EP11 - The Job That Gets Harder

In this episode, Jason and Makenzie explore what is often one of the most challenging roles in an ESOP transition: frontline management. Immediately after a transition to employee ownership, frontline managers often take on the greatest level of responsibility as they help employees navigate change while keeping the business moving forward. Jason and Makenzie unpack six key threads that can help frontline managers better support their teams and guide the company through a successful transition. 

Transcript

Jason:
[0:12] Welcome back, everyone, to the Journey to an Aesop and Beyond podcast, where we seek to make all things related to employee stock ownership plans, both accessible and understandable. I'm your co-host, Jason Miller, and I'm here with...

Makenzie:
[0:28] I'm Mackenzie Wirth.

Jason:
[0:30] And today, we're going to talk about the job that gets harder after employee ownership, probably more than any other role. And we're talking about frontline management today. So when a company becomes an ESOP or becomes employee-owned, as you know, because you're listening to this podcast, the journey to the ESOP is very intense and intensive and emotional and a very large event. And so a lot of that attention that you have as owners, as founders on the transaction, on the plan and setting things up really goes into the employees as a whole. But the people whose jobs quietly change the most after that are really the managers in the middle underneath the executive team and even beyond what's happening with your frontline workers. So Mackenzie, imagine that you're a frontline manager and you were just told that, you just communicated that the company is now an ESOP. Your job yesterday was managing a team,

Makenzie:
[1:54] But today your team is made up of owners.

Jason:
[2:00] What changes?

Makenzie:
[2:06] I would say immediately, probably mindset. And maybe with after the announcement, I would gather my team and kind of have a, maybe brainstorming session or just general session with my team to make sure they understand, the ESOP, that I understand the ESOP and what that means to us as a team in our specific roles.

Jason:
[2:45] You are really suddenly becoming a translation layer in the organization, right? So as a frontline manager, you have always been responsible for communicating to everyone else. And we talked a little bit about this in our strategy direction being understandable and clear at all layers of the company. But now we're talking just about the concept of employee ownership. And in our scenario, you really sit between leadership that knows the strategy of the company, that knows all the details of the deal, and understands all the financial mechanics that we've spent a lot of time reviewing here. And the employees that maybe, hopefully they care a little bit more because they've just been told you're now owners, but they're going to ask more questions and they're going to interpret things through a lens of ownership and you're stuck in the middle. And not only that, but you have to be able to navigate that without knowing all of the information that your executives know or access to any of the information

Makenzie:
[4:05] That they may have.

Jason:
[4:06] That could clarify some answers and questions that the employees have. How does that make you feel?

Makenzie:
[4:18] I think it puts you in a position where you have to be resourceful and go out of your way to either get access to that information or go to the right people in the company that know the answers and get yourself to a point where you understand the answers to those questions so that to your point, I can translate to my team what that means. And I'm sure that's a bit, it would be a bit overwhelming at first because that's in addition to my day job, in addition to my daily tasks, that's beyond the scope of what I do every day. So that would just be kind of an incremental layer to take on. But But once I think you get past the hump of everyone getting used to the change and understanding what it means to be an employee-owned company, that it's all worth it. You just have to go through that period of transition. Yeah.

Jason:
[5:22] So we're going to pull at six different threads today in helping to frame the mindset and the minefield of being a frontline manager in a new employee-owned company. And I don't think that this gets talked about a lot or enough, but the lived experience of not just every employee, because again, we talk about every employee being part of the ESOP, and then we talk about executive leadership, but your layers of management have a very interesting perspective and view after the transaction. So let's pull at some of those threads. So the first one is explaining decisions without owning the decisions. Yesterday, you were still in the same spot, right?

Makenzie:
[6:16] You still had to do that.

Jason:
[6:17] This is what we do. This is how we do it. And then this This is how I'm going to lead my team in order to execute on whatever it is that we do. So you now have to explain why to all of the people that are doing it. And then they have a vested interest now in understanding.

