108: Martin Staubus and Why EO Matters



Martin Staubus was our guest on Episode 19 of The ESOP Podcast. In this excerpt from January 2018, Martin joins host Bret Keisling and shares how The Beyster Institute came to exist, his own path to passionate advocacy for employee ownership, and how the team approach to employee ownership makes for better business and lives.


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Episode 108 Transcript


Bitsy McCann: 00:03 Welcome to The EO Podcast, where we amplify and celebrate all forms of employee ownership.


Bret Keisling: 00:13 Hello, my friends. Thanks for listening. My name is Bret Keisling and as it says on my business cards, I'm a passionate advocate for employee ownership. Today we reach back to January, 2018 for a conversation I had with Martin Staubus who at the time was executive director of The Beyster Institute at The Rady School of Management at the University of California San Diego. In this excerpt from Episode 19 of The ESOP Podcast, Martin shares the story of Robert Beyster and SAIC and how The Beyster Institute came to be. He also shares his amazing perspective on the importance of employee ownership and how a team approach improves businesses and lives. Martin's path to becoming a passionate advocate for employee ownership is a very interesting story and you'll hear that as well. Please remember as you listen that there may be references that no longer apply. Now, Kim Blaugher is executive director of The Beyster Institute and Martin remains as senior consultant. And as regular listeners know, I left Capital Trustees in the summer of 2019 to form The KEISOP Group. For current information about the great services available through the Beyster Institute. Visit their website. We'll have a link in our show notes. You can find my complete conversation with Martin in Episode 19 and all of our archive episodes at TheESOPPodcast.com. Here's my conversation with Martin Staubus.


Bret Keisling: 01:40 Talk a little bit about The Beyster Institute and how you found yourself here.


Martin Staubus: 01:44 Right? Yeah. Well, it's a long story. The Institute itself really traces back to the experience of a company that was started here in San Diego called Science Applications International Corporation, better known as SAIC. So the founder was a fellow named Bob Beyster, which is where we get our name from, The Beyster Institute. Bob was a nuclear physicist. He worked at Los Alamos labs, came out to California and San Diego around 1960. Worked for General Atomics and decided around 1969 that he would leave General Atomics, start his own company. A patriotic guy, he really wanted to help protect the country. This was in the most intense parts of the cold war era. So he wanted to have a company that would really do the best possible sort of government research, mostly defense research. So they subsequently ended up working on things like stealth, radar technology and those kinds of kinds of projects.


Bret Keisling: 02:43 And he must've been a fascinating guy to be able to merge his scientific passions and ability with his patriotism. But also, SAIC ended up being a Fortune 500 or a multi-billion dollar company.


Martin Staubus: 03:00 Exactly. So within 30 years of launching his company, it was a Fortune 500 company, number 287, something like that, 44,000 employees globally. That was pretty remarkable record of growth to go from zero in 1969 to that size of a company. And this was not, you know, one of these new technology companies that you could scale up dramatically. This was contract by contract winning this stuff in a kind of a bricks and mortar way. So it was a remarkable growth story. And what he would always attribute that growth to - I mean he was a very modest guy, I mean obviously a nuclear physicist pretty darn bright - but he said he was a rookie entrepreneur, first company ever started. It really was all the fact that he'd sort of hit on this idea that if people were working there and really making significant contributions to increasing the value of the company, they deserved to share in that value by getting stock in the company. So that's how the system worked that he developed. You join the company, you bring in new contracts, you deliver on those contracts, you add value to the company and you're going to get awarded stock and be a co-owner of the company.


Bret Keisling: 04:02 Now to be clear, this was before ERISA, this was before the ESOPs that we're talking about.


Martin Staubus: 04:07 Right.


Bret Keisling: 04:07 So this was a guy who owned all of the shares, or most of them, and chose to divvy them out as opposed to what we see today.


