Hosted by Timothy Henry and Raj Sisodia, this episode of “The Conscious Capitalists” podcast features Miren Oca, founder of Ocaquatics Swim School, board member of Florida for Good, and founder of Ripples of Impact. Oca shares her journey from aspiring physician to entrepreneur, explaining how leadership development, employee well-being, and a strong organizational culture fueled the growth of her business. She discusses transitioning Ocaquatics to an Employee Ownership Trust (EOT), broad-based employee ownership, open-book management, financial literacy, and conscious capitalism, arguing that investing in people creates stronger businesses, lasting community impact, and a more meaningful legacy than traditional shareholder-focused models.

TRANSCRIPTION

Miren Oca 

So about 14 years into my journey is when I thought, okay, am I gonna go med school or am I gonna build a pool. I really, really enjoyed teaching swimming, but really teaching teachers and building people, and I found a little hotel pool, and I thought, oh, I'll just get this little pool, and I hired a person, and then I hired another person, and I really started to like hiring people. I had to learn to lean on people to help me survive, but I think that so many other people don't realize the value in building people, the value in focusing on leadership development, the value of investing in your culture. If more business owners did that, I don't think they think of it as an investment, they think of it as an expense, and really it is an investment that pays dividends.

Timothy Henry 

Hello, everyone, and welcome to this week's episode of The Conscious Capitalists, with myself, Timothy Henry, and my partner in making the world a better place through business, Raj Sasodia. Hey there, Raj. Hey,

Raj Soia 

Timothy, good to see you again. You might notice I'm wearing a collector's item here. You know, if you remember our Bentley conferences every year, I've known

Timothy Henry 

you were wearing that. I wore my blue one yesterday, just so you know. I have my CCI one from the very beginning days. So, yes, indeed, 17 years, hard to believe, hard to

Raj Soia 

believe, you still have a few in the garage, you know, so pull them out,

Timothy Henry 

yeah. Well, today we have a really cool guest, she's an exemplar of both conscious leadership and how to build a really conscious organization. So, I'd like to introduce you to Miren Oca, a board member of the Florida for Good, and founder of Ripples of Impact. She's the owner and director of Ocaquatics Swim School, and she founded it in 1994 locally owned, community involved. She has five locations, and they have 6500 swim lessons a week, so multiply that by 50 plus weeks, and you get a lot of swim lessons. And I was just blessed in September to be in Miami and have an opportunity to tour one of her facilities. All I can tell you was that it was an amazing experience when Miren walked in, and the energy was just like the people were bound, it was just amazing, and I completely understand why parents are immediately like, "Oh, I want my kids to go here, all the way down to it was raining, and they had a gentleman at the front door who was an umbrella was walking parents and kids to their cars with an umbrella in the pouring rain, so just an amazing, an amazing accomplishment of what you've built, Miren. So, lucky to have you here. Welcome.

Miren Oca 

Oh, thank you so much. That was really a nice intro, and I'm thrilled to be here. Thank you for having me.

Timothy Henry 

You're an important part of our community. And why don't we start with maybe the backstory, because you know it's not every day that we have unconscious capitalism a swim school, but little do you know that the swim school industry is a much bigger industry than we might otherwise think.

Miren Oca 

You're right, a lot of people don't think of this industry as a large industry, and you have actually spoken at the International Swim School Association in Dubai, so go figure. Dubai. So I started this business. I'm the founder of Ocaquatics. We started in February of 1994 but I had never planned to go into business. So my parents were immigrants, and my father was from Spain, and my mother is from Cuba, and they moved to the United States, and they opened a restaurant, and I watched them work 24/7 I mean, they worked every day, all the time. There were many days that my brother and my sister and I went to sleep at the restaurant, you know, under the desk with tablecloths, and it was just one of those things, I watched how hard they worked, I watched they did not build the proper systems and the proper, you know, they just didn't have the culture that maybe would have helped the business survive, and really it was hard, it was so hard, and I learned one thing, or I learned two things from watching them, I learned work ethic, and I learned that I never wanted to go into business, never. I wanted a good, safe, secure job. I wanted to go and be a doctor. I wanted to go to med school, so I earned a scholarship to attend Tulane University in New Orleans. And I was the biochemistry student. I was dreaming of med school. I was ready, you know, excited for my journey, and I got pregnant in college, so at the age of 19, I find myself pregnant, and I wish I could tell you that I was really grateful on that day, but I wasn't. I was, you know, super ashamed, super stressed. I had no money. It was a really tough time, but I decided, you know, I'd move to Miami to be clear. Was for my family, and I opened this little business to teach swimming lessons, just to get by, and it was completely out of necessity to feed my son and myself, and I thought I'll go to.. I got my degree, but when I graduated, my son was 18 months, so I thought there's no way I could go to med school with a toddler, so I thought I'll just go to med school when he's older, and now he's 33 years old, and I never went to med school, so you know how life goes.

Raj Soia 

Were you like a champion swimmer or something? Like, why swimming?

Miren Oca 

I was on the swim team, and I went to Tulane. I had a partial scholarship, and I wanted to, you know, swimming is what I knew, and I knew that I loved teaching swimming in high school, so I thought this is what I know how to do. I can, I can rely on that, and, and I liked it. I really, really liked teaching swimming. I loved working with the children, and it was just fun. It was really fun for me. So, so that's how I decided to do this. That was all I knew how to do, really.

Timothy Henry 

And just to add a little bit to the flavor, that I mean, 6500 lessons a week, you need to have systems in place, you need to have management, you have five locations, you know, you're partly in the real estate business, because you got to find the right location, you've got to often convert it, you know, some have pools, some don't, and you know, so it's a much more complicated thing than just, oh, I'm gonna do swimming lessons, so right. You grew, you grew the business significantly. Was there a tipping point where you suddenly realized this is something that I can really, you know, make a good go out? This is this is something that I'm going to be a long-term commitment to, because I can see multiple, I have a vision, multiple locations, and lots of people.

Miren Oca 

Yes. Well, it started, you know, I was just going to homes, backyard homes, and teaching swimming lessons, and so that's how I started. And then I found a little hotel pool, and I thought, oh, I'll just get this little pool, and I hired a person, and then I hired another person, and I really started to like hiring people. I think you know, I had to learn to lean on people to help me survive. So, I think that's what really became the foundation of what we built later on. I didn't know it then, but that's what really helps us today, is that we lean on people, we build our people to build the business. And so, you know, over the years, I found a little pool, and then I got kicked out of that pool, because our business was growing, and then I found another little pool, and I got kicked out of that pool, you know, these were hotels, or country clubs, or private schools, and one day I decided, if I'm really going to do this, I need to build, so about 14 years into my journey is when I thought, okay, am I going to go med school or am I going to build a pool, and I decided I'm going to build a pool, I'm going to do it. I really, really enjoyed teaching swimming, but really teaching teachers and building people, and that's when I really started that leadership development. That's when I started all those programs, and that's that's when we built our first pool, and I actually read Delivering Happiness by Tony Hsieh, and that is what helped me see, you know, I've got to put culture in place. I really need to define our culture and write it down, and, and really get it solidified, and that's where I think the rest of it is history. You're, as you know, just kept going,

Raj Soia 

you know. You said gaming on people and developing people. It just reminded me I was in St. Louis yesterday, and Bob Chapman from I wrote "Everybody Matters" We just launched the 10th anniversary edition, and it happened to be a combination of his 50th year of completing as a CEO, the company being 140 years old, right, and, and now having acquired about 150 companies, but it was always about the people. I mean, he just trusted people, and he said we measure success by the way we touch the lives of people, and the business is sort of the financial engine that allows us to do that, and it feels like so putting people at the center, and even the industry, or whatever it happens to be, revolves around ultimately uplifting and giving a better life for people. I think that seems to be your driving passion as well.

Miren Oca 

It does, and it makes so much sense, you know, when we have this conversation, and we talk about Bob Chapman, and I mean, he's a man, you know, he's a mentor that he doesn't even know he's a mentor, because I've just read the books, and just like you guys, but I think that so many other people don't realize that the value in building people, the value in focusing on leadership development, the value of investing in your culture. If more people did that, if more business owners did that, I don't think they think of it as an investment, they think of it as an expense, and really it is an investment that pays dividends. So I, and Anne, I wonder if I came to this because I was never meant to be in business, and so you know, when I first had my son, I thought I got to figure this out, let me go to the bookstore. And libraries, because I couldn't afford the books, so I would sit in those stacks and read the books, and I would read about Jack Welch, and I would read about, you know, business, and I thought, that's not the business I want, that's not what I want to do, and so maybe because I didn't want to be in business that way, I did it differently, I don't know, but I am so thrilled the way my life has worked out. I mean, it has been the most fulfilling and satisfying journey that came from that detour in my life. And you know, I'm just so grateful the way it worked out.

Timothy Henry 

And when you talk about the culture, it's really important for us to understand that your business is kind of unique. On the one hand, you know you've got the whole maintenance and logistics management, you've got the people at the front desk, you've got the marketing and all that, but your instructors come and go, right? I mean, they're young people, for some percentage of them, this is a part-time job they're going to do for a while now, some of them I saw obviously get bitten by the Mirren Bug, and then they stay and they go grow, but talk a little bit about the challenge of building a culture where the business naturally has a sort of turnover and a rhythm of turnover at the front line. How do you manage that to keep the culture alive when you've got that, and just give us a rough idea, roughly what percentage would naturally turn over in a given year.

Miren Oca 

Well, I think the swim school industry is like any other business that hires young people, and I think they really do. There is a lot of turnover, and I think we used to have a lot of turnover, and once we once I decided to build an indoor pool, and then I started developing people, and people could see a career path. We always called it their career path. More people started to see the other thing that we had is we had, we have boomerangs, which they stay with us, they work with us in high school and college, and then they leave to get their real job, but then they come back to us, and our goal is that 100% of them come back to us, either to work with us, or as parents, or with their neighbors' children, or with their cousins, and their nieces and nephews, and things like that, but as we started to develop people, I realized I needed to keep building locations, because I had more people, more leaders, so that's how I built number two, and then you know, number two, honestly, I was just driving to a warehouse to pick up pool supplies, and it was, they were getting evicted, and I thought this would make a good, good swim school, so I looked at that, and that became our next location, and then you know, the same very similar things happened with number three, four, and five, they were really, really lucky incidents, but you know, I was ready for it, because we had built the people, so because we had built the people, when these, these opportunities came in front of us, we could continue growing, so it really was, it's been very, very great, so

Timothy Henry 

I can't emphasize enough the feeling of walking into one of your facilities, just the joy and the happiness, and the, and you know, it was just so palpable, and then you, then we went, and we watched the kids in the pool, and besides the kids being all happy and laughing, the instructors were smiling and warm, and it was just an amazing testament to the benefits of building a really strong culture, and you also mentioned that you started to develop leaders. So, tell you a little bit about that journey of like building the culture and building leaders that fit with the culture. How did you think about that challenge?

Miren Oca 

So, I couldn't take people to a place I hadn't been before, so I find myself as an early 20 something year old trying to learn how to run a business and how to be a leader, so I really needed to learn leadership development for myself, and so I'm reading all these books, I'm a huge reader, and I am studying, and I'm thinking about all these things, and then I start putting little classes in place, and I start putting little workshops in place, and we started doing lunch and learns. We have a leadership book club that we've had, probably for 18 years, and we read two or three books a year. And so those are the things I did them because I was doing them for myself, you know. And I mean, I was in my early 20s, I was making lots of mistakes in leadership. I didn't know what I was doing, but those early learning moments - Gary Ridge talks about mistakes as learning moments - those early learning moments helped me give grace to my early 20 something year olds that work with me now, and I know that they can get better, they can learn. We just have to put the right tools and resources in front of them. So, we do a lot of lunch and learns, we do a lot of, a lot of events where we, you know, we little retreats, where we do, and our leadership is not about how to teach a better backstroke, it's about emotional intelligence, it's about teaching empathy, it's about teaching listening skills, and how to have difficult conversations, we. Have all of those kind, you know, it doesn't have anything to do with swim school specific. We talk about conscious capitalism, and that's why I think when you visited, it was really funny. I promise we did not plant this, but one of the managers walks around the corner with her computer, and a big conscious capitalism sticker is on the cover of her computer, and then that location also had a conscious capitalism sticker on the refrigerator, I couldn't have even planned that, so it was perfect, but they're learning these things, and I'm giving them these tools, and they're putting, they're using them, it's a good reminder,

Raj Soia 

Miren, I think the magic of conscious businesses is the founders' energy is brampable in them, and you did not have the downside of a formal business education, which would have taught you all the wrong things, right? We were able to come into it fresh, right, and with just a human lens. And then I was starting to see what I lovely phrase I just heard today, the unrealized potential of capitalism, right. We leave so much on the table because we make it about these little narrow things, and the numbers, and so forth, and, and I like to say, in my business education was all about the head and the wallet, we left out the heart and the spirit, right, and that's I think what you brought naturally to it, not knowing that you're supposed to check that at the door and leave it at home, right, and I think that's that's a big part of the power of this, either the other thing I love about this, your story, you know, is universalizing the idea of conscious capitalism. It can work in any industry and in any size company. It's not a luxury good that you can only afford after you attain a certain scale or in certain sectors, you know. So, I think in that sense, it's a beautiful illustration of the fact that anybody can do this.

