Audience Survey

How would you best characterize your employee’s attitude toward the ESOP?

A. Happy to have an ESOP but it’s not a huge deal at the company

B. Older people tend to love it, younger people don’t care all that much

C. Management level people love it, worker level people tend to be more indifferent to ESOP

D. ESOP is a big part of the company’s culture and identity

Issue #3: You will be faced with bringing on at external board members.

Why It’s Important

Most closely held businesses do not have an active Board of Directors, or at least no independent board members. Governance structures necessary for closely held businesses are different than those important in ESOP companies.

Framework to Respond

• The new board member is a resource to management

• Typically results in more discipline, which are best practices

• Adding a board member with ESOP experience is a consideration

Issue

#4:

Succession issues will emerge requiring planning, emotional considerations, difficult conversations and building a pipeline.

Why It’s Important

Sometime in the first ten years, usually earlier, the founder, leader and/or senior team members will be in a position to retire. This will be among the most challenging issues facing the company. It is usually emotional and often disruptive. Replacement candidates will need to be groomed or hired. Conversations will need to be had.

Framework to Respond

• Transition of the founder is almost always difficult. Elements that help include:

• Advance planning & a process

• The existence of a strong senior leadership team

• An engaged Board

• Internal replacement candidates

• Recognize that CEO succession planning often fails.

• Respect the emotional nature of exiting

Issue #5: Your company will end up "overinvested" in retirement benefits (which are not spendable in the short term) relative to pay and other benefits.

Why It’s Important Pay and benefits matter to employees and yet the ability to provide those is not unlimited. Companies with ESOP’s spend significantly more on retirement benefits than non-ESOP companies. Many employees will prefer “a little cash now” over “a lot of cash later.”

Why It’s Important Some tactics you can use include:

• Elimination of 401(k)

• Early diversification options

• Messaging about the compounding impact of ESOP

• The “overinvestment” is inevitable, but it isn’t a bad thing. Strong ESOP messaging helps.

Issue #6: You will need to think differently about corporate governance and stakeholders than you did previously.

Why It’s Important Corporate governance is the framework to govern the relationships among shareholder, director and officers. Each players role should be defined to support the overall progress of the company. Value of ownership and Control are separated in an ESOP company.

Framework to Respond

• The role of the Board is to provide guidance strategy, accountability for the CEO.

• Trustee is the shareholder acting in the best interest of the participants

• Officers ( management ) – Led by the CEO executes the strategic objectives of the company.

• Employee – owners share in the value creation

Issue #7: After debt repayment, there will

be multiple capital allocation decisions

Why It’s Important

• Repaying debt will be the primary focus immediately post-transaction

• After transaction debt, there will be various capital allocation decisions including:

• Warrants

• Capital investments

• Acquisitions

• RO

Framework to Respond

• Prepare strategy

• Timing

• How does one decision impact the other(s)?

• ESOP considerations

• Future value

• Determine whether balance sheet cash or 3rd party debt will be used