```

[Senate Hearing 111-1158]
[From the U.S. Government Publishing Office]

                                                       S. Hrg. 111-1158

 
   INVESTING IN AMERICAN WORKERS: THE BENEFITS OF EXPANDING EMPLOYEE 
                               OWNERSHIP

=======================================================================

                             FIELD HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                                   ON

  EXAMINING INVESTING IN AMERICAN WORKERS FOCUSING ON THE BENEFITS OF 
                      EXPANDING EMPLOYEE OWNERSHIP

                               __________

                    AUGUST 26, 2010 (Montpelier, VT)

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions

      Available via the World Wide Web: http://www.gpo.gov/fdsys/

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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                       TOM HARKIN, Iowa, Chairman

CHRISTOPHER J. DODD, Connecticut     MICHAEL B. ENZI, Wyoming
BARBARA A. MIKULSKI, Maryland        JUDD GREGG, New Hampshire
JEFF BINGAMAN, New Mexico            LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington             RICHARD BURR, North Carolina
JACK REED, Rhode Island              JOHNNY ISAKSON, Georgia
BERNARD SANDERS (I), Vermont         JOHN McCAIN, Arizona
ROBERT P. CASEY, JR., Pennsylvania   ORRIN G. HATCH, Utah
KAY R. HAGAN, North Carolina         LISA MURKOWSKI, Alaska
JEFF MERKLEY, Oregon                 TOM COBURN, M.D., Oklahoma
AL FRANKEN, Minnesota                PAT ROBERTS, Kansas          
MICHAEL F. BENNET, Colorado          
CARTE P. GOODWIN, West Virginia      

                      Daniel Smith, Staff Director

                  Pamela Smith, Deputy Staff Director

     Frank Macchiarola, Republican Staff Director and Chief Counsel

                                  (ii)

  
?

                            C O N T E N T S

                               __________

                               STATEMENTS

                       THURSDAY, AUGUST 26, 2010

                                                                   Page
Sanders, Hon. Bernard, a U.S. Senator from the State of Vermont, 
  opening statement..............................................     1
Crystal, Jon, Executive Director of the Vermont Employee 
  Ownership Center, Burlington, VT...............................     3
    Prepared statement...........................................     4
McIntyre, Bill, Director, Ohio Employee Ownership Center, Kent, 
  OH.............................................................     7
    Prepared statement...........................................     8
Voigt, Steve, Chief Operating Officer, King Arthur Flour, 
  Norwich, VT....................................................    16
    Prepared statement...........................................    17
Turcot, Cindy, Chief Operating Officer, Gardeners Supply Company, 
  Burlington, VT.................................................    18
    Prepared statement...........................................    20
Clark, Jeff, Operations Manager, Chroma Technology Corp., Bellows 
  Falls, VT......................................................    22
    Prepared statement...........................................    23
McCabe, Tom, Treasurer, Pizzagalli Construction Company, South 
  Burlington, VT.................................................    24
    Prepared statement...........................................    26
Seifer, Bruce, Assistant Director for Economic Development, 
  Community and Economic Development Office, Burlington, VT......    27
    Prepared statement...........................................    29
Mackin, Christopher, President of Ownership Association, Inc., 
  Cambridge, MA..................................................    30
    Prepared statement...........................................    32

                                 (iii)

  

   INVESTING IN AMERICAN WORKERS: THE BENEFITS OF EXPANDING EMPLOYEE 
                               OWNERSHIP

                              ----------                              

                       THURSDAY, AUGUST 26, 2010

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Montpelier, VT.
    The committee met, pursuant to notice, at 11:06 a.m. in the 
Vermont Statehouse, Room 11, 115 State Street, Montpelier, VT 
05633, Hon. Bernard Sanders, presiding.
    Present: Senator Sanders.

                  Opening Statement of Senator Sanders

    Senator Sanders. We're going to begin the meeting of the 
Health, Education, Labor, and Pensions Committee, and I want to 
thank Senator Tom Harkin, who is the Chairman of the committee, 
for allowing us to hold this hearing on this very, very 
important issue here in the State of Vermont, and I want to 
thank all of our guests for being here and all the people in 
the audience.
    The format will be as I'll go on for 2 or 3 hours. I won't.
    [Laughter.]
    Senator Sanders. I'll be brief, and then we'll open it up 
for brief remarks, and then we're going to do an informal 
discussion, kind of a roundtable, except we don't have a round 
table. It's a rectangle table discussion, and what we want to 
do is we're dealing today with an unusually important issue.
    I don't have to tell anybody in this room that in the 
United States today and in Vermont we're in the midst of a 
very, very serious recession, real unemployment, I mean in 
terms of those people who don't have jobs, those people who 
have given up looking for work, those people who are working 
part time when they want to work full time. The unemployment 
rate is over 16 percent in this Nation.
    Further, millions of American workers today are working 
longer hours for lower wages and in the last 30 or so years, we 
have seen millions and millions of good-paying jobs in this 
country disappear as corporate America has thrown workers in 
this country out on the street, moved to China, moved to other 
low wage countries where they're getting workers who work for 
them for pennies an hour.
    We're seeing a decline in the middle class, a significant 
gap between the very rich and everybody else, and in fact what 
we're dealing with today is, I think, an economic model that 
begins to address some of those issues.
    We need new economic models which create and retain jobs 
here in the United States of America, not in China. We need new 
economic models which provide working people with more dignity 
on the job and control over what they are doing so that they're 
proud and excited about coming to work in the morning rather 
than doing it in a resentful and angry way. We need new 
economic models so that when companies do well, it is not just 
the CEOs and the owners of the company who do well, people on 
top, but all people who work in the companies who do well and 
that's also what the concept of worker ownership deals with.