Martin Staubus: 04:14 Exactly. On day one, he was the sole owner of the company. This was 1969. ESOPs come about in 1975. So the first several years there was no ESOPs at all. And years into it, they added an ESOP into the mix, but it was never really actually an ESOP dominated company. They put stock in employee hands in pretty much every way they could figure out to do that, just simply award the shares. As the years went by, they'd adopted a stock option plan. They would have a large part of it was simply employees had the opportunity to buy shares. So there was very multifaceted and that's really the basis for our experience. So we're an organization today that drew on their 30 years of experience with this idea of how do you structure something so that employees can participate in ownership of the company and have a really thriving company. And that's really sort of what we're about. Of course it turns out today, the ESOP is such a powerful and attractive tool that probably 75% of our work involves helping companies establish ESOPs. But we still work with companies - the other 25% - are companies that may be a very early stage startup, there's not a founder that's interested in cashing in any equity and we'll help them.


Bret Keisling: 05:26 Let me ask Martin, because we will absolutely cover to what you're doing now, and you personally have a lot of irons in the fire, you know, in the ESOP world and your roles here at The Beyster Institute. Just want to cover a little bit more about the old days, only because I find it interesting. I think the people listening will as well. So Dr. Beyster just got a lot of phone calls from people saying, hey, you've got highly motivated employees, you're giving out shares, what's your secret? And he ended up - and by the way, it's not that I'm that smart Martin, you and I had lunch and you shared this with me - but ended up making a lot of appointments and then realized that he couldn't see everybody who wanted to pick his brain and that led to the Institute?


Martin Staubus: 06:06 That's essentially it. It was very pragmatic on his part. He was just getting too many calls. You know, the first few people he called, he was happy to help give them some guidance, some input. They wanted to buy him lunch, ask him how he did things there and he tried to help them out but after a while there were too many inquiries and he really felt like he'd like to help them out, he just couldn't do it personally. So that's where he had this idea, I'll set up a list to get a few people in there that know this stuff and then when people ask me for information about this, I'll give them the number of my Institute, let them, let those people help them. So that's how The Institute got started.


Bret Keisling: 06:34 And then at a certain point ,as you shared, he was heading towards retirement and addressing his roles with SAIC and I guess his life in general as people plan classic exit strategy that you and I are both familiar with and had an opportunity to find a home here for The Beyster Institute as part of that?


Martin Staubus: 06:54 Exactly. This, the Institute, got started originally it was the late eighties. It was an independent nonprofit institute that he'd set up. And it was in 2004 that he finally was retiring from SAIC trying to figure out what's going to become of his little pet project, his little Institute he always made sure he took care of, made sure that SAIC as a company helped out the Institute. And he thought, well, maybe it might do well if it ended up housed at a big institution like the university. What do you know, University of California San Diego was just in the process of opening its new business school. So, he approached them and said, what do you think about absorbing my Institute in your new school? They said, it's a great idea, let's do it. And so in short order, we became part of the brand new Rady School of management here at UC San Diego. Of course, the only catch, as I mentioned is they say there's no provision in the university budget for you, so you'll have to be a self-supporting entity we call it here on the campus. So that's what we are. We're self-supporting entity. Primarily our biggest source of revenue is advising business leaders and their companies on establishing an ESOP or some other employee ownership program and help them do that. Of course, the truth is we are indirectly subsidized. We get free space, we have no lease expenses and all the back office stuff is provided through the university. So we're essentially a nonprofit organization, mission-driven, partly subsidized. So we're, we're low cost and pretty darn dedicated to what we're doing.



Bret Keisling: 08:16 Well and if you have the passion for what you're doing, and we've talked about how the Beyster Institute got here, I do want to go back a little bit and talk about how you got here, but if you're passionate about what you're doing, what I like about the fact that you need to be self sufficient is you and your colleagues have to be entrepreneurial yourselves, which helps when you work with businesses.


