EP32 - Interview with NCEO's Corey Rosen: The Future of Employee Ownership

Washington is sending new signals about employee ownership, but the headlines don’t help much if you’re a business owner trying to decide whether an ESOP is actually doable. In this episode, Jason Miller and Makenzie Ragland welcome back Corey Rosen from the National Center for Employee Ownership (NCEO) to discuss the latest developments shaping the future of employee ownership. Corey breaks down key legislative efforts, including the Retire Through Ownership Act, the American Ownership Resilience Act, and efforts to fund the WORK Act. He also shares how the regulatory environment surrounding ESOPs continues to evolve and addresses common perceptions surrounding ESOP litigation risk and transaction costs. Other topics they explore include the impact employee ownership can have on recruitment, retention, workplace culture, and long-term business continuity. Corey shares recent NCEO research on employee retention, explains why ownership and a strong culture work best together, and offers practical guidance for owners beginning to explore an ESOP. From educating yourself on the available options to learning from existing ESOP companies, this episode provides a timely look at the growing momentum behind employee ownership and what it could mean for business owners considering their next chapter.

Transcript

Welcome Back and Guest Intro

Jason Miller: 00:00

We’ve referenced some of the happenings in employee ownership at a legislative level and what the temperature in Washington is, how that may be or has changed in some respects, and maybe not in others, as well as just a general sentiment toward a broader expansion of employee ownership and a broader conversation. And so I felt there’d be no better person to talk to us about those developments, because of their advocacy, than Corey from the NCEO.

Jason Miller: 00:39

Welcome back, everyone, to the Journey to an ESOP 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 today, Jason Miller.

Makenzie Ragland: 00:53

And I’m Makenzie Ragland.

Jason Miller: 00:56

And we have a return guest, Corey from the NCEO, joining us. You’ve heard us, listeners, over the last number of weeks and months reference some of the happenings in employee ownership at a legislative level and what the temperature in Washington is, how that may be or has changed in some respects, and maybe not in others. There’s also a general sentiment toward a broader expansion of employee ownership and a broader conversation. And so, I felt there’d be no better person to talk to us about those developments, because of their advocacy, than Corey from the NCEO.

Corey, welcome again. 

Corey Rosen: 01:46

Thank you. It’s great to have you here. 

The Big Federal ESOP Bills

Jason Miller: 01:50

Why don’t you, if you could, tell us: Is there specific legislation that’s occurred over the last number of months, or even the last couple of years, that you feel has the potential to impact employee ownership for the better?

Corey Rosen: 02:05

It’s been a busy year for legislation. The number of bills introduced in the U.S. Congress, as well as in the states, has increased, and I think at this point the congressional legislation is certainly the most significant. There are three particular bills that are worth looking at.

One is the Retire Through Ownership Act. Basically, what that says is that you can use the standard of value that was established in 1959 by the IRS for estate tax valuation to value ESOPs.

Now, that leaves a lot of questions. The entire document is eight pages long. The proposed valuations from the Department of Labor on valuation, which were required by SECURE 2.0 that came out at the end of 2024 and were quickly rescinded by the Trump administration, along with every other pending regulation at the time, were something like 130 pages.

So, what’s the gap in what this approach would do? Well, 59-60, this regulation from the IRS basically says that if you have a good-faith valuation from a qualified appraiser that looks at what a willing financial buyer would pay for similar property, you’re okay.

That is a very broad standard, and it would still leave a lot of questions unanswered that would need to be resolved by the courts or through the required Department of Labor regulations on valuation that they’re presumably working on and that will come out, they say, at the end of the year. My guess is that those sorts of things tend never to come out on time, so don’t hold your breath on that one.

It has gaps, for instance, on things like: What about the structure of the transaction? How do you value warrants? What’s an appropriate interest rate? How do you value whether the ESOP really has control or not? These are a lot of the things that have been at issue when ESOP valuations have gone to court, along with the always-present question: Is your forecast overly optimistic?