Makenzie:
[6:45] Yeah. I think one of the advantages of selling to an ESOP as opposed to another route, one of the biggest reasons or what we see often from our clients, one of the reasons that they want to sell to an ESOP versus another exit strategy is to preserve the company's culture. And that's just a piece of it but I think that's a big piece of it and that's something that would be valuable to employees that hear that and know that if they had gone a different route the owners had gone a different route then the likelihood of that culture being preserved is very much less, and then I think you just have to also be very realistic in that at some point in time whether that was today or tomorrow or in a year or five years it's inevitable that ownership is going to transition at some point and the owners have to make that hard decision of when and how and, at that point it was decided this was the best time.

Jason:
[8:05] That's really good armor for a manager, the way that you phrased that, the benefit of culture. And for those of you that are listening, as you go through this and as you go through an ESOP and you begin to talk to your leadership team all the way down, reinforcing why culture helps to deliver the message and reinforces itself as some of the decision criteria. You might not know exactly, everyone might not know exactly why decisions were made or what the priorities were, but the ends are to preserve the culture of your company and the legacy of your company as you move forward. And it's a great way to pull, I guess, to pull out some of the stress, especially within an ESOP company. I like the way that you phrase that.

Makenzie:
[9:07] On top of it, in reality, nothing really changes within the company unless the owner has a plan to just leave the day the transaction closes, which we almost never see in an ESOP transaction. And if that's the case, that's on them to communicate that to their company. Ahead of time I can't imagine that the day they are leaving they would announce that to the company and maybe they did but I think that's kind of that's a big part of it too.

Jason:
[9:42] The mindset shift in employees just happens naturally over time. But the first thing that they're being told is you're now owners. And managers are going to start hearing questions like, well, if we're owners, why are we doing it this way? Is this good for the company? Is this good for our ESOP? and we'll pull out some more around the ESOP portion. They're going to start asking questions like that.

Makenzie:
[10:16] How does this affect us?

Jason:
[10:18] We've answered some of that and it stays the same. But the person who's delivering the message hasn't been in the executive room. So how

Makenzie:
[10:30] Do managers handle all of that when they're.

Jason:
[10:34] Asked something that they don't actually know?

Makenzie:
[10:43] I think it goes back to communication, which maybe at that point, that's maybe not on the manager, but could be on the manager to at least go receive the communication from executive leadership. But communicating to the employees of what it actually means to be employee-owned and kind of the guardrails, I guess, that are in place to prevent however many employees, 200 employees, coming into the CEO's office with all of their own different opinions and trying to change things. I think having those communicating, you know, the role of the trustee and the fact that it's a beneficial interest and that the way you're receiving your value is through a retirement plan. You're not actually... You're receiving a beneficial interest and the differentiation between that and what the owners looked like or the role of the owners before the transaction.

Jason:
[11:55] We often tell clients that you're not suddenly going to have everyone show up at the door immediately after trying to tell you what to do. You may, it may occur depending on the culture of your business, but functionally it won't. And I think we'll touch on that beneficial interest a little bit more as we talk, but it's a very important distinction. So let's transition from this explaining decisions without owning the decisions to what this may look like in performance conversations. So I imagine that things are going to change between manager and frontline worker when it comes to performance evaluations. I think it's a subtle change, but the language may be shifting away from we need to improve productivity, we need to increase pull through,

Makenzie:
[12:59] We need to grow revenue.

Jason:
[13:02] To you're affecting the value of the company.

Makenzie:
[13:09] Yeah.

Jason:
[13:14] And before, we need to grow because, right? Leadership gives the marching orders and then it gets delivered to the marchers, to the soldiers on that front line. But now those soldiers are owners. And they're going to ask questions around why or how. I think they're probably going to be more interested in how and is whatever I'm doing today. Is it affecting the value of the company positively or negatively? And then help me understand. So that and you and our example as a frontline manager are going to have to start explaining things like, oh, well, this is why this is how related to efficiency and quality and cost control and waste. And unbillable time and all of those things. Right.