Martin Staubus: 08:37 Absolutely. We have to run our organization as a business. You know, we have a bottom line and you know, we're content to break even, but we have to stay in the black and be pretty entrepreneurial. Yeah, we're left to our own devices, which is a blessing and a curse, but far more blessing I think. [Laughter.]


Bret Keisling: 08:53 It would nice to not have to worry about revenue streams, but your business clients don't have that luxury, why should you?


Martin Staubus: 09:03 Right. Exactly. That's the real world.


Bret Keisling: 09:03 And the best thing. So Martin, you, yourself, have a fascinating history. You've been with the institute for 13 or 14 years, but were involved with ESOPs. Take me back to your early days, because your path here was very interesting.


Martin Staubus: 09:18 That's right. I was born as an ESOP advocate... Not quite, but it goes back a fair ways. Grew up here in California. I went to college at Berkeley, Cal Berkeley, and was an economics major and I recalled as they were studying economics I was kind of the usual Berkeley, this is the 1970s and, you know, the crazy anti-establishment days and I'm all involved in all that stuff, and...


Bret Keisling: 09:42 But in the context of being an economics major. And, you know, I joked earlier that Berkeley is not known as the hotbed of capitalism. And yet that's where you started to end up here.


Martin Staubus: 09:53 Yeah. So that was the realization I had that on the one hand, you know, I was into all of this ideas of you know, championing the ordinary working people and some kind of socialism or something. But as an economics major, I couldn't help but really appreciate the efficiency of a free market system. It seemed like such a tremendous system. So then I was struggling with is there some way that we could have a free market system that provided better opportunity for just ordinary working folks and not just this small number of capitalists. And then I began to, I read an article, that a fellow named Louis Kelso, who was the guy who created the ESOP concept, happened to be based in San Francisco. That's where he lived his life and practiced his trade as an investment banking attorney. And he set up the very first few ESOPs in the San Francisco area. So there I was and I read the local papers some obscure article about a company that was putting half their stock or something into a program called an ESOP and the employees were going to own half the company. And I thought, wow, what a tremendous idea. Get everybody on the same page. They're all going to work together and those ordinary employees will have a chance to actually accumulate some wealth. This could be the solution. This could be something that appeals to my Berkeley radical sort of idea of moving away from the traditional economic system but at the same time uses the tremendous, amazing efficiencies of the free market system. So I thought that's what I want to get involved in.


Martin Staubus: 11:17 From there I went off to law school studied law, worked in focused on employment, labor relations kinds of things. Went off for a while and got work in labor relations, worked for, there's a state agency that's similar to the NLRB, regulates labor management relations, saw how badly that system kind of worked - an old dinosaur, expensive, cumbersome, slow system it was that sort of left everybody feeling a lot of hostility to each other and there's got to be a better way to do this. And began to think back and remember that idea about the idea of the employees owning part of the company. That seems like it'd be a much natural way to do this too, if you want to make sure that employees are getting good economic treatment without having to create this adversarial labor management, kind of a system. That may be the solution again. So I returned once again to that idea. So that's got to be it, I want to get involved in that. I realized as a young lawyer that it would be an interesting area, but I didn't really know enough about business. You know, I didn't know an accounts payable from an accounts receivable and so I figured I got to learn a little bit.


Martin Staubus: 12:20 So I went ahead and took an accounting class on the side from a local state college and that turned out to be really helpful. Now, I kind of knew the basic language of business, the accounting terms, but I still need to know more. I took a finance class and next thing you know, I realized it was halfway to an MBA degree. I had the business law stuff already covered as a lawyer. So, and in my own life it seemed a lot of roads were leading toward relocating to a Washington DC, at that point that was the center of the employee ownership universe. The NCEO organization, which is today based out of Oakland, was at that time based out of Washington DC. The ESOP Association was there, the Labor Department was there. So I said, let me go to Washington DC. And I enrolled in the George Washington University MBA program, finished up earning an MBA degree while I was there. I cultivated contacts at the Labor Department. And so when I finished my MBA, I went to work at the Labor Department for a few years. Then really got the real inside picture of how they regulate ERISA and their laws and learned that. From there went off and became the deputy director of The ESOP Association and did that for about three years.


