forcing them to cut hours at their factory from 40 hours a week to 24, they were able to continue paying their employees for a full 40-hour week without eliminating jobs.

How did they do it? They were open, and honest with their employees. As Hatco CEO Dave Rolston explained:

 

“We were very transparent and explained to them that it is a ‘pay me now or pay me later’ situation. We told them that every dollar we spend now that we could save by laying them off will reduce their share value in the future. So, our employees were fully aware that it came down to sacrificing a little bit of their future to stay employed now or get laid off and lose everything.”

The ownership structure of their ESOP gave Hatco the flexibility to consider a plan like that. But it was the employee-owners’ willingness to make sacrifices in order to protect the livelihoods of their fellow workers that empowered the company to put the plan into action. 

We are in this together

Hatco’s experience is representative of the kind of game-changing impact that an employee-ownership mentality can have, even in the face of challenges like the COVID-19 pandemic. In July 2020, the National Center for Employee Ownership (NCEO) completed a survey of ESOP companies and found that two-thirds of respondents felt that being employee-owned had a “very or somewhat positive effect on their handling of the COVID-19 pandemic,” compared to just 3% who felt it hindered their response.

One of the most common refrains among the survey respondents was that being employee-owned and having a shared financial stake in the company’s success and survival instilled feelings of trust, togetherness and cohesion—“Very much a ‘we are in this together’ mentality,” as one respondent put it.

It is worth noting that simply being employee-owned does not automatically create a culture of ownership among the employees. Building that kind of culture takes work and an ongoing commitment to transparency and inclusion.

For example, Columbia Forest Products is a hardwood plywood and veneer manufacturer that has been 100% employee-owned since 1984.

In our recent conversation with Columbia, Jeff Wakefield, their VP of Human Resources and Development, cited their long-term commitment to transparency across the organization as a key reason why the company has survived one economic downturn after another, and is well-positioned to come out of the COVID-19 pandemic in a strong position.

“I’m humbled by our team members as far as understanding what we were facing, how we were responding and being willing to do what was needed, so we could contract and then come back and return to a point where we’re in a position to succeed. They know it’s not just about me. This is about, ‘How do we help Columbia stay healthy? How do we help each other?’” Wakefield said.

Employee-owned companies feel better about the future, for good reason

The recent Rutgers Institute study concludes its summary by looking at how businesses feel about their future prospects. In perhaps the study’s most stark statistic, the companies they examined that do not have employee ownership were 5.7 times more likely than the employee-owned companies to say that their business “would never return to its usual level of performance.”

Employee ownership does not automatically make businesses more resilient, or more attractive to customers. That resilience comes from fully embracing a culture of employee ownership and enacting policies that put workers first (the substantial tax benefits that ESOPs enjoy don’t hurt, either).

It is no accident that companies like Hatco and Columbia Forest Products feel that their ESOPs have put them in a good position for a post-pandemic recovery. Both companies have put years of effort into creating and maintaining their employee ownership culture. If there is one thing to learn from their example, it is this: the best step you can take to protect your business from the next recession may be to begin building a culture of employee ownership today.

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Don’t miss

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Proof for employee ownership

Proof for employee ownership

Employee-owned companies have protected their workers’ jobs four times better than other firms and suffered fewer cuts to hours and pay during the COVID-19 pandemic, according to a new study.

EOX Partnership

EOX Partnership

On December 2, 2020, the Employee Ownership Expansion Network (EOX) and Project Equity announced their new partnership designed to amplify employee ownership models as ways to preserve small businesses, strengthen jobs and communities and address the acute need for local economic resiliency.

Small businesses after a summer of COVID

Small businesses after a summer of COVID

We explore how employee-owned companies, like King Arthur Flour and A Slice of New York, have advantages that enable them to be adaptive in this time of uncertainty and change.

Mandela Grocery Coop

Mandela Grocery Coop

Project Equity had a chance to connect with Andrea Talley, the general manager of Mandela Grocery Coop, an Oakland icon and one of Project Equity’s Thrive program clients. Read full story >>

Recology

Recology

Project Equity reached out to Julie Bertani-Kiser, Senior Vice President and Chief Human Resources Officer at Recology, to find out how their ESOP company was responding to the health crisis. Read full story >>


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EOX Partnership

EOX Partnership

New partnership with Employee Ownership Expansion Network (EOX)

On December 2, 2020, the Employee Ownership Expansion Network (EOX) and Project Equity announced their new partnership designed to amplify employee ownership models as ways to preserve small businesses, strengthen jobs and communities and address the acute need for local economic resiliency. This powerful partnership will help to accelerate the impact of new State Centers for Employee Ownership by providing proven and ready-to-utilize awareness, marketing and PR tools and resources. The urgency of supporting small businesses is paramount, given the “twin small business crises” of COVID and the Silver Tsunami of baby boomer business owner retirements.

America is facing a wave of retirements by baby boomers, who own nearly half of all privately-held businesses. The risk is that these businesses will not be retained locally — either because they quietly close-down, are sold to out of area buyers, or simply do not have a succession plan as the owner transitions into retirement. In addition, the sting of the global COVID-19 crisis has frozen demand and stalled cash flow for many small businesses.

Amid the ongoing uncertainty, city and state officials are scrambling to figure out how to craft effective and equitable small business recovery plans. The response should aim first to preserve existing business assets and the value they have built, helping them survive this downturn – and prepare to re-open at full capacity when the time comes.

