I recently attended a leadership class that used the life of Nelson Mandela to make some key points. Throughout the class, they repeated the following multiple times:
What you give, you get to keep. What you keep close to yourself remains lost forever.
This powerful statement can also apply to Employee Stock Ownership Plans (ESOPs). Over the past two years I have posted multiple ESOP blogs, a significant number of which explore the financial reasons a business owner might explore the plan as part of their succession strategy. This quote reminds me of the other primary reason for ESOP consideration – legacy.
Merriam-Webster.com defines legacy as “something that happened in the past or that comes from someone in the past.” For a business owner, this often means how I and my business will be remembered in the future.
Small businesses are the backbone of the country (the Small Business Administration defines a small business as those that are independently operated, for profit, and not dominant in its field). In other words, almost all businesses are small businesses regardless of size. They account for 23 million business, 54% of all U.S. sales, and 55% of all jobs.1
Business owners are vital to our communities. They serve on school boards, town councils, and state legislatures. They contribute to charitable causes with both time and money.
But probably most importantly, they create jobs – 66% of all new jobs since the 1970s have been created by these business owners.2 These jobs generate payroll and taxes for the community.
So as these owners look to transition ownership of their business, many of them are acutely aware that all this could change depending on the buyer. What if the jobs are moved out of town, state, or country? What if they start buying materials and supplies from new sources? What if they stop contributing to local causes? What happens to my legacy…
While not eliminating these concerns, they can be mitigated by selling the company to an ESOP. The ESOP trust holds the shares on behalf of the employees in a retirement plan. As a result, the employees become the beneficial owners of the company, the same employees that live in the local community. As a result, an ESOP is less likely to be sold and the jobs moved or eliminated. An ESOP owned company is also more likely to stay in that local community, continuing the legacy of the prior owner.
An ESOP can be as much about legacy as it is about financial benefits. The plans can benefit the selling owner, the company, and the employees.
In addition to blogging here, I also tweet regularly about topics of interest to ESOPs. Click to follow me on Twitter – @jlripperger.