Emplo ployee ee Own wner ership ship Suzanne Cromlish, Ph.D., - - PowerPoint PPT Presentation

Suzanne Cromlish, Ph.D., MBA, MHA Case Western Reserve University

cromlish@sxu.edu

National tional Ce Center ter for Emplo ployee ee Own wner ership ship Ohio io Emplo ployee ee Owner nership ship Ce Cente ter The e ESOP SOP As Asso sociation ciation

US ECONOMY - GLOBALIZATION & OUTSOURCING CREATING WEALTH INEQUALITY US is Number 1 in the Developed World for Wealth Inequality

TO TOP 1% 99% 99%

TOP 1% OWN 75% OF ALL PUBLICLY TRADED STOCK

TOP 10% OF US OWNS 85% OF ALL GLOBAL WEALTH CEO OF WALMART MAKES $12,000.00 HOUR

CO CORPORA PORATIO IONS NS PURCHASE RCHASE CO COMPET MPETIT ITIO ION BECOM OME E TOO OO BIG G TO FAIL AF AFTER MA MANAGEMEN GEMENT T ERRO RRORS RS REQUIRE UIRE GO GOVERN VERNMENT MENT BAI AILOU LOUTS TS

B O A R D O F D I R E C T O R S

P R O D U C T I O N

D I S I S S E R T A T R T A T I O N I O N T T I T L T L E: EMP MPOWE WERING ING TH THE 99%.. ....O ..ONE NE ESO SOP AT A T A TI TIME ME ! A MI MIXED ME METH THOD ODS S ST STUDY Y OF OF E EMP MPLOYEE YEE OWN WNED COM OMPANY NY (E (ESO SOP) ) ACQ CQUI UISIT SITIO IONS NS ESO SOP = E = EMP MPLOYE YEE E ST STOCK OCK OWN WNERSHIP RSHIP PLAN

90 9000 00 ES ESOPs Ps in in US US – 13 13 Mil Milli lion n Emplo loyee ees s - $1 $1.5 Tr 5 Tril illi lion n in in A Ass ssets HIGHER GHER WAGES GES RESID IDE E NEAR AR THE E OPERA PERATIO ION IN THE E SAME AME CO COMMUN MMUNIT ITY SUSTAI AINABLE ABLE & SOUN OUND ENVI VIRO RONME NMENT NTAL AL DECI CISI SIONS NS BUILD UILD CO COMMU MMUNIT NITY Y WEAL EALTH TH

E S O P S O Ps s L E L E S S S W E A L T H A L T H I N I N E Q U A L I A L I T T Y

Receptionist employed for years at a salary of $10.00 hour retired with $3 ½ million Employee with $40K annual salary forced to leave employment early due to his wife’s medical condition - ESOP retirement account had 10

• yrs. salary - without the ESOP, he would have had nothing

Lay workers with annual salaries of less than $40K are able to retire at 55 yrs. of age with a million dollars

IN USA: SA: 7TH

H LARGEST

ARGEST PRIV RIVATE TE CO COMP MPANY ANY MOST ST PROFI ROFITABLE ABLE GROCER ROCER LAR ARGEST GEST ESOP SOP IN N AM AMERICA ERICA

NET MA MARGIN RGINS S IN 20 2014 14 PUBLIX LIX 5. 5.6% 6% WAL AL-MAR MART T 3. 3.8% 8% AL ALL L OTHER HER CO COMP MPETI ETITORS TORS 3.8 3.8% KROGER GER 1. 1.6% 6% WHOLE HOLE FOODS ODS 3. 3.9% 9%

1000 HR HRS S OR 1 YEAR

1000 00 HO HOURS URS OR R ONE NE YEAR AR EMPLO MPLOYMENT YMENT

8.5 %

TOTAL PAY IN COMPANY STOCK

PRO ROMOTE MOTE FROM ROM WITHIN THIN CHA CHARTS TS POSTED STED IN N ST STORES RES DEFINE EFINE AD ADVANCEM ANCEMENT ENT PRO ROCESS CESS

EVE VERY 13 13 WEEKS EKS 20% % QUAR ARTERL TERLY Y CO COMP MPANY ANY PROFI ROFITS TS DEPOSITED IN POOL…20% IS PAID TO TO EMPLO PLOYEES YEES IN CA CASH SH

H O W M A N Y E S O P S A R E I N …….

