Christopher Michael 9/29/25 Christopher Michael 9/29/25

EOT Advisors Interviewed for Ethical Exits Podcast

EOT Advisors’ Chris Michael is interviewed by Hannah Sandmeyer and Caitlin Corrigan for the Ethical Exits podcast.

In this episode of Ethical Exits, Chris Michael, founder of EOT Advisors, explains how Employee Ownership Trusts (EOTs) provide a simple and flexible alternative to traditional succession strategies, ESOPs, and worker cooperatives. Michael discusses the origins of EOTs, how they enable broad-based employee ownership without individual share accounts or repurchase obligations, and why they can often be implemented more quickly and cost-effectively than other employee ownership models. The conversation explores seller-financed transactions, perpetual purpose trusts, business succession planning, and the importance of preserving company culture, employee dignity, and founder legacy. Michael also shares insights from helping transfer more than $750 million in ownership to employee-owned businesses and discusses how EOTs can support both mission-driven and financially successful companies.

Hannah Sandmeyer
Chris, welcome back to Ethical Exits. On this episode, we're hosting Chris Michael, founder and managing director of EOT Advisors, the first US firm dedicated to helping owners sell to an employee ownership trust. Chris has facilitated over 750 million in ownership transfers to 3000 plus employees across 30 plus transactions, teaches it records, and also introduced the EOT structure to the US market. In this episode, we'll strip the jargon and get super practical. What is an EOT, really? As Chris explains it, it's a simple, flexible model, no slicing the company into individual retirement accounts, and no repurchase obligation when somebody leaves, he lays out why that simplicity matters on day one, and every year after. We also talk speed and control. EOT transactions can close in as little as two months, and most US-based employee ownership deals are seller-financed. Think buy now, pay later, using the company's own cash flow, no waiting at a bank to bless your dreams. Finally, we compare EOTs to ESOPs and co-ops in plain terms and touch on perpetual purpose trust for founders who want to lock in mission. I think you'll enjoy Chris's no-nonsense style and the purpose-first way he approaches his work, and if you've ever said I want ownership today and into the future that preserves what makes us great, our people, our culture, our purpose, this one's for you, because employee ownership isn't just an exit strategy, it's a now strategy. Let's get into it,
Caitlin Corrigan
all right. So today on Ethical Exits, we're joined by someone who has reshaped what's possible for business transitions in the US. Chris Michael is a founder and managing director of EOT Advisors, the first financial services firm in the country dedicated to helping business owners sell to an employee ownership trust. He's facilitated more than 750 million in capital assets, transferring to over 3000 workers across 30 plus transactions. Chris introduced the EOT structure to the US. He's published in top journals like Tax Notes and Probate and Property, and teaches at Rutgers University, where he directs the Institute for the Study of Employee Ownership and Profit Sharing. So, Chris, we're so grateful that you're here, and welcome to Ethical Exits.
Chris Michael
Appreciate that so much, Caitlin and Hannah. It's really an honor to be on the program. Thank you so much.
Caitlin Corrigan
It was such a pleasure to connect with you on the introductory call and get to know you a little bit more, but you know, let's just start from the beginning. Let's start with your roots, so we like to always start all of our conversation with our guests, and we like to lay the foundation, and we like to ask, what values have guided you most deeply throughout your career and your life, and how have they shaped your path from educator to lawyer to EOT architect.
Chris Michael
So I appreciate the question. It's also that that's a question I'm interested in with my clients as well, sort of, what are the guiding principles or values, even from their childhood, that sort of shaped the direction of their company and their decision about how to exit from their company. For me, you know, dinner table conversations were about things like workers and workers' rights. My grandparents were active in the workers' rights and civil rights movements. My parents, as good boomers, were involved in the anti-war movement, and so it's just kind of the lifeblood of my family. And you know, when I was at a point in my life, sort of trying to figure out what to do for a living with my life professionally, and I learned about employee ownership, and it just.. it was just instantaneous. I mean, it was like, oh, this exists in the real world, that's amazing. Had no, had no idea, really, you know, until that, you know, and just dedicated myself wholeheartedly to supporting employee ownership in any way that I could, and so that did involve going to graduate school for a PhD, and I ultimately wrote a PhD dissertation, 300 plus page book on the history of employee-owned businesses in the United States, going back to the 1800s and early 1900s forthcoming as a published work. I also went to law school, just to see how you know how I'm just, why not? I might be helpful, the law degree might be helpful in some way or another, and I sort of walked myself backwards somehow into becoming a financial advisor, which I never, you know, never in my wildest imagination would have thought that I would become a financial advisor or M and A advisor, never even heard the term M and A, actually, when I was in, you know, in undergraduate, and, and you know, that's sort of my background in terms of employee ownership trusts and founding e. It advisors, it was one of my strong concerns from my sort of first point of entry into the employee ownership space, that was about 1516 years ago, that there was some sustainability to the structure, you know, I'd heard about employee-owned businesses getting sold out from the employee ownership, and it just seemed like, well, wow, this is a lot of time and energy going into converting and building these businesses, and so there was a concern for the sustainability of the enterprise under employee ownership, and I think what actually started to even become more of a concern over the years that I was started to get involved in employee ownership was that this would be a smooth sort of a smooth process for the exiting seller, the employee ownership employee stock ownership plan, which is of course the main form of employee ownership in the United States, and has been for half a century, and it's a wonderful model, and I wrote my dissertation is basically from, you know, some time ago when I was writing my dissertation, it was basically a long book saying how great Aesop's are, you know, so it's a fantastic structure, but nevertheless they do, you know, they're a challenging approach when it comes to exiting a business, I think anybody would fairly say that. So, and worker cooperatives, of course, come with their own challenges, as do direct share ownership plans. And so, thinking about how we might offer a way for business owners to exit to employee ownership in a simpler, more streamlined fashion, that became a really my overriding concern, more so even I would say than the matter of sustainability, let me pause there, and
Caitlin Corrigan
that's a, that's a great lead way into, into the next question, because you're talking about how you know this, this learning about the employee ownership world, and what it can do for companies, and what structures work best with, you know, certain types of business models, but to explain in layman's terms to our viewers who are just learning about EOTs, can you explain what they are and how they differ from the two other structures that you noted, which are ESOPs and co-ops, or cooperatives as many people know them.
Chris Michael
Sure, I think the best place to start, actually, is just to spell out very plainly what employee ownership even is. So, employee ownership has been agreed upon for almost 200 years. It involves three things: it involves sharing the financial rewards among sort of more or less the whole team of employees, involves a management structure, a governance that has an obligation to act in the best interests of the team, and the third piece would sort of, as a downstream sort of result of perhaps having a management structure acting the best interest of the employees, is that it's a great place to work, it's got a great culture, right, and every employee owner, every co-partner feels a sense of dignity about their participation in the enterprise and the way in which they're valued, and you get all three of those things with an ESOP and EOT, worker cooperative, a direct share ownership plan within EOT and EOT, although our work has been to bring the EOT to the United States. Well, where did you bring it from? The EOT has been more or less the mainstream form of employership in England for 100 years, and I think it's just sort of a sort of just the.. I don't want to get into the weeds right now, but you know the ESOP kind of became the main approach in the US, and the main difference between these two approaches is that with an ESOP you are slicing and dicing the company up into shares as you would ordinarily with a stockholder company, you know, and you know Susie gets these many shares, Bobby gets these many shares, etc. right. And when you retire, those shares are repurchased from you. What's more, is that that this approach has been, you know, is now there's sort of a Employee Retirement Income Security Act, federal law, ERISA wrapper, so it's actually regulated like a 401 k, whereas an EOT, while it's very flexible, you can do a lot of different things with an EOT, you can provide equity like rewards to employee owners, but the simple, keep it simple default structure for an EOT, is you don't slice and dice the company, the shares kind of as a lump go into the trust and are held in the trust, you know, more or less kind of forever, doesn't have to be forever, but and and and so it's not the case that sort of Susie has this much ownership and Bobby has this. Dutch ownership, we all own the company as a group, and then there are rules, you know, built into the trust as to how we divvy up the, you know, fruits of our labor, how we divvy up the profits. I sometimes, I don't know if this is a horrible example or a helpful example, but I sometimes say that, like, you know, I had my stepmother was from Minnesota, and spent a little bit of time out there, and I got the sense that everybody's grandfather left the family a cabin up north in Minnesota. There's always a cabin up north in Minnesota, and so you know when, when the family cabin up north is left to the family, it's not that like cousin Susie owns the second bedroom on the left on the top floor, and cousin Bobby owns the right to dip his toes in the creek in the front yard, but nobody else has the right to dip their toes in the creek, we share ownership of this as a family, and then there are, of course, you know, common sense rules as to how we share ownership, like every beneficiary. I don't know what these rules might be, but like every beneficiary gets one weekend summer, or something like one week a summer. There's ways to do this in a sensible fashion, and so, with profit, you might wonder, well, what are.. what are these rules? Often, you know, how do these rules often work in an EOT? The rules for profit sharing in EOT work again. This is kind of established international ethical standard for a long time now, which is that you would usually divide the profits of the company up in accordance with some formula based on compensation, seniority, and hours worked,
Caitlin Corrigan
and that can, that doesn't have to be the same type of rules for every company, right? They can write their own rules into place,
Chris Michael
correct, and one of the key pieces here, of course, is that you know, for people who are really steeped in the ESOP approach, which, again, is a wonderful approach. There are no, there's no repurchase obligation when somebody leaves the company. You know, I have my most valuable sort of MVP, most valuable employee who's been with my company for 20 years and owns this big chunk of share, you know, and then I'm paying them to leave because they have the maybe the maybe one of the largest chunks of shares, I'm paying them to exit, whereas with an EOT, I'm quoting the English here, the English have an expression with respect to EOTs, so I can't get in trouble because I'm quoting the English, naked, naked in, naked out, so naked in, naked out. You're not purchasing shares when you come into the company, and you're not being bought out of shares when you leave, and you know, also have to say this is really the approach of any standard law partnership, you know, the EOT approach to financial sharing. When you, you know, make partner at some fancy white shoe law firm, right? I mean, I, you know, I'm open to being corrected on this, but my understanding is that, you know, when you make partner at a big fancy white shoe law firm, you sort of, there's a kind of a technically, you have to kind of buy your ownership interest, it might be like 10,000 bucks or something like that, right. And then your rewards are the year after year profits per partner that you get, which could be, you know, a million dollars a year on top of a base salary of 300,000 or that was at least a few years ago. It's probably even more right now, and you know what, you, you know, when you retire 30 years later, you know what you get for your ownership interest when you sell it back to the firm, $10,000 It, you know, there's not.. it's not.. it's not your.. your many business owners think of the typical sort of.. you know, you found the company, you grow the company, and you sell the company. Your payout is on the exit, but you know, for professional partnerships, that's actually not how they work. And so the EOT model is really like a professional partnership model. It's just that in a professional partnership, of course, the partnership is typically limited to the professionals in the firm, licensed professionals, architects, CPAs, engineers, medical doctors, lawyers, whereas here you know everybody's included. If you've, if you've been with the company for about a year or so, give or take, you're included.
Hannah Sandmeyer
I've never heard that cabin example, that is genius. I think you should continue to use that. That's really helpful, very colorful, explaining the difference between ESOPs and EOTs, and to your point, ESOPs are their own animal, they have their own purpose, right? There can be very cumbersome to administer, they can be very expensive to not only form but to operate, to maintain. Manage due to that, due to the annual process of evaluating how much the company is worth, and then determining how many, how much the shares are worth, and then, of course, as you touched on the pressure that it can create when people exit, when tenured people leave, we actually told a lot of that, that story through the new Belgium brewing,
Chris Michael
yeah,
Hannah Sandmeyer
when they're through their ESOP process, and why they sold, and everything that happened there, it's really interesting story. Can you touch a little bit too on cooperatives, because you mentioned this buy-in, right, which is, which I under understand, or I understood was more applicable with a cooperative model, I wasn't sure, though, how it worked for an EOT or an Easter.
Chris Michael
No, there's no buy-in with the EOT. I was just the point there was the comparison to a professional, like a law firm, right, where there's this kind of nominal buy-in, but the, yeah, the financial rewards are not like an ESOP with a big payout when you retire. The financial rewards are the year over year profit sharing, that's it.
Caitlin Corrigan
And Chris, I'm sure you have, you've worked with, you know, all different people who have founded businesses and all different industry sectors of all different sizes and ownership dynamics, but when it comes to an EOT, what are the certain types of businesses and, you know, team cultures where EOTs work especially well,
Chris Michael
you know, I think to, for me, I think that falls back to kind of a general employee ownership question. I think there's a certain threshold above, you know, below which, you know, an employee ownership transition of any kind won't make sense. You know, you need a little bit of a management bench if you're going to do employee ownership, and if it's a three person company, you know, and the one of those people who founded, who's the main entrepreneur founder, is retiring, and there's only two people left, that just starts to get a little bit, you know, it's sort of a little bit thin, I think, for for doing an employee ownership transition, but you know, if you have, if your company can support a management team of three or four people, five people, then you know who could step in as managers, as board directors. Then I think we're probably big enough to do an employee ownership transition, and that could really be any model of employee ownership. That being said, I've often, I've heard it said that an a minute, you know, there's a, so there's a legal, there's a legal minimum of 10 employees for to do to retain the benefits of an S corp ESOP, and so there's a little story in there that involves Jerry Seinfeld, which is near and dear to my heart, but I won't get into that at the moment, but so there's 10 employee minimum for the S Corp ESOP, and for that reason many folks would say, well, you should have just, just, just keeping in mind that the legal floor, you might think about wanting at least 20 employees in case there's any fluctuation in the employee count at your business, you wouldn't want to fall below that 10 employee threshold, so, so with it, so I would say, when I think about whether or not a company, you know, can do an employeeship transition, I just think about it in terms of this sort of general issue, not so much an ESOP versus EOT versus direct share ownership versus co-op kind of a question, but just whether or not there's enough of a kind of a management team that the company can support that would you know warrant or enable a transition to happen,
Caitlin Corrigan
and Kosis is that when it comes to expenses, when it comes to like implementation costs of these different employee ownership structures, do they all cost the same or is one more expensive to transition than the other?
Chris Michael