Miren Oca 

You know, I love that you said I didn't have a traditional business background, because I think you know traditional business leaders and, and professionals, and you know, owners are taught to chase ROI, or taught to chase return on investment, and as impact leaders and people in this space, we know there's something more than just the numbers, and for me it's really important to think about the ripples of impact. I have a nonprofit that we call the ripples of impact, and it's ROI, it's redefining ROI for business, and it's about the choices and the decisions you make, and I have a pebble on my desk, because it's about the pebbles you make, you, you have, you drop every single day that create those ripples. Those are the choices you make in business, and all the different choices we make create these ripples that go on. You might not even know what they look like years later, but now 31 years later, I see a lot of ripples coming back to us, and it's really a cool thing, and it's because we dropped these ripples, or these pebbles, a long time ago. So one of the biggest pebbles that we use at Ocaquatics is personal financial literacy, and so we teach personal financial literacy to anybody who wants it, and it has been a game changer. You know, I got a phone call yesterday from one of our team members who was visiting a home, and she said this is the one we make an offer, and she called me to tell me they were making an offer on the home, and it was because she had taken our courses, she had saved the money, she had a down payment. That gives me chills, you know. That's just, yeah. And that's a pebble. It's a pebble that we did a long, long time ago, but it just creates these ripples. Now she's creating ripples in her community, her team members, and everything. So, and then the personal financial literacy, I mean, selfishly, for the business, it's great for the business, because once people get confidence in their personal financials, they can understand business concepts better, and so we produce, you know, open, we can introduce business concepts, and that led to open book management, and we've done open book management now for about four years, and that's been amazing. I mean, our team members understand how much money we make and how much we pay to labor. You know, 50% of every dollar goes and goes towards labor, and you know how with the difference, the with how we make decisions and how we do increases for pricing and how we do increases for play. They now are part of that, and that we did that before we became employee-owned,

Timothy Henry 

so Miren, you know, you bring up the idea of employees and employee ownership, so let's go explore that for a moment. You know, that pretty big decision, because I know that you had been thinking about it for a while, and then you explored lots of options. What was that journey to employee ownership like for you, where was the spark, and what are the lessons learned for some of our listeners who might be interested in hearing a bit more about it? So, what was the spark, and what was the process like for you?

Miren Oca 

You know, I was just building this business, things were going really well, and somehow we were, we were doing very well financially. And we were also getting some, you know, attention in the media and things like that. We were a certified B corporation. We became the first swim school on the planet to become a certified B Corp, so we got a little attention in Forbes magazine, and we got a little attention in different things, and somehow I think we got onto private equity's radar, and they started, um, calling, and honestly, the first meeting I ever had with three gentlemen at one of the pools, I didn't even have shoes on, because they came early to the meeting, and I was on the pool deck, and I didn't even know what PE meant, I just didn't know, you know, it was, you know, it was a long, it was 10 years before I even started thinking about all of this, and I thought, you know, then I had some other phone calls, and some other people, and I started to think, you know, I guess I need to think about the succession plan. What is going to happen with this? And the first thing I did is I went to my son, Ian. You know, my son had - he was the reason why this business existed. So I went to him. He had worked in the business for 14 years, and he was amazing, and he had chlorine in his blood, and he would have been a natural fit, but he didn't want it, you know. This was not this was my business, not his. And so, you know, he told me, "I want you to do something else with the business, and so I thought, "Okay, I will sell it to my employees, and I started looking at this DIY. I'll sell it to these five employees, or I'll sell it to the executive team, or I'll see who, and I realized that wasn't what I wanted. I really wanted broad-based employee ownership. I wanted the custodians who had been there for 15 and 16 and 17 years to enjoy ownership as well. And so I looked - the first option I looked at was a worker cooperative, and I explored that, and I really thought it was interesting, very interesting model. I spoke to a number of worker cooperative CEOs, and then there were some reasons why it wasn't going to work for us. So then I looked at an ESOP, an employee stock ownership plan, and it was something that I thought was perfect. It was a perfect fit, and I hired an attorney, I did a valuation, I did a feasibility study, and we were on our way, and I was very excited about it. And then I found out about New Belgium Brewing, they were a certified B corporation that was an ESOP that had sold to private equity, and I thought, wait, how did that happen? You can't sell, what is that? So I realized that the trustee of an ESOP is a fiduciary, and they have to sell to the highest bidder, so you know the ESOP could be sold, and I really wanted something to protect our mission and our purpose and what we had built over the time, and that's when I found the EOT, and the EOT is an employee ownership trust, it is the primary form of employee ownership in the United Kingdom, but there were fewer than 50 in the United States when I did this transaction, and it uses the same perpetual purpose trust model that Patagonia used for their transaction when they exited and moved it to the beneficiary, is the environment, in our case, the beneficiary are the employees, the beneficiaries are the employees who qualify, and so we have now been employee-owned through this structure. You know, now it's November, so you know, 19 months, and it is - it's the best business decision I've ever made of my life. It is going so incredibly well, and it's checked all the boxes. I did an ownership transition, but you know, so many people ask what changed when you did this, and I say everything and nothing. So, everything changed with ownership, but in terms of leadership and management, everything stayed the same. So, it allowed me to have an ownership transition, and now I'm the CEO. But now we can work on that leadership transition. It really has been tremendous.

Timothy Henry 

So, give us a couple highlights of things that you say, "Oh, met all my expectations, exceeded them. So, what are a couple highlights that come to mind when you think about this?

Miren Oca 

So, it's broad-based. So, what we did is anyone who hits 2500 hours becomes an owner of Ocaquatics, so they don't buy in with money, they buy in with dedication, and that means our entire custodial staff became an employee owner when we did this transition, and that was really special to me, because that's what I wanted, and we have a ton of part-timers that are that are employee owners, which is super cool, because they have been there that long, we've had a lot of opportunities to now share all this open book management. Now people are more interested. A lot of people ask me if this was like a light switch. As soon as we transition to employee ownership, if everybody now suddenly acts like an owner, not really. We had to build this in four years. We had to really start exercising that muscle for years before, but when I announced that transition, everybody's like, oh, now I get it, and now they're even more, they're they've leveled up, and they're so excited about it, and you know, when we first did this, for like the first six months, we had um, AMAs ask Mirren anything, and they could, they were at night, and they could bring. Their family, they could bring friends, because so many people were asking them questions, and they didn't know exactly how to answer them. So we said, "Bring people. I want my goal is to become a case study and spread the message of employee ownership to businesses far and wide,

Raj Soia 

and so if somebody wants to cash in their ownership or sell it to they can, there's a mechanism where they can actually convert that into, into money,

Miren Oca 

so the employee ownership trust, the trust owns it's just like an ESOP, it's trust ownership, just like an ESOP, however, there's no stock that's given to a team member, so as long as they work at Oak Aquatics, at the end of the year, it's like a sophisticated profit sharing plan, so at the end of the year, after you have your profit, there's a profit waterfall, so we put some into a capital expenditures fund, we put some into a reserves account, and then everything that's left, it's split amongst the co-owners that are there, so they get all of their the profit, then we put half of it into a check and half of it into their 401 k, and so there's not there are no exchange of shares, so if they leave, they get the amount of profit until the day they leave, but there's no repurchase obligation, as in an ESOP.

Raj Soia 

And the other thing I noticed that you did for employees was, in case of emergencies, you give them a $2,000 interest-free loan, and I think that that addresses a real challenge for a lot of people, right? That I think there was some data a few years ago that 40% of Americans had less than $400 in the bank, and they literally, they needed $2,000 was the was the number cited by the National Bureau of Economic Research. If they needed $2,000 within 30 days, they would not know how to get it

Miren Oca 

right,

Raj Soia 

and that, that really helps get people over some, you know, some of the, you know, the potholes that life throws at us, you know, and we take them for granted, but for a lot of people, they can be life changing,

Miren Oca 

they can be life changing. Absolutely, yes, you know, we started this probably 20 years ago. Personally, I was doing this personally when somebody needed money. I mean, I have loaned money for all sorts of things: tires, down payments on cars, down payments on homes, all sorts of things. And I have no one has ever defaulted on a loan ever in the 20 years I've been doing this, but about five years ago we formalized it and actually put it through the business, and we set an amount - it's $2,000 at a time, it's interest-free, and it's something that they don't need to tell, you know, it can be - we didn't want people cashing out their 401 k, and that's what we saw happening, you know, if you hit that pothole and you can't afford to fix your tire, you cash out your 401 k, that's just crazy. So, in addition to doing all this personal financial literacy about why you keep money in your 401 k, and you don't pay the penalties, you don't pay the entry, you know, those things to withdraw. This was just help. I didn't want them to go to these payday lenders or those kinds of things, because that's just it's that stuff is really crazy that it exists

Raj Soia 

to keep your pool metaphor. There's a lot of sharks out there swimming around waiting for people to get into a vulnerable place,

Miren Oca 

capitalizing on that, capitalizing on it,

Raj Soia 

right? Because you miss a payment, I mean, the interest rates are crazy, and then if you miss a payment, then it just becomes, you know, unbearable completely. So,

Miren Oca 

yes, but that's a business. It's a form of business. It's a form of, you know, I guess capitalism, but that's where we need this conscious capitalism. We need to show that this is not because so many people do think that business is that they're always in it for them, they're always in it for the owners, they're not looking out for the people, and that's why we need conscious capitalism to show that it is a stakeholder model, and it's something that we're here, we can't build the business without building our people or taking care of our people, so

Timothy Henry 

so I'm wondering about the business impact of going to this employee ownership trust, how would you sort of say, oh, it's been a the impact on the business performance over the last 19 months. What are some of the business trends that you've noticed as a result of this?

Miren Oca 

We've written some really aggressive budgets and some forecasts, and we haven't hit our budgets, we haven't hit our top line revenue because we were so excited about it, you know, but that is part of the learning that comes with being an owner, and we're doing this, but we've hit the bottom line, because they've managed the expenses, they've looked at, hey, do we, you know, what are some different ways we can do some of the things we're doing, they're constantly looking at, and it's not in cutting people, it's in cutting some of the expenses that we had that we didn't realize, or we could do a phone service differently and save money, or we could do an app to do some of the things that we were trying to do. They've become more efficient, but I love that they're always thinking like an owner, you know. At one point, I will tell you, like one day the custodian can. Came and said I don't think I need a new mop, it's okay, and I said, you need the new mop, it's okay, they've kind of gone to, they're really searching, but that's great, they're thinking like an owner, and they're really trying, and I love that they have ownership, they know that we're going to listen to their ideas, and they feel comfortable, they trust us to bring forward those ideas, which I think is important,

Raj Soia 

and what's the mechanism? Is there an idea box, suggestion box, or do you send an email to some address, or how do you, how do you receive those ideas?

Miren Oca 

Well, we actually every single week there's a form that people can fill out, we want an idea a week, that's what we tell everybody, I want an idea a week, because you're on the front lines, you know that gentleman carrying teen, you know, parents out to their cars with umbrellas. He might say, can I get a golf umbrella instead of this little tiny umbrella I've got, you know, like they are on the front lines, they've got the best idea, so they can give us an idea a week. And do we always get an idea a week? No, you know, they'll say, "I'm still thinking. Sometimes the ideas we've tried them before, and we want to talk to them about what our experience has been with some of these ideas, but sometimes we get the best ideas. You're like, "Why haven't we thought of these things? So, I think it's just being open and honest. You know, a lot of people said, "Should we put out confidential suggestion boxes out? And won't want to do that, because we don't want this to be where you feel like it's a secret. I don't want to tell. We want you to feel comfortable. We're, we're always going to be happy if you give us an idea, whether it's something we follow or we something we show you how we've done this in the past and what happened with it. So we want people to feel comfortable signing their names to their feedback. In fact, with our employee net promoter scores, we are.. I mean, we had a newer operations manager who joined us a few years ago, and he said people sign their name to their feedback. How does that happen? Like, there's no conf, you know, people just sign their name, they want to tell us their name, because that way, if we have questions, we go back to them, and we say, okay, what can you tell me more about this? Can you help me understand what you were saying about this? And there's no retaliation. We want people to trust us, to give us their ideas, and to tell us when something's not going right, because that's the only way we can.

Timothy Henry 

I love that. At one level, ideas are free, right? I mean, it's a great example of the inspiration that you create when you have a culture of caring and meaning, and then you have these ideas, because you know you can't mandate an idea a day from somebody, you know it's it comes from this place, I care enough, I want to make a difference, How can I do that, and some weeks you must get like 60 or 70 ideas, so there must be some way in which you manage those, or there's a workflow that you follow for that. Well, what is that?

Miren Oca 

So it's an idea a week that we ask for, and the managers respond to the team members, and they have to, there's like a form that it all comes out on, it's all on the spreadsheet, and also the manager's response. I spoke to this team member on this day and explained to them how we've done this in the past, and what thing, because ideas can come, and if nothing ever happens with them, then the team members don't want to keep contributing, but if they know they're being heard, and we do look at, I look at every single idea that comes across every single week, because really we get great ideas, and they're silly little things. Some of them are little things, like we should swim with pumpkins during, you know, this time of the fall, and what are we doing now during this week? We're swimming with pumpkins, and all the kids get to hold pumpkins in the pool, and it causes the most engagement on social media. It came from a team member, you know, just those types of things that we're, if we're just always looking, okay, give us more, give us more, what have you got? And that, that really has helped our business in small ways, but also in large ways.

Raj Soia 

I want to learn more about your activism, and also Florida for good. I've heard about that, I think, from Timothy. But tell us a little bit about that entity. Yes, and what that entity does, and your role in it. And is that.. is that part of a national thing? Are there.. is there a Mississippi for good, or is it.. is it just a Florida thing?

Miren Oca 

Florida for good is was created in by a B Corp in Orlando, Jared Myers, I think he's a, he's a friend of conscious capitalism as well, and he started the For Good movement in the state of Florida. We operate a chapter of Florida for Good Miami, so it's called Florida for Good Miami, and we serve as the B local, so every group, every organization, you know, every area around the country has a B local, where all the B Corps kind of get together, but in Miami, there weren't very many B Corps, so we did like an umbrella organization where it's B Corps, Conscious Capitalism members, 1% for the Planet Partners, anybody who's B curious, or anyone who just wants to learn more, you know, come to. Our meetings, and we share different ideas, and it might be about conscious capitalism one month, or becoming a B Corp, or the B Impact Assessment. And we've done lunch and learns, we've done events. We recently just held the Build conference, the B Corp Leadership Development Conference in St. Pete, and it was fantastic. It was really great, really amazing to have Timothy there with Sarah Schwimmer from B Lab Global with Kate Williams for 1% for the Planet. I mean, on a panel together, that's amazing that we're all getting together to show that we're all in this together, and together we're stronger. So that's why we love the Florida for Good movement, and and we do whatever we can to keep, to keep talking about this. We say it's constant gentle pressure in Florida, because you know we have, politically, it has been there, have been some interesting challenges, but we're not political statements, we're just people statements, and these are things that have made our business better. So, why wouldn't everyone want to do them?