Bret Keisling: 13:21 Down in Washington, DC.


Martin Staubus: 13:23 It's all in Washington DC, so...


Bret Keisling: 13:24 And for a lot of our listeners who may not be active in ESOP world yet, they're contemplating transactions or that kind of thing, there are two primary national organizations, The ESOP Association and NCEO, they do a lot of presentations, a lot of training, a lot of education. They're great resources. There's also ESCA and other organizations that are maybe more narrowly fit. So on the one hand you knew the folks from NCEO and on the other hand were the deputy executive director of The ESOP Association, so you've been very well versed in organized ESOP world.


Martin Staubus: 13:58 Right. I was on the board of directors at the NCEO for quite some time and the deputy director of The ESOP Association. Now, of course, the Executive Director of The Beyster Institute. So I've kind of got all three of my feet in each camp, I guess.


Bret Keisling: 14:10 So you're in Washington DC?


Martin Staubus: 14:13 Yeah.


Bret Keisling: 14:13 You're completing an MBA.


Martin Staubus: 14:17 Right.


Bret Keisling: 14:17 You've just completed an MBA, you're now working for the Department of Labor and you are focused on capitalism. Did your former Berkeley classmates organize an intervention? [Laughter.] Was there some sort of a, "What happened to Martin?" Or this actually tailors in nicely with your thoughts from your undergrad days?


Martin Staubus: 14:35 Right. Exactly. It was my own sort of evolution and it really did sort of bear out, I think all these years later. I'm still convinced this idea that it is a sort of -- that employee ownership is this perfect synthesis of all of the financial and economic efficiencies that are free market system that also allows ordinary working folks to actually get a better shake and get a part of the, actually create an opportunity for them. So people go out, they work hard, they pitch in and make their company successful and pocket some of the wealth is generated as a result. Who can dislike that? It's just a great model.


Bret Keisling: 15:09 You know, I've spoken on other podcasts of my two sons who have really changed my thinking a little bit, opened up my mind in terms of fairness and society and that sort of thing. And I believe in capitalism. I am very comfortable with the fact that I can work very hard and if I schedule extra meetings and work hard and I'm a very lucky person with Capital Trustees and what we do, but that I can do things to generate income, but my kids and other adults have made me aware that there are inequalities in the system, and for me the perfect solution is employee ownership, that I have taken to calling shared capitalism, that to me it fits perfectly in the capitalistic mode. You've got a competitor, you clean their clock, you market to the customers, you do better services or products, price point, et cetera, et cetera. But everybody shares in the results while minimizing the risks if there are downturns, you know, employee owners don't necessarily have that risk. So that is a lot of what you're trying to do as well.


Martin Staubus: 16:13 Exactly. It's really kind of a broad perspective. Like Winston Churchill a noted conservative once said that the problem with capitalism is that not everyone shares in the benefits. The problem with socialism is that everyone shares in the misery. So what we need to do is have a capitalism in which more people share in the benefits. And so that's what we're trying to develop in the employee ownership world.


Bret Keisling: 16:36 And you mentioned Winston Churchill and we are going to talk about what the Beyster Institute does and, and all the programs and some other stuff you're involved in. But let's talk politically for a little bit because ESOPs are not a conservative or a liberal cause. Can you just expand on that a little bit?