    In my view, the concept of employee ownership can and will 
be an important tool for addressing all of these goals, 
creating a more democratic workforce, stimulating our economy, 
creating decent-paying jobs.
    Holding this hearing here in the State of Vermont instead 
of Washington, DC, makes a whole lot of sense because, as all 
of you know, Vermont has been a national leader in the area of 
employee ownership and it's important that we share our 
successes as well as the problems that we've had with our 
friends in Washington and all over this country.
    Study after study has shown that employee ownership has 
been proven to increase employment, increase productivity, 
increase sales, and increase wages in the United States. Unlike 
large corporations that have been shipping jobs overseas, 
employee-owned businesses are not going to shut down and move 
their jobs to China, Vietnam, or Mexico.
    Further, employee-owned businesses boost morale and worker 
satisfaction because workers, as I mentioned earlier, share in 
future profits.
    So there is a lot to be discussed. I think we have an 
economic model now that millions and millions of working people 
will be interested in, if they can learn something about it. We 
have introduced two pieces of legislation which I think will 
help spread the gospel of employee ownership.
    The first bill is the Worker Ownership Readiness and 
Knowledge Act and that is S. 2909 and that would create an 
Office of Employee Ownership within the Department of Labor. 
Among other things, this office would be responsible for 
providing grants to States to establish and expand what we have 
here in the State of Vermont already and what also exists in 
Ohio and that is employee ownership centers and when you have 
employee ownership centers, they're able to get the word out to 
businesses, to workers in their geographical locale and we 
think expanding that concept is very, very important.
    The second bill that we've introduced is S. 2914 and that 
would create a U.S. Employee Ownership Bank to provide loans 
and loan guarantees to employees to purchase a business through 
an ESOP or worker-owned cooperative. The Federal Government 
does a lot of that but it does not do that for businesses that 
are worker-owned and we want to see them do that.
    So those are the two bills that we have, but there are a 
lot of other ideas that are out there and I want to get the 
discussion going as soon as possible. So what we'll do is we're 
going to hear from people from Vermont. We're going to hear 
from our friend from Ohio, short presentations, 3 to 4 minutes, 
then open it up. I'll ask some questions and we'll open it up 
for discussion by the panel and with the audience, as well.
    So this is big stuff. I think the country wants an economic 
model that keeps jobs in America, allows workers dignity on the 
job, and that's what we're talking about today.
    I also want to mention that we have representatives from 
Senator Leahy's office here and Congressman Welch's office is 
here and we appreciate them being here and I should mention 
that Senator Leahy is a co-sponsor of both of these pieces of 
legislation.
    Let's start off with Jon Crystal, who is the Executive 
Director of the Vermont Employee Ownership Center in 
Burlington.
    Jon, thanks a lot for being here.

  STATEMENT OF JON CRYSTAL, EXECUTIVE DIRECTOR OF THE VERMONT 
           EMPLOYEE OWNERSHIP CENTER, BURLINGTON, VT

    Mr. Crystal. Thank you, Senator, for the opportunity to 
speak today.
    I've been involved with employee ownership since 1979 when 
I moved to Vermont to begin working with a company called Guard 
Lend which is one of the pioneers in employee ownership in 
Vermont. Later, while working with the Industrial Cooperative 
Association, I was involved in the early efforts in Burlington, 
driven by then Mayor Sanders, to explore employee ownership in 
that city, and I was the founder of the VEOC in 2001 and have 
been in my current position since 2007.
    Our mission at the VEOC, Vermont Employee Ownership Center, 
is to promote and foster employee ownership in order to broaden 
capital ownership, deepen employee participation, retain jobs, 
increase living standards for working families, and stabilize 
communities.
    We do this by offering a variety of educational outreach 
programs involving conferences and workshops but also by 
providing direct technical assistance and information to 
companies interested in exploring this opportunity.
    Since our founding we've had such direct conversation with 
over 165 companies in Vermont. A number of those companies have 
subsequently implemented some form of employee ownership with a 
total of over 550 jobs impacted from this.
    Nationally, there are over 10,000 companies in the U.S. 
with some form of employee ownership but there really should be 
more. In Vermont, 30 to 40 such companies actually, on a per 
capita basis are very high and we think that's due in part to 
the presence of the VEOC here to help with that process.
    In helping to establish similar centers around the Nation, 
we believe the Work Act that Senator Sanders just told you 
about could contribute significantly to increasing the number 
of employee-owned companies.
    We think the best evidence in favor of employee ownership 
is provided by the real-world examples and you'll be hearing 
stories today from some wonderful Vermont companies. We like to 
refer to the disproportionate excellence of these companies 
because we think that the employee-owned companies of Vermont 
seem to gain more recognition and win more awards than their 
modest numbers would indicate. We at the VEOC are very devoted 
to the objective of helping create more such companies.
    A couple of brief comments about the funding realities, 
however, of all of this.
    While we are not terribly involved in the financial end of 
these deals, it's true that most of these transactions do 
involve a certain level of bank borrowing. It's our 
understanding that both locally and nationally, there's a real 
problem now with timely access to capital to make these deals 
happen.
    We strongly believe that the U.S. Employee Ownership Bank 
Act that you just heard about can play an important role in 
facilitating such deals and would have positive impact on the 
number of successful transactions in Vermont and elsewhere.
    Another funding reality is the money to run centers like 
ours. Our initial funding came from a variety of grants and 
then in 2002 a Federal appropriation that then Representative 
Sanders helped us secure. We have since developed a stream of 
other sources of revenue, including private corporate 
sponsorships, some modest support from the State, and Senator 
Leahy helped us obtain an SBA grant that has been instrumental 
for the last several years for us.
    There's no question in my mind that government support will 
remain an essential part of the funding of a center like this 
but it's always held very tenuous and temporary. A Federal 
grant, such as might result from the Work Act, around which we 
could build a budget to provide core funding would really be 
very instrumental to our future success.