Well, sure, yeah, so ESOP is known to be a bit of an expensive tool to implement, and won't get into the weeds on what those costs are, but the significantly more expensive, I would say, both in terms of the initial implementation and then ongoing costs, not to mention the potential costs of litigation in the future that you have to kind of, you might, might think to want to factor in, and then, depending on how you think about it, you know, in terms of cash flow, you also have to factor in purchase obligations at the ESOP, so you know, but that's easily googleable, so
Hannah Sandmeyer
yeah,
Caitlin Corrigan
yeah, yeah,
Hannah Sandmeyer
so let's talk about a little bit about those transition mechanics. If I think through, and if I'm understanding you, Chris, about why you like the U of T, I think, said two things. You said that the transition can be relatively fast, or it's not as cumbersome, if I heard you correctly, and then all. Also, the permeability of an EOT, or what you can do with the trust, and how that varies from an ESOP or a co-op, which Caitlin and I understand in the, in the plan of M and A, you sell your company that ESOP can be dissolved that next day, same thing with a cooperative, right, the trust is a mechanism where you can lock in what that stress purpose is, as you said, for life. Yeah, there's, or for a very long period of time. We just had Brenna Davis on from Organic with Drunk Puppy, which I'm sure you're familiar with. Their company, they were one of the first to transition in the US to a perpetual purpose trust, and as she explained it to us, perpetual purpose trust were have been used traditionally for like graveyard sites, which makes sense, right? That that land forever for in perpetuity would be used for a graveyard, you'd have a nice spot for for anybody to live there throughout their or to be buried there throughout their eternity, which makes sense, right? So that application, historical application, being leveraged in this instance for a business, and as we know, also Patagonia coming out and saying Earth is now our shareholder, right, these kind of declarative statements that are more, I guess, qualitative in nature, like this is what we care about, and this is how we're going to protect it for the long term. So, am I correct there? That's that's why you've leaned in to, and what you do principally, although you're very familiar here, you understand how the mechanics of all these, these other two models work. This is kind of where you, why you put your money, or you put your, your butt in the seat, Chris, on EOTs. You didn't start your business just to sell something, you started it to solve something, but solving big problems with limited resources, it's slow, it's hard, and in a market moving this fast, values need more than vision, they need velocity. This is the kind of challenge Up and Over Advisors was born to solve. We help mission-driven companies scale smarter through values amplifying acquisitions, because when ethical founders grow, capitalism gets an upgrade. We do the heavy lifting to find and qualify companies ready to partner or sell to someone like you. We don't just close deals, we open doors to broader impact. Ready to scale yours. Let's build the future on purpose. Visit Up and overadvisors.com to learn more.
Chris Michael
Well, so you know, from, from my clients, oftentimes, you know, their business is, you know, entrepreneurs are like artists, right? They're very creative people, and for a, you know, sometimes people spend 40 years alone in a room and they have one book, one novel they've created, you know, and that's their masterpiece for a business owner. They're out there in the world, they're working with people, you know, vendors, partners, customers, employees, and their business is their masterpiece. It's their life's work. And so, you know, when you, when you come time to want to exit, you have a challenging question in front of you, right? Do I want to sell to a competitor who might close my shop, take my customer list, take a few employees, but ask some others? Do I want to sell it to a private equity firm or investor group, and you know they're going to promise, you know all sorts of things when we first start negotiations, but they're never going to put, put it in writing when two years down the line, they're never going to put anything in writing when it comes to the contract, or do I want my business to kind of stand up on its own two feet and sort of move forward in the world without me as the as the as the owner, and so you know, whether it's a sale to an employee ownership trust or a perpetual purpose trust, which we also do, you know, it offers a great opportunity for business owners to sell their business, see their masterpiece, sort of thrive and stand up on its own two feet, and, and also offers, I think, a very handsome financial return as well, given that the owner, of course, has the time to wait for payout over a period of years, but it's a fantastic solution for exiting business owners who want to see their business continue to thrive in just the way that they built it,
Hannah Sandmeyer
have a little bit more control, right?
Chris Michael
Sure, and and to that, yes, correct, right, and so you know earlier you that. Asked, you know, what was really some of my guiding principles here, and thinking about developing the EOT and the PPT here in the United States, and the guiding principle was first not just that it was a fast process, but really that it was a safe process, a comfortable process, an easy process, a simple and straightforward process that does permit a significant degree of, you know, control over the process, right? That I think, you know, when I entered your recording studio just now, for the, you know, the virtual recording studio. It said something. The first thing that came up was rolling out the red carpet. It's funny because that's exactly what I say about this, is that when somebody's rate, when a business owner raises their hand and says, Hi, hey, you know, advisor community over here, I'm thinking of doing something like employee ownership or some kind of social purpose exit,
Hannah Sandmeyer
yeah,
Chris Michael
we should be rolling out the red carpet for this person. We shouldn't be presenting them with challenges and obstacles, right? We should be rolling out the red carpet, and so that's really what was has become sort of first and foremost, my concern is that we're able to kind of roll out the red carpet for exiting business owners who want to do something kind of socially minded or employee-oriented with their business.
Hannah Sandmeyer
Chris, I love that. I mean, it's a big part of why we have this podcast, and why a lot of the work that we do is, how can we democratize knowledge? How can we lift the floor, right? How can we help people make choices that will, that are more in line with their value system. Yeah, right. Yeah, I think it's such a noble purpose. So cool, especially, you know, when I think about, you know, you've just participated in the wealth transfer of over 750 million in capital assets to 3000 employees. I mean, my God, that is a, that is a massive ripple effect, right? That one person can have, and by making it easy for people to approach these transitions, because I can tell you, Chris, I've been in rooms with B Corp founders, most recently CEOs, right, where the prospect of taking a five year transition, let's say succession planning, and then an EO transition today. Today, Chris, in this market, where we're faced with so many existential threats, they're like they're throwing their hands up, they're like, I can't, I can't go there, I can't. I'm thinking about, I'm sorry, you
Chris Michael
said five years, I'm not sure. Following
Hannah Sandmeyer
well, we've talked to folks where they've taken five years, so they'll first do the leadership transition, and then they transition, you know, to make sure that they have good succession planning, and then they'll, they'll make a move to employee ownership, and I think there's a, there's a lot of value in taking your time and don't moving slow, but I think in this environment, right, in this environment, where folks are, because you have to be a profitable business, you have to be a stable business in order to make these transitions, right, to sell to your employees, that that doesn't go away, that requirement doesn't go away, so in this environment where things are tentative for a lot of folks, or there's a lot of fear and fun, or there's just a lot of consternation in business markets, especially if you're attached to a global supply chain today with the tariff environment making this easier and more straightforward, and as you said, rolling out the red carpet. I just hadn't thought of it that way, man. I double tap on that. I think that's really, really a viable and really important initiative. So, kudos to you for thinking of it that way and pursuing it that way.
Chris Michael
I appreciate that. You know, with our clients, we've closed the trends that we've closed EOT transactions as quickly as in two months. It's, it's often the case that we might kind of take a little more time just to kind of go at any slightly easier pace, and that might be over the course of six months, but that's really sort of two months of work just kind of spread out over six months, you know, and then other, we work on a flat fee basis, which my clients always appreciate, and so, you know, it might, if somebody wants to take a year and a half with it, that's fine too. It's still the same flat fee, and you know, the leadership succession can happen before the transaction or after the transaction, so you know some of my clients prefer to, you know, already have that in place before they ever call me, and some of them put it into place a year or two after we conclude working together, but the process itself, when a client is really ready to go, it can be as quick as two months.
Hannah Sandmeyer
Wow, amazing. So I think the people traditionally think about employee ownership transitions as a succession point, right? Yes, as an ex. It,
Chris Michael
yes, yes,
Hannah Sandmeyer
people think about it. There is seems to be a lot more energy, especially in particular ESOP community around acquisitions that are driven by or layered in with employee ownership. Is the fastest way that the movement grows, right? The fastest way you get more employee owners right, broad-based employee ownership, regenerative wealth transfer is by through acquisition using employee ownership structures as an acquisition strategy as well. Curious on your thoughts on that. If you're seeing any, any new innovations in the space, if you've helped companies leverage employee ownership as an acquisition acquisition strategy, whether that meaning that means that they buy a company, then transition the whole thing to the EOT, or transition to a DOT, and then start acquiring companies.
Chris Michael
I think it's, I think it's a really interesting point that you're raising, and you're absolutely right. A lot of it's very exciting, the growth that we're seeing in ESOPs through acquisition, and I have some friends who've actually been studying that and publishing on that topic. So it's a very exciting aspect of ESOPs that they're able to leverage their structure to do acquisitions. I have some clients that have, I don't think that's necessarily going to be the name of the game in the EOT sort of space. I do have some clients that were sort of already working on an acquisition or two while before they met me, before we transitioned, they concluded the acquisition after we transitioned to an EOT, so certainly just as possible, plausible, workable under an EOT, as it would be any typical business, any typically owned business, but I'm not sure that we're going to see the same kind of grow, but I could be wrong, I just.. it's yeah, but within ESOP, it certainly is really exciting, the growth of acquisitions that's being done right now, yeah,
Hannah Sandmeyer
yeah, and I think it makes so much sense from an ESOP structure, because of the free cash flow that you
Chris Michael
get from,
Hannah Sandmeyer
as you described it, the ERISA wrapper, that it is seen by the federal government as a retirement plan, so it frees up a lot of capital that would otherwise go to Texas as a business to now cash flow, and how do you spend that cash flow, and to get the best return for your ESOP? Right,
Chris Michael
absolutely.
Hannah Sandmeyer
So that makes a ton of sense, but what Caitlin and I are really interested in, and we hope someone takes this up on, we'd love to work with a company that is using, you know, these Aesop models could also be transferable within a company, right? You can use them at different phases of your business, as you mentioned that ESOPs have to be a little bit, you'd be a little bit larger because of the cost you get there and the administrative costs to manage an ESOP, but leveraging an ESOP, the ESOP model as to free up cash flow to do acquisitions, and then once you get to a place where you feel pretty good, you got a large PNL, you got a lot of different employee owners, you feel really good about the structure, then that piece comes into play, was like, okay, now you're might be more vulnerable to an outside buyer, right, who could,
Chris Michael
yes, that's correct
Hannah Sandmeyer
gobble you up, that's
Chris Michael
correct,
Hannah Sandmeyer
and and dissolve the ESOP, so at that point, then transitioning to an EOT, to be like, okay, let's wrap this up.
Chris Michael
Oh, yeah, that's something that we've played with over the years, the idea of transit is very great. Great question, Hannah. You know, the idea of switching from an ESOP to an EOT, there's some in the weeds reasons why that's why that's not so workable, you know, practically speaking, but it would certainly be nice if we could do something like that, but yeah, it's a bit tricky, a bit in the weeds, but that's a little.. I've spoken with some ESOP companies who said we want to exit out of our ESOP, we don't need an ESOP, we just want to be an EOT, this is too much for us, really. The founder got his money 20 years ago. We haven't seen the founder for 20 years, like literally. So, really successful employee-owned company, right? In that sense, it really is standing on its own two feet. It's just that, you know, the 3040, years down the road, they didn't need the ESOP itself. The EOT would have been just fine for them, and, and less burdensome, but yes, just sort of, for sort of technical reasons, it's sort of a little tricky to make that happen, but maybe get some, some, some regulatory changes in the future, perhaps, and nothing, I'm nothing, I'm sort of digging into, or counting on any, by any stretch, I think the
Speaker 1
yeah
Chris Michael
I think the ESOP is a great structure. It, it's a wonderful tool, and it stands all by itself as a wonderful tool. And so I'm not, I'm not particularly, you know, I sort of, I sort of think it's a, there's this sort of four. In the road to sort of decide to go down a little more down the ESOP path or down the EOT path, I don't sort of see those roads as crossing again as much in the future.
Hannah Sandmeyer
Interesting. Okay, okay, so let's think a little bit more about EOT. You talked about it as being not just a systems change but like a cultural shift for revolution. How we think about,
Chris Michael
okay, I don't, don't, don't put any words in my mouth. Fan, I would say, you know, again, EOT is a structure that's been around for 100 years. John Lewis was the noted proponent of this in England in the 20s, 1920s right, and we actually had, I sort of speculate that John Lewis might have gotten the idea actually originally from the United States, so while we ordinarily say that the EOT comes from England, I found examples of the EOT in the US, as far back as 1890s and also the 1920s as well, 20s, 30s, and so it's possible was here first. So it's a very robust, stable approach to transitioning a business, and in fact, I have a colleague in Japan, and as best we can tell, at some of the oldest employee-owned companies in the world use - I might be mistaken about this - but use something like an EOT approach, I would say, and these are businesses in Japan that are like 700 years old, they do carpentry at the temples, so, so I think it's a very stable and conservative approach, you know, when it comes to selling one's business, and I, and I think for all of my clients, I would say, I would say basically all of them, it's really not a culture shift. Actually, it's really maintaining this is their masterpiece, and a big part of any business, right? Half of all management books are psychology books, right? And it's true, it's true. And a mentor of mine said that one time to me, and and so the culture is half the business, you know, and so for most, almost I think all of my clients preserving their masterpiece is really about preserving the wonderful culture they've built at the firm. I mean, I think if you want to talk about culture shift, there might be this issue, which they have in England as well, where you know some people just, gosh darn it, they really are stuck on the idea of each employee owning some x number of shares in the company, and that's, you know, and then some people, that doesn't really mean much to them, and they're happy to think of this as the shares being held as a group for all of the employees, and they have that kind of, you know, sort of sort of different approach in England, you know, as well, you know, so I think, you know, in introducing this as an approach in the US, we've, you know, encountered a little bit of these are resistance, perhaps among some service providers, because that's sort of how they've been oriented towards thinking about ownership for half a century now, and again it's a wonderful approach. It's just that there are indeed other approaches to sharing ownership, so it's all shared ownership. It's just different approaches to sharing ownership.
Caitlin Corrigan
Chris, did you, speaking of, you know, the model coming from the UK here to the US, when it comes to like financing challenges, I'm just curious, because I know that, like, banks and lenders in the US were familiar with ESOP loans, but when it comes to, like, EOTs and underwriting those deals, they were more apprehensive or hesitant. I
Chris Michael
wouldn't say that, actually. Yeah, I wouldn't say that at all, so employee ownership in the United States for the past 30 years is its seller finance. These are seller finance transactions, so you know the typical, you know, standard ESOP transaction is 100% seller financed, so you know I'm really fortunate right now. Most of the people that call me already know that, and you know, I set up a few years ago to get securities licenses, and you know, I to help people, so as you know, registered to help people to raise private capital for these transactions, but people just didn't want it, you know. They know that this is seller financed, and they appreciate the level of control that that brings them moving forward. Now it is the case that for a long, long time ESOPs larger e. Up transactions might involve 30 or 40% bank financing for the transaction, you know, so you know $50 million 100 million dollar company, you know, you can, you can pull out bank financing and leverage that to complete the ESOP transaction, but that's not the typical lease up transaction, right? Typical typical lease out transaction is a 50 to 100 person company that's seller, that's 100% seller financed. And so that's the same way it is with the EOT. You know, typical EOT transaction is a 50 to 100 employee company, and it's 100% seller financed. So I don't see that as an obstacle in any kind of way.