Makenzie:
[14:14] And it's got to land.

Jason:
[14:16] It's got to connect without being threatening and without it being abstract. And that's, I think, a skill that most managers haven't ever really been asked to develop.

Makenzie:
[14:31] Mm-hmm. Yeah, I would imagine the... The beginning of those conversations when maybe you start having your one-on-ones right after the transaction would probably start with instead of we need to grow revenue or whatever, to your point, how are we going to do that? And maybe give them the opportunity to understand how they contribute to the value in the first place, give them KPIs to work towards and kind of create a new benchmark or baseline to grow off of. And then your future performance reviews, you can always lean back to that conversation and say, well, this is impacting value because these KPIs aren't being met, which leads to this and that. But I guess making sure they understand the expectation and how their role connects to value from the start.

Jason:
[15:46] I think this is a, let me back up, and not because I said I think.

Makenzie:
[15:55] I've noticed I've said it like 20 times.

Jason:
[15:59] Let me back up to sometimes when we're working with clients that are evaluating any type of exit, I say sometimes, probably every time, what's the difference between success and failure? What are the things that lend more towards success? What are the qualities of a successful ESOP afterwards? And it gets, we always come back to communication and education. And in our context, that's usually communication about the ESOP, education about the ESOP. And this

Makenzie:
[16:37] Is what we're.

Jason:
[16:38] Highlighting here around the change in mindset for a manager that has to communicate deeper with their workers about how and why is something that can happen in any company that's at any stage. If it's intentional about improving it, that will improve the outcome of the company's success, whether it's for a transition or just operating for the next 10 years. If you have managers that can communicate strategy effectively to motivate the people that are working with them every day, then it's going to be closer to the hands that are doing the work, which is closer to your clients. And it's going to show whether or not you're an ESOP. And so this is one of those things, again, listeners, as you're evaluating, is an ESOP right for me or not, that you can take back practically today and think about, you know, is there a way for us to improve in how we're connecting our management team with our workers? Yeah. Our next thread is everyone's going to have a new question and over time that question is going to become a probably the first question

Makenzie:
[17:59] That they ask in anything any.

Jason:
[18:01] Change any idea and it's going to be how does this affect our esop Not the ESOP, but our ESOP. When employees make that shift into that ownership and really inhabit it, they're going to start thinking in that way. What you're telling us, does it affect our ESOP? And one thing that I want to pull out is we're hiring a bunch of people. So does that mean I'm going to get less shares? This year? Like, is it, am I getting diluted because we're, what if we just did more? We just bought a new fleet or we just refreshed our fleet. Did we need to do that? Is that going to reduce the value of the company? And then why aren't we doing this other thing that I read about on Google or had a conversation with chat GPT about that says that it could increase the value of the, why, why aren't we? And they're going to bring those questions to who first.

Makenzie:
[19:09] The manager level, and I think all that goes back to, strategy and communicating strategy well and having trust in your leadership and that doesn't mean you can't still ask those questions but, when you're asking them you have to you should hopefully have some trust in your leadership that they're making the decision for the right reason and also know that again there are those guardrails in place like the role of the trustee who sits in on board meetings where any real significant decision is made that could impact.

Jason:
[19:56] The ESOP and know that they're being

Makenzie:
[19:58] Protected by someone that is representing them.

Jason:
[20:07] Again, we get back to incomplete knowledge and incomplete context, but really it creates an additional pressure that managers may not have expected because of the, not just the frequency of interactions with the employees, with their fellow owners and workers, but because of the casualness of the relationship. I have in my head that, you know, if I'm leading a team of 10 and then we have whatever it is that we're doing and then we have our morning meeting or Monday meeting or whatever it is that we're communicating, this is how we're staying together this week.