    We believe that statewide programs like ours and the one 
from Ohio you're about to hear about have a crucial role to 
play in creating more employee-owned companies in this Nation 
and may well be the most cost-effective way to do so.
    As with the Employee Ownership Bank Act, we have great 
hopes for the Work Act, that it will be passed, that statewide 
programs will be developed and will flourish, and, most 
importantly, that these programs will help create more 
excellent employee-owned companies around the U.S.
    Thank you.
    [The prepared statement of Mr. Crystal follows:]

                   Prepared Statement of Jon Crystal

                         BRIEF HISTORY OF VEOC

Our Mission--Why We Were Formed
    Too often, a surprisingly small number of business owners take the 
necessary steps to prepare for one of the most important decisions they 
will face: their departure from the business. As a result of this lack 
of planning, the better opportunities may be lost and some owners are 
forced to select among a limited number of less desirable options 
including liquidation of assets or a sale to outside interests which 
may result in the business being relocated. These actions can have a 
significant negative impact on Vermonters, their communities and the 
State as a whole.
    One of the better alternatives is to sell the business to the 
employees. Employee-owned companies tend to perform better, pay higher 
wages, and provide better retirement and other benefits than non-
employee-owned firms. Ownership of a business by its employees can be 
an extremely effective way to increase long-term sustainability with 
all the associated benefits to employees, local communities and the 
State.
    The Vermont Employee Ownership Center, or VEOC, was formed in 2001 
to address this need. The VEOC's mission is ``to promote and foster 
employee ownership in order to broaden capital ownership, deepen 
employee participation, retain jobs, increase living standards for 
working families, and stabilize communities.'' Our mission statement is 
very similar to that of the Ohio Employee Ownership Center, the 
organization on which the VEOC was modeled, which was founded in 1987 
and is based at Kent State University. You will hear today from Bill 
McIntyre, the Program Director of the OEOC, about the impressive 
accomplishments of the Ohio Center. Vermont is a much smaller State, 
and our center has existed a much shorter time, but between our two 
programs, you have evidence that statewide programs promoting and 
fostering employee ownership can be effective under very different 
economic and business conditions.

Why Employee Ownership is an Important Economic Development Tool
    Why do we care so much about employee ownership? First, we care 
because it helps retain local ownership of businesses and the jobs 
within them. You hear much about ``sustainability'' these days, and we 
believe that this model of business ownership is the most sustainable, 
both in terms of retaining jobs and the longevity of the business. In 
addition, this approach helps broaden the ownership of wealth. Studies 
have shown that broad-based employee stock ownership plan participants 
tend to accumulate more than twice the level of retirement assets of 
employees in other companies. Finally, we care because it can be a 
crucial ingredient in creating high-performance companies that are more 
competitive--and that are great places to work. It helps engage 
employees in the future of their own companies, and also tends to 
create better workplaces.
    There are now well over 10,000 companies in the U.S. with some form 
of employee ownership, but there should be many more. The 30-40 such 
companies in this State represent one of the highest per capita rates, 
and that is due at least in part to the work of the VEOC. In helping to 
establish similar centers in States around the Nation, the WORK Act 
could contribute greatly to increasing the number of employee-owned 
companies.
    The best evidence in favor of employee ownership is provided by 
real examples. You will hear today from some of Vermont's best-known 
employee-owned companies, all of which are among Vermont's highest-
performing companies. We sometimes refer to the ``disproportionate 
excellence'' of these companies--reflecting the fact that in Vermont at 
least employee-owned companies seem to gain a greater share of 
recognition and earn more awards than would otherwise be expected by 
their modest numbers. We at the VEOC are devoted to the objective of 
helping to create more companies like these.
    Earlier this year we invited comments from key leaders of some 
employee-owned firms in Vermont on the impact this has had on them. 
These excerpts provide some of the strongest arguments to go this 
route:

          ``Economic development is about helping companies form or 
        move to Vermont, grow, and then stay in State as they go 
        through ownership transitions. Employee ownership targets 
        company growth and retention. As in our instance, employee 
        ownership is an incredibly powerful tool to engage employees in 
        the future of a company, to help drive company success . . . 
        From just a job retention point of view, we are a compelling 
        story. I can tell you that if not for employee ownership, Will 
        Raap's next best option would have been to sell to a strategic 
        buyer from out-of-state, which with near certainty would have 
        meant a loss of most of our in-state jobs.''
        Jim Feinson, President and CEO of Gardener's Supply

          ``We just recently completed our transition to 100 percent 
        employee ownership. This means, among other things, that the 
        60+ high-paying jobs that we have created in Vermont will stay 
        in Vermont and that we will continue to grow here . . . Our 
        company is among many who believe that employee ownership 
        exemplifies and promotes Vermont's unique values. And, most of 
        us also believe that increased employee ownership could be 
        valuable nationally as an approach to preserve and enhance 
        employment in companies of all types.''

             Tom Adler, President of Resource Systems Group

The VEOC's Activities and Results So Far
    Since the fall of 2002, when the VEOC embarked on its work, we have 
focused on two main types of activity. The first of these is 
educational work: getting the word out about employee ownership to 
business owners, employees, economic development professionals, 
business advisors and the general public. The point at which most 
Employee Stock Ownership Plans (ESOPs) are formed is when business 
owners are seeking a good way to exit from their companies. If they 
don't know about this possibility and its merits, they won't consider 
it. Getting ESOPs and other employee ownership structures on the map 
for business owners and those who advise them has been one of our main 
efforts since the beginning. We have had increasing success of late 
partnering with other local and regional economic development 
organizations both to support these educational activities and to 
provide these professionals with basic tools and understanding of this 
option to share with their clients.