Raj Soia 

So, building on that, you talked about ESG and DEI, and now the climate that we have been in the last few years, where it's a very convenient thing for people who don't want to deal with things, to label it woke and just dismiss it all, right? And I think swimming against that tide is very important right now, we can't let that swamp all of the things that we believe and we know to be true and good, right. So, so, how are you staying aligned with that? And is there a broader community of business leaders? Is it also through Florida for good that people are getting sort of the collective courage to do the right things?

Miren Oca 

You know, I think that's a really great question. It's a super timely question, because of everything going on in the world. And yes, Florida can be a challenging environment with conversations around these kinds of things, but I think we've learned how to frame the messages differently. You know, maybe we don't use the words ESG or DEI, maybe we just use different words, and I think we try not to use any kind of politics or labels when we're talking, obviously, but we lead with people and performance, like this has helped our business. This is great for business, and so it's great for teamwork and trust and all these things, and I think that people see that message, they see that we're doing all these great initiatives, and it really does help improve our business, and it helps that it helps our team members be happier too. They want to work for an organization that is doing these things, that helps our customers be happier, and then that helps our bottom line. You know, those ideas resonate everywhere, no matter someone's political view. They see that someone is doing well because they're doing good, that usually, usually is a, that's the best marketing tool that there can be. So, oh,

Timothy Henry 

what I love about this is, you know, as we say within conscious capitalism, it's just a better way of doing business, and you just described it. You know, super happy customers lead to repeat business, word of mouth, marketing, all those things, which don't necessarily show up on a spreadsheet, but it's a better way of doing business. Now, there's another group that's coming at this somewhat from the, oh, I want to do good, and are not necessarily, you know, connecting it to how they run their business. They, they want to, you know, have a program versus what you've done, which is build it into the core of the operating system of your business. So, how do you help somebody when they come to you and they say, 'Oh, I want to, I want to do good, and it's like, 'Yes. And how do you have that dialog with them that it's, you know, this isn't about an initiative you do on the side, this is about how you build and operate and run your business day to day. How do you have that dialog with people?

Miren Oca 

Well, I think we, you know, we've heard Timothy, that we've heard Raj and Bob Chapman talk about this in terms of you can't run your business and not treat people well and make as much money, squeeze as much money as you can out of the business, and then write a big check to charity, and that's common practice. We see that a lot, and so I usually talk about the way that we treat our people is that will ripple out into the community, that will ripple out into how they treat our customers, that will help our bottom line. So we talk about treating our team members, and this is not mine, it's somebody else's, but treating our team members as our number one customer, and I had a new hire orientation last night, and I talked to them about our team members are our number one customer, we are going to do everything we can, and I showed them their career path, it's a plant, and I tell them they are seeds, and we're planting them in the dirt, and they're going to grow, and these are all the different ways they can grow, and they're going to drain our academy, and they can take personal financial literacy, and they can get the Calm app for free, and these are all the different things they can do, but the way by taking care of them, they're going to do the. Rest of the work, the, you know, they're gonna take care of the customer. I can't take care of 6500 people, I just can't do it. That I can take care of really, really great care of our managers. Our managers take care of our team members. Our team members take care of the customers and each other. We've had so many weddings come out of connections at Oak Aquatic Swim School. I've been to a lot of weddings. We have so many lifetime best friends that are found here, and that means so much. That's so meaningful, and I think it pays dividends too. So,

Timothy Henry 

yeah. So, what's your advice to small business owners who are listening to this and going, God, that's inspirational? Where do you tell people to start when they, when they come to you, and, and say, how did you do it? And what they're really asking is, you know, how do I do it?

Miren Oca 

So, I think, you know, the back to the pebbles, you know, I tell them to think about the pebbles they're dropping every day, like, what, what does that mean, what, what are the choices you're making that create these ripples, because we can create negative ripples too, you know, we can do some negative stuff. So, what do you do to create positive ripples? And then I have really been thinking about this lately, is instead of looking at your dashboard and just having KPIs, add an impact indicator, and impact indicators are maybe a story, you know, maybe it's an environmental initiative you're doing, and how you've saved on carbon, or maybe it's a story just tracking the stories of people coming back telling you these amazing things that are happening, like the new homeowner that we're going to have at Ocaquatics, you know, those stories are often they mean more than statistics on a spreadsheet, and those stories travel further. People like to talk about stories, so I tell people just to start tracking the stories and try to make decisions and drop pebbles that are going to create more stories of what you want your business to stand for, because I think that that's the ultimate ripple of impact.

Raj Soia 

So we like to end with a few fun questions, so let's start with that. Well, and what's your favorite way to unwind at the end of a long day? I'm assuming it's not to take a swim.

Miren Oca 

No, it's not to take the swim at all. I love reading. I am a very big routine person, so I have my very, very structured routine for health. What I eat, I have to listen or read something every single day, and it just.. it's what keeps me feeling engaged, inspired, and normal. So that's really, really important to me.

Raj Soia 

And do you read hardcover about our physical books or Kindles, or do you listen to them?

Miren Oca 

I have hardcover books, and if you look at my books, they are marked up and dog-eared and highlighted, and little notes all over. I mean, yes, my, my books are very well loved. I know some people say that I destroy books that way, but oh, I love.. and then the next time I read them, because I am a fan, I do believe that people need to be reminded more than instructed, and sometimes you need to reread the book a few years later, because you're on a different path of your different point on your journey, and it's really interesting to see what I highlighted then, and what I would, what stands out now to me. So, I'm a big fan of rereading books,

Raj Soia 

and this will be a tough one, because of how many books you read, but which is the book that you would say has changed how you lead the most?

Miren Oca 

Well, I think early, early, early days, the most impactful, influential book for me, probably the first business book, one of the first business books, is The E-Myth Revisited. So it was a book for me to help me systemize and structure my business, because before I wore every hat, I was doing every single job, and this taught me how to build a franchise, how to think of it as a franchise and build it that way. I didn't want a franchise, but it just helped me think through the system of business. But then, since then, one of my favorites, I have two more, Integrity by Henry Cloud. I loved Integrity. That book really spoke to me. And then also, of course, a book that I read every year is Atomic Habits by James Clear, and I love that book. And I think that we might be giving out that book to our team this year, because that has been an interest. So that might be our holiday gift to our team this year.

Raj Soia 

What is a podcast that you listen to that you don't miss a single episode of,

Miren Oca 

would it be cheating if I said Conscious Capitalist Podcast?

Timothy Henry 

No, how much do we pay you to say that? No, go ahead.

Miren Oca 

I love it. I think, besides

Timothy Henry 

the Conscious Capitalism Podcast, yeah,

Miren Oca 

I am a fan of Simon Sinek. I do listen to Simon Sinek. I do have, I should probably look at my phone and see all the different podcasts I have here, but I do, I do like listening to podcasts, I really love listening to books, I read books, I also listen to books, sometimes I listen to them and also read them afterwards, so, but you know, I've really started listening to the mid. Life chrysalis, and it's very interesting, especially for the time I find myself in now, and it's been really, really interesting. Listen, really like it.

Raj Soia 

Yeah. And what? Who's the leader that you admire, either alive or historical? It could be from business could be from any share,

Miren Oca 

there are so many. I think the first one that comes to mind today is Mother Teresa, because she has.. there's a really wonderful quote, and I think this is where I started getting.. I have her quote in my office, and it is about casting a stone that creates a ripple, and I think that that is exactly what we can all do, and we have to decide whether that's going to be a positive ripple or a negative ripple. I know, I think Jane Goodall is another one that is just amazing, an amazing human being, and her life, her legacy, just tremendous, and her whole idea was everybody makes a difference, you just have to decide what kind of difference you're going to make. I think those are very similar messages, so I think it shows that we have to be very intentional about the pebbles we drop, the decisions we make, the difference we want to make. So that's it's really important to me.

Raj Soia 

What is a conscious company that you love, besides your own. I

Miren Oca 

have really, there's so many B Corp companies out there that have really, really admired and respected and watched them through their journey, but I have to say one of the companies that I really like following, and I love listening to their podcast as well, and you do so much work with them, is Barry Wehmiller, and how it's a huge manufacturing company, and yet you can be conscious in how you treat your team members and how you treat people, and I think that shows us that you can do this in any industry. This is not just soft, fluffy, touchy-feely stuff that you do in a swim school. This is something you can do in every business across every industry.

Raj Soia 

One lesson I've learned from Barry Ray Miller and from Bob is, is that when you create a business like that, which I call a healing organization, right? And yours is as well. You move from a compulsion to grow to an obligation to grow.

Raj Soia 

The compulsion to grow comes from ego, and I need more, more, more, right? And I won't be happy until I'm the biggest fish in the pond. The obligation to grow comes from a place of service that I've got a model and way of doing things now that really has such a beautiful impact on employees and customers and communities on the planet that I need to grow it for that reason, right, because it's going to heal more and more the more it grows, and I think so. Bob's handed over the reins now to Kyle, his son,

Miren Oca 

right

Raj Soia 

Kyle's ambition is to take it from 4 billion to 20 billion, and to be on a shadow of a doubt, then that people and performance go together and show that you know by superior performance and extraordinary cultures together. So I think you're, you're in that same right, the healing business that will grow beyond Miami, right? Who knows, maybe beyond swimming at some point.

Miren Oca 

Thank you for saying that. I appreciate it. It's funny because I've always thought of I was building the business, I had this obligation, especially a responsibility to grow, especially as we were growing leaders, but I've realized that people don't like the word responsibility or obligation, other business owners. So now I use the word they have an opportunity, and this opportunity adds to your legacy. This builds those ripples of impact. It adds to your legacy. It makes the impact you've had in this world so much more. And I really like the word opportunity, because they'll listen to that more than responsibility, obligation. You have to do this, because I used to use those words, and now it's this - is we have this gift, we get to do this. This is amazing. So, why not? To you know, why not keep doing it? That's why I'm still here, almost 32 years later.

Timothy Henry 

Well, Miren, you are amazing, and the example you've done with Ocaquatics Swim School is inspiring. And thank you so much for joining us today. Really loved having you.

Miren Oca 

Well, I appreciate the pleasure has been mine. Thank you so much for having me.

Raj Soia 

Thank you, thank you, Miren.

Timothy Henry 

Thank you, Miren, and thank you to our listeners, and on whatever channel you've been listening. Please feel free to hit the subscription button, and if you enjoyed today's podcast, and you'd like to give us some feedback, or give us a rating, please go over to Apple iTunes and leave us a message there, and a rating. We always love to hear from you. Finally, a big thank you, not only to Miren, but to our producers, Rainbow Production, and to Conscious Capitalism Inc, who sponsors this podcast every week? Thank you all, and we'll see you next week.

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.

TRANSCRIPTION

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 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.

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

In this video, ShopBot Tools founder Ted Hall explains why the company transitioned to an Employee Ownership Trust (EOT) as part of its long-term commitment to employee engagement, community impact, and sustainable manufacturing. Hall describes how ShopBot’s culture of open-book management, profit sharing, and employee involvement made employee ownership a natural next step. Rather than concentrating ownership in individuals, the EOT structure holds the company in trust for the benefit of all employees, helping preserve the business, its mission, and its local roots for future generations. The discussion highlights how EOTs can align the interests of employees, customers, communities, and shareholders while providing a flexible and cost-effective succession solution for privately held businesses.

TRANSCRIPTION

TED HALL: One of my missions in life is feeling like if we can bring some manufacturing back to our communities, we'll have brought a lot of value back to our communities. We make tools that empower small businesses and small manufacturing operations. And so, we're really keenly interested in the problem of small business and particularly small manufacturing. This emphasis on getting employees, getting everyone involved in the business, engaging them and thinking about how we develop, how we grow, how we help our customers develop and grow has been pretty important to us. We see that employee ownership can actually play a big role in helping reinforce that kind of engagement. An employee ownership trust, or an EOT, which we frequently refer to it as, is an employee ownership arrangement where all of the shares of the company are owned by a trust for the employees. Employees don't as individuals hold equity in the company, they don't have individual shares in the company, but rather a trust holds all the shares in perpetuity for the benefit of employees.

The idea of that kind of structure is that what you want to do is maximize the likelihood the company continues to operate profitably and attractively within the community that it's grown up in. It's easy to make the case for an employee ownership trust for small businesses, simply because it's so much less administratively involved and so much less expensive and offers so much freedom in how you lay out the nature of the deal and the final arrangement. I think you could ask the question, well, as the company gets bigger and there are more employees involved, maybe you could argue that an ESOP makes more sense. But frankly, I see no reason, everybody should be doing employee ownership trusts rather than ESOPs. They are so well-suited to the 21st century, to the way we're operating, to people's lives, that they make a lot of sense to me.

ShopBot has always promoted the idea of engagement––involvement of employees in the company. We've been profit sharing all along and open books all along. And that meant in our early years that we would discuss the books and how we were doing quarterly. More recently, probably, in the last five or six years, we got involved with a program called the Great Game of Business, that emphasizes using open books and more actively using them, engaging people, such that at ShopBot nowadays, we talk about ShopBot's P&L and how we're doing every week. And employees actually contribute to mapping the data out and discussing it.

ADAM HORTON: Every week as a company we forecast to identify our resources, identify problems before they become a problem and to reach our goal.

DREW HAINS: You know, we're striving to be a very successful company and at its roots, the EOT, it's a profit-sharing model, where if we're ultimately very successful in what we do, day-in, day-out, year-in, year-out, then the employees are going to greatly benefit from that because they'll be more profit-sharing to go along.

JEN NIX: By moving to the employee ownership model, it allowed us to move forward with what the vision for the company is, both the way we function now, as well as the way we want to move forward into the future.

TED HALL: There are four groups really that an EOT, employee ownership trust, serves. First, the employees who really are intended to be the primary beneficiaries. But there is also the community that the business is situated in, there are the customers who the equipment is being produced for, and hope to be able to maintain their tools, and continue using them, and be supported in the way that ShopBot already supports people. Finally, there are the shareholders. Each of these groups can benefit in an EOT and I think we have with EOTs, it’s the opportunity to design, grow a kind of organizational functionality that really serves everyone well. We like to think that we're going to thrive and we're going to grow in the community, bring value to it, and all our employees are going to be outrageously well paid. We hope that's going to happen.

