In Good Company? | Business | Seven Days | Vermont's Independent Voice

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In Good Company? 

Why some Vermont businesses are sellng the store - to the employees

Published June 4, 2003 at 8:26 p.m.

King Arthur Flour in Norwich has been owned by five generations of the same family since its founding in 1790. But it won't be much longer. Frank E. Sands II, the current chairman of the board, says he plans to make the $35 million company entirely worker-owned within the next few years. He's already sold 70 percent of King Arthur's stock to the firm's employees.

Bill Carris inherited a 51-year-old industrial spool-manufacturing company in Rutland. Its 550 workers -- who toil in five states as well as in Mexico and Brazil -- are halfway to their owner's goal of making the business 100 percent employee-owned.

Four years after starting Gardener's Supply in 1983, Will Raap began selling pieces of the business to his employees. They now own 30 percent of the company's stock and also get a cut of the profits. Perhaps not coincidentally, Burlington-based Gardener's has become one of the most successful businesses in its field in the country.

These three Vermont companies are in the vanguard of a movement that could transform the U.S. economy, if enough Americans ever become aware of, and accept, an idea that may seem downright un-American -- socialist, even.

"I'm under no illusions about how hard it will be to convince people that this is a sound course for the country," says William Greider, national affairs correspondent for The Nation magazine and keynote speaker at a conference on employee ownership taking place in Burlington this Thursday. "It's certainly a radical change for capitalism," Greider continues. "The idea that you're supposed to work for somebody else and take orders and not object or criticize your boss is tens of thousands of years old."

By contrast, it's been a mere 25 years since Greider developed what he calls "a low-grade obsession" with the concept of worker ownership. He picked it up from economist Louis Kelso, who invented the employee stock-ownership plan (ESOP) in the 1950s. Noting the movement's comparative youth, Greider says he's "fairly optimistic that it will succeed in the long term."

Vermont is already home to about 30 companies that are at least partly owned by their employees. And although that's a tiny fraction of the estimated 11,000 U.S. firms with ESOPs, advocates of worker ownership say the idea could snowball in the Green Mountain State.

"The main reason it hasn't happened to a greater extent here is because most people aren't aware of worker ownership as an alternative," says Don Jami-son, co-director of the Vermont Employee Owner-ship Center, which is presenting the conference this week. "Vermont is fertile ground because worker ownership fits with the state's values," adds Greider, who has had a second home in Arlington since 1996.

Vermont values are what led Dartmouth graduate Frank Sands to choose the western side of the Connecticut River when he relocated King Arthur Flour from Boston in 1984. He says he considered moving the company to New Hampshire but decided on Vermont because "it has more to offer in terms of lifestyle and social consciousness." Worker-owned King Arthur has gone on to become the sixth-fastest-growing company in the state.

Some studies suggest that businesses with ESOPs perform more profitably than do comparable companies without employee-ownership plans. Growth rates are said to be even faster for firms that encourage democratic decision-making in addition to establishing ESOPs.

Carris Reels is run by a steering committee with half of its members appointed by management and half elected by the employees. "We keep to the highest levels of professionalism in operating the company," Bill Carris says. "It's not always an easy process, but I have a lot of confidence that it will work out fine." A worker-run business functions more efficiently and thus more profitably than its competitors, he maintains.

Doesn't such a company structure suggest that Carris has strayed far from the capitalist line? Isn't he some sort of radical?

"I'm a strong believer in the profit motive," Carris replies, "but I do feel that there are too many inequities in a system that separates employees from ownership."

By "inequities," Carris says he means "CEOs who get mega-rich and companies like Enron that rip people off." He is also motivated by the belief that "when people spend 40-plus hours a week at work -- which is a big piece of their lives -- more has to be involved than just asking for their hands and their minds."

Frank Sands of King Arthur offers a similar but more idiosyncratic view -- one derived, he says, from bitter experience.

"One of the biggest drawbacks of non-employee ownership is that you get a them-versus-us mentality. Workers who act like owners don't count the hours and haggle over rules like labor unions do, which is what I saw when the company was based in Boston."

Most ESOPs are put into place by private owners who want to ensure that a firm will remain independent and locally based after they leave the scene. Also motivating the move are the tax breaks available to companies that sell a certain portion of their stock to employees.