Jason:
[20:49] And then I go to get a new cup of coffee and someone comes up to me and says, hey, I noticed. We got. Brand new software. um how how did how did leadership think about getting us into that software like is that going to be a drag on on our value is our share price going to go down do they expect things to go up and then i i just want coffee and then i turn around after doing whatever and then go back to the next one someone comes and knocks on the door of the office and steps in like hey i had a thought uh over the weekend about what we could do um and which bringing ideas to management is always a great thing and then on my way to lunch someone gets in the elevator with me and strikes up a conversation around all these new hires

Jason:
[21:43] What I want to expose in that is I think that it's likely a constant drip. It doesn't all have to happen in the same day, right? I don't imagine that that's going to occur. But those conversations happen more in the break room than they do in the boardroom because of the relationship that managers have with their workers. And i just i just don't think that they're always prepared for that so the question i think should be how do you prepare management for those conversations not just the big answers it's how do you respond when the person that you work with 40 50 60 hours a week asks you an earnest question in passing

Makenzie:
[22:29] And i'm sure that's something that you'll get accustomed to over time and to your point, leadership should prepare you in how to respond and address those questions. Maybe it's as simple as you can always go to the trustee if you have concerns about the ESOP. But yeah, I think that's just part of the transition and getting used to the change and having to answer those questions.

Jason:
[23:12] You already mentioned the beneficial ownership, and we talked a little bit about that. And so some of those questions from workers are going to be, well, we're owners. Why don't we get to vote on decisions? All right. When do we get to raise our hand and say, this is the direction that we want to take the company? When can I do that? And I think the answer lies in between you can offer suggestions and raise your hands and think about things that you would like to see differently, and then we'll run that through the chain.

Jason:
[23:48] And not in a, let me put it in the circular file, but do we have a process for ideas and for grievances? And the real answer to that is yes, but we have to explain it in new terms. There's governance for the ESOP. You've got your board, you've got your executive leadership team, and then all the way down through the hierarchy of the organization. And then where does the responsibility lie? And responsibility is different than accountability. And everyone shares a different layer or level of responsibility. But there's a purpose for why decision-making still happens through management and through leadership. I think frontline managers are going to have to explain that there's a hierarchy, not for just absolute decision authority and tyranny, but because it works and you do get to participate and we want you to participate. But it doesn't mean that suddenly every decision becomes democratic. Do you think that employees expect ownership to mean more control than it actually does?

Makenzie:
[25:10] I would, again, say it just depends on how it's communicated. And, for example, everyone receives a summary plan description that goes out to all the employees that provides the basics of the plan and what it means to them. It specifies that they have a beneficial interest. There's not a voting interest, but they can have a pass-through vote on significant matters, like change of control type transactions. But again, I think that goes back to one, what the culture already is, and then two, how the ESOP is communicated. I think they also have to remember that this is like essentially gifted to them. They didn't have to do anything to receive this. So to feel that much, I guess, entitlement from having to do nothing or from being given that is, I don't know.

Jason:
[26:19] You're not wrong in that at all, right? And that is one of the topics that gets mentioned and debated very often, is that the ESOP is a gift to workers. The ownership element of the ESOP is a gift to workers.

Jason:
[26:37] And some of the reaction to that you didn't have to do anything to get it is, well, I showed up just as much as everyone else did for my role. I am doing something, but there's no contribution apart from being part of the company or the culture. And I think that's a very important thing to point out is it is. It's a gift. It is a no cost benefit, I think, is a good way to look at it. Yeah. We already kind of jumped ahead a little bit to the fourth thread around the concept that informal leadership suddenly matters more in that where where the conversations occur, why they're being taken to the person that likely works most closely with them with any measure of authority or responsibility more than than the worker. And that works all the way up the chain, right? So if I work in finance under the CFO organization in a large organization, then I'm not going to go to the operations manager or the COO with my questions or concerns. I'm going to grab the CFO at the end of the meeting that we normally have. And this is where I'm going to have this casual conversation. Mm-hmm.