DREW HAINS: We have so many people here that do care about the product, and we've got employees that own ShopBots, and we want to put our best into it because that's how we want to treat our customers, the same way, because we think it's such a great product. And we think that they're going to think it's a great product.

ADAM HORTON: As an EOT, we empower people. We listen to the ideas and we work together as a team.

JEN NIX: On our own we each have our own strengths and weaknesses, but when you put us all together, we are ShopBot. We all feel invested in the business. We all have a stake in the business and becoming an employee ownership trust actually reinforces that more than anything else.

TED HALL: Everybody's kind of grown up with us, you know, they're part of the approach. They're part of the mindset that we have here. And it's very easy for me to be very confident that things will go well, and that ShopBot will be around for a long time helping people make cool stuff.

In this interview, Bill Foster, CEO of BioWorks, discusses the company's transition to an Employee Ownership Trust (EOT) and the factors that led management to choose employee ownership as its succession strategy. Foster explains how the EOT structure aligned with BioWorks' values, preserved the company's independence, and created long-term benefits for employees while providing a fair exit path for shareholders. The conversation explores the transaction process, governance considerations, and lessons learned, offering practical insights for business owners evaluating employee ownership as an alternative to a third-party sale or private equity transaction.

TRANSCRIPTION

BETHANY DENNIS: All right, welcome everybody. My name is Bethany Dennis. I'm with the Rutgers New Jersey/New York Center for Employee Ownership. Thank you for joining us this afternoon. I'm going to be your host and moderator. So, this is employee ownership trusts. Many of you might already be familiar with employee stock ownership plans as a form of employee ownership. However, selling to an employee ownership trust, or an EOT, can be a strong alternative to an ESOP. Where the cost of an ESOP is a major consideration, where the sustainability of the employee ownership structure is a major goal. So, today we're going to learn why and when an EOT might be the right option for business succession. So this webinar is scheduled for about 45 minutes and with 15 minutes allotted for Q & A at the end. Participants, please stay muted, you can keep your cameras on if you like and submit any questions you have in the Zoom chat. And then Chris will answer them at the end. So now I'm going to turn things over to Jim Terez. He is the associate director of the New Jersey/New York Center for Employee Ownership. And he's going to speak briefly about some of the Center's major accomplishments from this past year, as well as introduce our new employee ownership online education program, which is launching February 1st. All right, Jim, over to you.

JIM TEREZ: Thanks very much, Bethany. Welcome everyone. Thank you for joining us and thank you too, Chris and Bill for joining us today. I'm really excited to hear what you have to say about employee ownership trusts today. I'm Jim Terez, I'm the associate director of the Center for Employee Ownership. And I just wanted to mention a couple of projects that we've been working on and that you can check out both today and in the near-term future. The first project is a report that the Center did based on Prudential sponsorship. It's studying opportunities for employee ownership among minority veteran-owned businesses. And the report that was generated from our research is available on our website. So, you can go to our website and find it there. And then I also wanted to mention that we had a conference in November. Well, I think that we had a really great set of sessions. It's archived on our website as well. And so you can go there and check out any of those particular sessions. I was thinking that, some of the sessions in particular provided an incredible foundational sense of some of the features and requirements for employee ownership.

And then the other project, which is upcoming, that I wanted to mention is thanks to great sponsorship from the Kellogg foundation. People in our Center have put together a new online educational program to provide information in particular to minority and female business owners about employee ownership strategies. And, it's going to be free. It's not available yet, but it will be available in the next maybe two to three weeks on our site. And so, you'll hear more about that. We're really looking forward to being able to spread the word a little bit about employee ownership. So, stay tuned basically. We're excited about all these developments. Anyway, I want to introduce our two speakers for today. I'm so glad that they were able to join us.

Chris Michael is the founder and managing director of EOT advisors. He himself is basically responsible for developing the employee ownership trust as a financial and legal mechanism in the United States for employee ownership. And he has published a lot of articles introducing the concept into leading peer review journals, including journals like Tax Notes and Probate & Property. Chris also teaches at Rutgers. He's a professor at Rutgers in the School of Management and Labor Relations, and he was recently named as managing director for the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers, of which the Center is a part.

Chris is joined today by Bill Foster. Bill's chief executive officer of BioWorks, located in Rochester, New York. For over 25 years, BioWorks has been helping growers in the horticulture and specialty agriculture markets, which successfully deliver crops to market with biologically based solutions and support. Bill and Chris are going to discuss the sale of Bill's company to an employee ownership trust. Bill and Chris, thank you so much for joining us, we really appreciate it. Thank you.

CHRIS MICHAEL: Thanks so much, Jim and Bethany, and to the New Jersey/New York Center for Employee Ownership and to Rutgers, as well. I can't wait to have an interview with Bill, and we’re going to talk about his sale and transition to an employee ownership trust. I thought it might help though, initially, to do a run through in about 10 or 15 minutes, what an employee ownership trust is. Because it's still a new concept here in the United States. So, it's hard to even begin to talk about employee ownership trusts before first speaking about John Lewis Partnership. It's kind of the north star for employee ownership trusts the world over. It's basically like a Macy's in the UK. They also have a large supermarket chain attached at the hip. All of it is an employee ownership trust that has about 90,000 employees. They did 14 billion revenue in 2020. They've been under employee ownership for almost a hundred years using the EOT model. And in the UK are EOTs are the mainstream form of employee ownership. ESOPs aren't the thing in the UK. People refer to this model as the EOT model or the John Lewis model. And politicians on both sides of the aisle in the UK speak about possibilities for a John Lewis economy.

So what is an employee ownership trust? An EOT is a trust that holds the shares of a company on behalf of most or all of the employees of the company. Just like an employee stock ownership plan it offers employee ownership, which is to say that the profits and gains of the company are shared by the whole team in an equitable manner. Also, that the corporate governance is directed towards the best interests of the whole team of employee-owners. And also it provides an opportunity to develop an ownership culture at the company, that enhances and improves the quality of work life.

Now I can't help also but, here in the United States, to discuss how an EOT is different from an ESOP, because ESOPs here in the US are the norm for employee ownership, right? There have been tens of thousands of ESOP businesses over the last half century. An EOT is different from an ESOP for a few reasons. So one is an EOT is not a retirement plan. It's not a way of deferring payment of tax. It doesn't offer a way to defer payment of taxes like an ESOP does. It's also not regulated by ERISA or under ERISA. For those same reasons, because it's not a retirement plan, because it's not regulated under ERISA, there's no need for annual valuations, there are no repurchase obligations, there's no third party ERISA administrator required to keep track of employee share accounts, right? So that substantially reduces the complexity. These features substantially reduce the complexity and burden of operating an EOT company. One way to think about EOTs might be that EOTs are employee ownership just without the ESOP piece. Another way to think about EOTs––and I'll return to this concept later on in the presentation––is that EOTs are a private, flexible, low-cost, easy-to-understand, and I might add sustainable alternative to the ESOP. So if you remember nothing else from today, there are two key points. If you start from these two key points, you can almost figure out for yourself what the differences are. EOTs are different because once the shares is gone into the trust, they stay in the trust generally speaking. And the employees, as they say in the UK are “naked in, naked out.” The employees aren't buying shares. And when they leave the company, they're not being bought out of any shares. The benefits, the financial rewards to the employees come while they're working at the company, typically in the form of profit sharing. That again, I have to say, is speaking in general terms using a default approach to structuring an EOT. As actually you'll hear later today with Bill, there are other approaches that you can use.

At this point in my typical presentation, I like to stop, pause, and say, well, if EOTs are neat, different, cool, offer these benefits and advantages, how come we haven't heard of them before? “E – O – T” looks like the name of a fraternity. So here's my quick “1-2-3” answer to the question of why we haven't heard about EOTs much in the US before. And I think the answer really boils down to that guy in the black and white photo with the bow tie at the bottom of the page. Louis Kelso, in the 1950s, leveraged tax code that was put on the books back in the 1920s and created something called the––what he called the “Kelso plan.” It's what we now know as the ESOP. It was called the Kelso plan at that time. And he and his wife, Patricia Heller, marketed the Kelso plan. They went all over the country, wrote books, went on TV, flew all over the country, and pushed the concept, pushed the concept, pushed the concept for decades before it ultimately landed in federal law when ERISA was legislated.

If you go further back in US history, it turns out that we had EOTs in the past in the US. In fact, it's quite possible that John Lewis got the idea for an EOT from a US company called Columbia Conserve Company. The structuring for that deal was actually done by a University of Chicago economics professor who later became the US Senator from Illinois. A few years later after that company was formed is when John Lewis did his EOT. I can't establish the connection firmly, but the dates make it seem like there really might be something there. So, you could imagine an alternative history where the US follows the trajectory that the UK followed. Which is that EOT becomes the mainstream form of employee ownership. But some people have an outsized impact on history. And I think Louis Kelso at least in the employee ownership sphere, certainly was that person for us in the US.

And after the ESOP was legislated in under ERISA and additional tax benefits were conferred on the ESOP in 1984. Well, the rest was history. John Menke who was a senior tax associate with Louis Kelso set up the first ESOP shop and has done thousands of ESOP companies. Corey Rosen founded the NCEO in 1978 and has also helped facilitate thousands of ESOP companies. And, again, the rest was history. So things have only changed in the last few years as Jim mentioned earlier. I published a few articles explaining how the employee ownership trust is an alternative structure for employee ownership, an alternative to the ESOP that we can do today, that we don't need any new laws for, published in Tax Notes and Probate & Property, back in 2015 and early 2017. And I started doing the first EOT transitions back at that time as well. I launched EOT Advisors properly in 2017. And in this published research I show that the traditional EOT is not subject to ERISA. That existing US trust law works. You can do this in any state if need be using another state's trust law, which is totally common when it comes to trust law, picking a jurisdiction that is best for your purposes. And I also, if I have any minor contribution here, it's showing that you can use something called a noncharitable purpose trust, which is a new development specific to US trust law, that is a very handy tool when you're structuring an employee ownership trust. And some of the advantages are listed there. So, EOT Advisors then is the first investment banking and financial advisory firm in the country dedicated to assisting business owners selling to an EOT. We work all around the country. We've been involved in about 15 closed US EOT transactions––that's about all of the EOTs to date, and we're on track to double that number by the end of the year.

Here are some sample clients, actually got to get BioWorks up there on the slide. You can use an EOT with really any company that is a sustainable viable business with a leadership team in place. Nevertheless, you could go down to 10 employees with a million or two in revenue––that can work. You could do this with a billion dollar company and anywhere in between. That being said, people often want to know what the typical company looks like for an EOT transition. And, at the moment, typical client enterprise value is in about the $10 to $20 million range. Now it certainly can go again below that. So, down into the single digit millions enterprise value. But it can also go significantly above that. I'm working with a client right now that's probably about a half a billion enterprise value. Typical workforce size again, it can be lower than this. It can be down to a dozen employees, it could be up to hundreds, or thousands of employees. But a typical client is about fifty to one hundred employees. Typical time to close, although you could push this down to as quickly as two months, if we're all on the same page and we're working quickly and closely together. It can take longer than this as well if it's preferred, but a typical client takes about six months to close working at a very measured pace, not working too hurriedly.

Why would you want to do an EOT as a business owner? I'll repeat again that, it's best to think of EOTs as a private, flexible, low-cost, easy-to-understand, and I'll add sustainable alternative to the ESOP. So, most business owners, especially my clients, I find in my experience as a company advisor, really value privacy. A lot of my clients, they've been operating their business for a couple decades. The only person that really has full access to company financials are them and their CPA that's it. If you're interested in employee ownership and I have to say, I'm a big fan of the ESOP, so this is not a––in fact, I always say I wrote a 300+ page PhD dissertation saying how great ESOPs are. So I think the ESOP is a fantastic tool. I'm a big advocate for the ESOP, but that being said, if you're planning on selling to employee ownership, if you do that to an ESOP, you have to know that ESOPs are kind of quasi-public transactions. Where you're involving a lot of different service providers, investment bankers, lawyers, trustee, multiple valuation firms, multiple lawyers, multiple law firms, and you can easily wind up on calls with 35 people, all picking through your company's financial records. That's just not comfortable for a lot of business owners and with an EOT you can just hire me and I can get you there from A to Z. I'm the only firm that you need to work with. I'm the only firm that you need to hire to sell to an EOT. That's one advantage.

If you're flexible with an ESOP, you have a clear menu of options and you have to pick from those options. And if you deviate too much from those options, you might lose the qualified tax status of the ESOP. With an EOT, and you'll hear this a bit with Bill as well, you can really choose what you want to do. I mean, I will give you, what international ethical standards to use, if you want to call it employee ownership. I'll provide you with information so that you don't stray from the very broadly defined international ethical standards for employee ownership. But, once we get past those very broad standards, you can really do what you want in terms of structuring the employee ownership trust. And actually, if you're somebody who in interested in environmental goals or other social goals or community goals, you can factor that into the trust and you can include those goals in the trust. So, if you're going to call it employee ownership, you'd have that as the highest goal of the trust, but you can also have these alternative goals layered in. You can't do that with the ESOP. You can combine an employee ownership trust with a family trust. So that's another thing you can't really do at least inside of the ESOP.

Low-cost, just suffice it to say that EOTs cost a fraction of what an ESOP costs to implement and to maintain over time. ESOPs have very high installation costs and the annual year-after-year cost of keeping the ESOP is also very high. Whereas with an EOT the year-after-year maintenance cost can be nothing depending on how you structure it.

I always like the phrase “Keep It Simple Student.” All other things being equal, it’s generally speaking better to take the simple course and the EOT’s much easier to understand for you as the selling owner. You don't need to do a one-year crash course in ESOPs. It can be much quicker than that. Likewise, for your employees, for the employee-owners, it's much easier to understand. Every ESOP practitioner worth their salt will be forthright and honest about the fact that explaining what ESOPs are to your team is a very challenging process. And ultimately, it can take years to really help your team understand what an ESOP is. I've heard it said, and I think this makes perfect sense, that it's really not until the first generation of employees retires and gets paid out of the ESOP that the team really feels like it's real.