ESOPs typically take the form of trusts to which companies make annual contributions, with stocks then allocated to individual employee accounts within the trust. ESOPs mainly function as retirement funds; only in some cases are employees able to cash out before they retire -- and that usually entails a waiting period as well as a financial penalty.

By itself, an ESOP does not guarantee that a workforce will feel less alienated than it might in a firm with traditional hierarchical ownership. Putting the employees in charge also does not ensure that a company will become or remain profitable, as the case of United Airlines demonstrates.

United's workers had acquired a majority of the company's shares by the year 2000, but the carrier went bankrupt anyway. That experience is often cited by skeptics as proof that ESOPs don't work as advertised. But defenders of the plans argue that United's ESOP was poorly structured and was not accompanied by the changes in corporate culture that would have made employees feel more committed to the company and to one another.

ESOP advocates also point to companies such as Anheuser-Busch and Procter & Gamble that have given their employees minority ownership shares and have remained successful.

Setting up an ESOP doesn't mean that a company automatically becomes democratic, says Cindy Turcot, chief operating officer at Gardener's Supply and chair of the Vermont Employee Ownership Center. "It's not the same thing as a cooperative," she points out.

Dunbar Oehmig understands the difference. He's in the process of transforming his small residential construction firm into a workers' co-op.

Oehmig started Red House Building in Burlington in 1995. It became so successful in its niche at the high end of the market that Oehmig began turning down work. Enticed by those unmet opportunities, some of his associates began thinking about starting their own small companies, Oehmig recounts. He was also plagued by the industry's common problem of a high turnover rate among generally low-paid employees.

Oehmig says his suggested solution of forming a co-op quickly gained the support of kindred spirits in his company. "There's a fair number of overeducated people working in the trades," says Oehmig, who has a master's degree in American literature.

He was drawn to the co-op model as a result of his work as a carpenter for a traditionally run building firm in Maine. "People there were bitter about the lack of say they had on day-to-day issues. They could see that one person was making a good living -- kind of at the expense of everyone else."

But even co-ops and the most democratically organized ESOPs can collapse amid shirking and bickering. They also cannot credibly claim to offer lifetime job security.

Carris Reels went through a wrenching round of layoffs and a plant closing recently. Due to the steep downturn in the manufacturing sector -- and especially in the telecommunications field where Carris does most of its business -- "there really was no other option for the company," Bill Carris says. "The ESOP made no difference."

Employee ownership may be vastly superior to the standard set-up, but it's no panacea for all economic or workplace problems, Greider notes. In order for the new model to succeed, he says, "Workers have to change the way they think. And workers can make mistakes."

With employee ownership "there comes responsibilities as well as rights for the workers," notes Turcot of Gardener's Supply.

All the examples of "actually existing socialism" should suggest that high-minded alternatives to capitalism are not necessarily superior in practice. Greider and others do caution, however, that employee ownership is not synonymous with socialism. Under that system as it has functioned, "ownership belonged to the state, not to the workers," and they were treated at least as poorly as under capitalism, Greider says.

For now, the challenge of changing the American economic paradigm falls mainly to writers like Greider and small groups like the Vermont Employee Ownership Center. VEOC operates on modest grants from the federal government and private foundations, but it has major ambitions. In addition to providing practical advice to companies interested in implementing ESOPs, the center has set itself the task of making the concept familiar to ordinary Vermonters through events such as its "first annual" employee ownership conference.

Greider envisions VEOC playing an even bigger role one day. The scarcity of jobs, particularly good-paying jobs, stands as an imposing obstacle to employee ownership in Vermont, he points out. Workers won't feel motivated to get a stake in companies that pay them poorly and that lay them off in bad times. But an entity such as VEOC, he proposes, could establish an investment fund that would give small employee-owned businesses access to capital for expansion.

"In my imagination," Greider says, "you won't have to wait for some benevolent CEO to say 'I want to do this.' You can use the power of capital to do it yourself."

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About The Author

Kevin J. Kelley

Kevin J. Kelley

Kevin J. Kelley is a contributing writer for Seven Days, Vermont Business Magazine and the daily Nation of Kenya.


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