Below are a few of the letters to the editor that members of The ESOP Association shared with the Association. We know many people sent letters and we appreciate their efforts. Below is just sampling of what was shared with the Association.

 

If you would like to read The New York Times article it can be found here - http://www.nytimes.com/2008/05/29/business/29sugar.html?_r=1&scp=1&sq=us+sugar&st=nyt&oref=slogin.

 

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Dear Editor:

 

The article "In Stock Plan, Employees See Stacked Deck" unfairly suggests that all companies who adopt Employee Stock Ownership Plans (ESOPs) are guilty of creating an especially pernicious lie - - that of promising employees a "piece of the rock," when in fact managers and others use the ESOP law to keep the diamonds to themselves.  If the plaintiffs' allegations are true, the U.S. Sugar case represents more the continued fallibility of humankind than it does a breakdown in the law governing ESOPs.  Consider the following propositions: Does the recent meltdown in home mortgages mean that the country should never allow adjustable rate mortgages?  Does the failure of Bear Stearns mean that we must do away with any financial instrument that is more exotic than a savings book account?

 

I have spent much of the last 14+ years in and around ESOP companies.  Statistical data demonstrates that properly run ESOP companies (i) do better than their competition, (2) offer better benefits, (3) generate more retirement benefits than 401(k) plans and (4) keep jobs rooted in the local economy.  Your reporter of this significant story quite correctly devoted substantial print space to disappointed former employees at U.S. Sugar.  She would have served your readers better by also speaking with employees at companies with ESOPs that continue to operate or that have sold and reaped a windfall for all employees.  Indeed, here in Vermont, she could have spoken to any number of ESOP owned companies that are leaders in their field like Gardeners Supply Company, Carris Reels and King Arthur Flour Co. where employees would be glad to talk about how empowered they are in the economic lives of their firms.

 

The U.S. Sugar situation may indeed be a tragedy.  But it is one that can be repaired with legal redress to the courts.  Creating the impression that ESOPs are somehow bad for employees or do not give employees the promised benefits is a greater problem.  By not carefully considering and reporting upon the great majority of ESOP employee owners who have benefited from the landmark ESOP legislation these last 30+ years, this article tells far less than half the story about one of the greatest Congressional legislative achievements of the post-Great Society era.

 

Stephen P. Magowan

Steiker, Fischer, Edwards & Greenapple

Burlington, VT

 

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Dear Editor,

Reading your May 29 article, ‘In Stock Plan, Employees See Stacked Deck’, a reader might walk away discouraged by what ESOPs have to offer.  But a rather broad brush stroke was used to paint ESOPs and I’m afraid that doesn’t do justice to the many high-performing employee-owned companies that have a deep and abiding trust in and respect for employees.

In 1996, the owners of 200 year-old King Arthur Flour had the option to sell the company to larger, out-of-state corporations or to sell the company to the employees.  They chose the latter and as a result, 175 jobs remain in our rural Vermont community.  With each passing year, we see more progressive companies taking buyouts from larger, remote owners and within months, the jobs disappear.  King Arthur Flour, on the other hand, which is 100% employee-owned, remains headquartered in Vermont and is repeatedly named the best place to work in the state.  Since launching the ESOP, King Arthur Flour has grown from a handful of employees to nearly 200, it has increased the number of states in which its flour was sold from 11 to 50 and has grown sales from $10 million to $70 million.  Data gathered over more than a decade by Rutgers University researchers from more than 1,100 privately held ESOP companies matched against their privately held, non-ESOP counterparts, showed that ESOP companies, on average, had more than 2 percent higher sales each year, were nearly 16 percent more likely to survive than non-ESOP companies, and were more likely to provide better benefits such as health insurance, 401K plans and profit sharing.

When I graduated from business school five years ago, I wanted to join a socially-progressive company and I’ve come to believe that employee ownership is one of the most sustainable and socially-progressive commitments a corporation can make.  Ask most people if they would rather work for an employee-owned company or a non-employee-owned company and I bet they would choose an ESOP.  How do I know?  Because I made that very choice.

Sarah McGinley-Smith
Employee-Owner
King Arthur Flour Company

Norwich, VT

 

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To The Editor:

 

In response to the May 29 article by Mary Williams Walsh, I write in defense of employee stock ownership plans (ESOPs) in America, and as a former participant in one such plan that has been successful for 20+ years.  There are far too many ESOP success stories to paint all ESOPs with a negative brush.  To do so is tantamount to labeling all businesses as unethical due to the transgressions of WorldCom, or condemning all journalists due to the plagiarism of one New York Times staff member. 

 

IF  inappropriate decisions were made at U.S. Sugar, then focus on the circumstances of this company and refrain from denouncing all ESOPs as being stacked against the employee owners.  To learn about ESOPs from another perspective visit www.esopassociation.org and research the hard data on the performance of ESOPs and the equity wealth created for everyday employees.