Employee ownership increases engagement, dedication and ingenuity, which are key to business success, especially during this uncertain time when businesses must respond quickly to change. For those businesses with retirement-age owners—nearly one out of every two job-creating small businesses nationwide, an employee ownership succession plan provides a fair sale price, preserves the business’ legacy and offers timeline flexibility in an owner’s exit plan. Employee ownership taps the energy of the next generation to help retirement age owners avoid deciding just to close up shop.

“While the ‘boots on the ground strategy’ of state centers for employee ownership has proven to be effective, we cannot do it alone. Simply put, we are better together.”

“We look forward to a long-term partnership with Project Equity,” said Steve Storkan, Executive Director, EOX. “One of our core beliefs at EOX is that collaboration among organizations in the employee ownership space is key to our ability to bring all forms of employee ownership to the forefront of public knowledge around succession planning and to address the significant needs of small businesses right now. Our small businesses need high employee engagement to help navigate the unknowns in today’s economy, and a huge number of them need succession planning. While the ‘boots on the ground strategy’ of state centers for employee ownership has proven to be effective, we cannot do it alone. Simply put, we are better together.”

48%

Of the 237 new ESOP’s in 2017, 48% were created by businesses located in states with centers for employee ownership.*

*According to data from the US Department of Labor recently compiled by the Pennsylvania Center for Employee Ownership (PACEO).

A key component of EOX and Project Equity’s partnership is for Project Equity to provide statewide data presentations to State Centers for Employee Ownership that illuminate and quantify the “twin small business crises,” making it clear that decisive action is needed to support small businesses, and educating about the highly underutilized, highly impactful and cost-effective employee ownership solution.

“Our data analysis and presentation work is modeled after Project Equity’s successful partnerships with cities, counties and regions focused on business retention through employee ownership as an economic development strategy,” said Alison Lingane, co-founder, Project Equity. “Designing solutions starts with understanding the issues: which industries and which counties have businesses that can most be helped by integrating employee ownership. Now, more than ever, solutions are needed that create economic resiliency for small businesses, workers and local economies. Employee ownership can keep many of these businesses locally-owned for the long term, and will deepen their positive impact on our local economy.”

This partnership brings together complementary competencies to further the organizations’ shared understanding that encouraging the broader use of employee ownership is a highly cost-effective way to retain and create jobs, increase wealth for a broad sector of workers and keep businesses rooted in their communities.

Learn more

about employee ownership transitions

Discover

how others did it

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Learn more

about employee ownership transitions

Discover

how others did it

Sign up

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Don’t miss

Our latest articles

Proof for employee ownership

Proof for employee ownership

Employee-owned companies have protected their workers’ jobs four times better than other firms and suffered fewer cuts to hours and pay during the COVID-19 pandemic, according to a new study.

EOX Partnership

EOX Partnership

On December 2, 2020, the Employee Ownership Expansion Network (EOX) and Project Equity announced their new partnership designed to amplify employee ownership models as ways to preserve small businesses, strengthen jobs and communities and address the acute need for local economic resiliency.


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Columbia Forest Products

Columbia Forest Products

Columbia Forest Products

Overcoming challenges through teamwork, transparency and a culture powered by employee ownership

The employee-owners at Columbia Forest Products have seen it all. Booms and busts, bull markets and bears, health scares, natural disasters and even illegally-operating offshore competition. And throughout every challenge, they have had each other’s backs, worked together, pulled through and risen to the occasion as a team.

Founded in 1957 in Klamath Falls, OR, and currently headquartered in Greensboro, NC, Columbia Forest Products is the leading manufacturer of hardwood plywood and hardwood veneer products in North America.

Their products are used to make high-quality cabinetry, furniture, architectural millwork and commercial fixtures. Their formaldehyde-free plywood resin, PureBond, was the first of its kind and earned an award for innovative green technology from the United States Environmental Protection Agency.

Few companies have been employee-owned as long as Columbia Forest Products, or have made their employee-owned status such an integral part of their daily life.

Columbia started its life as a worker cooperative (coop) and implemented an Employee Stock Ownership Plan (ESOP) almost as soon as it was legally possible to do so.

Now, for the vast majority of Columbia Forest Products’ 2,100 employee-owners, the company’s processes and policies, which were born out of an employee-ownership mentality, are simply the way things are done. Columbia’s culture of employee ownership is simply the company culture.

Employee-owned from the start

Columbia began under the name Klamath Hardwoods. From the very beginning, founder Andy Honzel, Sr. wanted each of the initial 43 employees to feel like it was their company, too.

“I really think that a lot of the foundations of who we are today started with just his value system, his outlook on life and his direction of what he perceived the business to be,” explained Jeff Wakefield, Columbia’s VP of Human Resources and Development. 

It wasn’t just lip service; Honzel and his co-investors set up the mill as a coop, where everyone had a financial stake and everyone would rise or fall together. In 1963, Columbia Plywood Corporation was formed to purchase Klamath Hardwoods. Honzel continued to use his leadership role to ensure that the employees had a say in the direction of the company as it grew.

“Even back at that point in time, there was a sense of ownership. It wasn’t simply the founder and a small group of investors driving things. There was a sense of wanting everyone who was involved in the operation to be able to have an impact and to be able to share in the success of that impact,” Wakefield said.