And so I don’t think 59-60 would resolve any of those things. I think it’s more significant in that it’s pointing in a direction that says, “Department of Labor, we want you to be more lenient on ESOP valuations.”

That could be good for the ESOP community, and that would make it easier to do this with less litigation risk. On the other hand, it could open the door to some bad actors, and a few bad ESOPs are worth several hundred good ones in terms of public reputation and legislative risk. So there’s some risk there.

I also want to say we just completed the annual update on ESOP litigation. We do that every year. It covers the litigation all the way back to 1990, and there were 12 new cases that made it to court this year, only four of which dealt with valuation.

So there’s a perception that there’s a very high litigation risk with ESOPs. The reality is that the average has been 12 cases per year since 1990. So the perception is somewhat overblown.

But anyway, that’s important. Even if the perception’s overblown, if the perception’s out there that this is risky from that standpoint, that’s going to discourage ESOPs. So if that narrative changes, that would be useful.

The second piece of legislation is the American Ownership Resilience Act. This has been around for a couple of years now. Its proponents, or people that I’ve worked closely with—in fact, I was involved with a group of people who were coming up with this concept a few years ago—are 50/50 optimistic about it. It could pass, probably not this year, but maybe next year. It does have bipartisan support.

So, what this bill, the American Ownership Resilience Act, would do is create a parallel program to the existing Small Business Investment Companies. This is a long-established, very successful program.

It’s a little bit complicated how it works. Really, all you need to know is that what it does is let investors set up what would be called, instead of Small Business Investment Companies, Employee Ownership Business Investment Companies. These EBICs would, like SBICs, qualify for what, in effect, is government guarantees of some of the money that they would put up to help fund ESOPs.

So, what do we need that for? Well, the reasons why there aren’t more ESOPs, we think, most importantly, are that too many business owners just don’t know it’s an option, or what they know is wrong.

Second, some business owners really like the idea, and they want to sell a good chunk of the company or all of the company. They go to a bank and say, “Hey guys, you want to loan me enough money to buy 100% of the company?” And the bank, of course, says, “Probably not. How about 30%? If you’re really well collateralized, maybe we’ll give you 40%.”

So, what am I going to do with the rest of it? Well, you can do a seller note. Now, for a lot of business owners, that’s terrific. I mean, after all, you are taking a note that’s probably going to be priced above senior debt, that’s going to pay off over maybe seven years.

And even though it’s priced as a more risky asset, you know it’s your company, and you feel a lot of confidence in your company. In fact, the track record of ESOP debt is that the default rate is two per thousand per year. So it’s highly unlikely that this is going to default.

You’re going to get a nice rate of interest over a period of time from a secure asset, and a lot of sellers think, “Well, that’s great. I’ll do that.” In fact, some sellers say, “Forget the bank altogether. We’ll do the whole thing with seller notes.”

WORK Act Funding and State Momentum

Jason Miller: 09:27

We see that pretty often. The way that we think about it and articulate that back to our clients is, you’ve already taken this very same risk for 20, 30, or 40 years, and you’re just converting that risk into a financial instrument that now has an interest rate and an amortization. You’ve bet your whole life on this, and you’re willing to do it for a little bit longer.

Corey Rosen: 09:50

Good way to put it. Nonetheless, as we both know, there are some owners who say, “I don’t want to take the risk anymore.” That’s the whole point. And so I want more money up front.

Well, you could go out and try to get that money from what are called mezzanine lenders, and they’re going to charge you a hefty interest rate and make the deal less doable. Also, that interest rate is going to get factored into the valuation that you’re going to get paid for the company as well.

So, what if you could get a lower interest rate on that secondary debt? That’s the gap that EBICs are intended to fill. So that would lower it. It wouldn’t bring it down to senior debt levels, but it would bring it down significantly. So that could be a big deal.

My feeling is there have been three really important pieces of legislation to date on ESOPs. One is the one that got them established in the first place, ERISA. The second was Section 1042, the deferral. And the third was the S Corporation ESOP legislation.