EOTs are more sustainable than the ESOP and ESOPs can always get bought out by a third party if there's a sufficiently high offer. With an EOT you can customize when, how, under what terms you would want to allow for the company to be sold out from under employee ownership. And if you're somebody who prefers to preserve the company and the legacy of the company under employee ownership for the long haul, you can also program that in the design of your employee ownership trust.

So with all of those advantages, let me also say that in the current environment, as in right now, I think it's even better to do an EOT. For one thing, if you're savvy to the specific tax benefit that's, granted to an ESOP, when you're using a C corporation structure, it's known as the 1042 rollover  that allows you to defer payment of capital gains tax. Fewer sellers to an ESOP are even using that strategy. And so, the use of that 1042 tax deferral strategy for the seller––this is a longer discussion, and glad to have it with you on a one-on-one basis, but it's really not clear what the big picture, what the financial advantage to the seller of doing an ESOP would be.

Another factor in the current environment is that investment bankers and private equity firms have really gotten laser-focused on the opportunities in the lower middle market right now, in a way that they have never been before. And so, all of my clients say to me, and these are again, $10 to $20 million firms. These are firms that a decade or two ago would not have been on the radar of investment bankers and private equity. They're now getting calls every day, once a week, with an offer to buy. And if you're somebody that wants to preserve employee ownership of the firm, then right now, if you sell to an ESOP, it's very likely that the company's going to continue to get offers. Even just a few years after the sale to an ESOP, it’s not guaranteed to happen, but it might have an offer that's too good to refuse. And where the ESOP trustee feels compelled, even against perhaps the employees’ wishes. Unfortunately, there's also an increased level of litigation right now. That's not a great thing to have to deal with. There’s substantially less litigation risk with an EOT. And because of the increased litigation risk, there are even higher costs today than in previous years, in establishing an ESOP. And again, that's a factor that I think would encourage choosing an EOT.

So with that said, we're going to now go to our case study with Bill Foster. So let me just stop the share here. BioWorks. So, Bill, welcome, and thank you so much for agreeing to do this webinar for the New Jersey/New York Center for Employee Ownership.

BILL FOSTER: Absolutely, Chris happy to.

MICHAEL: Oh, so glad. And, Bill and I worked together about a year or two ago to help structure his EOT. And so just to first get a sense of what, what you guys do. I thought we might begin at the beginning and find out a little bit about how you got into the specialty agriculture industry.

FOSTER: Sure, happy to. I'll try to make the story short. The company was started in 1993 based on some technology that came from a Cornell University research station in Geneva. If you want to end a cocktail conversation you tell them about what you actually do. So, we grow mold. So the professor at Cornell found some plants that were living under certain conditions and isolated this fungus. And we can actually start to, we can grow the fungus commercially. It's regulated by the Environmental Protection Agency. So our products are EPA registered. So the company was started in 1993. I joined the company in 1998. So I try to be really clear that I'm not a founder of the company, not that that matters, but I don't want to give credit where credit isn't due. And then we were growing slowly. A lot of companies in that same space, that were trying to provide alternatives to chemical pesticides used in agriculture. A lot of private equity money went in. BioWorks was one of those. As my story goes, luckily I wasn't very good at raising money, or we wouldn't have been able to buy the company, which I'll talk about. But there's this whole idea of instead of using chemical insecticides or pesticides to control insects or diseases, you can actually do it biologically using organisms that mother nature produces for us. But being fairly observant about when they work and when they don't work. And so, there's this whole industry called the biological products industry that was formed in the 1980s and has been growing significantly ever since and we're part of that industry. So yeah, it's been a blast. I love it.

MICHAEL: That's fantastic. And what got you to the point in terms of your tenure at the company that, that facilitated the transition so that you actually became the owner? That's not my typical client by the way––typically my clients are the company founders.

FOSTER: Yeah. We were growing, 10-ish percent a year, but we had 220 shareholders at one point in time. And we never felt that we would become the investors' dream. Even today compared to what the original expectations were, we’re not the investor's dream. And so in 2007, we approached––there were five of us back then. We approached the board of directors at BioWorks and said, "Hey, we're interested in buying the company," a management buyout. As I recognized later on, a highly leveraged management buyout. But we approached the board, we negotiated with the board for an excruciating 28 months. As I joke with someone, at some point in time I'll write the book on it. Although I don't know if I want to relive the whole scenario again, but the outcome was fantastic. We ended up in 2010 buying the company, five of us, and then over the next about five years, we slowly paid off the debt that we incurred from the original management buyout.

MICHAEL: And are those––I can't recall, have you since then bought out some of those other partners?

FOSTER: Yes. So, there's now just two owners of BioWorks, myself and another gentleman and we bought out the previous three.

MICHAEL: Okay. That's fantastic. So, you finally own the company and now you're going to give it all away.

FOSTER: Exactly. Yeah. Again, if you talk to traditional business owners, they look at me and say, "What is wrong with you?" Because one of the slides you put in there is so true. I still get calls if not every week, probably every other week from some private equity company, someone interested in looking at buying the company. I remember the day the management buyout closed. I slept, I think, the best I've ever slept because every time the phone rang up to that point in time, I figured, hey, it's my fiduciary responsibility to talk to them. And I just kept on envisioning the employees. I think back then we probably had maybe 30 or so. What am I going to tell them? They have committed their career to BioWorks and I have to go tell them and say, "Oh, by the way, I know you've been working with us for 10 years, but it really doesn't matter anymore because the owners wanted to...." I'm not going to fault the shareholders at all, but that's just not part of my DNA. I just didn't want to do that. So when we bought the company, it was just a nice relaxing moment for me. So, I no longer had a Pavlov’s dog response and cringe every time the phone would ring.

MICHAEL: And, of course the Rochester region has its own saga with, firm closing, etc. I mean, what would happen if you had sold, instead of working with me, if you had sold to another, a third party––what would be the most likely scenario? I mean, would...

FOSTER: It's tough for me to say. Sometimes, I've talked to the companies that had expressed interest in acquiring us and still do. And it's wonderful to tell them, to say, we use the term perpetual purpose trust.

MICHAEL: Yeah.

FOSTER: Because when I say EOT, most everyone hears ESOP. So, I say no, it's different and I go into explaining why a little bit. But, we still get companies interested in buying us. And again, it's just wonderful to be able to say––I could say no, starting in 2010––it’s now more fun to say no, and tell the story behind it and why. Like typically what they'll tell you is, "Okay, for the first five years, we're going to treat you as a standalone. And then after five years you're coming under, our company, the mothership.” And for us––you've talked about legacy––the culture at BioWorks is the most important thing to me, retaining that culture. We have a fairly unique culture and we attract high quality team members because of our culture. And the last thing I wanted to do was destroy that culture. The potential buyers would say, don't worry about it, we're going to leave you alone and everything else. It's like, I'm sorry I just don't believe that...

MICHAEL: That was my next question, would they really leave you alone for five years?

FOSTER: Exactly. Yeah. They'd leave you alone for five years. Because that's what the earn-out probably would be––over a five-year period.

MICHAEL: Right.

FOSTER: And then after you're gone, thank you very much. And they take the technology, and some good people, what they perceive as good people, and then everyone else would be out looking for another job. And that's, again, that’s part of why we are where we are with BioWorks. That wasn't the intent originally, the intent was––I was just joking the other day with someone, "Why did they bring you in as CEO, Bill?” I started with the company in 1998. And my job was to do deals and sell the company. My job was figure out how I can increase the value of the company and give a profit to the shareholders, not the stakeholders, the shareholders. And, I was okay with that until, my story goes, I fell in love with the company and the people and said, there's got to be a better way. There's just got to be a better way to run a company.

MICHAEL: Right. Well, that speaks then to what was it that had you gravitate from that role as CEO and shareholder? What specifically made you think about employee ownership? Or is it more––and this is again, absolutely fine––is it more the perpetual purpose aspect of things and the business legacy aspect of things? Or is it the employee ownership side of things? Or is it some combination of those?

FOSTER: It really goes back to the purpose why we exist and it's––we share this readily––it's three parts: grow our team, serve others, and save our earth. And I won't spend a whole lot of time going into that. It's funny I looked at an ESOP. I went to an ESOP conference in Arizona probably seven or eight years ago thinking ESOP, ESOP, ESOP. And I remember, I read a press release about New Belgium Brewing company being acquired. It's like naively, I kept on thinking, well, that, that, that doesn't seem possible. And luckily in Rochester, we had connected with Rob Brown, who's an ESOP expert and I said, "Rob, is it possible that an ESOP company can be acquired?" He was probably rolling his eyes at me at that point in time, and he said, "Yeah, if the valuation is significantly higher, and then it's the fiduciary responsibility to recommend to the shareholders to sell.” I remember that just created a pit in my stomach thinking, well, I can't go down that way. To me, it's the people that helped build the company that should be rewarded with ownership, not necessarily maybe stock ownership, but owning where the company's going to go. And funny enough I called our corporate attorney and he was working with a client of yours who I know fairly well and he said, "Bill, your timing is perfect. I'm working with this other company on an employee ownership trust. Here's what it is." It's like, that's it. That's exactly what we want to do, and so I learn more about it, and it's been a great story.

MICHAEL: I understand that you have made some changes there. So maybe you could speak to some of the changes that you've already introduced at the company.

FOSTER: Sure. And so we created the trust. We had two board members. We've actually added a third board member. He's elected by the employees and this year, actually, we're just starting this quarterly rhythm of board meetings reviewing how the company's doing. Prior to the management buyout, I was reporting to the board of directors and every quarter, I would give them a board update. Well, I liked that process of communication and sharing. So we continued that even after the management buyout and we're going to continue that going forward. So I envision myself at some point in time, stepping away, being a trustee, but stepping away saying, okay, I want to know what's going on with the company. We're going to have these regularly scheduled board meetings that overlap with companywide updates. They last about an hour and a half. And we talk about the status of the company. We'll add some other things about how we're doing regarding our core purpose, how we're doing with our core values, employee satisfaction, we'll be adding some things to that. But they'll be quarterly board meetings where we talk about that. And that's the way to share information, not only with the trustees, but also with everyone in that company.

Probably the two biggest things is we added an employee to the board, and the second part is we'd always had this variable compensation plan bonus that we modified not so much because of the perpetual purpose trust, but again, because we thought it was the right thing to do. And that is, we have a profit sharing plan and we used to share it based on your compensation. So, if there were 10 people in the company and the highest person made five times as much as the other person, that person would get five times as much in their bonus variable compensation plan. And we said, well, that's interesting. We did that for a few years. We said, "but, from a fairness standpoint, what if we shared the profits equally?" At the end of the year, we made a hundred bucks and there are 10 people in the company. Now everyone gets $10. And so regardless of your position in the company, there is a component of tenure as far as when you started in that year. But once you've been with the company for a year, you're participating in getting a bonus at the same level that everyone else is. So that's a second thing, but it's just consistent with this idea of people. The purpose of the company, going back, it's the team that's creating the value of the company, value that will not be recognized, which is perfectly fine. Except in stock appreciation rights. So that's the third part we're doing––we're modifying and enhancing our stock appreciation rights plan. So that the opportunity for wealth is created by everyone, on a regular and ongoing basis.

MICHAEL: So that's a really interesting point, a lot of interesting stuff there. I mean, one is of course, you don't need to have any employee voting rights at the company with an EOT. But you, you guys chose to have an employee-elected board member. Although it's much more common to use a compensation basis for profit sharing, it's certainly a more egalitarian approach to use equal profit sharing. I mean, everybody's working full time and the modest differential between compensation levels at the end of the day might be simpler and easier and a better feeling in a way to just make it equal for the profit share. Again, that's going to be structured differently at different companies. And then the last point I think is fantastic because there are some folks particularly in the ESOP community––to them employee ownership means capital gains.

FOSTER: Uh-hum.

MICHAEL: It’s the way that they've been doing it in the UK for decades, but it's almost as if it's been difficult for some practitioners to accept the notion that you can actually combine EOT ownership and equity ownership in capital gains. And of course we have examples of this in the US already, but here's another example where you're layering on an existing SARS program in conjunction with the EOT and it can work perfectly well together.

FOSTER: Yeah. When someone joins BioWorks, we give them 25 SARS units right up front, vested over five years. And then every year we give everyone the opportunity to buy up to an additional hundred SARS units. We do go through a formal third-party valuation process. The banks like it. We like it just because it gives us an outsider's perspective of how things are going. What I liked about an ESOP was this idea of, you could create, I'll say, significant employee wealth at that point in time. And 25 SARS units are nice, but they’re not going to create significant employee wealth. And we're still in the process of working it out, but we want to figure out a way of how we can give regular tranches of grants––we don't know what that number is. There might be some responsibility component to how many SARS unit grants we'll give you, and we're still working through those details. But we want to be able to create this opportunity that when someone leaves BioWorks after working here for, 15, 20 years, they're looking at anywhere between $100,000 to $250,000 of appreciation in value so that, it just allows them to live a lifestyle that they want to live. So that's what we're targeting right now.

MICHAEL: And that's fantastic. And that's actually right on par with the account values that you see on average with ESOPs. This has been such a fantastic conversation, Bill.

FOSTER: Fantastic.

DENNIS: Chris, this is great. And Bill, thank you so much. Listening to your story helps educate me as I learn even more about the ESOP and employee ownership process and EOTs. So thank you everybody for being here. If you would like to know more about what we're doing and view past webinars go to ownership.rutgers.edu. Chris, can you throw up that slide if you can? If not, I'll just say it slower. There we go. Perfect. So it's ownership.rutgers.edu. There's contact information for our executive director, Bill Castellano, and Jim Terez, who's here with us today, and myself. If there's a topic that you would like us to do a webinar on, or you want to know more about, you can contact us for that. I will reiterate that we are going to be doing a marketing blast and announcing our new employee ownership online program, which is going to be focusing on minority and female business owners. But it's open to anybody and it's free. It's going to be really exciting. So you'll hear more about that from us very soon. This was a recording so we're going to be sending out the recording to everybody who was here and who wasn't able to make it today. So look for that in the next day or two, and Jim, if you have any final words for us.

TEREZ: Thanks, Bethany. I just wanted to thank you, Bill and Chris, for joining us today. That was really great. Really appreciate it. And thank you to all our participants. We really appreciate you joining us. I hope everyone has a good day.