When the landmark ERISA legislation passed in 1974, effectively creating ESOPs in America, Honzel jumped at this new way to give employees a stake in the company’s success, while also providing the business with valuable tax benefits. The company, now called Columbia Forest Products, became partially ESOP-owned in 1976. In 1984, the ESOP purchased all the outstanding shares, making Columbia officially 100% employee-owned.

The tax savings, ownership mentality and resulting agility of being an ESOP company empowered Columbia to expand rapidly. Over the 1980s and 1990s, they built and acquired numerous plants, mills and facilities across multiple states and expanded their operations into Canada. 

All the while, Honzel maintained his dedication to ensuring the company belonged to its employees. Even after handing full ownership to the employees, Honzel stayed on as CEO until his retirement in 1991. Throughout that time, he actively worked to ensure that the company developed and maintained a healthy culture of employee ownership that continues to this day. 

“We’re in a very competitive industry.

Our employee-owners are our competitive advantage.”

A competitive advantage

When considering whether to explore employee ownership, many business owners focus on what things would look like during the initial transition period, or the period between the sale and the owner’s retirement. How would the employees respond to the changes? What would it take to implement and maintain a lasting culture of employee ownership? It can be difficult to look further into the future and to picture a time when those questions have already been answered.

Wakefield, a 25-plus-year Columbia veteran, has had the benefit of viewing the company’s employee ownership culture from multiple angles. He started at Columbia as Human Resources manager, then moved to the operations side as a plant superintendent, and later plant manager before stepping into his current role as VP of Human Resources and Development.

“We’re in a very mature industry, a very competitive industry on both the domestic and international level. Our employee-owners really are our competitive advantage,” he said.

“When I was a plant manager, people would come up to me and challenge me on the floor—‘Hey, remember this or that issue’—just trying to get ahead of my thinking. I love it. It’s that ownership mentality. Team members are able to contribute and constantly improve the way we do things.” 

Reacting together

Perhaps the most important factor that empowers Columbia’s employee-owners to affect change within the company is that the leadership across the company works to maintain as much transparency as possible.

“When you’re engaged as an owner, you want to know, what’s the reality of the situation we’re in? And then how do I act on that in order to impact where we’re going as an organization?” Wakefield said. 

Columbia provides employee-owners with access to all the data they need to make informed decisions and understand the direction of the company.

“We put a high value on sharing information, whether it’s from a safety perspective, quality perspective, productivity perspective, sales perspective or anything else,” Wakefield said. “We’ve got all our metrics, all of our customer feedback data, all of our financial information, cash flow, et cetera. It’s not restricted to the CEO, or a vice president or a plant manager. It’s all open to every employee—the good, the bad and the ugly.”

Having all that information helps the employee-owners understand the direction of the company, clarifies decision-making and fosters a feeling of teamwork. Employee-owners aren’t just reacting to what’s happening in their specific role, but to data coming in from every facet of the company, giving everyone a big-picture view. 

And if something needs to change? Columbia has an established framework in place for collaborative, team-based problem solving. Employee-owners know exactly what sort of steps will be taken to find a solution and what will be expected of them, don’t have to worry that speaking up could result in managerial interference or reprisal. 

“We can act in a way that’s aligned and move forward in a positive way,” Wakefield said. “I think that’s one of the key pieces of our culture, and a big piece of that is due to the fact that we are an ESOP.”

During the COVID-19 pandemic, Columbia has risen to the occasion. 

“In times like these, the strength of our culture really shows up.”

Overcoming big challenges with small decisions

No business is immune to the ups and downs of external market forces. But there are reasons why employee-owned companies tend to perform better during recessions, and Columbia’s collaborative culture is a prime example.

The hardwood industry took a substantial hit during the Great Recession. Construction and home renovation projects suddenly stopped as funding suddenly ran dry and people who might have otherwise invested in upgrading their dated kitchen cabinets or remodeling their dens had to hold on to their savings. Columbia made it through this difficult period by holding fast to their belief in transparency.

“In ’08 and ’09, one of the critical things was sharing information about our cash flow,” said Wakefield. “Where is our cash flow daily? Weekly? Monthly?

Helping people understand that reality enabled them to gauge the decisions they made day in and day out. Many of them might have seemed like small decisions individually, but they created a groundswell to where we were eventually able to become much more successful than we would have been otherwise at that time.”

Columbia saw a similar situation play out in 2020 during the COVID-19 pandemic. All of their facilities were deemed essential businesses, which allowed them to continue operating uninterrupted, aside from implementing social distancing measures. Even so, their industry still took a substantial blow in the first part of the year.

“I’m humbled by our team members as far as understanding what we were facing, how we were responding and being willing to do what was needed, so we could contract and then come back and return to a point where we’re in a position to succeed. They know it’s not just about me. This is about, ‘How do we help Columbia stay healthy? How do we help each other?’” Wakefield said.

Crises like the Great Recession or the COVID-19 pandemic can be crucibles for businesses. Many companies say they have a culture that values every voice, but that will be put to the test in a difficult economy. And Columbia has continually risen to the occasion.

“I see it in all of our interactions,” Wakefield said. “In times like these, the strength of our culture really shows up.”

The benefits of an ESOP filter out into the community.

ESOPs protect the owner’s legacy by keeping the company intact, which protects the jobs they’ve created in the communities they serve.