I think this would join that pantheon and be the fourth in that group of really important pieces of legislation. So hopefully that’ll pass. But like all legislation, it’s uncertain, and any bill is difficult to pass these days on anything.

And this is an amendment to the emergency savings program that Congress set up a few years ago in SECURE 2.0 that basically lets you put aside $2,500 into a sort of parallel to your 401(k) account. Employers can put more money in if they want, and it sits in that account and earns interest or other investment proceeds without paying tax. It would double the amount you can put in to $5,000.

Now, what’s interesting for our purposes is that it included an amendment that passed 17 to 3 in the Senate HELP Committee that says the Department of Labor will take existing discretionary funds—$78 million worth—and it will fund the WORK Act.

Now, this is of a lot of interest to me because, in 1987, I was asked by Senator James Sasser what would be the most useful thing we could do at that point on ESOPs, and I said, “Fund state programs designed to educate and do outreach for business owners on how ESOPs work.”

Well, he liked that idea, and we drafted it. I was not working on Capitol Hill at the time, and it got introduced, and that is as far as it went.

Many years later, in 2016, after some conversations I had with the Center for American Progress, they recommended Congress do this. Then Bernie Sanders introduced it as the WORK Act.

So, what the WORK Act says is the federal government will put money into these state programs on an increasing basis. There’ll be a budget of $4 million the first year, and it keeps increasing each year over the next five years. States can apply for this money to help fund state outreach programs.

There are a lot of state programs around the country now, and not all of them, but most of them, are operating on a shoestring. So this could be very helpful to hire staff and do more outreach.

And so what this amendment did is say, “Take $78 million from already appropriated funds and spend it to actually fund the WORK Act.”

The WORK Act passed in 2022 as part of SECURE 2.0, but it never got funded until last year, when the Department of Labor, on a discretionary basis, put $2 million in.

So what Sanders and Bill Cassidy, the Republican co-sponsor, said was, “Well, let’s increase that to $78 million because the money’s there.” So we wouldn’t have to go through the appropriations process, which is very difficult to get anything through the appropriations process these days.

It also would appropriate an additional comparable amount, so if that ever passed, there’d be more.

So this could be a big deal. As I said, it passed out of the HELP Committee 17 to 3. The question is whether the parent bill will move through the Senate and ultimately through the House.

I was talking to someone today who’s very knowledgeable about that, who said he thinks there’s a chance that it will happen this year, and maybe a better chance next year, but was reasonably optimistic it could actually become law.

So we’ve got three different bills, each of which could become law. There are also efforts going on in states to create state programs where the state would do some funding. Michigan set aside money. New Jersey set aside $6 million, so that adds to Colorado’s existing program.

So that’s encouraging. There are also North Carolina and Oregon, which passed laws that provide set-aside preferences for employee-owned companies.

Jason Miller: 16:24

So, progress on a number of fronts. I found it really interesting that New Jersey set aside three times as much funding as the federal government did in the initial portion. I just like to point out interesting things like that as the discussion goes on.

Corey Rosen: 16:52

Yeah. Two million dollars for the DOL to fund this program is, once you start splitting it up, trivial.

Jason Miller: 17:00

That’s 12 meetings and 24 PowerPoints. That’s what that’s going to fund, right?

Corey Rosen: 17:05

Right.

Jason Miller: 17:06

Well, awesome. How do you feel—I know that first piece of legislation related to the valuation component, and you mentioned the litigation risk of ESOPs. The DOL has had an interesting perspective, I think, or the community’s had an interesting perspective on the DOL and its approach to employee ownership over the last 50 years.

I think there has been a verbal effort for Washington and the DOL to express things more favorably toward employee-owned companies. How would you describe whether or not that temperature is changing or that environment is changing, and what are your thoughts around that?

DOL Enforcement Trends Versus Reality

Corey Rosen: 18:02

It really started to change at the end of the Biden administration, when the new Assistant Secretary of Labor, Lisa Gomez, became the Assistant Secretary and did something nobody’s ever done before.