    We also work to plant seeds more broadly--in college classrooms, at 
Rotary Clubs, at conferences and community forums. Our most important 
educational outreach activity is an annual conference, which serves 
both those just considering employee ownership as well as those in 
employee-owned firms. To date, we have presented eight annual 
conferences, with strong attendance every year. We also offer a variety 
of introductory and intermediate level workshops around the State, 
which cover basic business succession issues and the opportunities to 
sell to employees.
    Our second major activity has been to provide information and 
technical assistance to those interested in exploring employee 
ownership for their companies. Since our founding, we have had direct 
conversations with representatives of over 165 different companies. 
Thirteen of those companies subsequently implemented an ESOP or worker 
cooperative structure. Another eight of those companies are either well 
on their way to an ESOP or co-op or are very strong candidates. Since 
this is Vermont, most of these companies are small--several of them 
with fewer than 10 employees, several with 30 to 50--but occasionally 
we have the opportunity to play a role in a larger company.
    There is a manufacturing company with over 200 employees in a small 
Vermont town that is on track to become 100 percent ESOP-owned next 
month. This is a clear example of how employee ownership can preserve 
local ownership and jobs. The husband and wife owners of the company 
were considering offers to buy the company from several strategic 
buyers from outside of Vermont. After a meeting with the VEOC, their 
banker suggested they consider an ESOP and they quickly realized that 
this was a way for them to exit and also keep the business operating in 
its community, an outcome they very much wanted--and which would have 
been very unlikely had they accepted one of the outside offers.
    Once two transactions which are underway are completed, VEOC will 
have directly aided 14 companies to become employee-owned with over 550 
jobs impacted.
    In addition to these two main activities, we also work with 
existing employee-owned companies seeking to expand and improve their 
ownership culture and the types and degrees of employee participation. 
Much of this takes place at our annual conference, but we are also 
currently preparing a shared training series to address these ongoing 
needs.
    We are now seeing the fruit of our earlier work in outreach and 
education. It often takes years from the time when someone first gets 
the idea that an ESOP or worker cooperative might suit their situation 
until they take action. It is very possible that someone who attended 
our conference for the first time this year will help create an ESOP in 
2020. This particular pipeline is a long one. It takes persistence and 
patience and a reliable funding stream to sustain these efforts.

Funding
    Most often the transactions which result in a transfer of ownership 
to employees involve a significant element of bank borrowing. While the 
VEOC rarely plays a role in the financing aspects of the deal, it is 
our understanding that timely access to capital has become a serious 
hindrance on both the local and national stage. We strongly believe 
that the U.S. Employee Ownership Bank Act can play an important role in 
facilitating such deals and would have a positive impact on the numbers 
of successful transactions.
    Another funding need is that required to operate centers like ours. 
VEOC's initial funding came from several foundations and, in 2002, a 
Federal appropriation secured by then-Representative Sanders. We have 
since developed several revenue streams, including income from 
corporate sponsorships and our educational events, modest support from 
the State of Vermont and, for the past 4 years, a grant from the Small 
Business Administration that Senator Leahy secured for us. Government 
support has been essential to the VEOC, but it has always felt tenuous 
and temporary. The pursuit of private grants and other funding 
continues to be necessary but also a distraction from our core work. A 
Federal grant around which we could build our budget would make our 
organization sustainable for the long haul.
    Over the past 30 years there have been statewide employee ownership 
programs in several other States--notably Massachusetts, Michigan, New 
York, Oregon, and Washington. One of the main reasons these programs 
have disappeared (at least temporarily) was the lack of dependable core 
funding.
    We believe that statewide programs like the VEOC and OEOC have a 
crucial role to play in creating more employee-owned companies, and may 
be the most cost-effective way to accomplish this. As with the Employee 
Ownership Bank Act, we have great hopes for the WORK Act: that it will 
be passed, that statewide programs will be developed and will flourish, 
and, most importantly, that these programs will help to create many 
more excellent employee-owned companies in the United States.

    Senator Sanders. Jon, thanks very much.
    We're delighted to have joining us as a State 
representative from the Ohio Employee Ownership Center. Bill 
McIntyre is here. Ohio has also been a leader in this area.
    Bill, thanks very much for coming. Why don't you begin.

   STATEMENT OF BILL McINTYRE, DIRECTOR OF THE OHIO EMPLOYEE 
                   OWNERSHIP CENTER, KENT, OH

    Mr. McIntyre. Thank you very much for the opportunity to 
testify before the committee and to be involved in this 
hearing.
    I've worked at the Ohio Employee Ownership Center which is 
an outreach center at Kent State University, partially funded 
by the State of Ohio, partially funded by the U.S. Government, 
partially funded by private foundations, donations, and some 
fee-for-services rendered.
    I have worked at the center for coming up on 8\1/2\ years 
and with the passing of our founder and director John Loeb this 
past December, I have assumed the role and responsibilities of 
Director of the OEOC.
    Prior to joining the center, I was Chief Financial Officer 
for over 15 years at Comsonics, Inc., a 100-percent ESOP-owned 
company in Virginia, where I was able to experience firsthand 
how an ESOP could benefit employees on a personal, 
professional, and financial basis.
    Let me jump to talking about the impact of our center on 
jobs. Since the inception of the OEOC in 1987 and June 30th, 
2010, OEOC staff worked with 644 companies, employing almost 
137,000 people, to explore whether employee ownership made 
sense in their cases.
    We assisted employees in buying part or all of 89 
companies, creating 14,658 new employee owners and retaining or 
stabilizing their jobs. Of the 89 employee-owned companies, 63 
are still employee-owned. Eighteen were sold as financial 
successes. Five were sold in distress and three were shut down. 
Considering that 15 of the 89 were initially threatened with 
shut down, in other words some fairly bright and insightful 
business people analyzed those 15 companies' futures and 
decided that the best solution was to shut all 15 of them down, 
the fact that only three of the ESOP companies were shut down 
out of the total of 89 that we've helped is quite impressive.