To whom much is given, much is required

A common selling point for ESOPs is that they not only benefit the business and the employees, they also benefit the community around the business. It’s true—ESOPs protect the owner’s legacy by keeping the company intact, which protects the jobs they have created in the communities they serve. ESOPs also put more money in the hands of their employees, which increases their purchasing power, enables some employee-owners to buy homes who may not have been able to afford it otherwise and enables employee-owners to retire comfortably and pass their wealth on to the next generation.

Columbia Forest Products has taken things a step further. Not content to let the benefits of their ESOP filter out into the communities around their facilities in a general way over time, their employee-owners started The Columbia Foundation to directly help people in need, both within the company and beyond.

“The guide of The Columbia Foundation is from Luke 12:48, ‘To whom much is given, much is required.’ That’s very consistent with our ESOP mentality. We’re all in this together, we’re all each other’s neighbor,” Wakefield said. “We have Caring Teams at each site. These Caring Teams are co-owners, co-employees, who help understand and identify the needs that come up, and then apply to the foundation to help meet those needs, whether they’re physical, mental or spiritual.”

When the workers at a particular plant or mill notice a pervasive issue in the surrounding community, a local charity in need of support or an opportunity to do some good for the less fortunate, they can bring it to the attention of their onsite Caring Team to apply to the foundation for funds. For example, in December 2018, the Caring Team at Columbia’s Old Fort, NC plant arranged to donate 500 holiday gift bags to clients of McDowell County’s Adult Department of Social Services.

The Columbia Foundation also provides loans and grants to assist employee-owners and their families who find themselves in difficult financial situations. 

“We’ve had issues where somebody needed funds to repair a vehicle so they could get back and forth to work,” Wakefield explained. “Or where people have needed help with rent or utilities, or other payment issues because of sudden expenses like hospital bills or funerals. 

We’ve had families impacted by COVID. In those cases, their Caring Teams were able to assess their needs in an anonymous way and help those individuals out.”

When Andy Honzel, Sr. founded the company that would become Columbia Forest Products back in 1957, he wanted it to be a place where everyone had a voice, everyone had a stake and everyone could make a difference.

“I really think that a lot of who we are now started with his values,” Wakefield said. “The values of hard work, of having an impact beyond yourself, of having the whole organization aligned and of everyone understanding that, regardless of what position you held, it was significant.”

“You can leave a legacy that’s a wealth creation entity that can be distributed to your entire workforce and can engender ownership regardless of the scope of somebody’s responsibility,” said Wakefield. “What a wonderful thing to do.”

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employee-owners

Insight

“When I was a plant manager, people would come up to me and challenge me on the floor—‘Hey, remember this or that issue’—just trying to get ahead of my thinking. I love it. It’s that ownership mentality. Team members are able to contribute and constantly improve the way we do things.” 

– Jeff Wakefield

Read more

Interviews & stories

Mandela Grocery Coop

Mandela Grocery Coop

Project Equity had a chance to connect with Andrea Talley, the general manager of Mandela Grocery Coop, an Oakland icon and one of Project Equity’s Thrive program clients. Read full story >>

Recology

Recology

Project Equity reached out to Julie Bertani-Kiser, Senior Vice President and Chief Human Resources Officer at Recology, to find out how their ESOP company was responding to the health crisis. Read full story >>

Adams and Chittenden: Mo’s Story

Adams and Chittenden: Mo’s Story

Adams and Chittenden, a manufacturer of laboratory glassware in Berkeley, CA, worked with Project Equity to transition the company ownership to their employees. In 2018, Mo was preparing to become one of the new owners. Read full story >>

A Slice of New York: Ren’s story

A Slice of New York: Ren’s story

Rendell Boguiren became an employee-owner of A Slice of New York, in San Jose, CA in 2017. He thought it was going to be a difficult process, but explains how Project Equity helped navigate him through it. Read full story >>

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Three types of employee ownership


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Hatco Corporation

Hatco Corporation

Hatco Corporation

 

 20/20 vision for employee ownership

Hatco® Corporation is a world class designer and manufacturer of commercial equipment that offers innovative solutions to the foodservice industry. The company has grown steadily through the years by product-line expansion and great customer service.

The company was started by Gordon and LaReine Hatch in 1950, and it remains a family corporation—only now their family is considerably larger. Hatco has introduced many “firsts.”  In May 2007, a monumental event in the history of Hatco Corporation occurred. 

With the stroke of a pen (actually, several pens), the employees of Hatco assumed 100% ownership of the company. 

With locations in Milwaukee and Sturgeon Bay, Wisconsin, Hatco is an excellent example of a company committed to employee ownership. They do so many things to foster ownership behavior and encourage ownership thinking. They keep employees engaged through a variety of fun and educational events, and they also find ways to give back to their community.

Project Equity recently chatted with Dave Rolston, CEO of Hatco Corporation.  We talked about how they became employee-owned and how life is different as an employee-owned company especially in today’s environment since COVID-19. 

Tell us a little bit about your business. 

We are a manufacturer with about 600 employees. We manufacture commercial food service equipment. A lot of our business is for grab-and-go merchandising food warmers. Companies like Racetrack and Speedway and other convenience stores comprise a large percentage of our customer base. However, we also service restaurants and hospitals, as well as universities and big tech companies that have cafeterias for their employees.

Given the climate that we are in due to COVID-19, what adjustments have you made as a company? 

Being an employee-owned company through an ESOP made adjusting to these uncertain times very easy because we did not have a conflict between shareholders and the employees. Many companies will sacrifice employees to keep their shareholders happy, and we did not have to do that.