And, by the way, she’s still involved now in ESOPs. She liked it so much. She said to us, “You know, I’d like to actually meet some of these companies and see this community that we’ve been saying all these people are terrible.”

That was the attitude of some people in the DOL, for sure, including one of the prior assistant secretaries, Phyllis Borzi, who’d been the assistant secretary for quite a while and kind of established the tone that ESOPs are kind of a ripoff.

But Lisa had a very different approach, which was, “I think I should go find out more about it first.”

And so, I know, for instance, at one of our conferences, she asked to meet with a group of—I don’t know—about 15 companies. They came to talk about what their ESOPs had done for their employees and their communities, and she was very moved by that.

She went out and visited more ESOP companies, and she came to see that the narrative that she had heard was not accurate.

She was only Assistant Secretary for, I think, a little over a year, and then, of course, the elections happened. The new Department of Labor got a new Assistant Secretary and a new Secretary of Labor, who had an interestingly short lifespan as Secretary of Labor because of things she was doing in her personal life that she shouldn’t have been doing.

But the current Assistant Secretary and department itself have taken a clearly much more favorable view toward ESOPs and indicated that they will take a much lighter regulatory hand.

For the last 10 years or more, the number of cases initiated by the Department of Labor never exceeded five or six a year, typically. Some of those cases should have been initiated by the Department of Labor; some not.

And the number of cases that were investigated by the Department of Labor had declined dramatically in the last 10 years. Maybe part of that was ESOP practices improved. I think that was a lot of it. Part of it was a decline in staffing. But the combination of the two had a pretty dramatic impact.

Now the Department of Labor has said, “ESOPs used to be on our top five list of things to go check out, and we’re taking ESOPs off that list.”

So, just a further acceleration of what was already an existing trend.

I honestly never want to mislead people. Our job is not to try to get people to do ESOPs who shouldn’t do them. That’s bad for them and bad for us.

But when I talk to potential ESOPs, I usually tell them there are lots of reasons not to do this. Litigation risk is really not one. Your risk of litigation, if you do things properly, is very, very close to zero.

Jason Miller: 22:10

 I think that probably takes people by surprise. Speculate—and I will. If I had to speculate, that becomes one of those talking points to distract people from investigating further. You know, the Department of Labor and the IRS and the regulatory environment are going to be out to get you.

And you’re right: The risk isn’t zero, but it is approaching zero, and it appears that it is approaching zero faster than it had been before.

But the larger financial industry, exit industry, transition industry—whatever you want to call it—likes to turn people away with things that are hard to substantiate.

And so even I was surprised by what you just said. I think you’ve actually shared that with me before—the number of cases that are brought, 12 a year. That’s not a lot, but I think many clients—

Corey Rosen: 23:12

Some of those 12 deserve it.

Jason Miller: 23:13

Yes, absolutely. And that’s what regulation is there to do: to protect people when things are off the rails in the wrong way.

But the perception is that it is more likely than not that someone’s going to come audit and investigate a transaction, versus the opposite, which is that it’s really unlikely unless something is really wrong.

And now we get back to your statement that a couple of bad actors, or a couple of bad apples, are going to spoil the whole bunch and create a lot of problems for everyone.

We’re really glad that Lisa Gomez had gone out to see it for herself, because I think all of us that work within this industry know the success that employee ownership brings to the employee owners.

Makenzie Ragland: 24:18

I think it seems that...

Corey Rosen: 24:19

It seems the number of investigations dropped from, in the early 2010s to 2015 or so, about 70 per year—the investigations, as opposed to audits. A lot of the audits are just routine, but investigations, where they suspect something is wrong, went from 70-some to 20-some.

And that’s been true for seven or eight years now.

The Real Cost to Sell to an ESOP

Makenzie Ragland: 24:52

I think it seems that the perception versus reality in the ESOP space is often very different.

Kind of switching gears from legislation to publications that the NCEO has put out, there’s one that comes to mind recently, which is regarding the perception of the cost of an ESOP transaction versus selling to another buyer.