    If every cent of our budget over our 23-year history were 
allocated to job retention, which is a very unfair calculation, 
the cost per job retained or stabilized would be about $719 per 
job, and if you included only the cost in State support, it 
would be $336 per job impacted. These costs are very low in 
relation to the usual costs of job retention.
    Let's talk about the Work Act and the Bank Act. Officially, 
the Ohio Employee Ownership Center at Kent State University 
supports the proposed Work Act and the U.S. Employee Ownership 
Bank Act. Their passage would facilitate the establishment and 
success of more employee-owned companies.
    As stated above, the OEOC has had considerable positive 
impact on jobs and wealth creation in Ohio. Other State 
employee centers should yield similar results in their States. 
The Work Act should be passed.
    Obtaining financing for ESOP and worker-owned cooperatives 
is a continual struggle. The U.S. Employee Ownership Bank Act 
will facilitate that financing and will result in the creation 
of more ESOPs and worker-owned cooperatives and prevent jobs 
from being needlessly lost due to lack of available financing. 
It should also be passed.
    As supported by several research studies, ESOP companies 
perform better than comparable non-ESOP companies. ESOPs and 
worker-owned cooperatives are simply a better way of doing 
business. Creating more of them will help not only the 
individual employees but the companies themselves, their 
communities, their States, and the Nation as a whole. Thank you 
very much.
    [The prepared statement of Mr. McIntyre follows:]

                  Prepared Statement of Bill McIntyre

    The Ohio Employee Ownership Center (OEOC) at Kent State University 
appreciates this opportunity to present its views and your willingness 
to consider them.

              BACKGROUND OF OHIO EMPLOYEE OWNERSHIP CENTER

    The OEOC is a State-supported, non-profit, university-based program 
established in 1987 to provide information and preliminary technical 
assistance to Ohio employees and business owners interested in 
exploring employee ownership. The OEOC also provides ownership training 
to employee-owned firms. The OEOC is one of only three active State-
supported centers and the only one based at a university. In addition 
to receiving funding from the State of Ohio, the OEOC receives funding 
from the Federal Government, private foundations, donations and fees 
for services rendered.

                              OEOC MISSION

    The mission of the OEOC is to broaden ownership among working 
Ohioans and to deepen that ownership through employee participation, 
communication and training in the employee-owned sector. Our overall 
aim is to anchor capital and jobs locally through participatory 
employee ownership. That builds productive assets for working families 
and increases community prosperity. Layoff aversion and economic 
development are at the heart of the OEOC's mission.

                             OEOC PROGRAMS

    The OEOC coordinates programs in Ohio in the following areas:

     Outreach
     Business Owner Succession Planning
     Technical Assistance in situations where employee 
ownership is considered:
         Plant shutdowns and distressed companies
         Retiring owners
         Employee buyouts
         Owners desiring cash for a portion of the company
     State of Ohio's Prefeasibility Study Grant Program to 
avert threatened job loss;
     Referral of qualified service providers from professional 
member database;
     Administration of non-profit Common Wealth Revolving Loan 
fund specializing in loans to employee-owned companies or cooperatives
         Employee buyout transactions
         Employee-owned start-up ESOP companies or cooperatives
         Equipment and working capital loans to existing 
employee-owned companies
     Network of Employee-Owned Companies in Ohio that provides 
educational and networking opportunities for the member companies
         12-20 programs annually on topics ranging from ESOP 
technical administration issues to communication strategies geared 
toward audiences ranging from board members to upper management to 
middle managers to hourly workers
         Annual Conference attended by 400 employee owners and 
other interested parties;
     Customized training at employee-owned companies
     Research on employee ownership

    We have designed this as a coherent strategy to promote employee 
ownership in one State. Outreach creates a demand for technical 
assistance and builds political support. Succession planning is not 
only a very cost effective economic development tool (``save jobs that 
are already here'') but also helps create demand for employee ownership 
technical assistance as selling to employees is one option of 
succession planning. Technical assistance develops new employee-owned 
companies and builds political support. Rural cooperatives frequently 
develop through the succession planning process and also give rise to 
some worker-owned cooperatives. Employee-ownership training, 
organization development and Network programs all facilitate the 
establishment of an ownership culture at companies, thereby helping 
those companies realize improved corporate performance that results 
from the combination of actual employee ownership and an ownership 
culture. Our best-practice Network not only provides training but also 
serves as a learning community for companies committed to employee 
ownership. CWRLF is serving as a source of capital for some new and 
existing employee-owned companies with the prospect of future growth 
likely.
    One of our projects, The Evergreen Model, in which we are 
collaborating with the Cleveland Foundation and the Democracy 
Collaborative, is demonstrating how a program can incorporate employee 
ownership and be viable in a single impoverished city district with 
43,000 inhabitants and be replicable in other cities in the State. 
Indeed, the Evergreen Model has received national acclaim as a new 
approach to help revitalize and solve some of the economic problems 
associated with America's inner cities by employing low income 
residents of those inner city neighborhoods in employee-owned 
businesses that provide services for the anchor institutions of the 
city. Our applied research and publications reinforce our outreach and 
technical assistance, offering roadmaps of ``how to do'' participatory 
employee ownership (especially in unionized settings) and for setting 
up employee cooperatives in small businesses.

                         IMPACT OF OEOC ON JOBS

    Since the inception of the OEOC in 1987 and June 30, 2010, OEOC 
staff worked with 644 companies employing 136,958 to explore whether 
employee ownership made sense in their cases. We assisted employees in 
buying part or all of 89 companies, creating 14,658 new employee owners 
and retaining or stabilizing their jobs.
    Of the 89 employee-owned companies, 63 are still employee-owned, 18 
were sold as financial successes, 5 were sold in distress and 3 were 
shut. Considering that 15 of the 89 were initially threatened with 
shutdown (in other words, some fairly bright and insightful business 
people analyzed the 15 companies' futures and decided that the best 
solution was to shut all 15 of them down), the fact that only 3 of the 
ESOP companies were shut down out of the total that we've helped is 
quite impressive.