Our business dropped significantly in April. We went from a 40-hour-a-week factory to 24 hours a week, but we continued to pay our employees for a 40-hour week.  So, they were getting Mondays and Fridays off. They had an awesome summer because they were getting four-day weekends every week! We did get a PPP loan, so that helped to subsidize some of that, and we used it one hundred percent on our people. 

“The Hatco family is in this together, and we are sacrificing across the board. 

A lot of companies have done significant pay cuts, and we did not have to do that.”

It really was not a hard decision, and we have sacrificed a fair amount of profit. We made the best decision for our employees. We were very transparent and explained to them that it is a “pay me now or pay me later” situation. We told them that every dollar we spend now that we could save by laying them off will reduce their share value in the future. So, our employees were fully aware that it came down to sacrificing a little bit of their future to stay employed now or get laid off and lose everything.  

The Hatco family is in this together, and we are sacrificing across the board. A lot of companies have done significant pay cuts, and we did not have to do that either. I have told our employees to not expect a bonus this year. We usually have fairly healthy bonuses at the end of the year. So that is one sacrifice that impacts all of us and our families. 

We have been able to bump our hours recently to 36 per week. Our employees were not crazy about losing their four-day weekends, but we are happy to be trending back toward “normal”. 

Do you think that making the required sacrifices was easier for your employees because they have some “skin in the game?”

Yes, I think it is, but with 600 people, you are never going to have everybody who truly feels engaged. I send out an email twice a week to all the employees to keep them updated on how things are progressing. I tell them what good things have happened and what bad things have happened. Also, I provide status reports on the PPP loan, and other COVID related issues. The email updates were sent daily at the beginning of the pandemic. Starting in April, I cut back to twice a week, and they can reply to me and give me feedback. I answer every email received. 

What was the catalyst for transitioning to an employee-owned company?

Our previous owner was a second-generation family owner. He did not have any children, and he always treated us like family. He thought of the employees as his family and becoming employee-owned is what he has always wanted to do.

I joined the company 10 years before the ESOP was formed and, from the beginning, he always said, “I am going to retire at 55 and sell the company to the employees.” 

If you started asking questions he would say, “I don’t know how we’re going to do it, but that’s what I want to do.”

He was consistent and steadfast. It was his vision, and he never deviated. In 2004, he sold 49% of the company to the ESOP and, in 2007, the ESOP purchased the remaining 51% and he officially retired. He is still our Chairman of the Board but does not have any ownership, and he just loves it. He is very proud of it.

He often meets with prospective ESOP sellers. They will find out about Hatco and call and come meet with him and pick his brain. The employee ownership transition worked out fabulously, so much better than anyone could have ever known.

“The big benefit that most companies do not have is the ESOP.

The percentage of income that people get every year amounts to around 25% of additional income that goes into their ESOP share ownership.”

What types of benefits do your employees have that a non-employee-owned company may not? 

Well, most of Hatco’s benefits are like other companies’, but richer. I did a little analysis for the employees a while back, and I calculated the cost to the company for the benefits that they receive. I wanted them to see the value of the non-wage benefits they receive. The point I was trying to make is, when they walk away from Hatco for 25 or 30 cents more an hour down the street, they are walking away from a lot. The benefits we offer increase their base wages by $13.66 per hour, including a very robust health care plan.   

The big benefit that most companies do not have is the ESOP. When it comes to the percentage of income that people get every year amounts to around 25% of additional income that goes into their ESOP share ownership.

What advice would you give to a business owner who is considering transitioning to an employee ownership model? 

I always ask how big they are because, if they are not a fairly big organization, it is a lot of administration and detail and risk to transition to an ESOP. And profitability matters because switching to an employee ownership model does not make up for lack of profitability unless you can leverage the engagement of the employees to make the business profitable.

I do not see the downside to an ESOP, honestly. There are ESOPs that fail because of market or competitive issues, but these circumstances are beyond the control of the owners. I love the ESOP model. I think it is a great way to spread wealth, promote fairness and equity in the workplace and drive engagement of the business. 

I cannot tell you how proud people are when they talk about being an owner in the business. Sometimes they will get into the minutiae. ‘Why don’t I get to have a say in this or that?’ And that is why being transparent is so important. We are transparent about expenditures, our top line, profitability, and our capital investments. 

Transparency takes a lot of work, but it is necessary because I must be trustworthy, and they must believe in what we are doing. It is my job to answer their questions as honestly as I can, so it takes a fair amount of effort, but at the end of the day, the employee engagement it fosters makes it worth it. 

Finally, do you think that Hatco has an advantage because it is employee-owned? 

Yes. I think there are advantages on several fronts. One is that it is pretty easy to whip up enthusiasm with potential customers.

Our customers like the fact that we are an employee-owned business. They want to give their business to us because they know it is helping our employees. It just feels good to them. And our customers directly experience the benefits of employee ownership: employee engagement helps make sure we get the right thing to the customer at the right time. Everyone benefits from Hatco being employee-owned.

Do you believe that the company’s structure as an ESOP has helped to bridge the wealth gap?

Absolutely. As the shares are released, we can see what they have in their accounts, and it is not unusual for them to have a substantial amount of stock value, so much so that they could retire at 60. I have had several employees tell me that they would have been working well into their seventies if it were not for the ESOP. From my vantage point, the proof is in the pudding.

