Increasing Firm Competitive Advantage Through Use of an Employee Stock Ownership Plan (ESOP)

By Bob Jack

Board directors, CEOs, and senior management teams constantly search for the competitive edge that will put their firms on top, sustain profits and increase profit potential.

In this book, an employee stock ownership plan (ESOP) will be examined as a way to create distinctive competencies, create lasting competitive advantage, sustain prof

• Language: English
• Publisher: URLink Print & Media, LLC
• Release date: Oct 2, 2019
• ISBN: 9781643677514

Bob Jack

Mr. Jack possesses a BA degree with high honors in Economics from California State University at Los Angeles, an MBA degree (Strategic Management) from Azusa Pacific University and a Master of Science degree in advanced management from Claremont Graduate University's Drucker School. Aside from this book, Bob Jack has authored five more books - one about his son Chris, titled a Night in Darkness: The Drug - addicted Child; A Journal on Contract Administration Pitfalls and Solutions on Architect - Engineering Projects; A View from the Eagles Nest - when justice failed, and Discovering Your Boundaries and Increasing Firm Competitive Advantage Through an Employee Stock Ownership Plan. Mr. Jack lives in Harrison, Tennessee.

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Increasing Firm Competitive Advantage Through Use of an Employee Stock Ownership Plan (ESOP)

Copyright © 2019 by Bob Jack. All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any way by any means, electronic, mechanical, photocopy, recording or otherwise without the prior permission of the author except as provided by USA copyright law.

The opinions expressed by the author are not necessarily those of URLink Print and Media.

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Published in the United States of America

ISBN 978-1-64367-752-1 (Paperback)

ISBN 978-1-64367-751-4 (Digital)

26.09.19

DEDICATION

This book is dedicated to William (Bill) E Leonhard (1914-2008) whose keen vision and brilliant leadership transformed Parsons Corporation into one of the foremost Design-engineer and construction management entities in the world. In 1984 while CEO/Chairman of Parsons, Leonhard took Parsons private through a 100% Employee Stock Ownership Plan Company which was a highly successful strategic response to the then existing Engineering-Construction industry market.

CONTENTS

Preface

ESOP Overview

Chapter 1: Strategic Foreword

Introduction

Objectives

Research Methods and Procedures

Assumptions and Limitations

The Strategic Management Process

Application of Strategic Management Process

Method of Presentation

Chapter 2: The Nature of ESOP

Introduction

ESOP: What It Is and How It Works

Strategic Uses of ESOP

Corporate Finance

ESOP and Employee Commitment

ESOP as Takeover Defense

ESOP as Succession/Exit Strategy

ESOP Corporate Culture

Potential ESOP Pitfalls

Chapter 3: The Engco Case

Chapter 4: Strategic Assessment of Engco

Introduction

External Environmental Scan

Internal Environmental Scan

Strategic Analysis of Engco

Problem Analysis

Problem Statement

Root Problem Explanation

Constraints

Possible Solutions

Selected Solution

Reason Why This Was the Best Solution

Chapter 5: The Strategic Marketing of ESOP to Employees

Introduction:

ESOP Companies and Organizational Culture

Background for the Marketing Program

Engco Mission and Goals Statements

Engco Mission Statement

Engco Goal Statements

Internal ESOP Marketing Strategy

ESOP Behavioral Research

The ESOP Marketing Program

ESOP Communication Media

Content of ESOP Communications

Chapter 6: Conclusion

Glossary Of Terms

Afterword

Author Biography

Bibliography

PREFACE

This book is about employee stock ownership plans (ESOPs) as corporate vehicles to achieve competitive advantage for a firm. The book will undertake a strategic analysis of an existing but hypothetically portrayed entity (ENGCO) in the global engineering business. An employee stock ownership plan is a qualified defined – contribution employee benefit plan designed to invest primarily in the sponsoring employer stock. An employee stock ownership plan, is qualified in the sense that the ESOPs sponsoring company, the selling shareholder, and participants receive various tax benefits. Companies often use these plans as corporate – finance strategy and to align the interests of their employees with those of their business and shareholders.

In 1993 I was working for a global engineering company. For the purpose of this book I will designate this firm as ENGCO. At that time the company was 100% owned by an ESOP trust. This means that employees of ENGCO are the beneficiaries of worker capitalism. Shares of stock are periodically distributed to the ESOP accounts of its employees as a defined contribution. These distributions build up over the years and can be substantial at retirement.

Prior to becoming a 100% ESOP owned company ENGCO had traded on the New York Stock Exchange. When ENGCO management decided that the company would go private through a 100% ESOP owned Company a new ESOP Trust was formed and then made a tender offer for the outstanding shares of ENGCO in the open market. At that same time 30% of the company stock was held in a pre- existing ESOP trust for the benefit of ENGCO’S employees. While the latter stock shares were not tendered at the $32 per share price that was offered to the public shareholders (rather a lesser price) , employees were guaranteed at least $32 per share upon retirement until such time as the evaluated price of the ESOP shares equaled the tender offer price of $32 or more.

Worker enterprise and capitalism may be seen as key motivating factors both in the retention and performance of employees. The alignment of corporate performance with employee performance may be substantially greater due to the motivating aspects of worker ownership.

In this book I will demonstrate that worker capitalism through a 100% ESOP owned company has significant strategic advantages. When employees have a stake in the company’s performance outcomes there is more likely than not to be an ongoing alignment between company performance and employee performance. Employee commitment tends to increase and voluntary turnover decrease under these circumstances.

Employees of an ESOP owned company tend to have a greater long-term appreciation and interest in the company’s ultimate fortunes. A special employee ownership culture develops under the right leadership. Management should always emphasize the fact that distributions of cash at the time of retirement (based on the value of the stock and number of shares allocated to the employee’s ESOP account) are rewards rather than negative cash flows to the company. This perception is extremely important to successful leadership in a 100% ESOP owned company.

One must ask whether the general demographics of the employee job market will alter the future attractiveness and success of ESOPs. When ENGCO first went private through a 100% ESOP trust most of the employees came from either The Greatest Generation or from Baby Boomers. People from these generations in general may have a greater propensity for long-term commitments and retirement income than the current crop of Millennials. The extent to which this demographic will adversely impact the value of ESOPs is yet to be determined, if at all.

Another factor that could ultimately impact an ESOPs decision to remain 100% private is whether or not there is a need to access the public market for additional capital by issuing stock on one of the major exchanges. Prior to ENGCO going private it traded on the New York Stock Exchange.