Resources;

 

Issue and debate: ESOPs have been what journalists call "good copy" over the past few years. One genre: the gosh-ain't-it-wonderful story, exemplified by any number of Sunday-business-section and regional-magazine articles. But the national press has been more critical. Some notes on the critics:

Forbes just doesn't like ESOPs. "The Myths of Employee Ownership" (April 23, 1984) and "Class Consciousness Raising" (November 30, 1987) argue that worker-owners will milk their companies dry. Why more than corporate owners? The magazine doesn't say. Anyway, in private-company ESOPs employees don't usually make investment decisions.

Business Week's cover story "Revolution or Ripoff?" (April 15, 1985) attacks ESOPs on another ground: they screw the workers. Prime example: at Dan River Inc., where managers set up an ESOP-financed leveraged buyout, workers feel that they "got took." Yet W. L. Gore & Associates Inc. is heralded as an example of a truly successful ESOP. "It's hard to find someone at Gore who doesn't like the job."

Other recent attacks: "The Foibles of ESOPs" (Newsweek, October 19, 1987) rehashes BW's fear of fancy ESOP financial deals. "Are ESOPs Headed for Trouble?" (Institutional Investor, August 1987) wonders if the tax breaks are too generous. No one -- surprise! -- says ESOPs don't work for privately held companies. In fact, the opposite: "How Well Is Employee Ownership Working?" a Harvard Business Review special report (September/October 1987) by two ESOP partisans, reports flat out that "companies do better after setting up ESOPs."

Recommendation: for solid background information, skip the articles entirely and browse through a copy of Joseph R. Blasi's Employee Ownership: Revolution or Ripoff? (Balllinger, 1988), not to be confused with the BW piece. It includes all you'll ever want to know about where ESOPs came from, how they work in practice, what legal and practical issues they raise. And -- thank heaven -- it's eminently fair-minded. Blasi isn't afraid to criticize ESOPs that don't work or to praise those that do.

If you're considering an ESOP and want nuts-and-bolts information, here's what to do:

First, contact the ESOP Association, 1100 17th Street N.W., Suite 310, Washington, DC 20036. Ask for its introductory booklet How the ESOP Really Works ($10). But also get a copy of the most recent "ESOP Survey" ($5), which will tell you who else has ESOPs and what problems they've encountered; and a copy of ESOP Directory ($25), which lists both ESOP companies and specialists in the field.

Second, get in touch with the National Center for Employee Ownership, 426 17th Street, Suite 650, Oakland, CA 94612. Get the introductory pamphlet "Selling Stock to an ESOP in a Closely Held Firm," but also ask for a copy of Managing an Employee Ownership Company ($25). It's the best examination of how the way you run your business can be affected by an ESOP.

Both organizations can put you in touch with knowledgeable bankers, lawyers, and consultants who are likely to have informational materials of their own on such matters as valuation and repurchase liability. And both sponsor regular conferences and information sessions around the country.