Caitlin Corrigan
Oh, that's great. Okay, good to hear. Thought there was more resistance from that, but you know we're learning as we go. So, sure,
Chris Michael
sure, we're
Speaker 2
learning from the expert today. So, this is this is great.
Hannah Sandmeyer
What else has been thinking about the differences between the UK roots, even though you've mentioned that you've seen examples of this in other parts of the world, and certainly states as well, but as you're transitioning, you're bringing more companies in America to the EOT model. What have and evangelizing it? What have been some of the challenges that you've encountered, or misconceptions about just made it a little bit, I don't know, you seem so positive, maybe that bar.
Chris Michael
I am pretty positive about this. I don't even really.. there haven't been really challenges. I mean, I think so. My, my kind of seminal article on this, when I was doing the back, when I was doing sort of original research and writing a publication around the EOT, was for this American Bar Association publication, Probate and Property, and that article is freely available on my website, eotavisors.com It's called the Employee Ownership Trust and Aesop Alternative, and really the discovery there was that we can do an employee ownership trust today. You know, at that time, that was 10 years ago when we brought this over here to the US, and you know the discovery there was we can do an employee ownership trust today in any state in the country, in any state in the country, and we don't need any regulatory changes, and we don't need any legal changes, we're ready to go, so you know, as a professional, you know there's the natural desire to be careful and cautious in terms of implementing a new tool, right? And so, but I don't think that was a challenge, that was just being prudent,
Hannah Sandmeyer
so that's very encouraging, because I think we think that perpetual purpose trust, which is very similar to an EOT. Can you actually explain the difference between those two things for our audience?
Chris Michael
So our original sort of research, my original research around this, and this was back in 2015 that was in my article in Tax Notes, and I was sort of figuring out how to bring the Employer Ownership Trust, how to implement the Employmentship Trust in the US, and I discovered back in 2015 that we had this new creature that nobody in the social purpose world was using called the non-charitable purpose trust, with or without ascertainable beneficiaries,
Hannah Sandmeyer
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Chris Michael
It varies. It's a statutory name, varies state by state. Sometimes it's just without ascertainable beneficiaries. So this thing called a non-charitable purpose trust was brand new in the United States, and really brand new to the world of trust law internationally, for the most part. I mean, it had, it was used just a little bit in, like, the, like, the Isle of Jersey, one of these sort of British Channel Islands, but it wasn't even on the mainland of Britain, and but but this device, the Non Charitable Purpose Trust, had been introduced, I think it was 2004 forget which was the first state, but it was introduced by an attorney named Alexander Bove Jr. He's still a practicing attorney today, and when he introduced it in 2004 in his article in the same journal I published in Probate and Property, he was introducing it more as a just a standard business succession plan. Mining tool, and I think you know, you know, I'm not really particularly big on credit claiming, but you know, you know, bringing something from one country to another country, you know, okay, you know, not a big deal, really. My only sort of minor intellectual contribution here was to, was to go, aha, we can bring the EOT over from the from the from Britain, and we can kind of use this new non-charitable purpose trust vehicle for the employee ownership, and for that matter, we could use it for any social purpose ownership, so you know, I've worked with other companies too, and I've advised other kind of activists or advocates, you know, in the steward ownership world or the purpose ownership world, you know, that they should consider using the non-charitable purpose trust as the device that they're going to use, so that resulted in, you know, companies like Organically Chrome Company and Patagonia, I believe in using the non-charitable purpose trust. It's - we've come to call it the perpetual purpose trust, but the statutory name for this entity type is a non-charitable purpose trust. And you know, I work with clients who do both, and you know the difference is primarily, well, what's your purpose? You know, I mean, if you want the purpose to be employee ownership, then you can call it employee ownership trust, and if you want it to be the Hannah and Caitlin save the world and create great podcasts while you're at it, trust, you can call it that, you know, that could, that could be your non-shotable purpose, you know.
Hannah Sandmeyer
Yeah, yeah, but that's where I wish I do think that that's a cultural shift, right, as this idea that we're pushing in culture and an idea that business should also serve a purpose beyond enrichment, right.
Chris Michael
Oh, that's a fair point. Sure,
Hannah Sandmeyer
Right, so I think that when you talk to people, and we have, you know, some, and we plan on doing more, or more of talking to people about these transitions, not just as a succession plan, but as a growth strategy, a mission-aligned growth strategy, where if you're, if your company, or product or service is all about serving climate change. Well, this could be a great way to accelerate your impact, right? Absolutely, achievement.
Chris Michael
Yeah,
Hannah Sandmeyer
and so we just joined our principal business up and over advisors. We joined the National Coalition for Employee Ownership, which is there's a lot of ESOPs companies,
Chris Michael
National Center for Employee, National Center for Employee Ownership, and ceo.org Yeah, great organization. Yeah,
Hannah Sandmeyer
yeah, great organization. And there we join them, and we're hoping to attend their conference there next 2026 They've
Chris Michael
put on wonderful conferences. Yeah,
Hannah Sandmeyer
yeah, yeah. So there's a lot going on there, but you know, as we talk to folks, and this is, you know, an over generalization, it's not, you know, it's not binary in any way, but USAP is being used by traditional capitalists who maybe don't have a purpose beyond enrichment, traditional forms of leveraging capitalism as a form to enrich themselves versus folks who are considering an EOT or PPT perpetual purpose trust, maybe thinking about the purpose of their business is something entirely different.
Chris Michael
Yeah, I mean, I think that a lot of the B Corp people, you know, I think at the end of the day, you know, and it's been a fantastic movement to watch from the sidelines to watch that grow over the years, and you know, the person who connected us was, of course, Mirren Oka from Oak Aquatics, one of our clients, the swim school in Miami, chain of swim schools in Miami, and you know, she's such a big B Corp proponent and advocate, and there's so many wonderful entrepreneurs, business owners who have really seized on the idea of a benefit corporation. It's really, it is wonderful to see, and I would, would heartily agree with you, that is a kind of a cultural shift, although you'll find traces of it in earlier in US history, but it's really kind of taken shape, and it's become institutionalized, which is extremely important through the work of the B Corp people and the B Lab people, and I think that, yeah, you know, a lot of the B Corp founders, I think you know, working with the OT advisors to do their PPT B Corp exit, I think it was a really, really natural fit, a really, really natural fit. Absolutely, yeah,
Hannah Sandmeyer
yeah, yeah, yeah. Super cool. I mean, I think that's the work that you're doing there, and the way that you've.. that the.. what.. my conclusion from what. You've shared with us, which I think is really, really powerful. There are two hesitancies that we see people think about, either a succession or as leveraging employee ownership as an acquisition strategy, or even just using an acquisition strategy. Is how long is it going to take, how complicated is it, and how can I even afford it? Where's the capital gonna come from, so you've really kind of condensed those things for us, and my thinking, and what you shared here today, which I think is super cool, is that these transitions can be fast. Oh yeah, when, when you've decided that this is the path, and as Caitlin highlighted, and as Miran highlighted, and Brenna highlighted, there's so many different ways that you can set up this trust with how it's governed and what its purpose is, and how it does, you know, the profit waterfall, and how it shares those revenues, all this stuff. There's so much flexibility in there. So, once you decide that you wanted to go with this path, there's advisors like you who can really step on the gas, roll out the red carpet, and make it quick and fast for you, and then you're seeing not a lot of friction in the capital markets, or from banks, or from how you might, how you might finance the transition like this, because folks are using seller financing in order to make these transitions.
Chris Michael
That's exactly right, Hannah. I totally agree with all of that, and I would say, if, if there's somebody out there who isn't ready to step on the gas, you know, we work like a standard M and A shop, and so you know I am more than I tell everybody, it's the first thing I say when I meet a potential client, I am more than happy to have half a dozen phone calls or Zoom meetings with you, your partner, your CPA, your attorney, and you can find out everything you wanted to know about employee ownership trusts or perpetual purpose trusts, but we're afraid to ask, you know, over the, you know, as we can just, you can get usually I'm in there and they'll ask me an hour's worth of questions, and then the next call their partner will be on the phone and they'll ask me all the same questions a second time and then they'll bring the CPA out of route, so we'll go through the same questions three or four times, and I always say it's no problem, I mean, as you guys have can tell, I'm kind of a chatty Kathy, right, so I'm happy to kind of keep going over, you know, keep going, you know, through this and inform people, and I want people to know that it's the right fit for them before they even engage me, you know, before we're even talking about a formal engagement. This is all free, this is all, you know, free conversation if people want to have with me about whether this is a good fit for them.
Hannah Sandmeyer
Got that one. I want to ask one more question. There, thank you for that. That's super cool. I'm so glad that you're so open, and you're obviously, you're not only a chatted Catholic, but you're very passionate. Like, this is right. I can't help it,
Chris Michael
can't help it. I told you about those dinner, those dinner tables, when I was a kid. It was had an impact,
Hannah Sandmeyer
and you use the word dignity, and I think that's such a beautiful word to describe it, the work that you're doing and what you believe in, and and there's so much power in treating people and giving them agency for their own dignity. I think that is huge, man. If there's one gift that we can give another human is that the power of dignity, I think that's so, it's so transformative. So that chokes me up a little bit. I seems really cool, the work that you're doing, and how passionate you are about it. One of the things that we've also gotten questions about, or people talk about, even most recently, I was talking to someone about this, when they're, when the leadership team is considering a transition like this, any one of the employee ownership models. What is your take on them talking openly to their staff about these plans, or involving them in the decision-making process? What is.. what's your take on that?
Chris Michael
Well, I would.. I would look to history, and I would. I would just point out that, you know, Aesop's have had just this amazing track record in the United States at creating employee ownership, and we've just never seen anything like it, like anywhere in the world, and I think one of, I think one of the amazing things that Luke Kelso, who was the kind of the, you know, guy who's credited with, with creating the Aesop in the United States, used to be called the Kelso Plan, although, although I, I would like to point out that John Menke, who worked with with Luke Elso and created Menke and Associates, and they've actually John Menke, who's a friend and a mentor, and I just think the world of him, and you know, he was the one who kind of rolled up his sleeves as soon as ERISA was passed and opened up the first Aesop shop, and has done more Aesop deals than anybody else, and you know the way these. Yes, Mankey and John and others have been able to do these trends, and Lou and Luke Helsel before him have been able to do these transitions so successfully. Is again, I think they keep it, you know, even, even, even everything that we're saying about the ESOP, it's still a very, fairly streamlined process, right? Where the business owner hires their advisors, I think it's complicated, but you know they get through the process, you know. I, you mentioned New Belgium earlier, and I have another friend, Marianne Beister. Her father founded SAIC, which is a famous employee-owned company, and she made a movie, a documentary called We the Owners, about employee ownership, and they featured New Belgium in that documentary. It's great. It's now free online, We The owners.com I think. And in that movie, they have a.. they show.. if I'm.. I think I'm.. again, feel somebody out there can correct me if I'm mistaking this, but I think they show the scene when the owners of New Belgium sold to an Aesop, and they, the day they let all the employees know, you know, they didn't let them know two years before, I don't think, before the process began, right? They had everybody sit down in these metal chairs at one of the main rooms, and it's a big, you know, it's an industrial facility brewery, right? And they say, "We sold the company, we sold the company, and everybody, you can see the look on everybody's faces, they're all freaking out, right? And they say, "Well, if you want to see who we sold the company to, there's a yellow envelope under everybody's chair, and you can see there, whoever, you know, who we sold the company to. So everybody's still kind of freaking out. What are we gonna see on, is this gonna be the my pink slip, you know? And they reach down, they bend over, they pull out the yellow, the yellow envelope, they, and they pull out a mirror. It's such a beautiful scene, you know. So, you know, the way that the Aesop has has developed and grown and been such a transformative force in the US, for you know, a not insignificant percentage of the American private sector workforce. It's primarily been in these transactions that are, you know, it's the seller hiring their advisors, and so, you know, I don't know if somebody wants to involve the workforce in the transact and the transition. I think that would be a little bit, it would buck the trend of how these things are typically put together as standard in the United States. Yeah,
Hannah Sandmeyer
like the way you think about these things, the way that he problem solved was super clear. Like, well, let's see what's worked in the past. Probably is a good way to leave it at the new super cool. I didn't hear that story, actually, about the mirrors. That's amazing.
Chris Michael
Yeah, we watch We the Owners and We The owners.com It's the scene in the, in the documentary. Very
Hannah Sandmeyer
cool, awesome.
Caitlin Corrigan
Yeah, give me chills. Definitely gonna check that out after this. But Chris, thank you so much for being here today. And, like Hannah said, the work you're doing is so important, and how you're spreading awareness about EOTs and employee ownership is just.. it's fantastic, and we always love to wrap up our conversations with this question, but Chris, what is one cause or idea you'd encourage our listeners to explore, or if they want to learn more about what you do, and you know, employee ownership, where can they connect with you directly?
Chris Michael
Well, I really appreciate those questions, and I knew you would be asking that to put a little bit of thought into it for either of those things. If so, I would suggest people might think about donating to the cause of employee ownership for the idea of employee ownership, and there are a number of really wonderful organizations that you can, you know, put your charitable dollars towards, and whether it's thinking about where you might best direct your philanthropic dollars or if it's thinking about doing an employee ownership or perpetual purpose trust transition, I'd encourage you to put some time on my calendar, and if you forget the following, you can always go to eotadvisors.com and just click the Calendly free consultation button link there, but if you can remember my personal scheduling link, which I'll put out there into the ether. Here is EOTA advisors.com/chris and I'd invite you to put an hour down on my calendar, and we can talk about which organizations to donate to, or we can talk about, you know, employee ownership trust, perpetual purpose trusts, and ask every question three times. And again, happy to go over all of this. Everything I, you just heard in the podcast, we could talk about again. It's really such a pleasure, and you know, meeting business owners, my clients, is really one of the best parts of my life right now, is the friends I've made through my clients. And so, yeah, I look forward to meeting you, whoever you are out there.
Caitlin Corrigan
Thanks so much, Chris. I might. Your first appointment, because
Chris Michael
come on over.
Caitlin Corrigan
I've learned more today. I didn't think I could learn any more, but this has been a fantastic conversation. You just have so much knowledge, and hopefully our listeners will take away a lot of information today that they didn't know before either. So, thanks so much.
Chris Michael
Thanks, both of you so much.