TH THE S STATE TE O OF F C CHI HICA CAGO GO TH THE CO COUNTY TY OF I F ILL LLINOIS INOIS

T H E T H E S S T T A T E O A T E OF F I L L L I N O I S O I S

Ap Appr proximate ximately: y:

500 ESO SOPs Ps 99% Pr % Privatel ately y Owned ed Avera erage e 250 Emp mplo loyees ees ESO SOP P 1 15 yr

• yrs. in

in Pla lace ce Avera erage e 61% Em % Emplo loyee ee-Owned Owned 35% r % repor

• rt

t 100% % Emp mplo loyee ee Owner ersh ship ip

NAME ME LOCA CATIO ION NUMBER MBER ENTERPRISE TERPRISE TYP YPE OF EMPLO LOYEE YEES AMSTE STEAD AD INDU NDUSTR STRIES IES CHIC ICAGO GO 16,80 ,800 INDUST DUSTRY Y COMPO MPONEN NENTS TS KEHE E DISTRI STRIBUTORS UTORS RO ROMEO EOVIL ILLE 4,00 000 FOOD OD DISTR STRIB IBUT UTOR ORS HOLLI LIST STER, ER, INC. LIBE BERTYV TYVIL ILLE LE 2,40 400 MEDIC ICAL AL SUPP PPLI LIES ES S & C ELECT ECTRIC RIC CHIC ICAGO 1,70 700 ELECT CTRIC RICAL AL EQUI UIPMENT PMENT MARTIN TIN & BAYLEY EY, INC CAMI MI 1,5 ,500 00 CONVEN NVENIENC IENCE E STOR ORES ES HOLD LDEN EN INDU DUSTRI STRIES DEERFIEL RFIELD 1,31 310 MANUF NUFACT CTURING RING CCMS CMSI I HOLDI OLDINGS DANV NVIL ILLE LE 1,18 180 THIR IRD D PARTY TY ADMIN INISTR ISTRATIO TION

TH THE T TOP P 1 100 E ESOPs SOPs I IN T THE HE U US S I IN I ILL LLINOIS INOIS

ESOPs Ps SA SAVE VE BI BILLIO LLIONS NS IN UNEMPLO EMPLOYMEN YMENT T W WORKERS ORKERS CO COMP MPENSA ENSATIO ION

S U C S U C C E S S S F U L E F U L E S O P s S O P s

PRO ROGRESSIVE GRESSIVE MAN ANAGEMENT GEMENT IMPLEMENT PLEMENTATIO TION

Open Book Management Strategies Open Door Communication Policies Employee Engagement & Participation ENHANCE PRODUCTIVITY IMPROVE PROFITABILITY Emplo loyees es ar are Perso sonal nally y & Fin inan ancial ially y Empowered ed to im improve e perf rforman ance ce of the he compan pany

70% % AM AMERICANS ERICANS Own wnin ing g a sh share e in in th the e workplace kplace Work rker ers s sh shar are e in in su succ ccesses esses Su Supp ppor

• rt

t Emplo ployee ee Owner nership ship

? ? ? ? ? ? WHY

HY ARE RE TH THERE RE NOT T MORE RE ESO SOPs Ps ?

? ? ? ? ?

HO HOW W CAN AN THE THERE RE BE BE MO MORE RE ESOP SOP ? ? ? ? ? ? PARTIC TICIPANTS ANTS ?

? ? ? ? ?

1. Employees purchase the company from a retiring owner

• more prevalent

2. Existing ESOPs companies acquire other companies & roll them into their ESOP – limited studies

WHA HAT T C CAN AN W WE E L LEARN ARN A ABO BOUT UT E ESOP SOP ? ? ? A ? ? ? ACQUISIT QUISITIO IONS NS ? ? ? ? ? ?