Final Analysis

After speaking with Hatco’s CEO, Dave Rolston, it is obvious that their employees take great pride in the company.  Employee decisions seem to consistently reflect awareness of their ownership and stake in the success of the company. This has helped to promote a positive organizational culture for their company and one that Project Equity believes is core to the strength of employee-owned companies.

Hatco’s original owner was thinking about succession right from the start. This type of strategic vision and planning is critical as baby boomer business owners retire. 

Our local business landscapes are already going through a dramatic shift, as businesses change hands and many close due to lack of succession planning and the current economic crisis brought on by COVID-19. Employee ownership could be a great option for many of these businesses! 

How it works

Understand the steps to transition your business

Learn from others

See how others transitioned and how the financing worked

How Project Equity can help

Schedule a free consultation

employee-owners

Insight

“Before the ESOP, we had a really engaged corporate culture. Our focus on our customers, combined with Hatco’s ‘do a good job and have fun’ mindset made this a great place to work. Now that we’re benefiting ourselves, it’s even better because there’s a sense of participation and permanence.”

– Dave

“Starting each day, knowing your efforts have a direct impact on your own destiny is a powerful and amazing feeling.”

– John

“Great people, great products, positive attitudes, easy to do business with are just a few of the accolades I hear daily from our customers, other manufacturers and reps. This is a magic formula that so many companies would give anything to have. Being a Hatco owner is truly a blessing.”

– Mark

“I love being an employee-owner because it makes me proud to know that I am part of something so wonderful. Knowing as an employee-owner I can impact the company one way or another depending upon my work performance makes me take more pride in my work.”

– Angie 

Read more

Interviews & stories

Mandela Grocery Coop
Mandela Grocery Coop

Project Equity had a chance to connect with Andrea Talley, the general manager of Mandela Grocery Coop, an Oakland icon and one of Project Equity’s Thrive program clients. Read full story >>

Recology
Recology

Project Equity reached out to Julie Bertani-Kiser, Senior Vice President and Chief Human Resources Officer at Recology, to find out how their ESOP company was responding to the health crisis. Read full story >>

Adams and Chittenden: Mo’s Story
Adams and Chittenden: Mo’s Story

Adams and Chittenden, a manufacturer of laboratory glassware in Berkeley, CA, worked with Project Equity to transition the company ownership to their employees. In 2018, Mo was preparing to become one of the new owners. Read full story >>


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Small businesses after a summer of COVID

Small businesses after a summer of COVID

Small businesses after a summer of COVID-19

When will some stability return for small businesses?

Restaurants. Manufacturers. Home Improvement. Many businesses in these industries are adjusting to the new normal to stay competitive…and to stay in business. As stay-at-home requirements continue, many of the businesses that have been allowed to open are struggling to adapt. Our local communities will never be resurrected if businesses have to shutter and can no longer provide the same products and services our local economies depend on. 

Restaurants are turning to carry out only or setting up tables outside to service their customers. Manufacturers have begun making new products, such as COVID-19 masks, to provide products their customers need at the moment. The home improvement industry has adjusted to expanded offerings such as converting garages into home offices. And other businesses, such as those offering high demand products, have had to add employees, hours and shifts to just keep up with their client orders.

One company that had to adjust quickly to increased demand is King Arthur Flour, a 100% employee-owned business. In an interview with Forbes, co-CEO Karen Colberg shared, “We started working with our milling partners to ramp up safely,” said Colberg. “We asked, ‘How quickly can we go from operating at about half-capacity to 24-seven?’ What we’re now seeing is [baking] becoming a hobby for so many. It’s really become our national pastime.”

“As we navigate in these uncertain times, our north star remains our vision to inspire and share the joy of baking, building stronger and healthier communities. Community is a word you hear a lot. It speaks to connections, to support, to togetherness. There cannot be a more important time than now to be coming together to do all that we can to help one another, our families, our neighbors, and our communities,” Colberg shared with bakemag.com.

Another employee-owned business that has been affected by COVID-19 is A Slice of New York, with two California pizza shops. According to employee-owner Ren Boguiren, “We had to learn how to adapt quickly. My colleagues and I came together proactively to make a decision to prepare for a shutdown. Once the shutdown actually hit, the key moves we initially made were to stop selling slices, reconfigure the layouts of our stores, discontinue in-store dining and reallocate all of our hours,” he shared.

Can businesses adapt and benefit both the business and the employees?

A 2017 National Center for Employee Ownership study uncovered that individuals in employee-owned businesses have higher net worth, longer job tenure and higher wages. With these advantages, everyone has the accountability and the ambition to get the business on the right track.

In contrast, most frontline workers lack financial safety nets and economic resiliency for themselves and their families. Even before the economic crisis, income and wealth inequality and downward economic mobility for frontline workers was the reality for millions. COVID-19 has brought these truths to the forefront of the nation’s consciousness. Project Equity believes that employee ownership puts employees, businesses and communities on a better path to resiliency and success.

Employee ownership has changed Ren Boguiren’s life: “Becoming an owner has allowed me to have purposeful, adaptive, and transformative growth.”

Getting the word out

As businesses begin adapting into this new normal, Project Equity has also doubled its efforts to get in front of business owners to share how employee-owned companies, like King Arthur Flour and A Slice of New York, have advantages that enable them to be adaptive in this time of uncertainty and change.

It’s never been a better time to integrate employee ownership for businesses that need to be responsive to change as they open their doors again. Small businesses are responsible for about half the jobs and return three times more money back to the local economy than large corporations and chains. Imagine if the employees of these businesses were part of the succession plans. When we prioritize diversifying opportunities for ownership, we keep local businesses alive, build community wealth and help decrease the racial and gender wealth gap.