 

Stephen C. Sheppard

Decorah, IA

 

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Dear Sir or Madame:

 

I’m writing regarding the page 1 article today (May 29, 2008) by Mary Williams Walsh titled: “In Stock Plan, Employees See Stacked Deck”. The article focused exclusively on U.S. Sugar, which is only one of more than 10,000 ESOP plans nationwide. The mere fact that U.S. Sugar has chosen to bar their former employee/owners from attending the annual shareholders meeting suggests it’s management team doesn’t understand how ESOPs should work. And the employee/owners have obviously suffered because of their ignorance or incompetence.

 

 

 

It would be easy to dismiss this research as limited to Washington State alone, but a January 2007 article confirmed these findings in a study titled: “Effects of ESOP Adoption and Employee Ownership: Thirty Years of Research and Experience,”. This exhaustive studyauthored by Dr. Stephen F. Freeman, Affiliated Faculty and Visiting Scholar in the Center for Organizational Dynamics, Graduate Division, School of Arts and Sciences at the University of Pennsylvania, confirms The Washington State study and summarizes by stating:

 

 “employee-owned companies experience increased productivity, profitability, and longevity.”

 

While I greatly appreciate Ms. Williams Walsh publicly exposing the problems employee/owners have faced at U.S. Sugar I want to ensure your readers understand the vast majority of ESOP plans provide a rare path to employee/ownership that has proven to be richly rewarding to the vast majority of participants over the past 34 years.

 

Very truly yours,

Jeff Harris, ChFC

Jeff Harris & Associates

York, SC

 

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Sirs:

 

It appears that my original response exceeded a suggested word length and also should have been referenced to MARY WILLIAMS WALSH.  Hence a re-submission:

 

“I am disturbed by the article by Mary Williams Walsh “In Stock Plan, Employees See Stacked Deck”.  I am disturbed because the article makes it appear that any ESOP company can be manipulated easily by dishonest company officers.

 

Unfortunately dishonesty is possible under any form of  company ownership.

An ESOP company has many safe guards to prevent fraud, such as complete education of the employees to understand their ownership responsibilities, how to understand the independent stock appraisal, and other company financial information.  Also, I believe, and so do many other ESOP company leaders there should be a competent, honest trustee of the ESOP, employee participation, and independent financing of the ESOP debt used to acquire stock for the ESOP.

The final payoff for success of the ESOP company is difficult to attain and maintain, but not impossible as the article implies.

 

I do not know how the U.S. Sugar lawsuit will be resolved, but your readers deserve to be informed of the ample data over the last 30 plus years that the vast majority of ESOP companies that are privately held are much more successful than their non-ESOP competitors.”

 

Don Sweatland

Warsaw Chemical Co. Inc.

Waraw, IN

 

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ESOPs have been in the tax code since 1974 and a number of studies have shown that companies with ESOPs are more productive and provide higher retirement benefits than comparable companies without ESOPs (Douglas Kruse and Joseph Blasi-Rutgers; NCEO and Workers’ Compensation Costs; Washington State Study-1998). In most private companies the ESOP is provided as an additional benefit with no cost to the employees and there is usually an additional plan, such as a 401(k) in place. We have been working with ESOP companies across the U.S. for over 24 years.

Don Israel

 

Donald M. Israel
Benefit Concepts Systems Inc.

New York, NY

 

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If the courts find the leaders of US Sugar to be as you've portrayed them,  it will prove that greed  and employee exploitation still exist the world. Unfortunately, you've tarnished the the idea that employee ownership can be a very good thing for both businesses and their employee owners.

 

For every juicy story like US Sugar, there are hundreds of very boring ESOP stories about companies whose leaders do the right things and whose employees retire at levels of comfort they couldn't possibly have enjoyed without having had a stake in their companies. As president of a 50 person company which is 75% employee owned, I get much satisfaction from seeing happy retirees. Even more, I enjoy seeing people happier in their day to day work because they know their efforts will benefit them personally. If those aren't reasons enough to do the right things, the fear of ample numbers of plaintiff's attorneys, IRS agents and Department of Labor officials is enough to keep most leaders playing by the strict and well defined ESOP rules.

 

Ken Mogren, President

Winona Agency, Inc

Winona, MN

 

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Dear Editor:

 

As an employee-owner in an ESOP company, I am very dismayed by your article concerning U.S. Sugar published on May 29, 2008.  My dismay is twofold:  your article seems to imply that the laws, regulations and controls in place around ESOP plans provide inadequate protection for ESOP participants; and your analysis of the specifics of the U.S. Sugar plan do not provide enough information to be considered fair and independent reporting.

 

I am an employee of North Highland, a 100% ESOP-owned management consulting firm headquartered in Atlanta, Georgia with offices in 14 cities, including New York City.  In my role at North Highland, I am very involved in the process of using an outside valuation firm and independent trustee to determine North Highland’s stock price.

