The Sale

At the end of 2021, I completed a transaction transferring ownership of Dorian Drake from my family to our employees in the form of an ESOP, or Employee Stock Ownership Plan.

In some respects, it was a difficult decision. ESOPs are complicated. They are sanctioned by the federal government and offer significant tax advantages, but the advantages come with range of rules and regulations that must be strictly adhered to. It’s a big change from running your own business, as I had for many years.

In other ways, though, the decision was easy. I had reached what is normally considered retirement age, and our two sons were happily engaged in careers outside the business. We’ve been blessed with a core group of about two dozen employees—we employ about 60 in all—who have been with us 15 years or more and have built the business with us. What better way to reward their loyalty and contributions than to share ownership with them.

Open Book Management

Many of these employees have been with us since 2002, when we adopted the Great Game of Business, an open-book management system that empowers employees to manage the company’s  finances and share in the profits. The foundational characteristics of open-book management—transparency and accountability—have enabled us to create an ownership culture, which made transition to true employee-ownership a relatively easy one.

Still, we clearly had work to do to explain to our staff how our ESOP works. Stock ownership in an ESOP is a retirement benefit, not unlike a 401(k), with vesting schedules, allocation rules, distribution requirements and the like. There are rules also pertaining to corporate governance and stock valuation. And we had the added complication that many of our staff are foreign nationals based outside the U.S. and thus ineligible for participation in our ESOP. For them, we established a Phantom Stock Plan, the rules for which are similar to those that apply to an ESOP yet differ in  some important ways.

Forming an Ownership Communications Committee

I originally thought that the burden of explaining all this to our staff would fall on me and our Chief Financial Officer Robinanne Wallace.  But while attending a conference run in early 2022 by The National Center for Employee Ownership (The NCEO), I was introduced to the idea of organizing a committee of middle managers and front-line employees to assume the job of educating their peers about the various aspects of employee ownership. Inspired by what I had learned, I hand-picked a team of four staff members, a group aptly named the Ownership Communication Committee, and tasked them with the job of educating their colleagues about their new status as employee owners.

The committee, comprised of its chair, Teresa Gross, inside side sales manager of our Automotive Group;  Vice Chair Juan Gomez, regional sales manager of our Hardware/Lawn & Garden Group; Victor Murillo, our Automotive Group Latin American regional manager; and Juan Valencia, marketing coordinator; embraced the challenge. Since the spring of 2022, they have conducted a series of ESOP and Phantom Stock educational seminars, run a year-long knowledge competition, created an employee ownership orientation program for new staff, and established a Spirit Award recognizing employees who embody the best qualities of employee ownership.

Advocating for our non-U.S. staff, Juan Gomez also successfully lobbied for changes to our Phantom Stock Plan that helped equalize the plan’s benefits with the benefits of our ESOP. And all the committee members have emerged as go-to sources of information for colleagues with questions about how the ownership programs work. By all accounts, the committee has done an exceptional job educating their co-workers and inspiring them to step into their roles as employee owners.

Teresa believes committee involvement has been a positive experience for her and her fellow committee members, too.

“Being part of the Ownership Communication Committee has been an invaluable learning experience,” Teresa noted. “Although it was challenging to learn new terms and take on the responsibility of teaching them, our efforts have been rewarding.  We have worked to grow the ownership culture through our workshops, with “ownership” being  the central theme. Now, everyone in the organization, from every department and level, understands that they can make a significant contribution.”

The Road Ahead

Reflecting on the decision to sell the company to our employees, it is clear now that this was the start of a journey, not the end of one. But the early returns for us have been good. We have seen our share price grow 27% over the first two years of 100% employee ownership. It is up to all of us now to ensure that the ownership transition continues to be a success. But there is plenty of reason to believe it will be.

Data gathered by the NCEO indicates that compared to similar non-employee-owned companies, employee-owned companies see 4–5% higher productivity, 2.5% higher average annual sales growth, experience 20–50% lower turnover rates, are 25% more likely to survive during an economic downturn, and are less likely to engage in large-scale layoffs, creating a more stable workplace.

Happily, for me the transition to employee ownership enabled me to continue in my role as CEO. I didn’t want to retire; I still enjoy working and remain passionate about our company’s mission and vision. I’m also financially invested in our company’s future success; we sold the company for a note structured so we get paid entirely from future earnings over a 15-year term.

But I’m equally motivated by the goal of growing the business in a way that provides our employees with opportunities to advance their careers and the chance someday to sell their shares back to the company in exchange for a healthy retirement benefit. For me and my family, that would be the ultimate reward.

If you’d like to learn more about our experience with employee ownership, feel free to post a comment on our blog post at our website. We’d welcome the opportunity to chat.

Ed Dorian
White Plains, NY
November 26, 2024