    If every cent in our budget over our 23-year history were allocated 
to job retention, the cost per job retained or stabilized would be 
about $719/job (the cost in State support would be about $336/job 
impacted). These costs are very low in relation to the usual costs of 
job retention.

                   IMPACT OF OEOC ON WEALTH CREATION

    Employee ownership results in significant wealth creation for Ohio 
workers. Through 2004-5, the most recent year for which we have 
complete data, 64 of the 89 firms reported to the IRS that they had 
created about $344 million in net equity for their employee owners, 
while paying out more than $6.4 million to retirees that year.
    We have analyzed the OEOC's wealth creation impact in studies in 
2004, 2006 and 2008, and we have preliminary results from our 2010 
study. The results from all four studies are included in the chart 
below:

----------------------------------------------------------------------------------------------------------------
                                                                Date of OEOC study
----------------------------------------------------------------------------------------------------------------
              Item                       2004                2006                2008             2010 Prelim
----------------------------------------------------------------------------------------------------------------
Total number of companies with    69................  79................  85................  89
 which OEOC has worked that
 became employee-owned.
Number of companies for which we  44................  49................  64................  52
 have wealth data.
Number of employees at those      4,831.............  9,800.............  11,640............  5,549
 companies for which we have
 wealth data.
Fiscal year of company wealth     2001..............  2003..............  2004-5............  2007
 reports.
Total Assets created............  $300 million......  $349 million......  $421 million......  $253 million
Net Assets......................  $121 million......  $267 million......  $344 million......  $224 million
Net Assets per Employee.........  $25,000...........  $27,000...........  $30,000...........  $40,000
Payouts to ESOP Participants        ................  $8.4 million......  $6.4 million......  $72.0 million
 during the fiscal year of their
 ESOP benefit.
Payouts to ESOP Participants not    ................    ................    ................  $16.0 million
 including the largest company,
 which was making ESOP
 termination distributions (the
 company was sold).
----------------------------------------------------------------------------------------------------------------

    Total Assets includes debt taken on to purchase shares from 
retiring owners. The net asset number excludes the remaining 
acquisition debt. In the case of new ESOPs which are 100 percent 
leveraged initially, not only does the acquisition debt affect the net 
value of employee equity, but also the heavy leverage against the 
business reduces the business' value as well.
    Clearly, employee ownership is a significant tool for wealth 
creation for working people. Without employee ownership, these amounts 
would all be zero for the employees at these companies.
    The Net Assets per Employee figure shows a healthy increase across 
the years. Why? Three primary reasons: (1) the general tendency of the 
stock price per share for the ESOP companies to increase over the 
years; (2) the general tendency over the years for ESOP participants to 
be allocated additional shares of company stock into their ESOP 
accounts; and (3) the general tendency for the ESOP trust to purchase 
additional shares of company stock over time from selling owners; i.e., 
a 30 percent ESOP-owned company becomes a 40 percent ESOP-owned company 
becomes a 60 percent ESOP-owned company, etc.
    ESOPs are a ``get rich slow'' scheme, and the data appear to be 
confirming that notion. ESOPs are not consistent with the ``get rich 
quick'' schemes that seem to be so prevalent today, and these schemes 
likely will not result in any lasting wealth creation for individuals, 
companies or the Nation. ESOPs facilitate the creation of healthy, 
lasting wealth.
    Please note that the 2010 figures are preliminary, and the number 
of companies for which we could obtain data is significantly lower than 
the 2008 study. Hopefully, as we dig further into the data, we'll 
identify additional companies for which data is available.

                          ADDED VALUE OF OEOC

    As evidenced above, the OEOC has produced dramatic results through 
the years. Yet, the impact is even greater when we drill down into the 
numbers. General ESOP research has established that an ESOP by itself 
does not result in improved corporate performance; however, an ESOP 
combined with an ownership culture results in significantly improved 
corporate performance in just about every measure of corporate 
performance. We have some preliminary evidence that companies that are 
members of Ohio's Network of Employee-Owned companies take heed from 
our training programs and have more democratic employee ownership with 
more employee participation and influence from the shop floor to the 
boardroom, and, correspondingly, perform better than non-member Ohio 
ESOP companies.

                OEOC'S COMMON WEALTH REVOLVING LOAN FUND

    The OEOC has managed the Common Wealth Revolving Loan Fund (CWRLF) 
since 2004. CWRLF is a separate non-profit, 501(c)(3), entity. CWRLF 
has a contract with OEOC to manage the loan fund. Just this week, CWRLF 
was awarded $600,000 in funding from CDFI (Community Development 
Finance Institution) funds which will bring CWRLF's total assets to 
just over $2 million. CWRLF makes loans to employee-owned companies to 
satisfy a variety of financing needs--ESOP or employee-owned 
cooperative buyout, partial sale by retiring owner, plant or equipment 
expansion, working capital, etc. Unfortunately, with its ability to 
make a loan to an individual borrower limited to a maximum of $250,000, 
CWRLF is unable to contribute in a significant way to many ESOP 
transactions. Our objective is for CWRLF to become much larger; 
however, currently, it is limited as to what it can accomplish.
    Because ESOPs and worker-owned cooperatives have somewhat different 
accounting rules than what bankers and other lenders typically see, 
many bankers and other lenders are uncomfortable in making loans to 
those companies. This often makes financing for ESOP and coop 
transactions more difficult to obtain than financing for transactions 
involving conventional companies. The idea of a U.S. Employee Ownership 
Bank would greatly alleviate much of that difficulty and would, in 
fact, provide an incentive for financial institutions to lend to 
employee-owned companies.