So I’d love to hear your overall thoughts, maybe a high-level synopsis of that article for our listeners that haven’t had a chance to read it, though I highly encourage it because it’s a really good one.

Corey Rosen: 25:32

This was something that, when I finally decided I was going to do this in a more serious way, I was kicking myself for not having thought of it a long time ago. And I’ve been doing this for 46 years with the NCEO, so I should have thought of it sometime before then.

But anyway, better late than never.

We always tried to say, “Well, ESOPs cost this much,” and put dollar amounts in—this much to this much for legal fees and so on.

And I was in a seminar with one of our members who sold her company to an ESOP, and the moderator was asking about costs. And she said, “Well, we looked at being sold to another buyer.”

This is a chain of hardware stores with a few hundred employees, so not a small company. And the M&A firms that we hired said that they wanted 10% of the transaction as a fee.

And I thought, I’m looking at this the wrong way. When Gina Chaffer was looking at how much it was going to cost, what she looked at was not the dollar amount. Obviously, you look at that, but what percentage of the transaction is going to be eaten up in fees?

And 10% sounded like a lot. And she said selling to an ESOP was vastly lower.

And so it occurred to me, certainly, that’s the way I should be looking at this.

So what this paper did, I did a lot of research both about the ESOP community and the non-ESOP M&A and broker-led community, to find out what percentage of the transaction is spent on these different fees.

And it turns out that an ESOP costs you about 2% to 4%. The smaller the company, the bigger the percentage, because the amount that the providers are getting is a bigger percentage of a smaller company.

So, 2% to 4% for ESOPs, but 5% to 9% typically for non-ESOP sales.

Part of that is, if you’re not doing an ESOP, you’re almost certainly going to be using an M&A firm or a broker. And depending on how big you are, just that fee for finding a buyer is 2.5% to 5% or more.

And then you still have lawyers and accountants, and you should have an appraisal firm. So you’re going to have a bunch of other fees associated with the transaction, just as you do with an ESOP.

But the biggest one is the percentage of the transaction that’s a success fee.

Now, some ESOP deals are structured by their advisors with success fees. And you might say, “Well, gee, I’ve already found a buyer, so I don’t need to pay you a percentage of the deal to find a buyer.”

But some of the advisors say, “Well, that’s just the way we structure our fees.”

But even if they do, the percentage they charge is significantly lower because there is a buyer.

They also will do some work, typically, to compare you to potential other buyers. And if you hire somebody to do that, you’re going to pay for that, of course, as well.

But you may be able to find—and you certainly can if you look—advisors who don’t charge success fees. They either charge hourly or they have a particular fee for the service that they’re providing.

However you do it, it’s going to fall 90% or more within that 2% to 4% range. And it is essentially invariably cheaper than selling to another company.

Now, of course, there are other costs associated with this as well.

There’s the financial cost. If you sell to an ESOP, you can take the tax deferral and reinvest in other securities. You can’t do that any other way.

If you sell to a private equity firm, you may have to put 30% to 40% of the proceeds in the private equity firm.

If you sell to another buyer, you’re not typically going to get all the money up front. A big chunk is going to come out based on contingencies and earnouts.

So you’re not necessarily comparing the same things.

And also, if you’re looking at the return over time, if you, let’s say, sold to another buyer who did write a check for $10 million for your company and you’re 68, and you say, “Well, go reinvest that in some secure things, because I don’t know, at 68, you don’t want to take a lot of risk.”

And so maybe you’re earning 5% or 6% these days on your portfolio.

If you take a seller note, you’re going to get probably, in today’s interest rates, 9%, 10%, 11%, if you want. You don’t have to charge that much, and many sellers don’t. But you’re going to get a nice rate of interest.

And you can also structure it so that you get a tax deferral. So you don’t get either of those things with the alternative investments.

So, not only are your costs lower, but there’s also something of a mythology that selling to an ESOP means taking some haircut occasionally, but not very often, if you look at total returns.

So that’s one set of costs.

The other set of costs, frankly, I think, for most people my age—I’m 77—and, you know, people at my age, when you’re thinking about legacy and how much money you want to get for selling your business, that’s certainly a consideration.