Martin Staubus: 16:53 Yeah. And that's for me, one of the really gratifying things about being in this field. It's something I got a good appreciation of when I was at The ESOP Association, since after all of this, based in Washington and a primary function that they have is to sort of be the lobbyist to represent ESOPs. So it's very politically attuned and it was remarkable what a nonpartisan issue it was and how it was really spread among both the parties. The old days, people would point out that the two of the biggest proponents were Ted Kennedy and Ronald Reagan, they both gave speeches advocating employee ownership. And so it's really, really, really bipartisan. Even today there's sort of a, you know, core cadre group of people in Congress that are real ESOP supporters and fairly evenly divided among the parties. It's just something I think that speaks to a basic American value that everybody appreciates. We spent so much time fighting over the areas in which we disagree, we start to believe that we disagree about everything, but in fact there's a lot of sort of unspoken non-contentious things that we as Americans believe in: democracy, one person, one vote and opportunity. So ESOPs, really speak to the idea that we're not going to guarantee you anything, but we're going to give you the opportunity to be part of a company and if you can be an effective teammate and your team builds something really successful, you get to share in that. As I say, what American really going to disagree with that?


Bret Keisling: 18:17 And you really get the sense of the importance of every teammate, team member. I remember going back, I was in retail in the 80s and it was furniture retailer. We had nine or ten stores and the sales department was always at war with the delivery department and that sort of thing. And the sales department generally would have this company would be nothing if we didn't sell. True. The delivery department would be like, but if we're not getting the beds out the door. True. And it's always been the challenge ESOP or non-ESOP to bridge the gap and get everybody on the same page. And if you're all employee owners, that's a nice way to get everybody on the same page quickly.


Martin Staubus: 19:00 It is a tremendous way to get people on the same page. And what I see when I visit a really healthy ESOP owned companies that are really doing a great job of employee ownership, it's amazing how you get the sense that it has the feel of a sports team. So people often will use the sports analogy and I think it's a really apt one for this because people all understand they're ultimately all keeping score off the same scoreboard. And it doesn't matter who scores the run, it's run for the team and they're all going to win together or lose together. And you may be playing third base and somebody else is playing right field and somebody's catcher today, but they're all pitching in for the same goal. It's pretty clear how they define winning. And at non-employee on companies each player is just playing for themselves and they don't really care about the ultimate team result. They're just only, you know, compensated on their own stats and that's it.


Bret Keisling: 19:50 Well, and, but ultimately they're playing for the shareholder.


Martin Staubus: 19:54 Right.


Bret Keisling: 19:54 So they don't even get, I mean, even if they're well compensated for what they do, they're not getting a piece of the pie generally.


Martin Staubus: 20:02 And they have no incentive to help another teammate be effective. You know, one of the things I talk about when I teach the class I teach here is that you can Google the phrase, "we play for each other" and what you'll find is thousands of hits, they all come from interviews with professional athletes. And what the athletes are saying is that when it comes to really what their motivation is out there, especially if they're playing football and they're really just having their bodies battered out there and they're throwing their bodies around and getting battered and bruised and painful and all that. And you know, why are they busting their rear so hard and putting their bodies on the line? He says, we don't really do it because the coaches tell us to we don't do it really for the owner of the team. And truth be told, we're not supposed say this, but we don't do it for the fans either. He says, the reason I'm busting my rear out there in the football field is for my teammates. I know they're busting their rarest to do that for the rest of us. And so I got to carry my end of the deal and keep it up and I owe it to them because I don't want to let them down. So when you have employee owned companies, you have the same dynamic going on where people are saying we're all part of his team, we're all trying to build a successful company we're all trying to make some money here and it's not so much the boss that I have to make happy. I don't want to let down my teammates because they're all busting their rears to go out and do their part of it to make it successful.


Bret Keisling: 21:22 That is a great analogy and one that I hope you share with ESOP companies and one that I may steal from you and sort of work into my own presentations. I will tell you Martin, that the first time I steal it from you, you will get full credit [laughter], and second time I'll say as my friend Martin and I have said, and then in passing, and third time there's this guy in San Diego who said something, but it's all... [Laughter.]


Martin Staubus: 21:46 It's all Bret's from there!


