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Mini-cast 164: ESOP Numbers - Good or Bad?

Bret Keisling takes a brief look at the decline in the number of ESOPs from 1996 until today, the good and bad behind the numbers, and why 2021 may see the end of annual declines in the number of ESOPs.


Mini-cast 164 Transcript

[00:00:00] Bret Keisling: Welcome to the ESOP Mini-cast. Thank you so much for listening. My name is Bret Keisling, and as it says on my business cards, I'm a passionate advocate for employee ownership. I want to take a quick look at some numbers in the ESOP space and give a little bit of commentary as to what I think the numbers represent.

[00:00:25] Are the numbers good? Are they bad? The answer is of course, yes: they're good and they're bad.

[00:00:32] Before I begin, I want to explain how this episode has come to be. Certified EO puts out a monthly newsletter that is chock full of member spotlights, as well as links to blog posts and other information important to all of us in employee ownership. Anyone can subscribe to [The] Drumbeat, and I highly recommend it.

[00:00:48] In the most recent Drumbeat, there was a link to a blog post by Thomas Dudley, the co-founder and CEO of Certified EO. The post details where information comes from about employee-owned companies and it's the Department of Labor's 5500 forms. If you listen to Thomas on a previous episode of The EsOp Podcast, you know one of his EO "A-ha Moments" was reviewing data while he was in grad school. We're fortunate that he has both a love of the data and the ability to grasp it. So, I'm going to leave the hard dive to Thomas's blog post, and I hope you'll check that out.

[00:01:21] My friend, Vince Kruse from USA Mortgage has been on the Podcast and Mini-cast a number of times. He sent me a copy of Drumbeat that linked to Thomas' post and Vince's very simple question was, like many people, he thought there were over 7,000 ESOPs currently in the United States and he was surprised to learn that there are only about 6,300.

[00:01:40] Vince is certainly not alone. Sometimes all of us throw numbers around and it lacks the clarity of what we're talking about. I should point out that I'm going to add to that lack of clarity because my numbers are not precise. Again, I'll refer you to Thomas Dudley's blog post, where he does a deep, specific dive, but I'm going to speak generally.

[00:01:58] In 1996, Louis Kelso wrote that there were approximately 7,400 ESOPs in the United States at that time. As I recall from data provided by the NCEO, as of 2019, there were approximately 6,300 ESOPs in the United States. Obviously, a loss of 1,100 ESOPs in a span of 23 years is counterintuitive to the robust vibe currently going on in ESOP world.

[00:02:23] I'll give you my thoughts on that in just a moment, but there's another set of numbers that often gets confused that I'd like to explain. Sometimes people or organizations will speak of 10 to 14 million employee owners in the United States. Although that's a very broad range, it's technically accurate if you include employees of large publicly traded companies that may happen to have an ESOP covering a couple of percentage of company shares as a straight retirement bonus. There's no attention to culture. There's no vibe of employee ownership whatsoever. And in fact, many of these quote unquote "employee owners" work for the same soul-crushing major corporations that are anathema to employee ownership.

[00:03:01] We love all of our employee owners, but those aren't the ones I'm focused on at the EO Podcast Network. I'm concerned with the 3 million employee owners who work at small privately held companies. So, I almost never mention the 10 to 14 million number myself, unless it's to explain why that number doesn't matter to me as much.

[00:03:20] Getting back to the number of companies and the robust vibe in employee ownership. There's a lot of good news, in fact, great news to celebrate. Our major organizations, the NCEO and The ESOP Association regularly sell out their national conferences as well as many of their regional programs. Obviously, this is a very successful metric that nobody can disagree with.

[00:03:40] Similarly, although I'm not as tuned into the professional advisor network as when I was a trustee, I've talked to enough people to know the professional advisors are really, really busy. If you have an established ESOP practice that you build up through time, then chances are particularly good that at year end 2021 you will look back at a very successful year.

[00:04:00] One obvious benefit of all the transactions that are occurring is that we are creating a lot of new employee-owned companies. If you look on social media, including our accounts for the EO Podcast Network, you'll regularly see newly formed ESOPs and co-ops congratulated and celebrated. This is also great. And I certainly try and celebrate the positives as much as possible. And I do it sincerely.

[00:04:22] But as regular listeners know from time to time, I've discussed the drop in number of ESOPs between '96 and today. So, how do we reconcile the great news from the organizations and professional advisors with the drop in numbers?

[00:04:33] It's simple. The robustness is based on current capacity. For example, the NCEO can no longer hold any of their national events anywhere, but conference centers. That's how big they've gotten. But I believe, and it's just an estimate on my part, that our organizations are still touching only about 15 to 20% of employee-owned companies. They're just scratching the surface of what we can all accomplish if employee ownership becomes a movement.

[00:04:58] Similarly, with the professional advisors, the robustness also has more to do with capacity. I won't go deep on this Mini-cast, but I've talked previously about how clogged the pipeline of professional advisors are in the ESOP space. It's very difficult to break in and build a client base. I believe we need a concentrated effort to bring more professionals into employee ownership and welcome them and help them build their practices as quickly as possible.

[00:05:22] So, to bring this Mini-cast to a close, there are so many organizations doing so much great work, I've suggested that 2021 could be the year that we look back at in the future and say, this is the year we began to become a movement. And I hope we're going to start seeing a change in the numbers that will allow us to celebrate increasing number of ESOPs and co-ops every year.

[00:05:43] I really appreciate Vince Kruse reaching out with his question. And I understand USA Mortgage has had another historic year, so I'm hoping Vince will come on in the new year and update us on how he and USA Mortgage are doing. I hope this holiday season is wonderful for you and your family. Merry Christmas if you celebrate. Happy Kwanzaa, if you celebrate. And a happy and healthy 2022 for all of us.

[00:06:05] Thank you so much for listening. This is Bret Keisling. Be well.


[00:06:09] Bitsy McCann: We'd love to hear from you. You can find us on Facebook at EO Podcast Network and on Twitter @ESOPPodcast. This podcast has been produced by Bret Keisling for the EO Podcast Network, production assistance by Victoria Huerta, original music composed by Max Keisling, branding and marketing by BitsyPlus Design, and I'm Bitsy McCann.

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.

A note on the transcript: This transcript was produced by Descript, an automated transcription service. While it has been reviewed by The EsOp Podcast, we can not guarantee the accuracy of the transcription. Please refer to the original audio when citing sources.


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