PaCEO models strategy for states to expand employee-owned companies
by Karen Kahn
Early in his tenure as CEO of the Pennsylvania Center for Employee Ownership (PaCEO), Kevin McPhillips spoke to a statewide meeting of Chamber of Commerce executives. When he asked the 64 chamber executives present at the meeting if they knew what an Employee Stock Ownership Plan (ESOP) was, only one responded affirmatively. “It is not surprising that we’ve seen so little growth in ESOPs over the last decade when you realize how few business leaders know anything about them,” he says.
The Pennsylvania center was founded to raise public awareness about employee ownership.
That meeting confirmed for McPhillips that his organization, founded to raise public awareness about employee ownership, was on the right track. He’s since done 25 presentations at local chambers of commerce and has found the audience extremely receptive.
PaCEO was founded in early 2016, in response to the slow growth of ESOPs around the country. The National Center for Employee Ownership (NCEO) initiated the effort, believing that the center could serve as a model for growing employee ownership in other states. Seed funding was provided by the National Center for Employee Ownership (NCEO) through a grant from the W.K. Kellogg Foundation. In its first year, Pennsylvania saw a net increase of 20 employee-owned companies, a significant uptick over data from previous years.
The center’s strategy includes direct outreach to business leaders, state and municipal governments, and community organizations, as well as a public media campaign.
The founders of PaCEO agreed on some core principles. First, the organization would not be a fee-for-service organization. That would reduce competition with other organizations already in the space. Second, the organization would engage and support service providers—the attorneys, technical assistance providers, lenders, and valuation experts who help companies become employee owned. “These are the people who are helping to create new employee-owned companies and who can benefit from the field scaling up,” says McPhillips. “NCEO, the ESOP Association, ESCA and others primarily support existing ESOPs.”
In addition to service providers, PaCEO relies on two other constituencies to spread its message: current and former CEOs of employee-owned businesses, about 60 of whom volunteer with the organization, and foundations and universities that support PaCEO’s mission. For example, the organization is housed at Chatham University in Pittsburgh, where university president David Feingold has a long-standing interest in employee ownership, and is also engaged with the two leading academic centers on employee ownership, the Rutgers Institute for the Study of Employee Ownership and Profit Sharing and the Beyster Institute at the University of California San Diego.
Outreach to Business Owners
McPhillips is building a multifaceted outreach strategy to educate stakeholders across the Commonwealth. It includes direct outreach to business leaders, state and municipal governments, and community organizations, as well as a public media campaign.
The organization sponsored 66 training programs last year, reaching about 3000 business leaders. In general, PaCEO takes its roadshow to where business leaders gather, providing panels for various meetings sponsored by business groups, educational institutions, community organizations, or elected officials. Panels include one or two CEOs from ESOP companies, a technical expert (e.g., an attorney or lender), and McPhillips to provide the wider context. The goal, he says, is to create 1000 ambassadors to spread the message that employee ownership has multiple benefits for employers, workers, and communities.
Employee ownership isn’t the right plan for every business owner, but we want to make sure they are aware of the option.—Kevin McPhillips, CEO of the Pennsylvania Center for Employee Ownership
Stories from CEOs like Kevin Mauger, who owns NCC Automation, make an impression on audiences. NCC builds the hardware and software for conveyor systems. In 2015, Mauger turned 42 percent of the company over to the employees through an ESOP. Since that time the business has soared.
The same has been true for Voodoo Brewery. In four years, the number of employees has increased from 10 to over 100, the business has quadrupled in value, and Voodoo has opened six new brew pubs. Says COO Jake Voelker, “We couldn’t have done it without our employee-owners.”
“Business leaders are especially impressed when they hear that employees do not pay anything for their shares, and their business doesn’t have to pay taxes on the portion owned by employees,” McPhillips says. “The tax advantage allows companies to re-invest and grow.”
“Employee ownership isn’t the right plan for every business owner,” acknowledges McPhillips, “but we want to make sure they are aware of the option.” Noting the huge wave of baby boomer retirements, McPhillips explains, “We want business owners to be thinking about succession planning.”
Educating Government Leaders
To engage government leaders, McPhillips has met with the governor’s office and the executive director of the Governor’s Action Team, Brent Vernon. Vernon is the governor’s point person on economic development and introduced McPhillips to the state’s ten regional economic development leaders. State leaders see the benefits, says McPhillips. “Employee ownership is a proven strategy to reduce inequality. Rather than relying on government programs, it uses the talents of American workers to create real social justice.”
Government leaders see PaCEO as an important economic development resource.
Government leaders see PaCEO as an important economic development resource. Recently, for example, Wood-Mode, a cabinet maker based in rural Snyder County for the last 77 years, abruptly closed its doors, leaving 900 people unemployed. The Governor’s Action Team, says McPhillips, immediately reached out to PaCEO to see if there might be an employee ownership solution. Unfortunately, there wasn’t sufficient information available to help in the case of Wood-Mode, but McPhillips believes employee ownership is a viable solution to business closures in many cases. Recently a York County corrugated box manufacturer was bought out by a private equity company that is moving the firm to North Carolina. The business laid off 100 people. Employee ownership might have kept those jobs in Pennsylvania, he says.
McPhillips has found a receptive audience at the municipal level as well. He and Pittsburgh City Councilor Erika Strassburger are launching a multi-stakeholder task force, in order to identify and reach out to local businesses where owners may be close to retirement. The task force is preparing a toolkit to support cooperative conversions. Similarly, McPhillips is working with Philadelphia City Councilor Derek Green to explore creating a commission or task force in the state’s largest urban center.
Growing the Movement
With a staff of two, PaCEO relies heavily on its business owner and technical expert volunteers to reach business and government leaders. Its public media campaign provides another avenue to reach business owners. In late 2018, the group ran a six-week marketing campaign on WHYY, Philadelphia’s public radio station. Over 200 people visited the campaign’s URL, and at least ten companies have taken additional steps to explore employee ownership. The ads have since been aired in Pittsburgh and will run again this summer in Philadelphia.
“We are still figuring out what works, and what doesn’t work,” says McPhillips, “so that we can export the best strategies to other states.” That is happening already through the Employee Ownership Expansion Network, which has recently assisted the launch of new state centers, based on the Pennsylvania model, in Georgia and North Carolina.
Karen Kahn provides communications consulting and editorial support for Fifty by Fifty.