In this interview, Preston Martin, founder of Bicycle Technologies International (BTI), discusses the company's transition to an Employee Ownership Trust (EOT). BTI became one of the first U.S. businesses to adopt the EOT model, ensuring that ownership remains aligned with employees while preserving the company's independence, culture, and long-term mission. Martin shares why he chose employee ownership over a traditional sale, how the transaction was structured, and the benefits for employees, customers, and the business. The discussion offers valuable insights for owners exploring succession planning and sustainable employee ownership alternatives.

TRANSCRIPTION

Chris Michael: Okay. Hello to New Jersey and New York. My name is Chris Michael from EOT Advisors. So happy to present to everyone here the world-exclusive premiere video interview with Preston Martin, founder of Bicycle Technologies International, which is, I think, possibly the country's largest employee ownership trust, by our estimation. He's beaming in from Santa Fe, New Mexico.

Preston Martin: Hi. How is it going Chris?

Michael: Good. Good to see you. Good to see you. Okay, so the way the format of the presentation today is going to go, it's about half an hour long all together. Then we'll cut over to live Q&A via Zoom and the link above. I'm going to give as quick as possible an overview on what an employee ownership trust actually is. And then we'll cut back to our interview with Preston. Okay, here we go.

So, again, everyone, my name is Chris Michael from EOT advisors. It's always an honor to present at state employee ownership center conferences and the National Center for Employee Ownership conference. I have to say that I have a special affinity for the New Jersey/New York Center for Employee Ownership for a number of reasons. But one of them, one of the top reasons, is that I'm from New Jersey and New York. I was born in New York City, and raised in New Jersey in Bergen County, in Teaneck, New Jersey in particular, although I do live in New York City now. So, I'm the Founder and Managing Director of EOT Advisors. We've helped to really develop, really put the employee ownership trust on the map in the United States. In the contemporary period, we're the only EOT shop and dedicated EOT shop in the country. Some of the kind of foundational research supporting the use of EOT in the United States was some pieces republished in Tax Notes and Probate & Property back in ‘15 and ’17. As you'll see there, I’m also a professor at Rutgers. So, that's another connection that I have with New Jersey and the Center.

So, very excited about getting as quickly as possible to the interview with Preston Martin. This is intended to be a brief overview of the employee ownership trust. You can't really begin to speak about the EOT without first talking about John Lewis Partnership, which is sort of like the Macy's of the UK, a really large fancy department store, except that it's not just a Macy's, they also have a supermarket chain attached to it. So, John Lewis partnership is both John Lewis department store and also Waitrose Supermarkets. So, that's why you see the Waitrose and John Lewis on the sign on the cards there. These are some pictures from their annual end-of-year meeting where they announce the annual profit share as a percentage of compensation. So, everybody at those events is getting an 11% or 17% year-end bonus as a part of their EOT profit share. It's the largest and oldest EOT in the world. It has currently about 83,000 employee-owners. Each employee is an employee-owner from day one, although that's not a requirement to do it that way. But at that company, they choose to make employees into owners on day one. They did US$14 billion in 2020 revenue. They've been employee-owned for almost 100 years. They transitioned to a partial EOT in about 1929. And they went to full 100% EOT ownership in 1950.

And I should also add that EOTs have always been the mainstream form of employee ownership in the United Kingdom. The US went down the ESOP path, but the UK has been and continues to be a place where EOTs are the main structure, the main approach towards employee ownership.

So, what is an EOT? An EOT is a trust that holds some or all of the shares of a company on behalf of most or all of the employees of the company. It’s just like an ESOP, in the sense that all of the things that make something employee-owned are there. There are three main components to employee ownership––and these components are agreed upon nationally and internationally for 150 years. If you're talking about employee ownership, employee ownership means these three things: it means you're sharing the financial rewards of the company, be that profits or gains; that the corporate governance at the highest level of the company has a mandate to act in the best interests of the employee-owners; and then finally, it's a great place to work, it's a really wonderful culture at the workplace. So, the ESOP has all these things and the EOT also has all of these qualities.

The difference though, is that an EOT does not have the share accounts, the per-employee, broken-out, individual employee share accounts that the ESOP has. And so, all the differences really, between the ESOP and an EOT, if you can keep in mind this fundamental difference, I think you can kind of almost figure out the rest of the differences. So, because an EOT does not have individual employee share accounts where you're looking to buy an employee's shares back when they retire, it's not a retirement plan. The ESOP is regulated retirement plan. The EOT is not. The ESOP, because it's a regulated retirement plan has some tax differences that allow it to act as a tax shield. You have to pay taxes at the end of the day, but those taxes are deferred. With an EOT, you don't have any special tax shield difference. At the same time, an EOT is not regulated under ERISA. EOTs are regulated under state trust law.

EOTs, because you're not looking to repurchase shares in any given year, there's no need for an annual evaluation. Again, you're not going to be repurchasing employee shares. So, there's no future schedule of repurchase obligations. In good years, you reward employee-owners with profits, in bad years, if there's no extra profit sharing that can be done in any given year, then there's no profit sharing done in that year. You can decide year by year how much to share with the employee-owners. Likewise, it's not a regulated retirement plan, ERISA plan, there's no need for a third-party administrator with an EOT. One way to think about it, if it's helpful, is that, EOTs are employee ownership but without the ESOP piece. Another way to think about it, which I'll come back to later on in the session, is that EOTs are a private, flexible, low-cost and easy-to-understand alternative to the ESOP. I'll add a fifth element here, which is that they're a sustainable alternative to the ESOP.

Two key points to remember, similar to earlier, once the shares go in, they stay in. So, once the shares go in to the EOT, they tend to stay in there. And another way to think about it from the employee side is that employees, and this is the British expression, employees are “naked in, naked out.” So, they're not buying shares to come into the employee ownership, and they're also not getting bought out of shares, when they leave the ownership trust. It functions really quite like any law partnership, or any professional partnership. You are made a partner because of the value that you bring to the firm. There may or may not be a kind of a nominal buy-in. But that's sort of beside the point. Your benefit is getting a share of the profits while you work with the law partnership, with a professional partnership. And when you leave, you're not expecting to get a fortune. When you leave the company, rather, you're bought out, if at all, at that nominal level that you bought in. The benefits are while you work at the company.

So, if the EOTs are so great, how come we haven't heard of them before? How come they haven't been used in the United States for the past 50, 100 years, etc.? If I see the letters EOT, I just think of some strange new Greek fraternity. Okay, very fair question. Here's my answer. This is a timeline of the use of the EOT in American history. Now, turns out, in another part of my life, I'm an academic and do historical research. And it turns out that the EOT was used in the distant US past. So, we have a case of an EOT company in 1897, in the state of Washington. In the 1920s, the most famous employee-owned business in the United States was an EOT. In fact, the founder was a Harvard grad, he was advised by a University of Chicago economics professor who later went on to be US senator from Illinois, Paul Douglas. They did tours all over the country. There are write-ups about them in newspapers all over the country. I don't have any evidence of this, but I imagine that it might have served as some inspiration actually, for the John Lewis company in the UK, or for John Lewis himself, in adopting this approach in the UK.

Things were looking good for the EOT model, certainly in the UK, but in the US as well. So, what changed? And I think the answer to that question, why did the ESOP become the predominant model in the US? And I think the answer to that question is easy enough. The answer boils down to the man in the bowtie on the bottom of the screen. His name is Louis Kelso. He invented something called the Kelso plan, first with Peninsula newspapers in 1956. He was leveraging tax code that already existed since, I think about the early 20s, for employee retirement benefits. And he was like a nuclear power plant in a human body. He went all over the country, flew all over the country, proselytizing what was called the “Kelso plan.” Ultimately, his second wife, Patricia, joined him in the crusade, they published books, very high-profile figures, convinced companies all over the country just with their own steam, the two of them. For one reason or another, the Kelso plan wound up getting formalized as a part of tax code when ERISA passed in ’73, ‘74. And from that point forward, you had a whole generation of practitioners who were now able to leverage something that wasn't just driven by the kind of charisma of Louis Kelso, but was now in federal law and legitimized by federal law.

And so, to begin with people like John Menke, who was actually a senior tax associate for Louis Kelso, opening up the first ESOP shop in 1974, to Corey Rosen opening up the NCEO in 1978, which is, of course focused on employee ownership, but naturally, would tend to, has and continues to focus on ESOPs, because it was the main thing, the main way to do employee ownership in the US. So, from that point forward, from the mid ‘70s forward, the rest is history. For decades now, the ESOP because of federal law, and because of a whole generation of wonderful service providers, who were able to make a living by helping businesses become employee-owned, that's been the main story of employee ownership in the United States.

Now, I'm a big fan of employee ownership and I'm a big fan of the ESOP. At the same time, I believe that you can like something, right, you can be a fan and advocate of something, but you can also critique it, you can be aware of its limitations. And I think that, for my part, I was just kind of at the right place at the right time, coming into this field a decade ago, in 2009 and early 2010, aware of how wonderful the ESOP was, as a device, to create employee ownership, that nothing like it ever existed. I wrote a 300+ page PhD dissertation arguing that point, but at the same time, I was aware of the limitations of the ESOP, as most of the people in the field are aware that the ESOP isn't the right fit for every company. And I started to invent, what I thought was out of whole cloth, the employee ownership trust approach. I wasn't aware that it existed in US history or in the UK yet, and I published an article in Tax Notes. A little bit later, after that, I discovered that actually this exists, it's the mainstream form in the UK and sort of did a second article crystallizing my thinking on the employee ownership trust in 2017, in an American Bar Association publication Probate & Property, a trust attorney publication, and started doing EOTs, launched EOT Advisors in 2017.

So, our published research shows that the employee ownership trust is not subject to ERISA, that existing US trust law works. We don't need any new laws to do an employee ownership trust. And in fact, you can do an employee ownership trust in any state in the country. You would keep your corporate domicile where it is at the moment. And if trust law in your state is not perfectly ideal or perfectly suitable for the creation of an EOT, you would simply use another state’s trust law to create the trust. I mean, this is extremely common, for example, with family trusts. You live in New York, you live in New Jersey, but you might want to use trust law from Delaware or New Hampshire or something like that.

My only minor contribution, if there is any, is to note that there's been a development in trust law in the last 20 or 30 years, something that didn't really exist in the Anglo-American tradition, in the 1,000 years or so that we've had trust law. Since 2004, in the United States, you can now create a trust for a purpose. Trusts do not any longer have to have human beneficiaries. You might recall the Leona Helmsley case with the trust for her dog. There's more to talk about there. But for the moment, we can say that you can now have something called a non-charitable purpose trust, where you identify a purpose as the overriding goal of the trust, and human beneficiaries, if there are any, can be made secondary to that purpose. And so, for example, adopting this concept to the context of employee ownership, you can decide now whether or not you want to have employees as legal beneficiaries with standing to sue. You can create your own customized enforcement mechanism that doesn't rely on the employee-owners themselves being the beneficiaries entitled to sue the company, or to sue the trust, I should say, and you can thereby minimize litigation risk.

So, we launched in 2017. EOT Advisors is the first financial advisory and investment banking firm in the country focused on assisting business owner selling to an EOT. We work in all 50 states. We provide a one stop shop for EOTs. So, we structure the transaction, we design the employee ownership, we help provide legal forms, and we also do valuation, pointing the right direction on ownership culture, and get you to a close. To date, we've worked on close to about 15 US EOTs. We've worked with every US EOT in the contemporary period. We're on track to get that number up to 20 by the end of this year. And I think the future is very bright at this moment for EOTs. Here are some representative clients. You see BTI is in the upper left there. We've done some video interviews with Optimax, with Paras and Associates, with more interviews on the way.

So, what are the deal characteristics for an EOT? These are not requirements or limitations. I've done EOT transactions where the enterprise was down to between just a little north of a million dollars. And I've done EOT transactions that were significantly above the range on the screen there [i.e., 50 million dollars]. But the kinds of companies that I'm finding are coming to me to ask about EOTs, or who have become my clients, tend to have enterprise values in the range of $10 to $20 million, and a typical workforce size in the range of 50 to 100 employees. And again, these aren't requirements. Some clients have been down to just a dozen employees. Other clients have been up to hundreds of employees and I’m working with a company now that's in the thousands. But the typical company coming to speak with me tends to be in that 50 to 100 employee range.

Typical time to close is about six months. Again, there's flexibility here. I've closed an EOT transaction in under two months, and I’ve taken up to a year and a half in another case where we were just really taking our time with the transaction and making sure every single detail was exactly to specification. But six months feels like a nice, I don't know if it's a leisurely pace, but very comfortable pace to complete an EOT transaction.

So, what are the advantages of an EOT for the seller? EOTs are a private, flexible, low-cost and easy-to-understand alternative to the ESOP and I'd add a sustainable alternative to the ESOP. EOTs are private. So, when you do an ESOP transaction, you're going to be sharing your, first of all, it's a quasi-public transaction with Department of Labour oversight, you're hiring a trustee, you're giving that trustee money to hire an attorney to hire a valuation firm and then you're now bargaining with the trustee that you just hired and with their attorney and with their valuation person. You have to involve probably about six or seven firms all to help you get through the ESOP transaction. Each firm probably has a number of representatives from each firm. So, it's not uncommon when you're doing an ESOP transaction to have 20 people on a call fleshing out how the ESOP is going to proceed. EOTs couldn't be more different. With an EOT, I'm getting you there, A to Z, soup to nuts, I'm the only person that you have to hire. In my experience, when I set out to do EOTs, I wasn't thinking privacy is the main concern, but more and more with business owner clients of mine, I'm noticing, and it makes sense what a value people put on privacy. For most of my clients for the last 20 years, the only people that have seen their books has been them and their CPA. That's it. So, I think privacy, it's an important value. And it's, again, I think the ESOP is a great tool, it's just that the ESOP doesn't speak as closely to that value of privacy as the EOT does.