Christopher Michael 10/27/23 Christopher Michael 10/27/23

EOT Advisors at the Aspen Institute

Webinar with EOT Advisors’ Chris Michael discussing EOTs at the Aspen Institute with Maureen Conway, Kristin Toussaint of Fast Company, and EOT Advisors clients Rick Plympton and Leah Hamilton of Optimax Systems and Melinda Paras of Paras and Associates

Moderated by Kristin Toussaint of Fast Company, this Aspen Institute discussion features Chris Michael of EOT Advisors, Rick Plympton and Leah Hamilton of Optimax Systems, and Melinda Paras of Paras and Associates. The panel examines how Employee Ownership Trusts (EOTs) provide a simpler, lower-cost alternative to ESOPs for business succession. Drawing on real-world experiences, the speakers explain how EOTs enable founders to preserve independent ownership, reward employees through ongoing profit sharing, and create long-term business stability without requiring employees to purchase shares. The conversation also explores succession planning, governance, financing, workplace culture, and the practical challenges of educating the broader business community about this emerging employee ownership model.

Maureen Conway
Lauren, good afternoon, and welcome. I'm Maureen Conway, a Vice President at the Aspen Institute and Executive Director of the Institute's Economic Opportunities Program. It's my pleasure to welcome you to today's panel discussion: Sustaining Ownership: The Promise of Employee Ownership Trust. This is part of the Economic Opportunities Program, Ongoing Opportunity in America discussion series, in which we discuss

Maureen Conway
the events of the changing economy, how things are playing out for workers, businesses, families, and communities, and ideas for change. Over the last year, we've held a number of events and conversations on employee ownership and the promise it holds for improving jobs and wealth building opportunities for workers. This last June, we co-hosted the Employee Ownership Ideas Forum with our colleagues at the Rutgers Institute for the Study of Employee Ownership and Profit Sharing. It was a tremendous success, thanks to those of you who joined us for that. It included, we had a day at the Capitol. We had a day here in our DC offices, and we had folks, senators, congresspeople, folks from government agencies, investors, business leaders, academics, practitioners, a wide range of perspectives that were brought together. And I'm very pleased to say that we will be hosting this again in 2024 The dates are april 9 and 10th, so mark your calendars and stay tuned for updates on that. But our conversation today is about employee ownership trust, and as I mentioned, it's the third in our mini series on this, and we've talked again with practitioners, companies, researchers, and other experts. It's Employee Ownership Month. but it's also just otherwise a really exciting time to be talking about employee ownership. We now have a solid body of evidence I would say that really shows the benefits of employee ownership, both for good sound business operations and for high-quality jobs. So, it's I think there's a really strong evidence base, and now people are really thinking about, well, what do we do to sort of spread employee ownership more, and think about, you know, what are innovations, what are ways we can, we can do more with this approach to building an economy that really does work for everybody. So we're very excited about this, but as with, you know, so many things, there is kind of the depths in the details, and there's a lot of complexity, and so we have a great set of folks today who are going to dive into that complexity in a very conversational and engaging way. But first, I just have a couple of things to say about our technology. All the attendees are muted. We'd very much welcome your questions. Please use the Q and A button at the bottom of your screen to submit and upvote questions. We also encourage you to share your perspective. We know a lot of you in the audience also have a lot of expertise on this topic, so please share your comments and resources in the chat. We always appreciate getting your perspective on the discussion and just your perspective on the issues, we also appreciate your feedback. There'll be a feedback survey at the end. Please just take a moment before you leave to respond to our feedback survey. It helps us just continue to improve these events. We encourage you to tweet about this event. Our hashtag is talk opportunity. You have any technical issues, you can put a note in the chat, or you can email us at eop.program@aspeninstitute.org The event is being recorded and will be shared via email and posted on our website. Closed captions are available. Please click the CC button at the bottom of your screen to activate them. A quick note, just to say that unfortunately Mark Hand, Mark Hand from the University of Texas Arlington was unable to join us today. We'll be sharing some of his, his work in the, in the chat, but also he has a great weekly newsletter on employee ownership and workplace democracy at EO wd@substack.com d@substack.com if you're interested in that. Okay, so now it is my great pleasure to introduce our panels for today's discussion. Joining us today we have Rick Plimpton, CEO of Optimax System, and also an alumni of our Job Quality Fellowship. Thanks for joining us, Rick. Leah Hamilton, Manager of Culture and Organizational Effectiveness at Optimax Systems.