Times have changed and we need our small businesses to succeed

Our communities need our local businesses, and we are ready to welcome them back with open arms when they are able to reopen fully. They provide resources and jobs and strengthen our local economies. We need to go back to work. We need our favorite slice of pizza. Project Equity is here to help those businesses that want to consider employee ownership as a strategy for more productivity, more capital and more opportunities for the workforce as they bounce back.

How it works

Understand the steps to transition your business

Learn from others

See how others transitioned and how the financing worked

How Project Equity can help

Schedule a free consultation

How it works

Understand the steps to transition your business

Learn from others

See how others transitioned and how the financing worked

How Project Equity can help

Schedule a free consultation

Don’t miss

Our latest articles

Proof for employee ownership

Proof for employee ownership

Employee-owned companies have protected their workers’ jobs four times better than other firms and suffered fewer cuts to hours and pay during the COVID-19 pandemic, according to a new study.

EOX Partnership

EOX Partnership

On December 2, 2020, the Employee Ownership Expansion Network (EOX) and Project Equity announced their new partnership designed to amplify employee ownership models as ways to preserve small businesses, strengthen jobs and communities and address the acute need for local economic resiliency.

Small businesses after a summer of COVID

Small businesses after a summer of COVID

We explore how employee-owned companies, like King Arthur Flour and A Slice of New York, have advantages that enable them to be adaptive in this time of uncertainty and change.


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Device Engineering Incorporated

Device Engineering Incorporated

Device Engineering Incorporated

How a participatory culture has helped the semiconductor manufacturer stay aloft during an economic crisis

If you have flown on a commercial airline in the past three decades, there is a good chance you have the employee-owners at Device Engineering Incorporated (DEI) to thank, in part, for your safe arrival.

For thirty years, the engineers at this Tempe, AZ-based firm have been designing and testing the semiconductors that allow the critical electronic systems of airplanes to communicate with one another. Their products can be found everywhere from the cockpit to the lavatory, and are widely used by both the commercial aviation industry and the military.

In 2020, not only did DEI reach its 30th year in business, it also marked the 10th anniversary of transitioning to employee ownership through an Employee Stock Ownership Plan (ESOP). Like many companies, they had to temper any celebrations against the challenges of a year with unprecedented challenges—one that turned their biggest market upside down.

Despite the undeniable setbacks they have faced in 2020 from both industry upheaval and the COVID-19 pandemic, DEI’s employee ownership mindset has helped sustain and empower them to continue making the products that keep the world moving.

Building a reputation

Device Engineering Incorporated was founded in 1990 by Philip Hubbert, a longtime veteran of the engineering industry whose resume included such notable accomplishments as contributing to the Apollo space program during his tenure at Hewlett Packard.

Under Hubbert’s leadership, DEI developed a reputation for quality, reliability and innovation that earned them longtime contracts supplying the largest aircraft manufacturers in the world, including Boeing and Airbus.

By 2010, Hubbert was thinking seriously about his retirement. He decided to sell a portion of the company to an ESOP—a retirement plan managed by a trustee that allocates company shares to the employees and effectively makes them co-owners. The sale enabled him to diversify his holdings, while also safeguarding his legacy by ensuring the company would live on even after he was no longer at the helm.

Hubbert remained in his leadership role until retiring in 2014. When he passed away from an illness two years later, the ESOP purchased the remainder of his shares from his estate, making DEI a 100% employee-owned company.

Too good to be true?​

Robert Sharman joined DEI as their Director of Sales in 2011, shortly after their ESOP was implemented. He went on to become Vice President of Sales and Marketing before becoming the company’s fourth President in 2018.

When asked if the ESOP played a role in his decision to join the company, Sharman laughed. “Not at all. Because I didn’t believe it. It sounded too good to be true.” Over the last few years, though, Sharman has seen just how significant the financial benefits of being part of an employee-owned business can be for employees and their families.

“We’ve had two employee retirements now, and unfortunately a couple of deaths,” he said. “Both of the folks who retired had a good payout, and the folks who died, their families were able to get a good payout, too. It isn’t too good to be true. It actually does what it says.”

A high-stakes business

Creating vital components for the aviation industry is a high-stakes business. The consequences if a component fails could be catastrophic. The semiconductors not only need to function exactly the way they are meant to, whether on the ground or at 30,000 feet, they also need to keep functioning even if a plane is hit by lightning.

With a staff of just 28 employee-owners, DEI is a small company with a big impact. In an industry that demands both dependability and constant innovation, DEI’s products can be found in the majority of commercial aircraft around the world.

Additionally, DEI designs components that the U.S. military relies on to upgrade and enhance the capabilities of our servicemen and women in the field. “I like to say that we’re not the tip of the spear, but we help build the spear,” Sharman said.

Even before the pandemic struck, 2020 already had the makings of a challenging year for DEI. The Boeing 737 Max had been grounded the previous March after the planes were involved in two fatal crashes, and Boeing went on to miss multiple deadlines for the regulatory approval they would need to get the planes back in the air.

“We knew it was going to be a tough year. We just didn’t know how tough.”  

“It was obvious by the beginning of this year that they were going to shut down production, which meant that, rolling back through the supply chain, the demand for our components was going to drop,” Sharman explained. “So, we knew it was going to be a tough year. We just didn’t know how tough.”