R E S E A R C H Q U E S T I O N ? ? ? How Do ESOPs Accomplish Successful Acquisitions ? ? ? What, if any, Organizational Behavior Patterns are Associated with this Process ? ? ?

Empowering the 99%...One ESOP At A Time!

RESEARCH GOAL: As ESOP organizations complete successful acquisitions, Employee Ownership participants increase, thereby creating a positive impact upon our current US economic situation of wealth inequality.

? ? ? A C Q U I ? ? ? A C Q U I S I S I T I T I O O N S ? ? ? N S ? ? ?

Dramati ticall cally y In Incr creasi sing g since ce 2005

B E N E N E F I F I T S: T S: Ac Accelerate elerate Exp xpansi ansion

• n

Co Competiti etitive Ad Advanta antage Expand and Produc uct t Li Line nes Est stab ablish lished ed Cu Cust stomer mer Bas ase New w Techn hnolo logy gy Syn ynerg ergies ies Diversi sificatio fication Geograp aphi hic c Expans ansio ion Expand anded ed Ma Mark rket et Sha hare

M & M & A A E C O C O N O M I O M I C C P E R S S P E C T I E C T I V E V E S 20 2016 16

TOP 10 NATIONS – WITHDRAWN DEALS 2016 RECORD YEAR – $ 4.7 TRILLION WORTH OF DEALS ANNOUNCED Doubled from 2015 with large transaction failures Total Value of withdrawn, rejected, or expired offers at highest level since 2007 US – top of list for withdrawn deals Failed deals – set new records 47% failed or appeared to not be worth the deal

(Dealogic Research Institute NYC, 2016)

? ? ? W H Y ? ? ? 3 M A I N F A I L U R E R E A S O N S – Straub (2006)

• 1. Acquiring Company (AC)– chooses incorrect target company

from strategic mgmt. perspective – similar markets & production

• perations, complement AC with market & purchasing power
• 2. Target Company (TC) – poorly integrated from organizational

behavior perspective – usually represented by acquisition experience, relative size AC to TC, & cultural compatibility

• 3. AC – Overestimates value of TC – from financial perspective

represented by acquisition premium, bidding, & due diligence processes

Tr Transac ansactio tion n Ad Advisor isors Stu Studied died 1600 600 Co Companies panies from

• m Diver

erse se Industrie dustries Re Reco commend mmend 5 St Step ep Model del for r Su Succ ccessf essful ul Ac Acqu quisitions isitions

• 1. Accountability Sharing – business units, execs., & BOD
• 2. Commitment to Due Diligence – sophisticated view of target

company resources

• 3. Cultural Integration – design & implement repeatable model to
• ptimize momentum
• 4. Comprehend Emotional Reactions – excitement & optimism vs.

fear of uncertainty

• 5. Post-Acquisition Reinvestment

M I X E D M E T H O D S P R O J E C T D E S I G N

PHASE 1 Qualitative – 30 INTERVIEWS - ESOP Executives with Acquisition Experience – Open, Axial Coding & Emerging Themes PHASE 2 – Quantitative – 3700 Internet Surveys Members of ESOP Associations – 86 respondents – Data Analyzation Phase 1 & 2 are Self-Reported PHASE 3 – Qualitative – 25 Interviews – ESOP & Non-ESOP Consultants with Acquisition Experience – 3rd Party Viewpoint