Bret Keisling: 21:46 No, that is great with the teammates and the ultimate.. Because you know, we can talk about are we in it for the customers? And we are. Are we in it for, you know, our families? We all want to have a good life, whoever any of us are. And you and I again, before we started recording, got a conversation about all of the different things that generate income in America, washers and O-rings for example. That people get very excited about what they do. Because either they make the best little components or they make the most cost effective and everybody wants to kind of clean the competitor's clock in an appropriate way. And that's a great analogy.


Martin Staubus: 22:28 Yeah. People wonder about that. We talked about how it's easy to have employees motivated when you're working on something that's obviously tremendously important. Like around San Diego and all of these biotech firms and they might be working on trying to perfect a cure for cancer. You know, that's pretty exciting stuff and pretty compelling and employees don't need much motivation to, you know, if they're some kind of biochemist they're going to be working pretty hard for that. It'd be pretty amazing to be part of some big breakthrough project. But if you're just trying to be distributor of O-rings and washers, you know, it's not fundamentally necessarily all that riveting of a work to do, no pun intended. But, so how do you get people really motivated doing that kind of work?


Martin Staubus: 23:04 And so I always make it the point that somebody was motivated enough to start that company and they worked awfully hard. Getting the company off the ground was a lot of hard work for an entrepreneur and why were they, what was motivating them? And I think the idea of being able to build a successful company and have pride of craftsmanship and pride in what you're doing and we are the best darn O-ring makers in the business. And maybe we are moving toward number one in our field or having success by any measure. We're putting wealth in our pockets, again, getting rich doing this. If as an employee, you have part of that action, you're not just showing up to do some task assigned, it can be pretty galvanizing, pretty compelling to do that. So employee ownership is at its best when a company is doing work that others might perceive as not that exciting.


Bret Keisling: 23:49 One of the things that strikes me, because with every client that Capital Trustees has, we have to have a due diligence meeting at some point. If it's transaction we're going out at the time of transaction, if it's an annual client we're there sometimes many times during the year and that sort of thing. And to have people be excited about what they're doing for a living is, is, and I've shared with you and some of the listeners have probably figured out as I'm eyeballing senior citizen approaching rapidly-- more rapidly than I would care -- you know, what's really important? And for people to be able to grasp in their own jobs, whether they're in a factory, whether they're in a service industry, whatever they're doing, whatever makes them happy, and sometimes if you have a job that the job itself is not very exciting per se, but if you do it well and you're well compensated for it, and that what's allows you to take your family out on a Friday, for the lifestyle, it's all connected.


Martin Staubus: 24:52 Yeah. Yeah. That's a big part of it. If you can see the bigger picture, I think so you can see what the you know, some sense of purpose and meaning and what you're doing and why it matters. It's just such a powerful difference in terms of employees taking their work really seriously.


Bret Keisling: 25:09 With that, we're going to bring this episode to an end. I really enjoyed my time with Martin Staubus when we recorded that in January, 2018. I've got a lot of respect for him and The Beyster Institute and as I mentioned at the top, you can find the entire conversation with Martin on Episode 19 available at The ESOPPodcast.com. Thank you so much for listening. I hope you'll join us Friday for The ESOP Mini-cast. This is Bret Keisling. Have a great day.


Bitsy McCann:25:39 We'd love to hear from you! To contact us, find us on Facebook at KEISOP, LLC and on Twitter @ESOPPodcast. To reach Bret, with one "T", email Bret@KEISOP.com, on LinkedIn at Bret Keisling, and most actively on Twitter at @EO_Bret. Again, that's one "T". This podcast has been produced by The KEISOP Group, technical assistance provided by Third Circle, Inc. and BitsyPlus Design. Original music composed by Max Keisling, archival podcast material edited and produced by Brian Keisling.


Standard Disclaimer: The views expressed herein are my own and don't represent those of my own firms or the organizations to which I belong. Nothing in the podcast should be construed as guidance or advice of any kind in any field and the fact that I mentioned an organizational website or an advocate or a company on a podcast does not reflect an endorsement, but if you've heard your name or your group's name mentioned on this podcast, I'd love to have you come on and talk about it yourself.

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