Sharman said he realized how disruptive the COVID-19 pandemic was going to be in early February, when he attended an avionics industry conference in San Diego and saw that none of the Chinese vendors were there. “Normally 25-to-30% of the booths are Chinese companies,” he said. “This year there were none.”

That spoke to the severity of the situation in Asia, and he knew it was only a matter of time before it reached the same level in the United States. It was easy to connect the dots and see how a global pandemic could have a devastating effect on air travel, and by extension, on DEI’s bottom line.

“We decided that we needed to preserve cash and make sure we’re sitting on as much as we can put together,” Sharman said. “We didn’t want to have to go out for loans while strapped for cash in the middle of a crisis.”

Thanks to their work supplying the military, the federal government deemed DEI an essential business, meaning they never had to shut down during the pandemic. Their engineers were allowed to do their design work from home, only coming into the office when they needed to perform tests in the lab.

Despite their uninterrupted operation, DEI has not escaped the pandemic unscathed. They had over $13 million in sales in 2019, but they expect 2020 sales to drop by 25%. Thankfully, a combination of strong savings, foresight and the agility of employee ownership put them in a good position to survive such a sizable financial hit.

Everybody has a voice

A deep commitment to protecting the livelihoods of their employee-owners was on full display at DEI from the very start of the pandemic, when Sharman authored a letter to the entire staff promising that there would be no layoffs and no reduced hours if at all possible—a promise that the company has kept.

“People are scared,” Sharman said. “Everybody’s thinking, ‘Am I going to lose my job? Are there going to be cuts?’ How are you supposed to do your job when you’re worried about putting food on the table? I know I want to feel secure. So does everyone else.”

With the security and peace of mind provided by their employee-centric mentality, the employee-owners at DEI were able to focus on helping their company and each other.

When asked how being an employee-owned company has helped DEI handle the challenges of the pandemic, Sharman summed it up in a single word, “flexibility.” Having a true stake in the company’s survival and success has inspired the employee-owners to seek out additional ways to help the company through this challenging period.

Resiliency and employee ownership

Studies conducted by the Rutgers Institute for the Study of Employee Ownership and Profit Sharing have shown that employee-owned companies are 50% less likely to lay off employees during a recession than their traditionally-owned counterparts, and six times less likely to lay off employees overall.

The improved job security at employee-owned companies can be attributed to a number of factors, including increased productivity, profitability and growth (for more data backing up these benefits, read Project Equity’s white paper, The Case for Employee Ownership).

Perhaps the most powerful factor, though, is that employee-owned companies operate with an employee-centered mentality. When every employee’s voice matters; when management sees every employee as a person with ideas, hopes, needs and fears, instead of a line on a spreadsheet; and when everyone in a company relies on one another for their shared success, a company is more willing to do whatever it takes to keep jobs intact.

“Everyone wants to know, ‘what can we do to help? We want to pitch in and make sure everything runs smoothly,’” Sharman said. “Nobody wants to just duck and cover. They all want to step up and make things work.”

One way the employee-owners have prepared themselves to keep things running smoothly is by familiarizing themselves with the intricacies of crucial roles that may fall well outside their job descriptions.

“We have one guy who is responsible for shipping and receiving,” said Sharman. “If he’s out sick for any reason, then we have a big problem. But we have at least two people who are ready and willing to step into that role as necessary. We don’t have to go around and ask people to do it. It’s fully automatic.”

“Because we’re an employee-owned company, everybody has a voice. There’s no reason why all voices shouldn’t weigh in.”

Sharman is proud to be part of a company where everyone is so engaged. “People always talk about ‘thinking outside the box,’ but most companies—particularly larger companies—don’t really want you to do that,” he said. “Because we’re an employee-owned company, everybody has a voice. There’s no reason why all voices shouldn’t weigh in. Whether they’re in shipping, or customer service or they’re a clerk. These folks know how to improve their own jobs if you listen to them. If you think you know better than the folks who are actually doing the job, you’ve probably got a rude awakening coming.”

While he is quick to say that the future is uncertain, given the upheavals of the COVID-19 era, Sharman is optimistic about what lays ahead for DEI. He views the pandemic as a proving ground. “I’m positive about it. It’s a challenge, but it’s a good challenge in a way. If you can successfully negotiate your way through this, then you’re going to be in very good shape indeed.”

Thanks to their strong culture of employee ownership, DEI has weathered the worst of the COVID-19 economic downturn and can continue to keep the world flying high.  

How it works

Understand the steps to transition your business

Learn from others

See how others transitioned and how the financing worked

How Project Equity can help

Schedule a free consultation

Read more

Interviews & stories

Mandela Grocery Coop

Mandela Grocery Coop

Project Equity had a chance to connect with Andrea Talley, the general manager of Mandela Grocery Coop, an Oakland icon and one of Project Equity’s Thrive program clients. Read full story >>

Recology

Recology

Project Equity reached out to Julie Bertani-Kiser, Senior Vice President and Chief Human Resources Officer at Recology, to find out how their ESOP company was responding to the health crisis. Read full story >>

Adams and Chittenden: Mo’s Story

Adams and Chittenden: Mo’s Story

Adams and Chittenden, a manufacturer of laboratory glassware in Berkeley, CA, worked with Project Equity to transition the company ownership to their employees. In 2018, Mo was preparing to become one of the new owners. Read full story >>


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View previous campaigns >