Jason:
[28:04] I caught myself there. The value of management gets enhanced with their ability to carry and tell the story of the culture that leadership and the founders wanted. And whether they like it or not they're they're at that that vector of I have to communicate it I have to receive it I have to live it and I have to be a channel from the front all the way up my management chain to whoever I'm reporting to and then I also have to be I guess a conduit is the word I was looking for on the way down as well. And because authority, I guess, span of control, one of those corporate terms, right? As you keep going down more and more people to others, like what's too broad of a span of control. But the culture of employee ownership in a company kind of lives or dies with middle management.

Makenzie:
[29:20] Yeah, you almost have to have the buy-in of management and have them be aligned with leadership, And not only are you going to have questions about the ESOP and how they contribute to the value or what the company's doing and how that impacts the ESOP, you'll also be asked, what is your reaction to the ownership transition? Like, how do you feel about us becoming an ESOP? And so I guess not that you can't disagree that with whatever the vision that the founders and executive leadership had, but ideally in a culture where an ESOP is successful, everyone is already aligned. And so that should be a simple transition or a simple alignment.

Jason:
[30:30] So Mackenzie, zoom out from the role that we put you in in the beginning as a new manager having to communicate all this to your employees. And take an outsider's perspective on a brand new ESOP company. And then let's view it over time, a year or two or three, however long you want. But in that time, if you look in, there are some managers who thrive and some managers who struggle. And those are the next two threads we're going to pull on. And so let's do the positive one first. Some managers suddenly become incredible leaders. Why do you think that is?

Makenzie:
[31:26] They probably just have more motivation and a sense of purpose in showing up at their job, to not only themselves contribute to the esop value but also, lead others in contributing to the value and helping them understand how they contribute to the value i would say it's just more more motivation is maybe why they would thrive.

Jason:
[31:57] What do you think are some of the most important qualities in leaders in general?

Makenzie:
[32:10] I would say I personally have always liked the idea of servant leadership and being open-minded, but not being too much of a people pleaser either. You kind of have to find the in-between. Being confident, being resourceful, and approachable.

Jason:
[32:54] That would be helpful, especially in the context that we're talking about today. I can imagine some folks that I've worked with and for in my career that I would not feel comfortable taking certain questions to. At any point. Are you a Marvel fan?

Makenzie:
[33:16] Yeah, sure.

Jason:
[33:18] All right, good. So Captain America, right? I love Captain America and the super soldier serum. And if you look at that, if you watch that movie, the first Avenger, they're going through what it does, like what is it? And Steve Rogers is the little puny guy that goes through all the training and does all the things and the scientist is like, he's perfect. And the military people are like, what are you talking about? Right? Like he's this puny guy over there and then explains what the super soldier serum does. And it's not, it doesn't make them a super soldier. It enhances the qualities of the individual who takes it.

Jason:
[34:08] And the qualities of Captain America are like, you know, he's selfless and loyal and brave and intelligent and all the things that we love and know about Steve Rogers. And I would posit that employee ownership to good managers, to good leaders, is like a super soldier serum that's going to enhance what they bring to your organization. And when you look at the qualities of an individual, you want them in roles that allow them to grow into that. And that can shape that. And the shot in the arm is employee ownership, right? The byproducts of alignment with financial incentive and culture and camaraderie and togetherness, all of that gets put inside of these leaders in a way that wasn't present before. So let's take that same thing and apply that now to our sixth thread, which is managers who struggle.

Jason:
[35:26] Some may struggle with the concept of, I prefer that everything just comes from the top down. You give me the message, I deliver the message, don't shoot the messenger. And in our example of the super soldier serum, that's abdicating leadership and deflecting responsibility. When ownership should bring more of that, not less. And even if there's not less, the gap between what some people would get from becoming an owner and growing into a leadership role. And someone who just doesn't change or doesn't come along with the new,

Jason:
[36:24] I keep wanting to use the word culture, but that's not right. And a regime comes to mind because we've been talking about Marvel and whatnot, but it's not. So the new environment, let's use an era. Yeah, the new era. Thank you. That's a good one. Is going to, the distance between those two is going to be very obvious.