But what’s going to happen to your community if your business leaves? What’s going to happen to your employees? What’s going to happen to the values that your business is based on?

And if you sell to somebody else, all those things may go away. And that’s a cost you can’t measure in dollars.

Makenzie Ragland: 32:48

Yeah, I really like the non-financial considerations portion of that article as well. That speaks to your point and then even other factors as well to consider.

I think one, too, that is often overlooked, or maybe business owners don’t realize is an available option, is that when you’re selling to an ESOP, you can sell only part of the business. Whereas when you’re selling to another buyer, it’s almost always likely that you’re selling all of it.

Corey Rosen: 33:21

That’s right. And if you want, you can structure your transaction to include warrants. You think your company is going to grow and you regret missing out on some of that upside? You can get some of that upside.

So this is a fairly flexible, much more flexible way, as you’ve pointed out, to do a transaction than selling your business to somebody else. That’s not flexible at all. They tell you what you’re going to do, and you get to say yes or no.

Retention Proof and Culture that Sticks

Jason Miller: 33:55

I think the other article recently that you guys have put out, or the other publication, is related to retention of employees.

And this strikes home with a lot of our clients because they wouldn’t be listening to an ESOP podcast or talking to an ESOP advisor about employee ownership as an option unless they cared whether people stuck around.

And the longer that I’m in this and the more that I see, the harder I think it is for many owners to think 10, 15, 20 years in the future from the standpoint of a company itself that becomes employee-owned.

What is it going to look like then? Is it really going to pan out like it’s supposed to after I’ve been repaid and I’m off the board or I’m no longer around? And is it as good? Is the story as good as everyone says it is that has experienced that before?

And I know that we have a couple of questions related to this, but Corey, talk to us about retention as a goal leading into an ESOP transaction and kind of how that manifests afterward.

Just walk us through that to give our listeners some confidence that this does work in this way to retain the right talent.

Corey Rosen: 35:15

Well, every business owner, no matter what business you’re in, knows that turnover is really expensive. And particularly turnover of your especially talented people can be hard to replace.

There are very few businesses whose business model operates with replaceable parts. You know, there aren’t very many Model T factories anymore where you can make money. Their turnover was 400% a year, but the job was so simple that it didn’t matter a whole lot.

But it’s hard to think of a business anymore that’s like that. So retaining people is critical to your financial success.

Intuitively, you would think employee-owned companies would have better retention and that they would also be less likely to fire people. And empirically, we can now say definitively: there have been a number of studies on this, but this was the biggest one that came out this year.

Our recruitment and retention survey showed that the rates of both voluntary and involuntary separation in ESOP companies are about 40% the rates of companies in general.

There have been a number of other studies prior to this that found similar results. So we’re quite confident that we’re seeing a real phenomenon here, not just some sampling error.

And it’s not surprising that if you work for an employee-owned company, especially after a few years, you start to see your account balance growing. And just from a financial standpoint, it may not make sense to leave.

But the real retention glue tends to be culture. It needs to be the combination. It’s not just ownership; it’s ownership and culture together that really make the difference, both in retention and performance.

There’s lots of research on this. And by culture, what we mean is companies that are structured where employees have more input into more decisions, basically.

These are work teams and committees, high-involvement strategic planning, open-book management.

I wrote a book called Beyond Engagement: How to Make Your Business an Idea Factory. And the first page says, “It’s simple. The best companies are the ones that generate the most ideas from the most people about the most things.”

And the question is, how do you do that? How do you set up structures that make that happen?

Having an open-door policy is fine, but it doesn’t work. No company in history I’ve ever talked to has a closed-door policy. That open-door policy is too ambiguous, it’s too unstructured, and it doesn’t work.

If you want to get that kind of involvement, you want to get that kind of idea generation and problem identification, you need to set up structures that make it happen.

And what that book does is explore the many different ways ESOP companies do this. And ESOP companies are very creative about how they do it.

