April 26, 2006
 
Worker Owned Companies: Work Like You Own It…You Do!
 
By H.J. Cummins
Minneapolis-St. Paul Star Tribune
 
Jay Griffiths kept the thermostat low, to save energy costs, at his first store-manager job for Toll Co., a welding-supplies and specialty-gases business.
 
Toll's vice president for information systems made sure company delivery trucks kept up with the times by installing global positioning system (GPS) units.
 
And one of the crew that refills customers' gas cylinders recently volunteered to paint an office during his lunch hour.
 
Model workers? The three are finding ways to cut costs, work smart and pitch in for another reason: The Plymouth, Minn.-based company is 100 percent owned by its employees.
 
"The whole goal is to get everyone thinking and acting like an owner," Toll human-relations administrator Sheryl Neuman said.
 
It's a business model embraced by almost 11,000 U.S. companies, many of which will send representatives to the 2006 Employee Ownership Conference this week in St. Paul, Minn.
 
Advocates credit employee ownership with everything from tamping down executive pay to boosting productivity and speeding company growth. Others point out that employee-owned companies aren't immune to dysfunction; United Airlines was perhaps the largest worker-owned company in the country before it went bankrupt three years ago.
 
To be sure, shared rewards, and employee involvement and dedication, can occur in other kinds of companies, too. But a recent sign that more worker-owned firms are succeeding is that they're buying up other companies, said Corey Rosen, executive director of the National Center for Employee Ownership in Oakland, Calif., one conference organizer.
 
"They usually buy other privately held companies, and then they fold them into their (employee-ownership) structure," Rosen said.
 
Two of Minnesota's oldest employee-owned businesses are among those acquirers. Toll bought competitor Capitol City Welding in 2002. And Foldcraft Co, a restaurant-furnishings company in Kenyon, has bought three companies and added a start-up subsidiary since 1998.
 
Business is good, said Chuck Mayhew, Foldcraft's president and CEO.
 
"How do you pull that off?" he asked. "You get employees interested. And one way you do that is when they have a stake in the company income." Toll and Foldcraft are set up as employee stock ownership plans, or ESOPs. The same federal law that created 401(k) retirement plans created ESOP plans in 1974.
 
In an ESOP, employees get stock as part of their earnings. The shares are held in trust accounts until an employee leaves or retires -- at which point they must be sold back to the company, to be distributed in the same way over the years to new employees.
 
If the company stays strong, employees can build up a substantial, and valuable, pot of company stock. Profits are handled as they would be at other companies, including dividends, bonuses or used for investment. The vast majority of ESOPs are created by small-business owners who don't have heirs willing or able to go on running the company, said J. Michael Keeling, president of the ESOP Association in Washington, a national organization of ESOP owners and related professionals.
 
ESOPs are expensive to set up because of the complicated ownership arrangement, said Susan Lenczewski, a Minneapolis attorney who specializes in them. But the tax benefits are huge. For example, one type of ESOP -- a 100 percent employee-owned "S Corporation" -- "is essentially setting up a corporation that pays no taxes, at any level," she said.
 
The number of ESOPs across the country has been flat since 1990, according to figures from the U.S. Department of Labor and The ESOP Association. New ESOPs keep forming, Keeling said, but he believes one factor likely keeping the numbers down are that "mature" ESOPs get closed or the companies are sold to private owners because they eventually don't have sufficient cash to buy back all the shares of their retiring employees.
 
Toll started after World War II, when H.R. Toll began selling welding supplies out of the trunk of his car, current president Tom McGrath said. After Toll died in 1979, the employees made a bid for the company, and the board of directors approved it, McGrath said.
 
The company still sells welding supplies, plus industrial, bulk and specialty gases used for everything from welding to air-quality testing to cryogenics. It has 65 employees.
 
"Employee ownership is a way of life, the environment and the culture, how we do things," Neuman said.
 
Foldcraft, also the brainchild of a single founder, converted to an ESOP in increments: 49 percent employee-owned in 1985, then 100 percent in 1992, Mayhew said. The company now has about 275 employees -- not yet including its new acquisitions.
 
Research shows that employee-owned companies grow about 8 percent to 11 percent faster than comparable firms, Rosen said. But, employees need to own a meaningful, not token, amount of the shares, he said.
 
Employees also need access to the company's financial records, an "open book" style of management. They need to grasp the concept of an ESOP, as well as exactly how their roles affect the bottom line. And they should assume the authority and the responsibility for improvements in their jobs. Toll holds weekly, monthly and annual meetings across departments to keep workers informed, Neuman said. A weekly newsletter covers birthdays, employee comings and goings, customer profiles and safety or other industry news. She has even created games to tutor employees who don't know a "net" from a "gross."
 
At Foldcraft, the company does a complete financial reckoning every two weeks, Mayhew said. Then it's the job of middle managers to explain the numbers and where each worker's job fits in them.
 
"The sooner you know how you're doing, the sooner you can do anything about it," he said. "We try to get the employees as knowledgeable as possible about how we make money, how they impact that ... and then get them motivated around that."
 
Distributed by Scripps Howard News Service, www.shns.com