Interview by Steven Assarian, Business and Career Librarian
I met Roy Messing by chance at an event for professionals that help businesses thrive, and he most certainly fits that bill. He works to promote employee ownership of companies in our state. I saw down with Roy to understand how employees can become owners, and why it’s vital for the future of our state.
Steven Assarian: Tell me about your background.
Roy Messing: Well, I grew up in the thumb of Michigan, and grew up on a dairy farm. I spent several years in banking business. I worked for Farm Credit Services, which is a farmer-owned cooperative. Today, I wear a couple of hats. First, I’m the Executive Director of the Michigan Center for Employee Ownership (MICEO). I'm also with a national group called the Employee Ownership Expansion Network (EOX). The purpose of that nonprofit is to start local and state-based centers for employee ownership like we have here in Michigan.
Steven: What does employee ownership mean exactly? And why should we care about it?
Roy: Ownership is broadly shared with the employees. Different structures allow for employee ownership, but in each one, the employees own shares of the company, either directly as in a co-op, indirectly through a stock ownership plan, or in combination.
Why should we care about employee ownership? A survey was completed a few years ago that looked at the State of Michigan's privately held businesses and highlights owners who will retire in the next five or 10 years.
This study found that Michigan has over 80,000 businesses owned by individuals who will retire in the next ten years. These businesses have a million employees, generate over 200 billion dollars in revenue, and pay over 40 billion dollars in payroll. These businesses represent a huge chunk of the Michigan economy.
And when these owners want to retire, most of their businesses don’t sell; 80% of all businesses put up for sale aren’t sold.
The main reason these businesses don’t sell isn’t that they are not profitable; the companies just aren’t sellable in their current state. They do not have an exit plan in place. As a result, many of these owners will not achieve/meet their initial retirement goals or will settle for less.
If employee ownership is a good fit, these can remain local. Instead of selling or closing, they can continue operations, and help the economic opportunity within that region, all while helping business owners achieve their retirement goals.
Research has also shown that employee-owned companies pay better, offer better benefits, and have more engaged employees. There’s an employee-ownership culture that comes along with it.
Steve: Can you walk us through these different types of employee ownership? What structures fit with different companies?
Roy: First is the employee stock ownership plan, commonly known as an ESOP. An ESOP is a qualified retirement plan, where a trust that’s formed to hold company shares for the benefit of employees. Since it is a qualified plan, you must comply with many rules as you do with a pension. Their shares accumulate in a retirement account. Large highly profitable business might be a good fit for a transition to an ESOP.
There is an employee ownership trust (EOT) is a newer type of entity here in the states. It’s based on a UK model. In this model, a trust is established to hold the company shares, but the company is operated with the idea of operating into perpetuity. It’s a perpetual trust, the intent is to keep that business going forward into the future. And the employees don’t get company shares however, they share the profit at the end of each year.
Compared to an ESOP, which is a retirement plan, employees are getting a little more cash each year and don’t accrue retirement benefits. If you're talking about a legacy company, and you've got people who don't need a lot of cash when they sell, this might be a good fit for them.
There’s also an employee or worker-owned cooperative. A lot of folks are familiar with a farmer-owned cooperative, or organizations that are mutually owned, like credit unions. In these models, members own the company. In the case of a worker-owned co-op, the members are also the employees.
This structure might be a better fit for a smaller company that's close-knit. If you had a company with five to 20 employees, good management-worker relations, and effective communication, that could be a good fit for a cooperative. Worker cooperatives have a much more flexible structure to organize.
Steven: Who is on the forefront of this kind of work? Is there a country or a region that has a concentration of these kinds of businesses?
Roy: There are lots of countries and regions that do this, but they all have a different twist. I will soon be traveling to Italy to the Emilia Romagna area, where a third of their GDP is driven by co-ops. The Mondragon Cooperatives in Spain is another model that’s one big cooperative, something like 180,000 worker-owners, certainly north of half a billion of revenue. There are cooperatives in Canada, where Quebec has a strong cooperative tradition. Argentina has a strong tradition, so does France, etc.
Here in the US, we’ve started to look at these other types of structures and bring them in and see where there's a fit. Interestingly enough, the West Michigan region has one of the highest concentrations of ESOP companies in the country. This is the result of the business community’s culture. People here are more concerned about what is happening/impacting their community and using employee-ownership models has generated positive results.
Steven: Roy, thanks so much for your time and knowledge on this topic. If people are looking for more information on employee ownership, where should they go?
Roy: You’re very welcome. There’s the Michigan Center itself (miceo.org). Our national organization, the EOX Network (eoxnetwork.org), has a lot of resources, along with the National Center for Employee Ownership (nceo.org). The ESOP Association (esopassociation.org) is very much focused on ESOPs. If you’re interested in articles and symposia on employee ownership, there’s the NY/NJ Center for Employee Ownership, they do a lot of great work.