                          REPLICATION OF OEOC

    The OEOC has served as the model for the Vermont Employee Ownership 
Center and is currently assisting the State of New York in re-
establishing its center modeled after the OEOC. An employee ownership 
center has recently been established in Australia, again utilizing the 
OEOC as a model and OEOC staff as mentors for the Australian staff. 
Most recently, this month, representatives from Kentucky visited the 
OEOC for a day long series of meetings with OEOC staff with the 
intention of replicating the OEOC model in Kentucky.

   RISK FOR STATE EMPLOYEE OWNERSHIP CENTERS UNDER CURRENT STRUCTURE

    Employee ownership is a concept that is essentially non-partisan. 
Elected officials of all political persuasions have supported it. But, 
unfortunately, although the OEOC has survived quite nicely since 1987, 
other State centers have not done so. To the best of our knowledge, 28 
States passed legislation encouraging the creation of employee-owned; 
however, Ohio is one of only 8 States that created a State-supported 
program to achieve this end. Regrettably, as mentioned previously, only 
3 State-sponsored centers exist now. In many cases, change of State 
administration meant the end of the employee ownership center.
    Historically, the OEOC was funded by the Ohio legislature; however, 
due to the State's budget crunch, the legislature did not fund the OEOC 
for fiscal year 2010. The OEOC programs are now funded at Governor Ted 
Strickland's discretion through the use of Workforce Investment Act 
funds administered by the Ohio Department of Development. While we are 
very pleased with our current funding from the State of Ohio, we 
recognize that when there is a new governor (and there will be a new 
governor at some point in the future), there is a risk that the new 
governor will deem the OEOC to be a program of the previous governor 
and not support it. We are striving to avoid this fate, but we 
recognize that it is a possibility.
    Federal legislation providing ongoing funding for State employee 
ownership centers would do much to eliminate this risk and would allow 
us, and other centers like us, to concentrate on our core mission of 
saving jobs and broadening employee ownership.

       SUPPORT FOR WORK ACT AND U.S. EMPLOYEE OWNERSHIP BANK ACT

    The Ohio Employee Ownership Center at Kent State University 
supports the proposed WORK Act and U.S. Employee Ownership Bank Act. 
Their passages would facilitate the establishment and success of more 
employee-owned companies.
    As stated above, the OEOC has had considerable positive impact on 
jobs and wealth creation in Ohio. Other State employee ownership 
centers should yield similar results in their States. The WORK Act 
should be passed.
    Obtaining financing for ESOP and worker-owned cooperatives is a 
continual struggle. The U.S. Employee Ownership Bank Act will 
facilitate that financing and will result in the creation of more ESOPs 
and worker-owned cooperatives and prevent jobs from being needlessly 
lost due to lack of available financing. It should also be passed.
    As supported by several research studies, ESOP companies perform 
better than comparable non-ESOP companies. ESOPs and worker-owned 
cooperatives are simply a better way of doing business. Creating more 
of them will help not only the individual employees but the companies 
themselves, their communities, their States, and the Nation as a whole.

                ADDITIONAL SUPPORTING MATERIAL--WORK ACT

    The ``Worker Ownership Readiness and Knowledge Act'' (WORK Act) 
seeks to spread ownership of productive assets among American workers 
and to deepen that ownership through employee participation. Both 
employee ownership and employee participation play major roles in 
increasing employee wages, benefits, job security, and assets for 
working Americans.
    1. Employee ownership creates assets for workers who otherwise 
would have less of them, and these assets aren't offset by reductions 
in other pension plan contributions by employers.
    Data: Only 19 percent of Ohio ESOPs in the 2004-6 study were 
conversions from another pension plan; most of those were profit-
sharing plan conversions. So in four-fifths of Ohio ESOP companies, the 
ESOP represents an additional pension plan. Moreover, 89 percent of 
Ohio ESOP companies maintain at least one non-ESOP pension plan for 
employees.

    2. Part of the reason for this is employee-owned firms which 
provide avenues for employee owners to participate in business 
decisionmaking, which share information about business performance with 
employee owners, and which do training for their employee owners on 
using the participation system and understanding financial and other 
business information, systematically outperform employee-owned 
companies which don't do that and conventionally owned companies. So, 
there's a performance bonus for participatory employee-owned companies
    Data: At least a score of studies beginning with the General 
Accounting Office's 1987 study have found gains in a variety of 
indicators of corporate performance in closely held, participatory ESOP 
companies. The gains are greatest in terms of indicators under the 
direct control of employee owners, such as productivity and quality. 
The 2000 Rutgers University study by Joseph Blasi and Douglas Kruse 
found improve in annual sales growth to be +2.4 percent, annual 
employment growth to be 2.3 percent and annual growth in sales per 
employee to be +2.3 percent in ESOP companies over their previous 
performance prior to instituting the ESOP. Our 
1992-3 Ohio ESOP study which looked specifically at the relation 
between avenues for participation and performance found no magic bullet 
but consistent evidence of an additive effect: the more avenues for 
participation there were, the greater the impact on performance. Open 
book management and employee training play contributory roles but have 
little impact in the absence of employee participation.

    3. Majority employee-owned companies are more likely to have this 
complex of high performance characteristics (especially participation) 
than minority ESOPs.
    Data: The 1992-3 and 2004-6 Ohio studies demonstrate that majority 
employee-owned companies are more likely to evidence these high 
performance traits than minority employee-owned companies.

    4. Employees benefit: they receive somewhat higher wages, much 
higher benefits, and significant wealth accumulation not bought at the 
cost of reduction of other pension plans, and they are less likely to 
be laid off.