Maureen Conway
Thanks for joining us, Chris Michael, founder and managing director, EOT Advisors, well labeled there. Thanks, Chris, and Melinda Pras, founder and former owner, Peras and Associates, and finally, we're very grateful to have Kristen Toussaint here today to moderate today's discussion. Kristen is the staff editor of the Impact Section at Fast Company, where she covers climate change, labor, shareholder capitalism, and all sorts of innovations meant to improve the world, which sounds. A lot of fun, Kristen. Let me turn it over to you.

Kristin Toussaint
Yeah, thank you so much for having me. I'm so excited to be here, and to hear from our panelists about employee ownership trusts. Like you said, Maureen, it's such an interesting time to talk about employee ownership in general. There's this impending silver tsunami, this growing population of aging Americans that are approaching retirement, these Americans own 2.9 million businesses, which employ more than 32 million people. That's something sort of happening in the background, right. And then, in the foreground, we have all the issues of rising inequality, stagnating wages, workforce participation, that's still, you know, slightly lower than it was pre-pandemic, and this perpetual quest for good jobs, right, that people want with good jobs with dignity and safety and a living wage, and employee ownership can be a really unique way to address all of these things, but one of the biggest challenges I hear when reporting on this solution about what holds employee ownership back is just the knowledge gap or the misconceptions about what employee ownership actually is, and the different forms it can take. So, I'm really excited to dig into one of those specific forms, employee ownership trusts today. And to start off, Chris, I'm going to start with you. You're an expert on employee ownership trusts. Can you just sort of quickly explain, you know, what these trusts are, and tell us a little bit about how you got into this space, and what your work at EOT Advisors entails.

Chris Michael
Well, thank you so much, Kristen. Thank you, Maureen. I'm so glad to be here with Leia and Rick and Melinda. Rick and Melinda, I know pretty well, it's fair to say, and so I think maybe the starting point here is to note that there are already three to 4000 majority employee-owned businesses in the United States, with possibly up to 1% of the private sector workforce working at these majority employee-owned businesses. The main way that these businesses have become employee owned over the last 50 years has been through an ESOP, which is somewhat confusingly, for the purposes of today's talk, an employee trust. It's an employee stock ownership trust. So, what we're talking about today, I think, is a relatively simpler, easier to understand, possibly more sustainable, lower cost alternative to employee ownership that I think is much more accessible for the vast majority of small business owners across the United States. Our entry point into this field, I've been working in the employership space for about 15 years now. It was like yesterday that I said it was 10 years, but it's now about 15 years, and about my concerns, sort of early on, were one was to sort of identify an approach to employee ownership that would be more sustainable or perpetual, and the other was to make this transaction easier for business owners. Business owners are the deciders, they're the ones who get to say whether or not a business becomes employee-owned or not, so let's roll out the red carpet and make this as simple, cozy, comfortable as possible for business owners. And so, somewhere about a decade ago, I was just doing research and trying to figure this all out, and kind of what did what I thought was sort of carving out of, you know, sort of carving a new approach to employee ownership, and I published an article in Tax Notes on this within the next couple of months. Realized that this new approach that I thought that I had invented has actually been the main form of employee ownership in the United Kingdom for 100 years, and as I started to work with companies to use this employee ownership trust or EOT structure, I also learned that actually we had this approach in the United States 100 years ago as well, and so really my work, or my firm's work, has been to kind of reintroduce, if anything, the employee ownership trust into the United States.

Kristin Toussaint
And now that you, you mentioned ESOPs as well, but are there any sort of like top three differentiating points, or what really differentiate weight ownership trust.

Chris Michael
The two or three differentiating points: one is that the ESOP is a federally regulated retirement plan, so it's employee ownership, but it has, it is, it functions as it is a retirement program. There's a lot of federal regulation that comes with that, and the way that Newsep works is that employees get sliced, this company sliced up, and shares go into employee accounts, and those shares are repurchased when an employee exits. With an employee ownership trust, the default structure, and I would emphasize that word, default is that the shares are held as a group for the benefit of all of the employees, you can make it more complicated than that. You can create employee equity accounts if you want to, but the default simple, easy to understand, easy to administer approach is simply to put those shares into a bucket and you know use them for the benefit of all the employees, so.

Kristin Toussaint
Great, so Melinda, I'm going to go over to you. You're one of those business owners who transitioned to an employee ownership trust. Tell us a little bit about yourself and your company, and why you went down that path.

Melinda Paras
Well, myself and my company created, designed the first video conferencing medical interpretation system. I know today Zoom looks like a really easy process, but 1520 years ago having a video conference meeting was very complicated and very difficult, and we created a system by which doctors and nurses in hospitals could press a button on their screen and reach a qualified medical interpreter, so that's what our company did, and I have to say, myself and my team really came at it, not from the point of view of let's create a company and figure out how to make money, we were actually trying to solve a social problem, which is that patients going into hospitals who didn't speak English were unable to communicate with their providers, and that's actually quite dangerous in terms of medical outcomes. So that's how we went into the business, and I am part of that. What did you call it, the silver tsunami, somebody who wanted to retire, and myself and some of the others who helped create the company, reaching retirement age, and wanted to figure out how to leave, and we looked at the idea of selling that, what people do is sell the company, usually to a competitor, and that seemed like a terrible idea to us, because we thought it would cut up the company, lay off all the employees, and just want our accounts, and we heard about ESOPs, and that was at the beginning what I understood to be the only way to sell your company to your employees, and that seemed like a very good kind of moral and ethical road to take. So I went down the ESOP road and tried to figure out if our company could do that, but first we were too small. Secondly, the idea of creating a retirement - we're like a 10 person, 10 employee company - we didn't want to create a whole retirement plan. It's a very complex and expensive process, elaborate, and we were a small, streamlined company, and that just wasn't of interest. And when we heard about EOT, we were really excited about the opportunity it gave us to sell the company fairly quickly. The employees were very happy that they didn't have to put any money in, and suddenly became owners of the company. Myself and our senior team were able to work out a retirement plan, where the notes for the sale of the company would pay, be paid to us over 10 years, which was a doable thing for the company, and it was a big win-win. And honestly, I know that ESAP - there's an ESAP industry now, many advisors and companies that help people with ESAPs, because they're so complicated, and I really don't quite understand if people saw the option of an EOT head to head with a with an ESOP, I don't know why would people would pick an ESOP, honestly

Kristin Toussaint
interesting. Well, Rick, I'm going to pose that same general question to you. I know Optimize Systems is a, is a bigger company. Tell us a little bit about that, and also why you picked this, the same format.

Rick Plympton
Yeah, thanks, Kristen. And I want to thank Aspen Institute for shining a light on EOTs. You know, I spent five years looking for a solution for our succession planning, and finally, toward the end of it, had the privilege of meeting Chris, Michael, and learning about EOTS through him. Optimax is a manufacturer of precision optics. To give you an idea, we make lenses for NASA. We have lenses on each of the Mars rovers, New Horizons, and went out to Pluto. So that's the type of thing that we do, very high precision optics for research and industry. Optimax currently is just under 500 employees, and we converted to an EOT in 2020 so we've, we're still fairly new on this in this journey, just a few years in, but the primary objectives that that my my business partner and I had when we were looking at succession planning, we want to make sure that the company would never be sold, that the company would always share at least 25% of the profits with the employees, and that we kind of set a stage for decades of prosperity and growth, so that we could continue to create jobs here in our community, I. So, in a nutshell, that's kind of, kind of where we're at, and why we chose this as our, as our journey forward.

Kristin Toussaint
I can't wait to hear, hear more specifics. Lee, I'm going to go over to you. You're at Optimax as well. Tell me about your role there, and did switching to an EOT sort of change that role at all for you, or change your relationship with the company?

Leah Hamilton
When I first crossed paths with Optimax, I was a public library director, fostering strategic and sustainable community partnerships with community organizations, industry, and educators. You know, we wanted them to take ownership of and meet the needs of the community. So I joined Optimax in 2019 as the workforce development coordinator building those internal and external relationships, and I've since transitioned to the culture and organizational effectiveness, where I lead those culture initiatives, leadership development, and work directly with the team leaders and the team members to co-create solutions to foster that sense of belonging, so when I joined in 2019 the first meeting that I attended was the announcement of the Employee Ownership Trust. So I don't have a personal experience of what it was like beforehand, but because of the planning that went into this, and you know there wasn't any shock and awe effect of the implementation, it was well planned, there were no new policies, there were no significant changes, no one was hired because of it, so because of that transition it was just the new normal,

Kristin Toussaint
that's so interesting, How do you ever involve been involved in a company with employee ownership before?

Leah Hamilton
I have not. No,

Kristin Toussaint
what a sort of good first introduction to it. I'm sure

Leah Hamilton
definitely

Kristin Toussaint
it's so interesting to me that we have these two different companies, different in size, different in purpose and scope, that both follow the same path. So, Chris, I'm going to go back to you for sort of a zoom out about what are the benefits of an employee ownership trust, and are there sort of specific companies that really fit for this, or can it really be generally applied to any company?

Chris Michael
Well, great question. So, I mean, employee ownership, whatever type of structure you use, it boils down to three things: sharing the financial rewards with the team, that you have a governance of the company that's directed to the best interest of the employees, and then you've got a great culture, the great great place to work, a place where employees are treated with dignity and respect, and so you get all of those things with an employee ownership trust, and you know, one of the main differences here, you know, when thinking about this, as opposed to an ESOP, in terms of the employee benefit side, is that instead of getting kind of lump sum payout at retirement, which you then roll over tax free into your 401 k and get paid out over the next hopefully decades, you're getting paid profit sharing in the current year. Again, that's the default approach to an EOT. There are other ways to do it, but the other aspects of employee ownership remain the same. They get with governance of the company directed the best interests of the employees, the employee owners, and you hopefully create a great culture, great place to work, terms of the companies, you know, again, it's I think at the end of the day, I think the typical median, this might surprise some people to hear, but the typical median EOT, you know, company, I think is over time going to look a lot like the typical median ESOP company, most easy, I mean, we hear about the large media, the large thinking of the large ESOP transactions, right, but that the, the, the median ESOP transaction is, I believe, a 50 to 100 employee firm, so, and that's that's the media, my typical client is about 50 to 100 employees, 10 to $20 million in enterprise value, and there's a good reason for that, which is, if that's, you know, what the typical small business that's large enough to turn into employee ownership looks like in this country, right? There's, there's the, they have, that's the largest volume in that in that company size, I think that hits most of your questions.

Kristin Toussaint
Yeah, and we'll hear more from Melinda Rick about this too. But of the companies you've worked with, Chris, is there sort of a story that sticks out about a company where this just made so much sense and really brought, you know specific benefits.

Chris Michael
I'm only going to point to Melinda and Rick for this.

Kristin Toussaint
Yeah, well, Rick, you, Chris just brought up the profit sharing aspect of EOTs, and you brought that up as well. Tell me, why that was so important for you and for your company to start.

Rick Plympton
Yeah, so in our region. And we're the Rochester, we're near Rochester, New York, the home of Kodak and Xerox. We have a lot of families in our region where the family retirement was in company stock, and you know, a lot of, a lot of ESOPs work out great, but sometimes having your all your eggs in the in that one basket can be a little risky at Optimax. When we ask our employees, do you want stock? Do you want shares of the company, or would you prefer cash share profit? Our employees have always chosen share the cash with us. So we've been doing that for years, and as we share 25% of our profit every month. We run the company Open Books. Our employees know what our revenues are, they know our expenses and how much money we make. And it's kind of funny, you know, when you look at small businesses, a lot of times the employees think that the owners are making out like bandits, but oftentimes the owners are just trying to keep, keep it going, stay in the game. So yeah, it's in addition to the profit sharing that we do. We have a 401 k program where we set it up so that anyone that's with us for their career for 30 to 40 years, they have a path to be a millionaire, and that's just, you know, with Optimax, we, Mike and I, my business partner and I started our careers on the production floor. We grew up blue collar, and so we wanted to create a world where every one of our employees has a path to a comfortable retirement.