EOTS are also flexible. Most business owners that I've encountered are pretty independent spirits. They like to do things their way. A lot of business owners become the boss, because they don't want anybody to tell them how to do things. Right. So, again, as great a tool as the ESOP is, it's a retirement plan, there's no getting around that. There are a set of sort of options that you have when it comes time to structuring an ESOP. And there's some variation, certainly, there's certainly a good amount of customization that can be done with an ESOP. But with an EOT, it's just really wide open, it’s an extremely flexible tool. I mean, you have companies that adopt an EOT and want equity compensation, equity sharing to be a big part of the EOT. So, notwithstanding everything that I just said earlier in the presentation about EOTs and the shares going in and staying in an EOT, you can always layer on equity compensation programs, broad-based equity sharing, broad-based share ownership, you can always add that on to the EOT, on top of it. So, if you want to do broad-based stock options, if you want to have a phantom stock plan, if you want to do actual shares outside of the EOT, you're not limited in that. You're not limited to a purely profit sharing approach to employee ownership. It's lots of flexibility. And you can see that in the different clients that we've worked with in the past. And you can also see that in the UK as well.

Low-cost EOTs are, it's still somewhat in flux, the pricing around EOTs, but it's at the moment looking like EOTs are coming in at about 20% of the cost of an ESOP to implement, and about 20% of the cost of an ESOP to maintain on an annual basis. EOTs are also easy to understand. It's easy to understand for you as the seller. You don't have to spend a year and a half learning what ESOPs are in order to create employee ownership at your company. Again, six months on a fairly sort of even basis, meeting every couple of weeks, will get us to any EOT. It's also easier for the employee-owners to understand. Everybody understands a profit sharing program. And you don't have to train employees on what it means to have share accounts and what it means to value the company's shares. Again, there's flexibility here, but by default an EOT would involve a profit sharing program and annual bonuses.

So, as great as all of these advantages are for the EOT, I think that there are a few additional points to mention in the current climate. One is that, fewer sellers to an ESOP are using a 1042 tax deferral option. So, from the seller’s perspective, that's the real benefit to doing an ESOP. It's that you get to defer taxes, invest the sale proceeds in the stock market, and get the appreciation on what would have gone to the tax collector. And when you sell the stock, you still have to pay taxes, but you get to defer capital gains for a period. Fewer sellers are using that option for a number of reasons. Some sellers prefer to invest in, for example, real estate than operating companies, other sellers might be interested in international securities. There are a host of reasons they might also not be interested in the complexity, the added complexity, a host of reasons why sellers aren't using 1042s on ESOP transactions. But the fact of the matter is that only about a third of sellers even use the 1042 on ESOP transactions.

Another important thing to note is that private equity firms are more and more targeting lower middle market businesses. So, all the business owners that I speak with, they say they're getting a call every day from a private equity firm or an investment bank with bids or offers to buy them out. That's relevant for us in the employee ownership community because it now means that privately held ESOP companies in a lower middle market that simply not have been on the radar for private equity firms, for conglomerates, are now on the radar. And because of ERISA rules, because of the requirements or mandate, I should say, that ERISA trustee consider offers for purchase of the business. And there's even a requirement that if the offer is good enough that they might have to sell the ESOP out, even if the employee-owners don't want that sale to occur.

There's a real concern that if your goal is to, not necessarily create employee ownership forever, but at the very least, to have some kind of sustainable employee ownership program that might last at least a few decades, let's say. It’s not necessarily an imminent threat. It really depends on your company, your industry, what's happening in the market around you. But it's a real concern, at the very least, that ESOP companies are being bought out. And so, if your goal is to create sustainable employee ownership, then again, an EOT is something that you might want to think about.

Another factor here is that, unfortunately, there's been more ESOP litigation in recent years. That's a burden that I think not many people want to have to contend with. Again your, I think, litigation risk is minimized with the EOT and as a result of the increased litigation, ESOP costs have gone up, and again, points to perhaps doing an EOT.

So, that's it on my presentation. Here is my case study slide for Bicycle Technologies International. You can see the warehouse there, you can see the inside, you can see some bikers, and they're based in Santa Fe, New Mexico. And don't have to do anything more here because we're going to turn it back to our interview with Preston.

First of all, I'd like to thank you so much, again, for being here for this world-exclusive interview with you as founder of largest EOT in the United States, Bicycle Technologies International. And I'd like to start off the interview by asking just kind of your origin story. What was the founding origin story of BTI? I know, of course, you had a partner originally. Tell us some of that.

Martin: Right. BTI started in Ashland, Oregon, fresh out of college, bike racing and thought, “Wow, suspension, bicycle suspension is taking off right now, we're going to do bicycle suspension service.” So, me and my partner fixed up my garage with its dirt floor and basically renovated the whole shack into a space where we could do our repairs, and also warehouse parts. And that was the beginning of our distribution company BTI, Bicycle Technologies International. So, that was 1993, in Ashland, Oregon, and then we moved to Santa Fe, New Mexico in 1996. And then…

Michael: What brought about that move? Is that like a personal lifestyle decision for you and your partner to move down there, or it was a business decision or?

Martin: It was a combination. We were looking for a more centralized location for the company to operate somewhere with a longer riding season, and not to mention the great weather and great food and southwest.

Michael: Awesome, awesome. And then tell us about the company's growth over the years since the founding, and since the move. I mean, how have sales been? How's your distribution network grown over the years?

Martin: Well, it's been perpetual growth since we started. The move to the Southwest was really helpful for the company to become established with shops all across the US and not just the West Coast. We ended up adding a second warehouse in Sparks, Nevada in 2017. And that gave us one-day shipping in the whole west coast. So, our business only blossomed, especially in the West, and we'll continue to look at opportunities for expansion with more warehouses.

Michael: Fantastic. And we're heading into talking in a few minutes about your employee ownership trust. It occurs to me to ask what was the transition like, I guess, both to Santa Fe, but then also and then in terms of opening up the new warehouse in Sparks in terms of employees? Did you have employees come with you? Did you have to do new hires down in Santa Fe or what was that process like? Or was this still a kind of a growth stage where it wasn't so much of an issue?

Martin: We were fairly small when we moved to Santa Fe. So, it was primarily my partner and I who moved down and then hired staff here in Santa Fe. And then when we opened up the warehouse in Sparks, it was a whole fresh staff who started that. Some coming from competing distributors, bringing their you know knowledge and background to help us get established there.

Michael: Fantastic. So, let's shift into talking a bit about employee ownership. How far back in this journey did you begin to think about something that might––you might not have even known the term employee ownership––but you just you might have known you wanted to do something kind of good with your business when it was time to exit, or maybe even that you'd want to do something that was good for your employees when it was time to exit? How far back was that? Or how did that enter the thought process?

Martin: Well, I really think the journey for the EOTs started with thinking about a succession plan. And that came about in early 2020. And honestly, it's one of those things that every business owner with a mature businesses is told, “You should be thinking about your succession plan.” And, well, it's one of those things that you just keep pushing off and say, “I'll get to that tomorrow.” And ultimately, with how rapidly the world changed in 2020, everything kind of became clear that I needed to change my priority. So, I read a survey of our employees in mid-2020 and it revealed their strong desire for a more defined career path and greater earning potential. And it was with those remarks that I really said, “Okay, this requires special handling. How, how do I combine a succession plan with these goals, the employees’ goals?” And so, that's where employee ownership became a priority, rather than just polishing up the books and selling to the highest bidder and, and that made more sense to look at the options out there in the employee ownership world: ESOPs, worker coops. We looked at those, they didn't really check all the boxes for us. And doing a leveraged buyout with the employees presented its own debt challenges. So, here, I was poking around on the internet, and came across some articles by Chris Michael. And you helped me understand the simplicity and the value of the employee ownership trust. So, that's, in a nutshell, that's how we ended up looking at the EOT.

Michael: Got it. And if you don't mind stating a few more words about some of the other options for employee ownership. I mean, it is clear that you wanted to exit the business, at the same time you saw this desire on the part of the employees to have opportunities for growth within the company, and for more earnings, growing their salaries inside of the company. You said you looked at other options. And of course, these are all great options. I'm a big fan of them. Everybody who knows me knows I'm a big fan of all kinds of employee ownership. I just see the EOT as one tool in the tool belt. What made you sort of think that maybe the ESOP or the coop wasn't the right fit for you, versus the EOT being the right fit for your company?

Martin: Well, the ESOP was probably the best known, and I was fairly certain that that would be the direction we might go. And at the end of the day, I did the interviews, several ESOP attorneys who could help provide those services and came to understand the cost structure, and the number of people involved, and the annual requirements to maintain an ESOP, and it just became clear that the formula wasn't right for our company. Alternatively, worker coops, another interesting model, it really, to me, spoke to decentralized decision making that kind of wasn't exactly what we wanted. We wanted a strong management culture that still encouraged individual achievement amongst the employee-owners. And so, that's why we ended up going towards the EOT, which, really, does keep that emphasis on the current management structure and keeping that largely unchanged, but bringing in more of a voice for the employee-owners and members of the trust.

Michael: That's perfect. One of the things that you said before on a prior occasion is just to kind of the difference between the ESOP approach to employee ownership, which is that the ESOP is a retirement plan versus, the default, I keep saying the default mode of structuring financial rewards in an EOT, because EOTs are so flexible. You can do it different ways, but the default mode of structuring financial rewards sharing in an EOT is profit shares. So, if you could speak a little bit about your thoughts about that?

Martin: Well, the ESOP, like you said, is a retirement program. So, the company would give the employee a share in the company, and then when they leave the company, they're able to cash out. And it depends on how well the company performed as to whether they actually gained or lost when they were with the company. Our big challenge there was, we didn't want to basically incentivize an employee to leave. An ESOP is giving the employee a reward only at the point that they depart the company. And so, when things get rough in a year where things aren't going great, when your cash might not be that great, it's not a good time for employees to leave, but that's exactly what might happen under an ESOP.

Michael: It's an interesting point that you raise, and I don't hear that discussed very often in the employee ownership community. I mean, it's clear, on the one hand, that ESOP companies tend to have a lower turnover than the typical company, but it is curious to think about what the potential effects might be of having that incentive of the buyout for individual employees, and what effect that might have on turnover, and whether or not it might look different in an EOT context. We'd have to look at data from the UK. And over time, as we have more EOT companies in the US, we'd have data that we can use here as well. So, now, I know that a part of your idea of bringing in the EOT and transitioning to EOT ownership was precisely your aspirations for BTI to continue to really grow quite strongly in the future. And so, let's get to that in a moment or two. But before we get to that, those kinds of sort of future plans for BTI, just if you could share a few thoughts or experiences over the last year. You guys transitioned end-of-year, between 2020 and 2021. You spent about a year, you've had the EOT in place. How has it been since the transition?

Martin: Right. It’s November now, we started in January of this year. And we made an announcement, first day of the year, welcoming everybody back from New Year's break, and surprised the heck out of everybody. That was not something that I had prepared anybody for. But well received, the employees were full of questions naturally, “How does this work? What are the benefits? Explain its perpetual trust model.” The legacy and culture of BTI is intended to be maintained in perpetuity, provided that's the will of the employee-owners, the members of the trust. In return, the members are partaking in the profits each year. There's a formula that we use to split up the profit between reinvesting in the company and in profit sharing.

Michael: And so, the employees have received it well. How has business been? Any particular experiences with the employee-owners, the members since the launch, so to speak?

Martin: Right. I think what I'm seeing is a lot more engagement with the employee members, that they're asking the right questions about our expenses, about how to increase sales, improve margin, they generally care about the bottom line in a way that they did before, but now they're very tuned in, so to speak.

Michael: Good, good, good. I know, of course, the company is going to be paying off the note for a number of years, because it was seller-financed, you financed the transaction yourselves, are you going to be doing a little profit share for this year to kind of get things going? And what do you expect that to look like or plans for that?

Martin: Correct. So, for 2021, we're on a fiscal year that runs through December 31st. And therefore, we’ll wait until our financials are completed, and then we issue profit sharing checks. And the employees, of course, they might have been used to seeing something in the December timeframe from the company in the past. And so, this first year, this transition year, we're going to keep some of the bonus in December, and then the remainder will come out in the spring.

Michael: Awesome, awesome. And so, then getting back to the sort of the issue of sort of BTI’s future and your kind of plans in the design phase of putting together the EOT, how do you think about the future growth of the company, even beyond your involvement with the company, and the EOT, how those things work together?

Martin: Right. Well, like I said earlier on, we're more interested in encouraging individual achievement over just top-down control. And so, I’m really excited about the new engagement I spoke of, but really, it's the management here that is keen to make sure that the values behind the employee ownership trust are understood, not just by the members, but by the whole company, that this is a different type of culture they're working in now. And that DIY spirit, do it yourself, is now kind of percolating through the pores of the company. BTI’s innovations over time have occurred internally, that we are one of those companies who doesn't always hire out just to accomplish every task. We like to do it ourselves. So, we have a broad IT department that solves problems on the go. Our marketing department, it takes some videos, and photography, we’re very…

Michael: It’s pretty cool! Actually, you got a lot of content out there!

Martin: That's right. And so, the EOT dovetails really nicely with BTI’s number one core value, which is, take care of each other. We're really concerned not just about the co-workers, but also our customers, our vendors, and the community at large. We're trying to make sure that this company is going to be around for the long term, creating jobs and wealth for our community, and as well as, obviously, the members of the trust.

Michael: That's a good point, I think, to--. We'll have to record more of these discussions for the future. We're limited in our time for the New York Conference. But that might be a good point to end on, which is that, although, of course, employee ownership is at the core of all of this, I feel like every time I call you, you're on the way to some big bike giveaway for kids or something like that. So, if you could talk a little bit about how some of that kind of community giveback element kind of can stay with BTI?

Martin: Well, it's interesting that you mentioned that because as part of developing the EOT, we also developed a non-profit called Bicycle Harvest. And part of the annual profit-sharing formula includes, not just reinvestment and the share for the employees but also part going to our non-profit. Part of the profits are reinvested in this non-profit to help build our community, not just in Santa Fe, but around the state and many other areas where BTI has a presence. So, one of our programs Free Bikes for Kids, in its first year, collected and repaired, over 1,000 bicycles, donated all over the state. We also do Thanksgiving and that national program that collects food on bicycles, donates it to the local food banks. And that's been around for over 20 years now.

Michael: Awesome, Preston, that's just amazing stuff. Thank you so much for agreeing to participate in this interview and this event, the New Jersey/New York Standard Employee Ownership Conference. Thank you so much. And we're gonna move to live Q&A right now and invite everybody to click on the link on the top of the page there. Okay, see you guys in the Zoom meeting.

