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Execs Recount Employee Ownership Journey

Executives from San Diego companies that recently made the jump to employee ownership recently joined other experts to offer their thoughts on what can be a complicated topic.

Employee ownership “is a game changer,” said Seth Stein, CEO of Eastridge Workforce Solutions during a virtual town hall meeting on April 20. The change has motivated employees. “Turnover is down, period,” he said, noting that first quarter involuntary turnover declined 40% year over year, while voluntary turnover declined 57%.
“It added something really special to our culture,” he said in a subsequent interview.
The San Diego Regional Economic Development Corp. and San Diego Workforce Partnership were co-hosts of the event — the second in EDC’s Right Recovery Town Hall Series, underwritten by San Diego Gas & Electric Co. Video of the presentation is available at https://vimeo.com/539311564.

A Morale Booster
Among the speakers was Barbara Wight, CFO of Taylor Guitars, which announced its transition to employee ownership at the beginning of this year. In a previous interview with the San Diego Business Journal, Wight recalled that transitioning to an employee owned company was a morale booster in the middle of the coronavirus pandemic.
Both Taylor Guitars and Eastridge offer employee stock ownership plans, which are tax-qualified retirement plans.
In other words, Stein said, employees don’t receive regular checks. On leaving the firm, employees have the option of keeping shares with the company; taking out value and putting it in an IRA retirement account; or cashing out early — though the latter may carry the same tax consequences as an early withdrawal from an IRA or 401(k) account.
Employees do not need to buy anything to participate, and nothing is deducted from their salaries, he said.

Diverging Paths
Eastridge faced an ownership change following the death of founder Robert Svet in 2017. The family wanted to diversify its portfolio, yet decided against strategic or financial buyers. In the end, it settled on employee ownership. Eastridge announced it was taking the employee ownership route in 2019, and today some 43% of the company is in employee hands.
“Everyone is motivated to pay down the debt that we incurred to buy 43% of the company from the owners,” said Stein. The goal is to be 100% employee owned.
Every year Eastridge brings in an outside financial expert to determine the company’s value. Stein is proud to say share prices have risen 15.3% over the prior year. “You want to talk about motivation for people to deliver their best every day?” he said.
The owners of Taylor Guitars decided against leaving the company to family members, Wight said. They also decided against strategic or financial buyers, turning to employee ownership. Taylor’s example is unique in that it has extended ownership opportunities to its factory workers in Tecate, Baja California, Mexico.
New employees have to be the right cultural fit for the business, Wight said.
Stein noted that hiring takes on a different dimension when one considers that a newcomer to the company will not just be a coworker, but a partner.
He also said employee ownership gives him a mandate to ask team members for their best every day.

Wealth Transfer on the Horizon
Baby boomers own about half of all privately held, job generating businesses in the United States. As this population reaches retirement age, the community will witness a massive ownership changeover of locally held businesses, whether through sale, M&A, IPO or family transition, according to the EDC.
Other benefits of the employee ownership model include greater retirement balances for employees and competitive selling prices for business owners and founders.
San Diego’s most famous employee owned company is probably still the original version of Science Applications International Corp., or SAIC. The defense contractor was secretive about its work, but its CEO and founder, the late J. Robert Beyster, approached the topic of employee ownership with an evangelical zeal. SAIC eventually went public, moved to Washington, D.C. and split into two companies, one which kept the SAIC name.

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A Learning Curve
Speakers from the April 20 event said that switching to employee ownership involves a good deal of financial education.
The event included talks by Nikia Clarke, vice president of economic development at the EDC; Mitch Miller, senior consultant of economic development at the San Diego Regional EDC; Kim Blaugher, executive director at The Beyster Institute at UC San Diego; Evan Edwards, director, strategic partnerships and business engagement, Project Equity; and Andy Hall, chief impact officer at the San Diego Workforce Partnership.
 Also speaking at the April event was Sandie Taylor, chief people officer at Modern Times Beer. She discussed her company's transition to  employee ownership. Among her points was the observation that businesses in the logistics, healthcare and retail vertical markets are beginning to offer employee stock ownership programs.

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