Kristin Toussaint
Melinda, I saw you nodding a lot through what Rick was saying about hearing from employees and things like that. Tell me about how that resonates, even with a company that is that is smaller like yours.

Melinda Paras
Well, I think what you'll find with businesses that are considering employee ownership is that there's a strong kind of ethical and moral bent to who these companies are, that that just making profits for the owners, not the driving force in who the company is, and consequently looking at employee ownership is a very important piece to that, and I do want to say that the National Center for Employee Ownership is how we found out about EOTs, and I really want to encourage any business owner who's thinking about employee ownership to go to their conferences to see all of the different types of employee ownership that are there, and and be part of a community, because there really is now a community of of employee ownership companies. This issue about whether or not you get compensated at the time you're leaving the company, or you get compensated every year based on what the profits of the company are. I think is a big consideration for employees, and similarly our employees wanted to be compensated every year, and I've, I've spoken with HR managers at the NCEO conferences who have said to me, I feel really bad that the people were paying out are the people leaving. I wish that we could be giving those benefits to people who stay, that that staying should be the biggest incentive, because that's how you build a company, is you have employee loyalty, so you know we also created 501 I'm sorry, 401 k, a retirement plan, and did the highest employee employer match we could, and we built that from the beginning of the company, we, we gave the most expensive health insurance we could to our employees, just because those were our ethics, but it really is different now that the employees own the company, and in our company they meet at the end of the fiscal year and say what portion of the profits will go to be distributed to the employees and and what portion will be reinvested in the company, and I think that's a great way to build employee loyalty and keep the company operating for years to come.

Kristin Toussaint
Yeah, especially when so many companies are thinking about retention, right, and thinking about how to keep their employees engaged at a far off benefit. It can be a little less tangible to some people. And Leah, I mean, you're one of these employees. Tell me about what it's like to work at a company that that thinks like this and that includes their employees, about about that, and what that changes about your sort of long term view of the company and your role in it.

Leah Hamilton
Well, the profit sharing happens on a monthly basis, so you can see everyone rallying together to make sure that by the end of the month that we are, we're you know working together to have the biggest profit sharing that we can, and knowing that the company won't be sold, it creates this sense of psychological safety that, and the opportunity to continuously improve ourselves, our teams, and our overall organization, so we're. Together toward that success and rewarded each month, also knowing we're part of something that's bigger for ourselves and for the world.

Kristin Toussaint
I think that touches a lot on that long-term outlook that Ricky brought up as well, right? And I guess, tell me a little bit about just how that differs from other companies that only sort of have these, these short term goals, or how you balance the short term goals with with that long term view, especially in an employee ownership trust structure.

Rick Plympton
Is that to me?

Kristin Toussaint
Yes. Sorry,

Rick Plympton
I just want to, I want to build a little bit on what Leah said. You know, we've talked about our profit sharing, and I just want to point out that here at Optimax, we share 25% of profit, but we do it equally across a company, so the janitor gets the same monthly bonus check that the president gets, and we did it intentionally that way, where everybody gets the same amount, so that it reinforces team performance, working together as a team, lifting each other up, helping each other grow and become a stronger team, and stay focused on creating value for our customers. One of the other things that's really unique about forming an EOT with Optimax, we did, we created a perpetual purpose trust where the wishes of the owners or the founders could be specified in that perpetual purpose document, and once we once we did that, we and we put a block of equity into the trust, so that going forward, Optimax operates as a for-profit C corporation wholly owned by the trust. It was interesting that many of our key accounts, many of our largest customers kind of breed a sigh of relief when we shared with them what we were doing with the ownership of the company, because at over 400 employees they were kind of waiting for Optimax to be acquired by a bigger organization or conglomerate, and that could compromise their supply chain for many of our, for many of our customers, the lenses and the optics that we make are critical items that for their success, and so as they learned about our succession plan, and and that we would be owned by a trust, and we would never be acquired by anybody. Many of our key accounts have doubled down with us and reinvested more in their relationship with us, which is a beautiful thing.

Kristin Toussaint
That's so interesting, that that long-term guarantee helps even in the short term. It seems like,

Rick Plympton
yeah,

Kristin Toussaint
yeah. Now, I think it might be worth sort of breaking down those perpetual purpose trusts. Chris, do you just want to touch on, I guess, like how that fits in with an EOT, or how the two coexist?

Chris Michael
So, thanks for the tee up on that question, Kristen. So, that there is a little bit of talk about perpetual purpose trusts as well, and there was the Patagonia transaction recently, so really, aside from sort of reintroducing the employee ownership trust into the United States, I think our only sort of minor contribution here was to identify that we have this thing that's quite unique in the United States and US trust law called a non-charitable purpose trust with or without ascertainable beneficiaries. This is something I recognized in 2015 the credit really goes to Alexander Bobey, who's an attorney who was promoting this stuff back in the early 2000s and has a great article about it in Probit and Property, but when he was promoting the concept originally back in early 2000s there wasn't a talk about using a purpose trust for kind of social purposes, and I think our minor contribution here has been to identify that the purpose trust is a great vehicle for preserving businesses and dedicating their operations and the proceeds of the financial proceeds to social purposes. One of those social purposes might be benefiting the employees who work at the company, and so, whether you call it a perpetual purpose trust or employee ownership trust, doesn't really matter so much. An employee ownership trust, I would say, speaking quite generally at a high level, is really a purpose trust that is dedicated to the best interest of the employees. So that's to kind of, for any, any confusion around that point, hopefully that helps to clarify. Yeah,

Kristin Toussaint
I want to get a little bit into how these EOTs, like specifically, are structured. So, I don't know if Rick or Melinda, you want to start, just, you know, telling us how you specifically structured your EOT and what that looks like for the executives, the managers, and things like that.

Melinda Paras
Well, when we started this process, there weren't actually very radical changes in the way the company was organized. We had a management team, we had positions, a seat. CEO, and there wasn't really a need to make a big change. Now I know a workers cooperative is an alternate mechanism for an employee-owned situation, but I am kind of a believer, and there's a role and importance of a management team that helps to guide the company day to day, that that now in a smaller company you don't need as big or as complicated a management team, but certainly if you've got a company the size of Optimax, you need to have a group of people who are leading the company in terms of its day to day operations. So, really, the employee owned trust didn't make any changes in that. Now, our new leadership, since I am no longer the owner decided, since we're such a small company, to put all of the employees on the board of directors, which was not true initially, but now it's such a small group, and so the vote at the end of the fiscal year about what portion of the profit is divided among the employees is done by that board of directors, but honestly it hasn't made that much of a change in the operations of the company, except as Leah mentioned, when it's time to know what the size of the profit is and how it will be divided, there's a lot of interest among all the employees in paying close attention at that moment, but honestly, it doesn't really change your operations, doesn't have to.

Kristin Toussaint
Yeah, Rick, do you find that that's true as well, even with a company of your size?

Rick Plympton
Yeah, that was one of the objectives, as Leah mentioned, was, you know, as we transition to an EOT, we were really hopeful that we could preserve our culture with as little disruption as possible, and in our situation, just like Melinda, we chose leaders inside the company and elevated them as we transitioned to the EOT with respect to ownership, what we did is I gifted a block of equity to the trust, and then sold the rest of my equity back to Optimax, and the equity that's sold back to Optimax gets shredded, so that going forward the only voting shares are those shares owned by the trust, and that's how we gave the trust total control of the company. Now this is like peeling an onion. There's one of the really cool things about EOTs is there's a ton of flexibility, so there are a couple other vehicles or tools that we developed to provide longer term incentives for for our leadership team members, and one of them is phantom stock options that vest over a five year period, so select individuals are offered a block of phantom stock options, and it's to get them thinking not just about, you know, making profit this month or next month, but to think about workforce development needs, about equipment needs, that sort of thing on a longer time scale, and then those individuals that were elevated to the new board of directors, and there happened to be seven in our situation, we went from an executive team of four to a younger board of directors of seven, they were given the opportunity to buy Class B shares. Class B shares don't have any voting rights, but down the road they will have dividend rights. We've, we've never paid a dividend, but that's something that's in the parking lot for them to consider in the future, so a dividend might be an annual incentive for those board members, in addition to the monthly bonus plan that we have, so you can see how that just gets them thinking, you know, a little bit longer term than the monthly bonus,

Melinda Paras
we, we did something similar to what Rick did, not as complicated with shares, but we did create a process for the division of the profits, which was proportional to salaries, and what that meant is that the management team, who had slightly higher salaries, got a larger portion of the profits each year, but it meant that at the end of the fiscal year there was no dispute about how the profits would be divided. Once there was a set amount that was going to be divided, there's a process for how that. Gets done, and our company, the differentiation between the lowest paid employee and the highest paid employee is not very big, so this is not a huge difference, but I think the point that you might want to incentivize the management of your company in some way, because of the contributions they're making, is is reasonable, but There was a question that was posed about what happens after the notes are paid off, and the owners have been paid off by the company for us, because we had a 10 year payment plan, and the answer is that the proportion of profits is higher, because a portion of the profits each year has to go to pay the notes to the owners, once that those notes are paid off, then the profits are higher, and the employees will get more at the end of the fiscal year. So, there is an incentive for people to stick around for that higher payoff moment.

Rick Plympton
Yeah, I want to jump on that too. You know, when, when I give, when I sell my shares back to Optimax, we came up with a 15 year payback period, because we wanted to make sure we could do it without third party money, and, and so, while my shares are being bought out, the way a profit dollar looks, 25 cents goes to the employees, roughly 25 cents goes to pay down the equity, another 25 cents or so goes to Uncle Sam taxes state and federal, and then it leaves a quarter, you know, 25 cents for for growth of the business, and once my shares are paid off, there's going to be about 50 cents left over for growth of the business, so there's going to be some. It's a super robust business model, you know. Even, even though we're sharing 25% of profit with the employees, we give some to taxes, but at least 50 50% of each profit dollar to grow the business.

Kristin Toussaint
That's so interesting. I think that can also get into a little bit about the different ways that even even trust can can be right about what percentage of the company is is controlled this way. Chris, do you want to talk a little bit about the different just like forms this can take in, in that sense?

Chris Michael
Sure, I mean that I think that's ultimately a question more to kind of navigate with an advisor, but sure, you can, you know, employee ownership, you know, I would point again, and Melinda mentioned the National Center for Employee Ownership, I would point everybody in that direction, it's just the most fantastic nonprofit educational organization, go to their conferences, visit their website, call them, they're a fantastic source of information, and I always give, you know, the definition they give of employee ownership, or at least it was on their website at one point in the last few years. You know, employee ownership is ownership of some or all of a company by most for all of the employees, and so you know, employee share ownership could mean, you know, 1% or 5% of the company is broadly held by the, you know, most or all of the employees of the company. It could mean 30% 51% majority employee on up to 100% Another thing I just want to make sure we say out loud here before our time runs out today is, you know, none of this should be viewed, you know, ultimately as a kind of a contest between employee ownership trusts or ESOPs. EOTs are kind of the new kid on the block again, maybe in the US, ESOPs have had such a fantastic track record. I spent a few years of my life writing a 300 plus page book arguing that Aesop's are the best thing since slight spread when it comes to employee ownership, and this is really about the fact that we now have this alternative, which is still simpler and maybe more to some people's liking, or some people's preference, and you know, I should also add here, or maybe I'm jumping ahead of your questions here, Kristen, but this is an alternative available to in every state in the country. No new laws have to get passed, no new policy has to get changed, no policy has to get adopted, any small business in any part of the country can can do an employee ownership trust.

Kristin Toussaint
Oh, that's so interesting. Is there something then there about why they haven't been so popular before, especially compared to the UK, or why they're getting more attention now?

