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Find out how much better participatory, employee-owned companies perform than their competitors in Briefing Paper 1 -- The Performance of ESOP Companies. [PDF Download]

ESOP companies also create more wealth for their employees: see Briefing Paper 7 -- ESOPs and Employee Wealth. [PDF Download]

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An Open Letter to the Massachusetts Congressional Delegation

Ownership Associates, Inc.
February 15, 2002


Supporters of employee ownership:
This is a critical time to make your voice heard. Below is a memo we wrote to the Massachusetts Congressional delegation in February 2002. Please feel free to use the text or information to support your own efforts to defend employee-ownership.

Senator Edward Kennedy
Senator John Kerry
Congressman Michael Capuano
Congressman Martin Meehan
Congressman Barney Frank
Congressman William Delahunt
Congressman Stephen F. Lynch
Congressman James McGovern
Congressman Ed Markey
Congressman Richard E. Neal
Congressman John Olver
Congressman John Tierney

From:

Christopher Mackin, President and Principal
Loren Rodgers, Principal
Adria Scharf, Research Associate

Re:Beyond Polaroid and Enron: The Benefits of Massachusetts ESOPs

Date: February 15, 2002

This memo is to alert the Massachusetts Congressional delegation to the need to protect the financial, performance, and job security gains that Employee Stock Ownership Plans (ESOPs) have provided Massachusetts workers and their companies since the mid 1970's.

Our firm has been an advisor to ESOP and cooperative firms nationwide since 1987. In his capacity as a member of the core faculty of the Harvard Trade Union Program, Chris Mackin teaches about the proper use of ESOPs to trade unionists from across the United States. Ownership Associates has for the past two years performed contract work for a small Massachusetts office for Employee Involvement and Employee Ownership now located at the non-profit, federal and state funded Commonwealth Corporation (www.commcorp.org). The Massachusetts Employee Involvement and Employee Ownership office was created through legislation introduced in 1989 by State Senator David Magnani (D-Framingham). Governor Dukakis was an early supporter and the EI/EO program has also been supported by subsequent Republican administrations.

The enclosed materials: Employee Stock Ownership Plan Companies in Massachusetts by U.S. Congressional District; ESOPs: The Untold Story of Wealth Sharing in Massachusetts; and the survey report, Census of Massachusetts Companies with Employee Stock Ownership Plans (ESOPs), describe an overwhelmingly positive set of facts. [These materials have not been adapted for the web. Contact Ownership Associates to request copies.]

Massachusetts ESOPs have an impressive track record in benefiting small businesses and working people. There are more than 90 ESOP companies headquartered in Massachusetts, providing employment to over 40,000 employees.1 ESOPs in Massachusetts are being used for the very reasons that Senator Russell Long (D-Louisiana) originally intended. Just as the original 1974 legislation anticipated, healthy closely-held businesses are being gradually sold to their employees rather than being liquidated or sold to out-of-state competitors. In some cases, such as at Marland Mold in Pittsfield, ESOPs are saving companies-and jobs-from closure and termination. These results have been achieved with a remarkable record of prudent retirement security planning.

  • In Massachusetts, the average ESOP account was valued at $39,850 in the summer of 2000. This is roughly equivalent to the one-year median earnings in the state.

  • Our survey data show that of the Massachusetts ESOP firms participating in the Census of Massachusetts Companies with ESOPs, 92% also provide defined benefit or an additional defined contribution plan to complement workers' ESOP accounts. This finding is consistent with national data on privately held ESOPs-in fact, ESOP companies are more likely to provide additional retirement plans than similar non-ESOP companies.

  • ESOPs were originally designed as a vehicle for dealing with the ownership succession challenges of owners of closely-held businesses. As such, they appear to be an effective tool to keep companies and jobs anchored in our communities.

  • The majority of ESOP companies report that no reduction in pay or benefits accompanied the implementation of an ESOP. Existing evidence strongly suggests that mean wages are in fact higher in ESOP companies compared to similar non-ESOP competitors.

  • A final research result of central relevance in this time is that ESOP companies go bankrupt less often than non-ESOP companies.

Further details on the effects of ESOPs nationwide is also provided in this mailing by way of February 13, 2002 testimony to the Subcommittee on Employer-Employee Relations by our colleague Dr. Douglas Kruse, Professor, School of Management and Labor Relations, Rutgers University.

As the public debate continues, we urge you and your colleagues to keep in mind that much of the controversy concerns public companies, while the vast majority of ESOPs are in closely-held, not publicly traded, companies. The research results cited above describe the typical ESOP, and the publicity surrounding the abuses at Enron should not obscure the fact that it is an extreme exception.

Polaroid is another case in point. Conceived primarily as a "poison pill" to fend off a hostile takeover, the Polaroid ESOP faced internal and legal challenges from the outset. However self-interested the 1992 Polaroid management team may have been in its use of the ESOP, it can be fairly said that they did appear to have a genuine affinity for the concept. The successor management team under the leadership of Gary DiCamillo did not appear to share those values.

In this time of near-continuous headlines about Enron and Polaroid, it is important to keep sight of the bigger picture of what employee ownership means to Massachusetts employees and employers and to their counterparts around the country. There is a danger that the gains made by employee-owned firms will be threatened. The legislative proposals put forward by Senators Boxer and Corzine and others pay insufficient attention to the circumstances of employees and employers in closely-held or privately-held businesses. For the same reasons that guided the entrepreneurial behavior of these businesses' founders, ESOP firms cannot and should not be required to prematurely "liquefy" the holdings of employee owners as if these firms were publicly-traded. Even if such rules are deemed prudent for public companies, they represent a substantial burden for closely-held companies, and may well discourage the creation of new ESOPs. Finally, of all the ideas presently on the public policy table, employee ownership must be counted as one of the most economically progressive in being able to address the vast inequalities of wealth that characterize our present economic condition. Russell Long was a populist and a Democrat. His ideas make sense and they are working.

We urge you to protect ESOP laws, which have made a consistent, verified, and substantial contribution to the well-being of Massachusetts working families.

Please let us know if we can be of assistance in forming a legislative response to the Enron situation.

1. Please see the enclosed memo, Employee Stock Ownership Plan Companies in Massachusetts by U.S. Congressional District and the Congressional district map on pages 6-7 of the booklet ESOPs: The Untold Story of Wealth Sharing in Massachusetts.
[These materials have not been adapted for the web. Contact Ownership Associates to request copies.]

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