Jason:
[36:47] Those that struggle probably feel uncomfortable with being transparent or don't feel confident in how to articulate what's happening from a higher level, or it might expose in them some of the wrong things. Again, if the serum enhances the qualities that are already there, maybe they're like, I'm not a really good speaker, or I don't really get how this ties to the value of the company. I'm not a good learner. And that just might be some of their identity or the things that they inhabit. And the employee ownership will help reveal the gaps so that management and executive leadership can see what the gaps are and then find ways to coach managers and enhance managers that are struggling with this in very real ways that didn't present themselves before and so

Jason:
[37:54] It's not that they're bad managers it's just the expectations of the role

Makenzie:
[38:00] Have changed.

Jason:
[38:01] Because the it is a new era uh using your words what do you think about that yeah

Makenzie:
[38:08] I imagine like the people that you're describing are also people that may just like, not like may just be very against change or not not open to the idea of change which not to say everyone loves change I think it's more human nature to be to not want change and to keep your routine any sort any sort of shift and change is always, just with the unknown it can be it can shake things up but I can see someone who is just either doesn't care and doesn't like change and doesn't get on board would have those, results and and maybe also in addition to what you're saying that it's exposing the qualities these leadership qualities that they lack or can improve on or need coaching on. Or it shows leadership, maybe you don't have the right people in the right roles.

Jason:
[39:23] Sometimes that's hard. When there's what really is a gigantic shift, and this is the weird part, right? So we always say the day after the ESOP, it's going to feel weird to ownership that's now an employee, but an owner in a different perspective. But the day-to-day doesn't change. and to kind of be ready for the difference in the additional load that you were carrying before and then this euphoric event, which should be a euphoric event in the transaction, and then the day after, it's just like the day before.

Makenzie:
[40:10] And it doesn't.

Jason:
[40:12] Just change the company's structure It helps to highlight all of these other things that it exposes what was there underneath in a positive way. I think it's a very positive way,

Makenzie:
[40:32] Not just because of the benefits of an ESOP.

Jason:
[40:36] But because this catalyst occurred. And it didn't just occur for the company and for the founders. It literally occurred for everyone. And it takes a little time for it to dawn on everyone. But when it does, that's the shift that allows all of those gaps between founders carrying too many responsibilities or too many hats or not distributing authority and the things that we've been talking about to percolate down through the organization and then see that return. And where there's a block or whatever else, then everyone has a vested interest in removing that without removing the person. Sometimes removing the person is required, but I think that becomes a last

Makenzie:
[41:29] Option in many ESOP companies because of the.

Jason:
[41:32] Culture. And it allows leadership to thrive. And in time it just i want people to be aware of how daily conversations are going to change and it's really hard on this front end to look 20 years in the future and think about what what are the conversations that are going to be happening around the the coffee machine and then how are my manager is going to feel when their people bring them those questions then versus now? And how do I help them grow? And the people that are having those conversations most often are

Makenzie:
[42:20] Your frontline managers. Yeah, I think it's an adjustment, it's a transition, like we've been saying, but I also really liked the word catalyst that you used. Because in essence, nothing really is changing about the company, you're not having new leaders come in, you're not having a big shift where maybe you're acquired and you're moving all of your software or whatever. So nothing is changing, but there is a change in a sense in having that, that catalyst and that, that new layer of motivation to enhance the culture that you've already have.

Jason:
[43:15] Well, listeners, we made it through another one. I thought that this one was a fun topic for us to cover for many different reasons. And one of the things that you can take back today is thinking about how to prepare management for at all layers for any type of transition. And thinking about how we can allow natural leaders to grow and identify leaders that might struggle under different conditions and then elevate them to the next level within that is something that you can do today. So thank you for joining us. We appreciate you listening and for us to be a part of your journey to an ESOP. Like, subscribe, share with a friend, and we would love to hear from you. So interact with us at journeytoanesop.com. We'd love to hear about what you want to hear from us and anything else that's on your mind and how we can help you on this