Chris Michael
Yeah, I love, I love, so we always talk about this giving public talks. I love what I think is the right answer to this question, also as a kind of, I guess, an academic, and another part of my life, and my dissertation was a history, history, historical in nature. I think, I think, in this particular case, I think Lewis Kelso and Patricia Hetter were a wonderful tag team proselytizing ESOPs, what was what were known as Kelso plans, since the from the 50s on, and ultimately the Kelso plan was introduced into federal law with the ESOP, and we just, even the Kelso plan was based on the. Federal law from the 20s, and so we just had this kind of tax loophole available that Luke Elso leveraged, and then the kind of whole cottage industry grew up around the ESOP in the 70s and 80s, and on, and at that point there's kind of like no looking, no looking back at that point, so You know, sometimes I say maybe it's kind of my vantage point generationally, sort of as a kind of in between Gen X and millennial, where I sort of was looking for the simpler option. There's so much complexity as it is in life, so, so, and I had no, you know professional attachments towards the the ESOP vehicle, and so it was just kind of looking at looking at the whole scope of how employee leadership has developed in this country over the last 50 years with fresh eyes, maybe in identifying an alternative

Kristin Toussaint
we talked about culture a little bit, that came up in some answers, but I want to hear more about, I guess, what that culture actually feels like. So, Leah, this sounds like something you could sort of weigh in on about what does this employee ownership trust bring to Optimex culture? How does that sort of play out, or how does that reinforce the things that were already present in the business.

Leah Hamilton
Well, first and foremost, you know, culture is dynamic, it's driven by values. We do talk about the profit sharing during the company meeting, but it isn't something that's talked about on the on the floor. That's how you know that it's working well, because it's not something that everyone is discussing, you know, looking at it from the perspective, looking at culture from the perspective of our values, so our values are trust, integrity, grit, unity, and respect. Now, those are very nebulous terms, we all have our own definitions of them based on our experiences, but just looking at the culture as a whole, we invited our employees, because ultimately, if we're talking ownership, it's about employee voice, so we asked them, What do these values mean to you, and there was a common thread throughout each of them, we created culture videos that you can find on our YouTube, our Optimex YouTube channel, because I think it's so important that to incorporate your values within these discussions to make sure that there is aligned behaviors and philosophies, so you know, I can tell you a story about how that that plays out. How you continue to build the culture, you know, there was this time when one of our employees, he had some physical limitations because of an accident, and some employee went out and brushed the snow off of his car. Now, we never would have known that this had happened if this employee hadn't sent an email to the company saying thank you for whoever, whoever helped us. So, you know, when we're looking at specific ways to drive this employee ownership culture, we now have shout outs to show appreciation that are aligned with those values. We have social events throughout the year that where people can can come together and talk about their experiences. We have organizational development opportunities where we're we're calling upon our employee employees to to again co-create those solutions that I mentioned earlier, and then training. I know that was something that was of interest, is we talk about culture in our on our onboarding, so we do talk about the profit sharing within that culture training and what that looks like, and how you can use again those values to help sustain this, this, this ownership culture

Kristin Toussaint
that you brought up a worker voice in that a lot, and I think that it's sort of important to address maybe a misconception with employee ownership that workers are driving all of the decisions, or having like the dominant voice. So, I'm interested in hearing, you know, from Melinda and Rick about how your structures sort of balance that employee voice with with the other needs of the business.

Melinda Paras
Well, I want to say, if you have a small company, and I really think EOTs are a great way to go if you're a small company, because they're just so much less complex to set up and to manage, but our culture has really been engendered by by the employees themselves, is that the culture of the company attracted certain types of people who who believed in social good and what the company was trying to create other than making money, and so when you have an. Employee base who embodies that culture. If you can create a succession process by which those employees get to stay and continue the work of the owners. If an owner has a vision and the employees engender that vision, then having the employees become the owners and the future is absolutely the way to go, so we don't have as complex a process. If you have 400 employees, you need, you know, a much bigger process to that. All of these employee ownership cottage industry that's arisen, people contact me and say, do you need help with the communications plan to explain your employee-owned trust to the employees, and I say, well, you know what, there's 10 people, and we have a meeting, and we explain it, and you don't need a communications plan if you have a small company, but I really believe that the culture is embodied in the employees and the leadership that you help build within your company, so that you, as an owner and a founder, can retire with some confidence that those values will continue.

Rick Plympton
Yeah, just build on that. For at Optimax, you know, we have a fundamental belief that most people wake up in the morning and they want to create value, they want to earn respect to their peers, and so we try to create an environment where we give them that opportunity, we provide them with the training, the tooling, and the information that they need to make good decisions every day, and we've really, we've made a lot of efforts to get away from a pyramid structure where it's top-down leadership, and we try to have organic leadership and provide opportunity for anybody in the company to come up with good ideas for improvement, because the reality is that the people doing the work in the offices and out on the production floor, they're the ones that are going to find the best way to drive cost out or to be more efficient, so we want everyone in the building to be engaged in looking for opportunities for improvement, which kind of goes back to our profit sharing. Our people know that if they can save $1.25 is going to end up in that bonus pool. Now, with regard to worker boys, one of the things that we've made an effort to do is to have small group meetings frequently throughout the company, where you know people can, you know, express themselves and share their ideas, and in addition to what happens every day here at Optimax, we have what we call Read to Lead, which is usually like a group of eight to 12 people that are getting together weekly and kind of reading through a book chapter by chapter. The book, it doesn't give the answers to what we should be doing, but it tees up conversation, and we can talk about what the what was said in the book, and then what's happening at Optimax in real time, and talk about maybe things that we could be doing differently to make our world better.

Kristin Toussaint
We've talked about a lot of the benefits, and as we sort of get close to the end, I want to also just touch on some of the challenges of making this conversion. And Melinda and Rick, I don't know if you can share sort of how long it took, or sort of if there were roadblocks you faced when making this transition for your company.

Melinda Paras
Our biggest roadblock initially was that we were trying to go down an ESOP path that wasn't going to work for us. Once we realized that an EOT was possible, I believe we completed the transaction in under four months. It cost us under $100,000 and I would say the, the only.. I don't think it was a challenge, but there was just some anxiety about feeling like we were very early in the EOT process, like I hope this is.. this is real. It seemed a little too good to be true, and so just a little bit of anxiety that way, that also has faced us in some of our relations, which is actually our biggest challenge, was with our bank. We had a robust line of credit, which for in our industry was very important, because a transition between when our costs are expended and when we get paid by our clients, a lot of our clients are hospitals, they're not notoriously good payers or fast payers, and so our line of credit was very important in terms of cash flow process, and our bank did not understand what any OT was, and our vice president that we worked with at the local bank was supporting us, was trying to get us through, but ultimately the higher-ups in the bank said, "We don't know what an AOT is, and it's not supported by anyone's personal collateral. So we lost our line of credit. Gratefully, in the employee-owned trust community, we found another company. Had found a kind of a more community-oriented bank in California, and we were able to move our banking there and get our line of credit reestablished, but also we were a minority-owned business and a women's own business, and the associations that give certifications for minority and women's own business did not know what an EOT was, and we actually lost our certifications for both of those, because even though the majority of owners were women and the majority of owners were people of color, they didn't understand what it was, and the people they send out to investigate your company and see if you're really minority owned didn't know what an EOT was, and consequently was the good news is at the end of the day that minority and women's own business certifications, frankly, in our industry did not particularly help us, so we didn't, we didn't actually lose anything material, but it was frustrating that the EOT concept is not well understood broadly, and so it's I think it's our challenge to try and change that, and and encourage others in the employer community to understand the EOT concept and make it more accepted in the US.

Rick Plympton
I share what happened with Melinda, with respect to the banks. It's, I don't care where you are, bankers don't understand what an EOT is. For us, you know, we wanted one of the tenants of our perpetual purpose to be never sell the company, and when we told the bankers that, they're like, no, no, no, you can't do the trustees have to have the option to sell the company if things become insolvent, and so we did, we put a clause in the very back of the document where if for some reason Optimax leadership doesn't pivot with the market and it becomes a company that's just loaded with debt and no path forward. The company could be sold, debtors paid off. Any proceeds that are left over would be shared with nonprofits in our community, where no nonprofit can get more than 10% and and we created that clause so that no individual could ever profit from the sale of the company. So that's how we dealt with that issue, but to go back to one of the other problems that we had, you know, when you look at succession planning, the easiest thing for a business owner to do, a small business owner, is clean up your financial, sell to the highest bidder. We, you know, we didn't want to do that, because we know with this unique culture we've created here, any conglomerate or bigger company that bought Optimax would just crush our corporate culture and what we've built. So I was actually looking at creating a nonprofit parent company and having Optimax owned by a nonprofit until I was giving a presentation at the National Conference for Employee Ownership about our corporate culture, and Chris came up to me after the presentation, said, "Hey, I think I've got an idea for you, and started telling me about EOT. I was like, "Oh my goodness. We went out to dinner. I was like, "This hits on all cylinders. This is really awesome. So that was really great.

Kristin Toussaint
Yeah, Chris, is there.. is there one you want to add on there about the potential roadblocks the company could face, and how to be prepared for this.

Chris Michael
I think it's not particularly.. it's actually fairly straightforward. I mean, Rick and Melinda have those experiences with the banks, that hasn't been the case, you know, with all of my clients by any stretch, and you know we can do an E, we can close an EOT transaction in two months. I mean it can be pretty straightforward, actually. And you know, for those who don't know, you know, employee ownership broadly speaking works in all kinds of industries. You know, you hear Melinda here with 10 employees, Rick with close to 500 It's, it's a robust approach to selling your business as a fantastic success and strategy, and yeah,

Kristin Toussaint
so if there's not those, like you said earlier, sort of policy challenges to making this more widespread, is it really just then about education, like, like with letting them know that this is a thing?

Chris Michael
I think I think it absolutely is. Again, you know, we only kind of brought this to the sort of reintroduce this to the US about a decade ago, and the first couple of years are kind of testing out the concept with a few companies, and we're just starting to now, about 10 years in, get traction to the point where we're having a forum like this to discuss the employership trust, and and CEO so graciously. I updated all of their website materials about two years ago to include employee ownership trust as a major approach to employee ownership, or a major option for employee ownership in the United States. So, think it really is about building awareness, and I think that there's a great growth period ahead for us in the United States. Think it's also important to note that we're not starting from scratch here, we've got 50 years of successful employee ownership successions through the ESOP, and so we're really building on a fantastic foundation with the ESOP.

Melinda Paras
Can I just add two things about the challenges I do want to distinguish that I don't think succession planning is the same as the employee ownership issue. I think succession planning is really a question of leadership, and you know, in my, my past organizational lives, I've often had a deputy director or chief operating officer, and they, they kind of can move into the position of CEO easily, but that's not always the case. And I really want to encourage any business owners who are thinking about selling their company to think about succession planning in its own right, about if you plan to retire as an owner, who will be leading, and how will they be leading the company. The second thing I wanted to mention is about the financing, because our original owners, that's what we call them, the original shareholders, were not interested in a big check immediately, because a lot of theories are when you sell your company, suddenly you have a, you're sitting on top of a big check, and then you, I don't know, buy a new house, do something. We have built the company over many years, and we're very interested in it continuing. We wanted the employees to be able to own the company without having to put money in. I think that is a huge element to this, because when, when you say, well, the employees own the company now, people say, well, how much did they have to pay, and the answer is it can be nothing if the owners are willing to be paid off over time. Now, this presumes you have enough profit to pay off the owners and still be a successful company, but if the owners are willing to take a note for whatever the value of the company is, and I'm talking about a real value, it doesn't have to be hugely discounted, it can be an industry standard value, if you're willing to be paid out over 10 years, 15 years, the employees can own the company without having to put money in, they have built the company with their labor, so I don't view it as a, as a fake transaction, I think they helped create our company, and so I don't feel like, oh, I feel bad, they, they didn't have to pay. I'm glad that they could own the company and just own it with the work they've already provided, the work they're going to provide in the future. So I really think the transaction financially does not have to be complicated, I

Kristin Toussaint
Rick, I don't know if you wanted a chance to sort of respond to that, especially the idea about succession is interesting, because Melinda, Rick, you stayed on, so

Rick Plympton
yeah, that's a good point, Melinda,

Melinda Paras
Rick's not as silver as I am,

Rick Plympton
you know, one comment I was gonna make is, you know, we, we found this as part of our succession planning, but you know, we were already close to 400 employees. I wish we had found this when we were 20 or 30 employees, because the EOT is so simple, and it's not very, it's not very costly. The annual maintenance is, I like to think, in log scale, it's more than $1,000 but it's not 100,000 a year in expenses. It's on the order of five to 10k for the annual expense to maintain the EOT. Where, if you know, if you're doing a co-op or an ESOP, I think the expenses, annual expenses, can be a little bit higher than that. But I'll share with you a sound bite that I like to share with our local politicians. Optimax was founded in 1991 so we just celebrated 30 years in business. In the first 30 years of Optimax, we did $500 million in business, and roughly half of that, two $50 million was shared with our workforce through payroll, benefits, and bonuses, and they go out and they spend it at, you know, the auto dealership or the supermarket, or whatever, whatever they want to save a little bit for retirement in the next 30 years. With our current growth plan, Optimax will do over $5 billion in revenue, and roughly half of that will be shared with our workforce, and if we can get another 10 or 20 companies in our region and our community that convert to EOT, we've already got one more that's done it, and a couple more looking at it, but if we can get 10 or 20 doing it, we can really strengthen the entire economy here in our region and create financial security for many, many families, and that's what that's really what it's all. About

Melinda Paras
that's what it's all about.