If you go to any of our conferences, a good chunk of the conference is devoted just to this issue of how companies get this kind of high-involvement system going.

So the companies that do that, I come to work every day, and I feel like an owner because people listen to me. I feel valued. I feel dignity as a worker.

Those are tremendously important things to people. They’re tremendously motivating, give you a sense of community and purpose that make work more than work. It makes it something that’s almost a mission.

And I hear people say from time to time, “Well, I agree with you, Corey. People need that psychological sense of ownership. But we know we don’t necessarily have to give them real ownership.”

And I want to take those people to lunch. And I want them to soak up the atmosphere. I want them to read the menu, make some choices. I want them to smell the wonderful aromas. And I’ll even ask them to help me pay for it, but they can’t eat it because they’re just going to get a sense of lunch that day.

And a sense of ownership is roughly as satisfying.

So the two need to go together. Companies that do just this high-involvement management system- what the research shows is it works for a few years, and then it starts to deteriorate, both because management starts to feel threatened by employees having all these ideas—not top management, mid-level management—and employees start to think, “Who are we doing this for?”

Makenzie Ragland: 40:46

And I think, aside from the retention aspect of all of it, there’s a recruitment piece as well, which comes before the retention, really.

Corey Rosen: 40:59

Right.

Recruiting with Stories Not Spreadsheets

Makenzie Ragland: 41:02

So, from your perspective, what would you say ESOP companies are getting right or wrong when they talk about the fact that their company is an ESOP to employees that they’re trying to recruit, and how can they make that message resonate in the process?

Corey Rosen: 41:20

I would talk about the financial benefit. If you’ve been an ESOP for a long time, you can show examples of it.

That isn’t likely, though, to get people to come to work for your company for that reason. It’s too far off; it’s too uncertain.

But if you can talk about your culture—that we’re different as an employee-owned company because of these things—and then, even better, have people talk to the people they’re going to work with and have the courage to do it in an unfiltered way.

You’re not in the meeting as an HR director or whatever. You’ve got to tell them, of course, what questions they can’t ask. But let them talk to these people.

There was a company some years ago. They were interviewing a key candidate, and they were in a meeting room, and there were a few leaders of the company. They asked somebody to come in just to bring in some coffee.

So somebody came in, and the candidate said, “What do you think about the ESOP?”

And this person told some wonderful story about the ESOP, and he accepted the job. He said, “That was the thing that convinced me.”

Well, after that, whenever that company was recruiting people, they made sure that they talked to the people that they were going to work with at the company to hear their story about employee ownership.

So that can be very powerful in recruiting. And it’s more immediate for people: When I go to work, work’s going to feel like this.

You know, if you can sense the atmosphere of a place you’re going to work, that can be really powerful.

Makenzie Ragland: 43:19

Yeah, absolutely. You get an idea of that culture that people talk about, and you can kind of get a real sense for it.

And to your point, if you just speak to the financial benefit for someone that’s maybe early on in their career and maybe retirement thinking is not top of mind for them, or they can’t—if that doesn’t really excite them just yet—then that may not be the best-selling point.

Corey Rosen: 43:45

When we’ve been growing quite a bit, we have, I think, 26 people. And when we interview people, part of the interview is they end up—the finalists all end up meeting every other staff person in a meeting, at least everyone who can make it.

And one of the goals there is, when you go around, introduce yourself and say, “You know, I’m so-and-so, and I’ve been here for 10 years, and this is the best job I’ve ever had.”

You hear enough people say that, and people say, “I’m going to work there. These people are really excited about what they do.”

If you have a culture where people are feeling that way, take advantage of it as a recruitment tool.

Makenzie Ragland: 43:30

Absolutely.

Jason Miller: 44:35

Corey, you had mentioned how many sessions in your conferences are related to helping generate that culture and helping ESOP companies to grow and make that better and more consistent.

I think you have a conference coming up real soon.

What You Get at the NCEO Forum

Corey Rosen: 44:57

We do, but we have our Forum. 