In this interview, Melinda Paras, founder of Paras and Associates, explains why she chose to sell her company to an Employee Ownership Trust (EOT) as part of her retirement and succession plan. Paras and Associates, a technology company that supports healthcare interpreter networks, was built around a mission of social good rather than profit alone. As retirement approached, Paras sought a way to realize the value she had created while preserving the company’s purpose, culture, and commitment to its employees and customers. She discusses how the EOT structure enabled employee ownership, ensured long-term continuity, and even allowed her to maintain certain protections over the company’s future direction and legacy.

TRANSCRIPTION

Hi. My name is Melinda Paras and I’m the founder of Paras and Associates. Our company was incorporated in 2006 and we sold the company to the employees in 2019 in an Employee Ownership Trust, an EOT. Let me tell you a little bit about the company and our background and how we came to this decision.

Our company is a technology company that manages a video interpreting platform that mostly healthcare systems use to utilize their own interpreters in a seated position from a call center and broadcast their interpreting capabilities throughout their hospital system. And in our network, the hospitals also share interpreters with each other. And so when we formed the company, it was really not thinking about the question of profit, although it is a for-profit company. We were really trying to do social good and improve the access to quality healthcare interpreting to many hospital systems that really couldn’t afford to have large numbers of in-person interpreters in their facilities.

And so it’s with that goal of social good that we founded the company, and then as myself and the CFO were approaching retirement age, we began to think about what we could do to facilitate our retirement. We wanted to capture some of the value we had created in the company, but we also wanted to retain the social good that the company had facilitated. Paras and Associates has a gross profit annually of about six to seven million dollars, and it has about ten employees. And so it’s a small company, but it operates nationwide.

And so as we began to look at some of the options of retirement and sale of the company, we thought about selling the company to our competitors. There are a lot of for-profit language agencies and we thought probably there would be some interest in purchasing PAA. But we thought about what would happen if we did that, and a lot of the social good we had created we thought would be diminished. The competitors would be mainly seeking our client base, would probably let go of our employees, and really change the vision and the value of the company.

And so in the course of our considering these options, I heard about employee stock ownership plans, ESOPs, from a friend. And conveniently, the National Center for Employee Ownership I found was located in Oakland really just down the street from our offices. And I went and visited them and found out more about the ESOP option, and myself and my CFO attended one of the national conferences of the National Center for Employee Ownership.

First I want to say how valuable I think the National Center is for companies who are looking at employee ownership options. They hold two to three conferences a year, or they did before the coronavirus pandemic. I’m sure they will return eventually. And at these conferences, companies share their experiences about what it took to form an ESOP and manage an ESOP going forward. So I attended the conference, but what I found was that an ESOP option was not going to work well for our company. First of all, you really need more than ten employees. You need, I don’t know, fourteen, fifteen. The ESOPs are under restrictions related to the Labor Department because they are considered retirement programs. And there were just a lot of management processes that were required in an ESOP. And I greatly appreciate that at the National Center’s conferences you meet a lot of really good vendors who are lawyers and trustees who know how to manage an ESOP. And if you are a larger company and the ESOP option is good for you, I really recommend attending one of their conferences and getting introduced to many of the people in the field.

But as I sat through that conference and I looked at the size of our company and what would be required for oversight, it just felt like too much. So I was feeling kind of discouraged about it, and I left a little bit early and I missed the last presentation of the conference, which was a big mistake. Chris Michael, an attorney who is knowledgeable about employee ownership trusts was the last speaker of the conference, and my CFO stayed and heard him speak and spoke to him afterwards.

And as we followed up with Chris, we found that an Employee Ownership Trust was much more suitable for what kind of company we were. First of all, the size of the company, it wouldn’t require us adding employees or merging. At the National Center conference I even met with another company whose CEO said hey, maybe we should merge and then we could be able to do an ESOP. But it was a company completely unrelated to what we do.

So as my CFO and I talked more with Chris, we found a lot of advantages to the EOT type formation. I think the first thing that drew me to it is that there was an immediate value to the employees. In an ESOP, really the employees don’t see the value of their shares in the ESOP until they retire. It’s really a retirement plan essentially, and as they leave the company then they get paid for their stocks, for their ownership portion. In the EOT, Employee Ownership Trust model, the employees profit share at the end of every fiscal year, which means that they see the immediate result of becoming an employee-owner. In our model, we decided to distribute the profits to the employees based on their salary proportions. So if we’re giving out $100,000 in profits to the employees, it will be divided based on salaries. That way, those who have more responsibility and greater leadership in the company, who have higher salaries, are going to get a little bit more of the profits than others. But frankly, the distance between our lowest paid employee and our highest paid employee is not that high, so frankly it’s pretty good sharing of the profit.

And so we managed the process of that sale. It took about, I would say four months, five months altogether between beginning investigating it and accomplishing the sale. We had to do a valuation of the company, and the basic concept was we would create a valuation of the company, the company would pay back the original owners over the course of ten years utilizing the profits that the company made, and then after the distribution to the original owners the remaining profits could be divided then among the employees.

So the employees did not have to put up any of their own funds to become owners of the company. And the original owners of the company would be paid off over ten years, which we believed was economically feasible for the company to be able to afford.

A lot of people have asked me how the company is managed. Is it a co-op, does everyone have a vote? And we’ve had at our company a board of directors really since the beginning, which was a leadership structure of four to five staff members who were the CFO, the CEO, the chief technology officer. And so we’ve had that management process in place and that continues under the Employee Ownership Trust. So the board of directors makes the main management decisions. For example, at the end of the fiscal year, determining how much of the profits would be distributed to the employees. What the board of directors cannot do is they cannot decide to award all the profits to themselves. In our EOT structure, we have a trustee whose responsibility is limited and does not involve management of the company, but it involves an oversight to make sure that the goal of the Employee Ownership Trust is retained by the future management of the company. So the board of directors really has to make those profit distributions based on the bylaws of the company and the vision of it being an Employee Ownership Trust.

Some other special arrangements, if you will, as the founder of the company, I wanted to have just a little bit of say about the future of the company even after I no longer own it. And so I was able to make an arrangement in the legal process of the trustee transfer to say that any future sale of the company would need my approval, partly because my name is on the company still. I’m the Melinda Paras in the Paras and Associates. And I just wanted to make sure that the company didn’t go in any directions that I wasn’t comfortable with in the future.

So I guess in conclusion, I wanted to say that the Employee Ownership Trust I think has great value as a mechanism for the transfer in ownership from the original owners to the employees. One of the things I really value about our company is the team that we’ve been able to put together. They’re great people, they’re very invested in the social good that the company was trying to create, and I can’t feel better about leaving the company than having it be in their hands. And having them see the results of their ownership very immediately and being rewarded a portion of the profits each year, even though a profit is not, I think, the main driving force in our team’s interest in the company. It was the social good and remains the social good. But still, it’s an important part of the process, and if there’s going to be profit, having it distributed among the employees in a fair and reasonable way, I think is a good way to go.

So I want to say that Chris Michael has been an invaluable resource in understanding the EOT and informing business owners of this as an option. Chris was not only our lawyer for the transaction, but he’s also our trustee, and so we really appreciate that he understands what we were trying to accomplish through the process. I want to just close and say that anyone with more questions or more thoughts about Employee Ownership Trusts who would like to speak further with me are welcome to contact Chris and he’ll put you in touch with me.

Just one thing about who the original owners were. I was the majority stockholder. I had more than 51% of the shares of the company. But there were three other of our senior leaders in the company who also owned stock. The CFO was also interested in retiring, but two other senior leaders in our company are staying with the company, and so we’re glad to have that continuity in place. One of the biggest challenges about thinking about retirement is you have to find a replacement. So really it took me about a year to find a replacement CEO for myself and also a replacement for our CFO. And we’re now in the process of transitioning out of our roles in the company and our new leadership is taking over. So thank you all for your interest, and good luck with whatever transitions you’re seeking in terms of your business ownership.

In this webinar, Rick Plympton, CEO of Optimax Systems, explains why the precision optics manufacturer chose an Employee Ownership Trust (EOT) as its long-term succession strategy. After evaluating family succession, management buyouts, ESOPs, and other alternatives, Optimax selected an EOT combined with a Perpetual Purpose Trust to preserve employee ownership, share wealth with employees, strengthen the local community, and prevent a future sale of the company. Plympton discusses Optimax's commitment to distributing 25% of profits to employees, maintaining independent ownership, and creating long-term prosperity for future generations. The case study provides valuable insights into how EOTs can align business succession planning with employee ownership, community stewardship, and perpetual company independence.

TRANSCRIPTION

Hello, I’m Rick Plympton with Optimax, and I want to thank NCEO and Chris Michael for the opportunity to share our journey with you today and why we selected an Employee Ownership Trust as our succession plan. But before I get into that, let me give you a little backstory on who we are.

Optimax is a manufacturer of precision optics for research and industry. We’re a key supplier to NASA, we’ve made optics for each of the Mars Rovers and super proud of the work that we do there. Optimax was founded in 1991 just outside Rochester, New York, and we’ve grown to just about 400 employees, 120,000 square feet of manufacturing facility, and we’re doing about $50 million annual revenue. Through the years we’ve averaged 20 percent revenue growth per year. Projections going forward are that we may slow that down a little bit somewhere closer to 10 percent, but still a pretty healthy clip.

So let’s go ahead and jump into this. We looked at several different exit scenarios, including family members, management buy-out. We looked at ESOPs and we really thought that looked like a good option for us for a while. And also a trust. But before we get into those, let me just share with you what our objectives were for a succession plan.

So we made sure there was a fair payout for the exiting shareholders, and wanted to make sure that we continued to share the wealth with our employees. Through the years we’ve closed the books at the end of each month and taken 25 percent of the profit and shared it with our employees, and that’s worked out really well for us in reinforcing team performance.

We want to make sure that we continue to grow our team and strengthen our community. We looked at a timeframe of 100 years. And we really want to make sure that the company never gets sold. Here in the Rochester region, there’s a lot of great small companies that occasionally get purchased by multinationals and they take the technology they’re interested in and then shut down the Rochester division, which causes our community to lose a hundred or a few hundred local jobs. So we want to try to avoid that.

So to go to family succession, it’s really wonderful when this option plays out and there are capable younger family members that can run the business. This option requires longer term payouts for exiting members, which can be worked out. It can be very emotional trying to work things out with family. Businesses rarely survive beyond a few generations when they choose this option. It can be really challenging. And there’s always the risk that the company can be sold. Whoever the current generation is, they might decide that they want to sell and make big bucks in their lifetime.

Another option we looked at was a management buy-out. This requires a capable younger leadership team and often requires third-party financing for a leveraged management buy-out. But when we looked at this, this is really kind of like kicking the problem down the road. We might be able to make this happen at the size that we are today, but by the time our young professionals, 20, 25 years from now, are looking to retire, the business would probably be worth so much that they wouldn’t be able to parlay it again and do another management buy-out. So there’s a really high risk of the company being sold at that point.

When you go to ESOP, there’s a lot of good advantages here. Tax advantages for exiting shareholders, employees get a share of stock. When I was younger I thought just owning one share of stock would be really cool. There is, however, some ERISA oversight, risk of repurchase obligations, risk of the company being sold. With regard to employees having all their eggs in one basket, what we’ve seen here in the Rochester community is that’s not always a wonderful thing. Many families where the spouses worked at Kodak or Bausch & Lomb and Xerox, those were our big three companies in town. All of them have fallen on hard times in the last 20 years, and so there’s literally thousands of families here in our community not realizing the retirement that they expected, and that’s really unfortunate.

When I first looked at trusts it was kind of nice that it was a different piece of law. It’s trust law as opposed to the laws that govern ESOPs. So there’s no ERISA regulations that apply to trusts. In the early investigation it seemed that there needed to be beneficiaries, and so there was a risk of the company being sold. The grandchildren or great-grandchildren could band together and say hey, let’s sell this, sell this business and get away from it.

But then I met Chris Michael, and he started talking to me about an Employee Ownership Trust and something called a Perpetual Purpose Trust within that book of trust law. And that seemed to, that really seemed to hit on all the metrics for us. So as we talked that through, we started talking about well, what would the, what would we need to do with the business to structure it to support this and what would the Perpetual Purpose Trust do for us? So we sat down and started thinking about what would the tenets of the Perpetual Purpose Trust be? One would be never sell the business. Two, always share 25% of profits with the workforce. And three, ensure that the leadership is strengthening the team and growing the company. So investing in innovation, investing in workforce development, and continuing to grow the company and create jobs and careers for the folks in our community.

Structurally what we did, and we actually did this earlier this year in 2020, Optimax operates as a for-profit business with the owner being the Perpetual Purpose Trust. So myself and my business partner, the only two owners in Optimax, we sold shares to the Perpetual Purpose Trust. So going forward, the only voting shares will be owned by the Perpetual Purpose Trust. And within Optimax, there’s a board of directors. We have some oversight and we have some long term incentives in terms of, in the form of Class B shares that are non-voting, but they have distribution rights, and some family stock options so that as we have leaders developing in the organization they got some. There are some incentives that can be put in place rewarding a longer view.

So to get into our succession objectives, we want to make sure there’s a fair payout to the exiting shareholders, share the wealth with our employees, grow our team and strengthen our community. Let me talk a little bit about that. So with regard to Optimax and what we’ve done in the past 20 years, we’ve generated about $300 million in revenue, and about half of each revenue dollar goes to our workforce in payroll and bonuses. So $150 million has been given out to our workforce in the past 20 years and then spent within the community at auto dealerships, grocery stores, what have you. In the next 20 years with the growth path that we have, Optimax will generate $2 billion in revenue. $1 billion of that will be given out to our workforce and then spent in our community. And that’s how you strengthen a community. You work on growing your small- to medium-size businesses and ensuring that they have continuity as they go from one leadership team to the next.

So we wanted to look at 100 years of prosperity. We really believe this Employee Ownership Trust provides that for us, and we never want to see the company get sold. So those are our objectives, and we think that we’ve been able to achieve that. With that, I’ll take any questions that you might have. Thank you very much.