Kristin Toussaint
I love that. That zoom out, I think that's a great place to pause for our talk. And I'm going to switch to some questions from the listeners. I know that a lot are coming in, and we've got about 15 minutes left. This first one, Chris, is just to ask a little bit about some of the deciding factors to determine whether an EOT, a cooperative, or an ESOP is appropriate, and also, can they ever be combined? Can you ever have an ESOP and an EOT?

Chris Michael
I think that just comes down to the preference of the seller. I think we don't have time to get into all the ins and outs of it, but talk all the NCO again, touch with some advisors, and they should be able to walk you through the selection process and see what's a good fit for you. You can combine these approaches. Some, I mean, the largest, I would, you know, I sort of, I typically say that the largest worker cooperative in the world is actually an employee ownership trust. They don't brand themselves as a worker cooperative, but it's the flagship EOT in the UK, John Lewis Partnership. It's everybody's a partner on the first day of working there, and it's one worker, one vote to elect the governance of the governing body of the organization. Again, they don't brand themselves as a worker property, but they use the EOT structure to create a working property. Alternatively, you could, in principle, have a company that's a 51% EOT and a 49% ESOP, or you could have 100% EOT that layers in, you know, you know, equity sharing with the employees in a way that's not a retirement program, but is still sort of gets you some of the features of gain of capital gains that ESOP advocates often like.

Melinda Paras
One of the reasons that people will choose an ESAP are some of the tax advantages, and I think people in the EOT community are really hopeful that through wider understanding of the EOT as an option that some greater tax advantages can be directed to the EOT process, because that's that is a distinct advantage to an ESOP, is as the tac tax advantages that are offered

Kristin Toussaint
that can easily get very in the weeds if we go super into taxes, but Chris, is there anything you just want to add about where people can hear more about those tax advantages, or what the differences are?

Chris Michael
I don't think I'm supposed to plug myself here. Contact your advisor and your advisors, and call them CEO, and anybody should be able to walk you through a clear and objective and partial sort of, you know, laying out of what the actual tax differences are for the ESOP, as opposed to the EOT, also worth mentioning that you know, taxes have there's no such thing as a free lunch, taxes do get paid with an ESOP, and so I think it's, I think if you, if you walk through it carefully, there might not be so many differences, I think EOT tax differences often work as kind of a sort of smoothing function on the transaction rather than some kind of, you know, big wad of cash that, that you know, the IRS is going to let people have access to.

Kristin Toussaint
All right, this next question in the chat, you both touched on this a little bit, Melinda and Rick, but this is asking if you can talk more about the costs of transitioning to an EOT and what a deal could specifically look like.

Chris Michael
This is for me.

Kristin Toussaint
Well, for anyone, yeah, I guess Chris, if you want to, you probably do broader view than what Melinda and Rick already shared.

Chris Michael
I think people typically price - I often say for this, that you know it's people typically price an ESOP transaction. Installing an ESOP can be at the floor, maybe 250 to 350 K, and I think an EO Transact, EOT transaction might be sort of a fifth of that, 20% of that, a quarter that maintaining an ESOP can be 50 to 100k a year, and again maintaining an EOT could be 20% to a quarter of that annually. That helps answer the question. Again, this can take as quickly as two months. A lot of my clients often will take up to six months, or maybe longer, because they want to sort of go at a leisurely pay a leisurely pace, but it can move fairly quickly if everyone's ready to go.

Melinda Paras
Transaction to create an EOT is you need a legal advisor to draw up your paperwork and help you work through these issues, and you need evaluation. Those are the two main costs. As I said, ours was accomplished at under 100,000 I think a big area of difference is the ongoing costs. What I see about ESOPs is that they are spending 100 to 200,000 annually, because their stocks have to be continuing, there has to be continuing valuations that are done, the process is complicated enough that perhaps they need communications advisors to help them explain, and for employees to understand. There's just a lot of costs associated with an ESEP that you don't have with an EOT, so I think it's not just the startup costs, it's really the ongoing costs that I found kind of difficult about going the ESEP route.

Rick Plympton
Yeah, I'll just share that, you know, Chris, Chris really got me on the EOT path, and then I found a local attorney that was very experienced at corporate law, and just his natural behavior, he's half lawyer, half professor. So, when I told him about EOTs, and that we were looking at doing this, he got really excited and jumped right in, helped us develop the founding documents that we needed, and the bylaws, but we also, we also had to work closely with our local banks and our accounting, our accounting firm in order to do some forecasting and make sure that we understood the finances and had some realistic projections of how it would play out.

Kristin Toussaint
There's some other questions here about more about the trustees, how they're chosen, what role they play, and how are they held accountable. Rick, do you want to start with that?

Rick Plympton
Okay, anybody that knows how to hold trustees accountable, let me know. I want to talk, so what we've done, we have three trustees, my business partner and I are the two trustees, and then the third seat is filled by a member of our board of directors, and so that seat is an individual that represents the Optimax workforce at the trustee level, and so that's a really important seat going forward, that it's always there, so that we have employee representation at the trustee level for us, as, as Mike and I age out, and you know, we want to step away, we need, we still haven't figured out yet, but we need to decide how we choose somebody to fill the seat that we're vacating, you know what's obvious. We want somebody that understands our corporate culture. The role of the trustee is to defend that perpetual purpose trust document that's written. Trustees have nothing to do with the operation of the business; their sole responsibility is to defend that trust document, so it's a very narrow role in terms of scope, but a very, very important role,

Melinda Paras
actually. Our trustee is Chris, and I can say what his function is. As Rick said, it's defending the role of the trust, so he conducts an annual audit to make sure that that the leadership of the company conducts with him to make sure that the company is continuing to execute the goals of the trust. Did you, did you have profits? Did you distribute the profits to your employees like that? And that's how our trust is protected. And then also Chris had an idea to create a trust protector position, which is myself, and that any future potential sale of the company would have to be approved by the trust protector, so that kind of, I know Rick mentioned about how they kind of organized in their, their, the execution of their, their change to keep the company from being sold, but we allow that to go to the trust protector, so, and similarly, if the company is not able to financially survive anymore, the assets are divided among nonprofits, but then, as a trust protector, I could say whether or not that's that's really true, or if the employees wanted to sell to another company, I could potentially veto that.

Kristin Toussaint
All right, this next one we sort of heard a little bit about when Melinda, you talked about, you know, this wasn't something that the employees paid for specifically, but this is asking about more about how EOT transactions are typically financed, so I guess Chris, this is probably for you, and if you know today's high interest rates affect maybe the market value of founder takes when making that transition or anything like that.

Chris Michael
Well, I, this is a great question, um. Um, you know, again, I would say we've got such an amazing track record with the ESOP over the last 50 years, and you look at NCEO survey data, and it looks like I think a majority of, you know, employee ownership transactions today, ESOP transactions are seller financed, 100% seller financed, and the balance are 60% seller finance with maybe 30 to 40% bank financing. That's for larger companies often that can obtain the bank financing. So we have this fantastic track record of business owners seller financing transactions, and often works out to be in the financial interest of the seller, and that might take some time to walk through, but it's in the financial interest of the seller to provide that financing, and so you know, with EOTs, I've talked to clients and potential clients about going to banks or going to outside sources of capital, but for the most part, folks aren't interested, they've, they've already kind of groped that seller financing is a great way to go, and that's kind of why they're speaking with me in the first place, and that's why they're exploring the employment of option the first place, so sure there, I sort of keep in, I'm keeping an open mind about the potential for sort of financing using bank financing or outside capital, but I don't want that conversation to get too, too far away from the fact that seller financing is the way that this is employee ownership successions are done, and it works great.

Kristin Toussaint
Okay, this next question touches on just timelines for this, I mean, Melinda and Rick, you both talked about, you know, transitioning to an employee ownership trust later on in your business, and this is asking again, Chris, this is probably for you, as it's a little more broad, if there are challenges or opportunities to, you know, having the structure from the beginning of a company versus converting later on,

Chris Michael
I would say based on my research and firsthand experience, I really think employee ownership is for mature companies as opposed to startups.

Kristin Toussaint
Interesting. I mean, Miller, is there more to expand on that?

Melinda Paras
Well, I'm not saying it's not possible to go that route, but my experience is that there's an entrepreneurial spirit that a founder of a company, or the founders of the company, have that, that well, I guess Christian, one of the things you study is capitalism, but I guess that's part of the nature of capitalism and that entrepreneurial spirit can help drive and build a company. I think as entrepreneurs build the company and they build a relationship with the base of employees who help them build that company. I think it makes more sense as a, as an exit plan for the silver tsunami, because there are so many people who are now looking at retirement and want to sell their businesses and don't want to sell it to a competitor and see their company gutted, and I just think it's a great option for a large number of companies that are looking at that, so I guess it's possible for a startup, but I don't know if that kind of mucks with the entrepreneurial engine of capitalism. It might.

Rick Plympton
I view employee ownership as an evolution of capitalism, and so to that extent, let's, let's have everybody, you know if we've got some people that are just forming their companies and they want to give it a try, do it. Let's see what happens. I know for Optimix this is a wild journey that we're on, and there are days we feel like we're walking blind through the woods, but it's been working out really great for us.

Melinda Paras
Well, actually, all of our original core of our company were shareholders, so I do want to say actually it was kind of employee owned in its initial stages. It was really just as expanded that that became a question.

Kristin Toussaint
Yeah, I love that idea of why not try, right? We have to change something about about where this is all going, and then I think that that's really our time. Thank you all so much. Yeah, no, thank you all. This

Maureen Conway
has been an amazing conversation. Really appreciate you all digging in, sharing all your experience, and really thank you. So, thank you, Kristen, Chris, Melinda, Rick, Leah, and thank you so much to our audience, what an amazing conversation in the chat, too. So this has been just a really, just an exciting conversation, and really thrilled that everybody could join us today. And thank you all so much for your, for your leadership in this space, and all the work that you do. I know I was really impressed with everybody's, everybody's comments today. Stay tuned, every. Everybody, this is not the last in our Opportunity in America series. Next up, on november 15 at 2pm Eastern time, we'll be talking about unstable schedules, unwrapping the impact on service workers and important issues. So, please join us for that conversation, and I want to take a moment to thank my colleagues who do all of such hard work in bringing these sessions together, so huge thanks to Matt Helmer, Maxwell Johnson, Colleen Cunningham, Amanda Fins, Maya Smith, Merritt Steuben, Frances Elmar, Cinin Young, Bryn Morgan, Tony Mastria, and Nora Heffernan. Thank you, guys, all so much. You guys do great, great, great work, and really appreciate all you do. And any feedback, please remember, please fill out the feedback or send us an email at EOP dot program at Aspen institute.org We love hearing from you all, so let us know what you think, and hope you'll join us all again soon. So, thanks

EOT Advisors Interviewed for Ethical Exits Podcast

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EOT Advisors at the Aspen Institute

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