R E R E S U S U L T L T S & S & F I N F I N D I D I N N G S G S

PHA HASE SE 1 - E S O P CO S O P COMP MPANY ANY ACQ CQUI UISITIO SITION N TABLE ABLE

Cust # Acq Type Reason Results 1 2 Mfg

EMS / EG

BOTH SUCCESSFUL / ALL TC HIRED 2 1 Mfg

EMS

SALES DOUBLED IN 4 YRS. / ALL TC HIRED 3 4 Serv

EMS / EG

2 SUCCESSFUL / 1 UNSUCCESSFUL / ALL TC HIRED 4 75 Serv

EMS / EG

ALL SUCCESSFUL / ALL TC HIRED 5 8 Serv

SYN / EMS

ALL SUCCESSFUL / ALL TC HIRED 6 250 Serv

EMS / EG / DV

ALL SUCCESSFUL EXCEPT 1 / ALL TC HIRED 7 2 Mfg

EMS / DV

BOTH SUCCESSFUL / ALL TC HIRED 8 1 Serv

EMS / SYN / EPL

UNSUCCESSFUL 9 2 Serv / Mfg

EMS / EG / DV

BOTH SUCCESFUL / ALL TC HIRED / DOUBLED WORKFORCE 10 3 Serv

EMS / EG / NT

ALL SUCCESSFUL / ALL TC HIRED 11 30

Serv / Mfg / Supply Chain

EMS / EG / SYN / NT / DV

ALL SUCCESSFUL EXCEPT 1 / ALL TC HIRED 12 3 Mfg / Serv

EMS / SYN / NT

ALL SUCCESSFUL / ALL TC HIRED 13 1 Serv

EMS

SUCCESSFUL / ALL TC HIRED 14 10 Serv

EMS / EG / SYN / DV

ALL SUCCESSFUL EXCEOT 1 / ALL TC HIRED 15 3 Mfg / Serv

EMS / SYN / NT

ALL SUCCESSFUL / ALL TC HIRED 16 2 Supply Chain

EMS / EG / SYN

BOTH SUCCESSFUL / ALL TC HIRED / STOCK QUADRUPLED 17 15 Serv

EMS / EG / SYN

ALL SUCCESSFUL EXCEPT 1 / ALL TC HIRED / SALES DOUBLED 18 3 Mfg / Supply Chain

EMS / SYN / DV

ALL SUCCESSFUL EXCEPT 1 / ALL TC HIRED / SALES DOUBLED 19 S Serv

EMS / EG / SYN

ALL SUCCESSFUL EXCEPT 2 / STOCK GREW 10% ANNUALLY 20 27 Serv / Supply Chain

EMS / EG

ALL SUCCESSFUL EXCEPT A FEW / SALES QUADRUPLED Total 442 12 UNCESSFUL OR 2.5%

20 20 EM EMS – 12 12 EG – 8 8 SYN N – 6 6 DV V – 4 4 NT – 1 EPL

P H A S E O N E – Q U A L I T A T I V E S T U D Y

INTERVIEWED 30 ESOP EXECUTIVES WITH ACQUISITION EXPERIENCE 1510 OPEN CODES FROM ALL 30 INTERVIEWS - 79 AXIAL CODES 8 EMERGING THEMES

Shared Vision – 80 references Strategic Planning – 80 references Altruistic Behavior – 74 references Continual Inquiry – 26 references Ethical Values – 74 references Long Term Vision – 35 references Open Book Management – 43 references Open Door Communication – 43 references

442 TOTAL NUMBER OF ACQUISITIONS - ONLY 12 UNSUCCESSFUL EMPLOYMENT OFFERED TO 95% OF ACQUIRED EMPLOYEES

SHARED VISION STRATEGIC PLANNING LONG TERM ORIENTATION

ETHICAL VALUES

ALTRUISTIC BEHAVIOR

ORGANIZATIONAL EMPOWERMENT

POST ACQUISITION SUCCESS POST ACQUISITION PRODUCTIVITY

T H E O R E T I C A L M O D E L O R G A N I Z A T I O N A L B E H A V I O R S K E Y T O S U C C E S S

P H A S E T W O H A S E T W O - Q U A N T I A N T I T T A T I V A T I V E S S T T U D Y Y

Mark rketed eted to to all ll 3 US ES S ESOP P As Assoc sociati iations:

• ns:

The ESO

SOP As

Asso soci ciation ation – Was ashin ington, gton, DC The Nat ation ional al Center ter for

• r Emp

mplo loyee ee Owner ership ship Oak akland, land, CA The Ohio io Emp mplo loyee ee Owner ership ship Center ter – Ke Kent, t, OH

Internet Survey - 39 Questions & 25 Demographic Questions Emailed ailed to to all ll 3700 700 Mem ember bers s - 86 6 Re Respondents spondents