 

First, let us look at the regulations surrounding ESOP laws and regulations.  On the issue of setting ESOP stock value, I believe that participants are effectively protected with the current laws and regulations.  As you mention in your article, an independent appraiser is responsible for setting share value.  Further, the trustee of the ESOP plan is responsible for reviewing the valuation to ensure that the value is appropriate.  The current ESOP regulations make several parties responsible and liable for errors made in the valuation process.  However, it is possible, for management to manipulate the valuation process by withholding information from the appraiser and the trustee.  In the unlikely event of outright fraud, it is true that the employees would need to seek legal remedies to obtain fair value for their shares.  I am confident that ESOP companies have a far better record of fairness to (beneficial) shareholders than do most privately held companies have with minority shareholders.

 

Your article is also critical of the fact that shareholders in ESOP companies have few rights and protections, such as being able to sell to a third party.  You fail to point out that this is the case for minority shareholders in most privately held companies.

 

Second, on the facts of the U.S. Sugar case, several points in your article are incomplete and misleading.  A good example is the section concerning the family’s increasing ownership in the company.  You quoted the complaint in the lawsuit that mentioned that as participants cashed out of the plan, there were fewer shares outstanding, resulting in a 19% increase in ownership by Mr. White’s family.  This is misleading because the remaining participants in the ESOP also realized an increase in ownership of 19%.  The shareholders outside the plan get the same increase due to concentration of the stock as the plan itself.  Your failure to point out this fact shows either a lack of research on your part or an intentional bias against ESOPs. 

 

You article also made reference to an offer to buy U.S. Sugar for $293 per share.  You failed to mention whether this was a binding offer.  If not, the final offer might have been much less.  Further, even if it was a binding offer, it is very possible that the Board of Directors refused to consider the offer because of the negative impact it would have had on employees.  In the worst case scenario, it is possible that Lawrence Group, the acquirer, would have shut down the entire company to gain market share, and all of the employees would have lost their jobs.  So the $293 offer might have been much less attractive than you made it seem.  Last, you provided no comparison between the pre-ESOP retirement plan and the benefits that were provided by the ESOP plan.  The $90,000 that Mr. Smith received might have been far greater than the benefits he would have received under the prior retirement plan.

 

While I do not know whether employees were cheated out of fair value at U.S. Sugar, I am confident that if they were cheated, the court system will provide adequate compensation.  I believe that in the interest of fairness, The New York Times should provide its readers with at least a few of the thousands of stories of successful ESOP companies that have distributed billions of dollars of wealth to millions of employee-owners in the United States.

 

Charles A. Morn

North Highland

Atlanta, Georgia

 

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Modern Group Ltd, www. moderngroup.com ,  of Bristol PA. is a 100% employee owned company through it’s ESOP. We are a private company. For more than 60 years we have enjoyed 10 percent growth in our stock. Our employee’s have benefited by receiving through the ESOP, 401K contribution match, and out-right cash bonus, more than 50% of the retianed earnings of the company, some $42 million dollars. We have enjoyed significant growth and have an exceptionally strong balance sheet for our industry. Our employees vote for the outside board of directors and we have a long tradition of open door/open book management. We take very strong exception to the position of the May 29^th article on ESOP’s. I would caution you to look at the number of ESOP companies that through the ESOP program have been able to transition generations, provide great places to work, and have created wealth for their employees. I do not dispute that there are bad apples in every barrel, but you could have represented both sides.

 

 

David E. Griffith

President & Chief Executive Officer

Modern Group Ltd.

Bristol, PA

 

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Editor:

 

While your piece on US Sugar may be accurate for that company it does not accurately reflect what happens at the vast majority of ESOP companies.

 

Congress changed the law in 1986, yes over 20 years ago, on pass through voting rights. Stock acquired by the ESOP after 1986 has voting rights. Our Employee owners elect our Board of Directors each and every year and are urged to attend the annual meeting or vote by proxy.

 

The ESOP holds a 38% 'block' of stock. That minority interest is not enough to force a sale of any company, public or private.

 

Diversification IS essential to retirement planning. Why did employees making $23 an hour NOT have other investments like an IRA? Why is it the sole responsibility of the company and not of the individual? ESOP's are funded out of company profits. Employees do NOT put in any of their own money out of pocket. I think getting $90,000 at age 55 is pretty good for just doing your job!

 

The limited amount of information in your article leads me to blame market forces for US Sugar's problem. The US consumer will not pay to support $23 an hour workers and their benefits, whether for sugar, steal, or automobiles. What about shareholders in Companies in those industry's?

 

Paul Culler

President

J.R. Holcomb & Co. Established 1872

100% Employee Owned since 1989

Cleveland, OH