Jason Miller: 45:00

So, tell us a little bit about the NCEO Forum—where it is, where our listeners can find out more information, and why they should attend, whether they are an ESOP company now or they’re just considering it. What will they find?

Corey Rosen: 45:17

It’s August 24th through the 26th in Phoenix, so we can guarantee you’ll be warm, but we will also have air conditioning.

This is our smaller national meeting. The annual conference will be in Pittsburgh in mid-April.

In Milwaukee, we had a record attendance—2,356 people—which was very exciting for us. And the Forum in the past typically was about 500 people. We’re expecting somewhere around 600 this year.

The Forum is a more focused meeting. If you go to the website, you can see the tracks that it covers. It’s organized in a series of tracks so that you can go from the introductory issues with that particular track to more advanced ones.

And they cover most of the issues that an ESOP company will need to face. There are 100 sessions, so there are plenty of different choices.

So if you’re an ESOP company, this is a good way to cover all your bases in terms of culture, administration, governance, and those sorts of issues in a meeting that’s smaller.

Some people like that compared to the huge annual conference, so there are pros and cons, I think, to both.

I like the Forum because it’s a little less overwhelming for staff, but that’s a different issue.

Jason Miller: 47:03

Very good.

What encouragement could you give them?

Education First and Feasibility Planning

Corey Rosen: 47:30

So, if you’re thinking about an ESOP, I think it’s really important to spend some time getting educated prior to spending a lot of money. Your first choice probably isn’t, “I’m going to go talk to a lawyer,” for instance.

Your first choice should be, “I want to go educate myself to get an idea of how these plans work and the different options that I have for how I can structure them.”

This is in no way to criticize the professionals in this field, but if you are a professional in the field, you tend to develop favorite approaches. And also, if you have the task of explaining this to someone, and it seems kind of complicated, you might say, “Well, typically the way an ESOP works is this.”

That makes a lot of sense. I mean, I can’t criticize anybody for doing that. But that may exclude some of the other options that you could use.

As we’ve said, you don’t have to sell the whole company at once. You don’t have to borrow money to fund your ESOP. You can contribute cash on a discretionary basis year by year and buy shares or accumulate a pot of cash to buy more shares.

You can structure the financing in a whole variety of ways. So there are a lot of different options about how to do this.

And if you just spend even several hours getting educated to understand what they are, then it’s going to make the rest of the process less intimidating and more suited to what you need.

I think it’s advisable to get a feasibility study done. Some companies skip that step, but a feasibility study is going to help you explore these options in detail.

It’s useful if you’re still on the fence. Get in touch with us. We can put you in touch with other ESOP companies. This is often, whether in your industry or your neighborhood, one of the most useful things you can do: get some real-life experience from other ESOPs.

We also have, on our website, what we call the pre-feasibility toolkit. And that is what it sounds like. It points you to all the resources where you would get started with that kind of education, including an interactive ESOP calculator.

There’s a simple one, and then there’s a much more detailed one that’s only available to members.

If you’re thinking about an ESOP, you might think, “Well, I’ll join if I become an ESOP.” It’s not expensive to join. You should join before you’re an ESOP because you can get access to these resources, including an extensive document library.

And you can contact us anytime you have questions or just want to chat, because we’re not trying to sell you anything. We don’t set up plans. So, you know, we refer you to people like Jason who can do this kind of work well. It’s not what we do.

So we’re not trying to convince you to do something other than consider this carefully and decide whether it makes sense for you.

Final Thanks and Where to Learn More

Jason Miller: 51:07

Very well said. And Corey, thank you. We really appreciate, again, your time getting us updated and caught up with what’s happened in Washington.

We greatly value the work that you and your team do for the employee ownership community every year.

And for our listeners, we hope to see you in Phoenix in a couple of weeks. Please go to the NCEO website, find out what it takes for you to become a member if you’re not a member today, and look into the conference.

Next week, join us back here on the Journey to an ESOP and Beyond podcast, and we will see you then.

Thank you so much.

Corey Rosen: 51:50

Thank you very much. I love the opportunity.