P H A H A S E S E 2 - F F I N D N D I N G S N G S - 86 Res Responde pondents nts

467 ACQU QUISITI ISITIONS NS COMPLETED MPLETED 465 FULFI FILLED LLED EXPEC XPECTATIO TIONS NS 442 CO CONSIDERE SIDERED SU SUCC CCESSF ESSFUL UL NUMBER BER OF ESO SOP P ACQU QUISITI ISITIONS NS IS IS 5 TI TIMES S HI HIGH GHER ER SI SINCE E 2011 11 81 of the Acq cquiri iring g Co Compan anies es Offer ered ed Employmen yment t to 90-100 100% % of the Tar arget et Company Emplo loyees ees 62 Acq cqui uirin ing g Companie nies s & 4 43 Target et Compani nies es Im Implement ent OPEN EN BOOK K MANAGEMENT GEMENT 79 Acq cqui uirin ing g Companie nies s & 7 70 Target et Compani nies es Im Implement ent OPEN EN DOOR R CO COMM MMUN UNICA ICATIO TION

A L A L L H Y H Y P O T H T H E S E S S E S S U P P P O R T E R T E D

PATHS COEFFICIENTS P-VALUES PATH COEFFICIENT P-VALUE EV>OE 0.256 <0.0010 SV>OE 0.432 <0.0010 LTO>OE 0.298 <0.0010 SP>OE 0.263 <0.0010 AB>OE 0.143 0.005 OE>PA PROD 0.331 0.006 OE>PA SUCCESS 0.543 <0.0010

ALL PATHS ARE SIGNIFICANT

STRONGEST EFFECTS: Shared Vision to Organizational Empowerment Organizational Empowerment to Post-Acquisition Success WEAKEST EFFECT: Altruistic Behavior to Organizational Empowerment 5 CONTROLS – ALL INSIGNIFICANT: Number of employees Percentage of co. owned by ESOP Number of acquisitions completed Open book Management Open Door Communication

Pat ath h Co Coeffic fficients ients & P-Valu lues es

P H H A S E 3 S E 3 - CONSUL SULTANT ANTS INTE TERVIEWS IEWS 3rd

rd Par

arty ty Vie iewp wpoi

• int

nt

COMP MPARE ARE & & C CONTRAST TRAST ESO SOP P V VS. . N NON-ESOP ESOP ACQUISI UISITIO TIONS NS

P H A S E 3 H A S E 3 F I F I N D I I N N G S G S - 25 I INTER TERVIEWS VIEWS

Number mber of Ac Acqu quisiti isitions

• ns Previ

vious

• us 5 year

ears: s:

16 16 - ESOP P Co Cons nsul ultants ants -268 268 9 9 - Non Non-ESO ESOP P Co Cons nsul ultant ants s – 525 525

Per ercenta centage e Mee eetin ting g Bu Buyer er Exp xpectation: ectation: ESO SOP P Co Consult sultants ants - 91% 1% - from

• m 268

8 acqui cquisitions sitions Non-ESOP ESOP Co Consult sultant ants s – 74% % - from

• m 525

5 acq cquisitions uisitions Per ercenta centage e Exceedin ceeding g Exp xpectations: ectations: ESO SOP P Co Consult sultants ants – 43% % - from

• m 268

8 acq cquisitions uisitions Non-ESOP ESOP Co Consult sultants ants – 23% % - from

• m 525

5 acq cquisitions uisitions

F I F I N A L R N A L R E S U L S U L T S T S 50% % of Ac Acqu quisitions isitions FAI AIL L in in Co Corporate porate Non-ESOP ESOP World rld

PHAS ASE E 1- 44 442 2 Ac Acqui uisi sitio tions ns Co Completed leted -12 12 F Fai ailu lures es 97 97.5% 5% Suc ucces cess s Rat ate PHAS ASE E 2 2 - 46 467 7 Ac Acqui uisi sitio tions ns Co Completed leted 46 465 F 5 Ful ulfi fill lled Expectati ectations

