ESOP’s Foibles

Imagine success. You’ve successfully bootstrapped a new media business up to several million dollars a year in revenues, with fat margins and you’re thinking of how to cash out without selling into a big company that will turn your brainchild into a waystation in their content factory. A cover story in December’s INC. Magazine argues that employee stock ownership plans let owners have their cake and eat it too — giving them an immediate cash-out, rewarding the employees who helped them succeed, and perhaps leaving the firm energized to grow without them.

Alas I cannot provide an immediate link to the piece because INC. appears to delay posting of the current issue (though there are back issues posted as recently as November and I found a 2003 piece that focused mainly on the tax advantages of ESOP sales to retiring owners.)

Eventually, however, INC. should post the full article, which is excerpted from the new book, “Equity: Why Employee Ownership is Good for Business.” The co-authors (full list at the bottom of this capsule review) include Corey Rosen, executive director of the National Center for Employee Ownership.

So this is a story told by true believers, and even the casual reader may recall that United Airlines became an ESOP of sorts and it has certainly had its share of turbulence. On the other hand in searching on the topic this morning I learned that Proctor & Gamble also has an ESOP, and that is surely one of the world’s best regarded companies. I think the P&G’s brand of ESOP is akin to the stock-option programs prevalent in high-tech firms. The ESOP Association provides information about these plans, and when I visited its site this morning I saw this note:

“In a bizarre and completely surprising move, the President’s Advisory Panel on Tax Reform recommended that President Bush ask Congress to eliminate all current law defined contribution plans, which of course would eliminate ESOPs. The ESOP Association and its members find such a recommendation shocking.”

The site linked to a white paper arguing against any such change.

I mentioned ESOP because it’s my belief that a media business, in particular, is the expression of a vision, and that founders might want the vision to continue even if they want to cash out — if they ever get to that happy place where that is an option. Yet while I believe empowering employees should create a stronger enterprises, I recall that ESOPs were invented by Louis Kelso, a newspaper publisher in the San Francisco Bay Area. As the story goes, in the early 1970s Kelso persuaded then Louisiana Senator Russell Long to push the notion into federal law. Fast forward to now, and I believe the small newspaper chain that was Kelso’s first ESOP has been subsumed by traditional newspapers chains. I couldn’t find anything on this via web search this morning, but I know people who worked at those papers and lived some of these events so I’ll poll them and report back when I can.

Tom Abate
‘Cause if you ain’t Mass Media, you’re Mini Media