Private equity and employee ownership
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Great story about Pete Stavros on 60 Minutes last night. Loved this bit:
An imperfect messenger perhaps, but Pete Stavros has emerged as the leading employee ownership apostle. He's founded a nonprofit that teaches executives how to deploy the model. He criss-crosses the country preaching his gospel at business schools; and before D.C. lawmakers, advocating to update the tax code to incentivize employee ownership, which he hopes will soon be standard business practice, not an exotic exception.
Pete Stavros: This is an unbelievably popular idea with liberal progressives, and MAGA Republicans, and everything in between.
Jon Wertheim: You can make this palatable to anyone on the spectrum.
Pete Stavros: That's right, it's not a government handout. This is a benefit tied to work. And, the outcomes are driven by performance.
Video is on Paramount+, but the transcript is here if you want to learn more:
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Employee ownership is a complex issue. It's been quite successful at some companies over decades. In part, it depends on being a company with prospects for growth that will reward everyone. Sometimes, it's a plan to allow a closely held business to grow beyond what the family or partners can implement on their own.
It doesn't always work. I have a brother-in-law who worked for Weirton Steel, a company that had an ESOP. Unfortunately, the steel industry has been in long-term decline generally and the ESOP didn't combat that. As the workforce aged out and became more and more composed of retirees, the attitude became more "let's hang on to what we've got" rather than invest in the plant for modernization or growth, leaving the active workforce struggling with an obsolescent facility that was wearing out.
The devil truly is in the details.
Big Al
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ESOPs are a two edge sword. I worked for a company 20+ years ago for which an ESOP was a significant part of our compensation, and a great supplement to ones retirement planning. When the company went broke, I was not only unemployed, but that portion of my retirement savings went to zero simultaneously. When Your investments and your current paycheck or both dependant on the same company’s success it’s pretty much the opposite of diversification of your risk.
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Mr wtg's company was privately held and eventually morphed into employee-owned. The company is doing phenomenally well; they manufacture high voltage electrical equipment. He caught a little of the beginning of the wave but it has really taken off since he retired (no connection between those events -
).Here's a summary of what they did (it's from 2011, so pretty dated):
https://www.nceo.org/assets/pdf/succession/sc-electric.pdf
They are one of the top 100 largest employee-owned companies:
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Found this mini-case study from Rutgers:
https://cleo.rutgers.edu/wp-content/uploads/2021/11/MINI-CASE-STUDY-SANDC-ELECTRIC-2.pdf
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High tech companies do ESOPs and high tech startups use employee stock options to lure talents. It’s serious business and quite common in that industry segment. Still, fee employees feel like the “own” the companies that employ them.
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Getting back to the 60 Minutes piece a bit...it focused on distressed companies that are acquired by private equity groups who try to turn them around. What Stavros is doing is sharing the profits with employees if the company becomes successful. He's also trying to get other investment groups to do the same. Not just the investors making money, but also saving jobs and improving the economic lives of the people in the company...