• ns - 99

99% Suc ucces cess s Rat ate e 44 442 Co 2 Cons nsid idered ed Suc ucces cessf sful ul - 95 95% Suc ucces cess s Rat ate e PHAS ASE E 3 3 - Co Cons nsul ultan ants ts - Meetin ting g Buyer er Expec ectatio tation: : 16 16 ESOP OP - 91 91% - 26 268 Ac 8 Acqui uisi sitio ions ns 9 9 Non-ESOP ESOP - 74 74% - 52 525 A 5 Acqu quis isiti itions ns Percen centa tage e Exceedin eeding g Expectati ectations

• ns:

ESOP P - 43 43% - 268 Ac Acquis isit itio ions Non Non-ESOP SOP - 23 23% - 52 525 A 5 Acqu quis isiti itions

• ns

L E L E A D A D E R S R S H I H I P T H T H E E O R I R I E S

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SHARED VISION STRATEGIC PLANNING LONG TERM ORIENTATION

ETHICAL VALUES

ALTRUISTIC BEHAVIOR

ORGANIZATIONAL EMPOWERMENT

POST ACQUISITION SUCCESS POST ACQUISITION PRODUCTIVITY

T H E O R E T I C A L M O D E L O R G A N I Z A T I O N A L B E H A V I O R S K E Y T O S U C C E S S

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? ? ? ? H H O W W D O E O E S S T H H I S S E S O S O P R E S E S E A R A R C C H B E N E N E F I F I T T T H E WO O R L D L D ? ? ? ? ?

WHAT’S HAPPENING IN THE REAL WORLD? Presented at the Following Conferences:

The Academy of Management’s Annual Conference in Vancouver, BC August 2015 Ohio Employee Ownership Center’s Annual Conference in Akron, OH April 2016 & 2017 Annual Conference for the Ohio/Kentucky Chapter of The ESOP Association at Powell, OH March 2016 Annual Conference for The Carolina’s Chapter of The ESOP Association at the NASCAR Hall of Fame in Charlotte, NC August 2015 The Mid-Year Fellows Workshop in Honor of Louis Kelso at Rutgers University January 2015 & 2017 Illinois Chapter Annual Conference Key Note Presentation – March 2017

WHAT’S HAPPENING IN THE ESOP PRACTITIONER WORLD? Research Articles: New Study Finds Acquisitions by ESOP Companies Highly

• Successful. The Employee Ownership Report – March-April 2015

Volume XXXV, No. 2 How Well Do ESOP Acquisitions of Non-ESOP Companies Work? Guest Commentary, The National Center for Employee Ownership, February 5th, 2016 nceo.org. New Study Finds ESOP Acquisitions Highly Successful. Blue Ridge ESOP Associates Newsletter – February 2017

THE OHI OHIO O EMP MPLO LOYE YEE E OWNER WNERSHIP SHIP CE CENTER TER AN ANNUAL AL CO CONF NFERENC ERENCE E A APRIL RIL 20 2016 16 & 20 2017 17 Exh xhib ibit itor

• r Booth
• th for

r Resea esearch h Par artic ticipants ipants

THE E OHIO IO EMPLO PLOYEE YEE OWNERSH ERSHIP IP CENT NTER ER ANNUAL AL CONFERENCE FERENCE APRIL RIL 20 2016 16 & 20 2017 17 Acquisi uisition ion Break ak-Ou Out t Session ssion Stand ndin ing g room only y during g session ssion

ANNUAL AL CONFE FERE RENCE CE OHI HIO/KEN /KENTU TUCKY KY CHA HAPT PTER ER The ESOP SOP Assoc

• ciation

ation Powell, ell, Ohio Ma March h 2016 16

! ! ! ! T T H A H A N K Y Y O O U ! ! ! ! !

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2013 - Accepted telephone call from an unknown Ph.D. student at Case Western Reserve University Wishing to research Employee Ownership Presented the Acquisition Topic Years later….here we are! This research would not have come into fruition without his guidance & direction! A HUGE & GRATEFUL THANK YOU IS WELL DESERVED!

G R E G R E A T A T Q Q U O T T E S

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