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