    Data: The primary comparative study of wages and benefits in 
matched ESOP and non-ESOP firms was the 1998 Washington State study by 
Peter Kardas, Jim Keogh, and Adria Scharf. This study, Wealth and 
Income Consequences of Employee Ownership, found median hourly wages in 
ESOP firms to be 5 percent to 12 percent higher than the median hourly 
wage in the comparison companies, and that the value of retirement 
plans to be 150 percent higher in ESOP companies ($32,213) than matched 
non-ESOP companies ($12,735). The average annual ESOP companies' 
retirement contribution per employee per year was about 10 percent of 
pay while non-ESOP companies average about 3.0 percent. The 2004-6 Ohio 
study had similar findings: 28 percent of ESOP companies paid higher 
wages versus 8 percent which paid lower wages, and 47 percent had 
higher benefits and 2 percent had lower benefits than their 
conventionally owned competitors.

    5. Employee-owned companies provide significant community economic 
benefits. Relative to their conventionally owned competition, they are 
less likely to lay off in downturns, less likely to outsource/off shore 
work, and relatively more likely to reinvest locally.
    Data: The 2004-6 Ohio Study found that 35 percent of Ohio ESOP 
companies outperformed their industry in terms of employment while 9 
percent underperformed their industries, 47 percent outsourced/
offshored less work than their conventionally owned competitors and 
none outsourced/offshored more, and 31 percent reinvested more while 17 
percent reinvested less than their conventionally owned competitors.

    6. Most of the publicity for employee ownership in the media 
concerns troubled companies. These make up, however, only 2-5 percent 
of employee-owned companies. While there have been some well publicized 
failures in this group, many have done well. These buyouts save jobs 
which otherwise would have been lost.
    The reason in part is doing rigorous feasibility studies to 
determine whether--and how--the firm or plant can succeed under a 
change to employee ownership, whether the employees need outside 
partners, how much debt the employee-owned firm can service, etc. This 
bill encourages those feasibility studies.

    7. Despite the publicity about troubled companies, about 70 percent 
of ESOPs are set up as part of ownership succession planning in closely 
held businesses. Many business owners nearing retirement without heirs, 
however, know nothing about employee ownership as a business succession 
strategy. Encouraging the use of employee ownership--ESOPs in larger 
businesses, co-ops in smaller firms--in business ownership succession, 
a major function of this bill, will increase job retention in small and 
medium-sized closely held companies.
    Data: The Real World of Employee Ownership, p. 26; 2004-6 Ohio ESOP 
survey, question 9.

    8. There is an inverse relationship between tax expenditures for 
employee ownership and improved company performance. Higher tax-
expenditure ESOP companies (largely publicly traded) tend to have lower 
performance impacts. They do, however, create significant wealth for 
their employees.
    Data: The least participatory employee-owned firms--which include 
almost all of the public companies--in the 1992-93 Ohio study 
constituted 43 percent of the firms but received about 90 percent of 
the tax expenditures for employee ownership. The top 57 percent 
received about 10 percent of the tax expenditures (cf., The Real World 
of Employee Ownership, pp. 169-72).

    9. High impact of peer networks on improving the performance of 
companies via the laggards acquiring high performance characteristics. 
The ``Worker Ownership Readiness and Knowledge Act'' encourages 
formation of peer networks within individual States.
    Data: Members of Ohio's Employee-Owned Network, a peer network of 
employee-owned firms which approximates a learning community, 
outperform non-members by a factor of roughly 2 in terms of 
participation, communication, training and employee interest in 
decisionmaking in the 1992-93 Ohio Study. They were 7 times as likely 
to have non-managerial employees elected to their boards of directors 
and 1\1/2\ times more likely to have improved their profitability 
relative to their industries (cf., The Real World of Employee 
Ownership, pp. 167-69).

    10. State programs have a high impact in increasing rates of ESOP 
creation in small companies & spreading best practices. But they are 
rare. Only Massachusetts, Ohio and Vermont currently have State 
employee ownership programs, though New York is actively working to 
revive its program. The ``Worker Ownership Readiness and Knowledge 
Act'' speaks directly to this need to increase formation of employee 
ownership in smaller, closely held companies.
    Data: National Center for Employee Ownership studies of the New 
York, Ohio, and Washington State programs in the early 1990s found that 
these programs increased the rate of ESOP formation in closely held 
firms but had no impact in the publicly traded sector.
    Data: The OEOC statistics are cited in the body of our statement 
above.

    These numbers compare favorably with other strategies for creating 
wealth for working people because the State program serves as a 
catalyst to put productive assets which can multiply themselves into 
the hands of Ohio working families.

    Sources of data: National data are taken from the National Center 
for Employee Ownership's summary of studies, ``Employee Ownership and 
Corporate Performance,'' located at http://www.nceo.org/library/
corpperf.html. The 1992-93 Ohio study results were published as John 
Logue and Jacquelyn Yates, The Real World of Employee Ownership 
(Ithaca: Cornell University Press, 2001). The 2004-6 Ohio study results 
are currently unpublished.
  additional supporting material--the u.s. employee ownership bank act
    Employee ownership is a proven tool for job retention and job 
creation and for economic development in Ohio communities. The Ohio 
ESOP study cited in The Real World of Employee Ownership (Cornell 
University Press, 2001) found that 49 percent of employee-owned 
companies outperformed their industries in job creation and retention, 
50 percent matched their industries, and only 1 percent under-performed 
their industries. Employee-owned businesses clearly contribute to 
healthy local economies.
    Employee ownership benefits individual Ohio firms and their 
communities in many ways. For individual firms, it can create a market 
for a departing owner's stock, provide significant Federal tax breaks, 
reduce debt service burdens, complement a commitment to participative 
management, and improve corporate performance. For the local community, 
employee ownership can be an economic development strategy used to 
retain businesses that might otherwise be liquidated at the retirement 
of an owner without a successor, anchor the ownership of businesses in 
the community, secure jobs that might otherwise be moved out of State, 
provide additional capital for reinvestment and expansion and increase 
the competitiveness of Ohio businesses.

The Cost
    Cost per job retained, created or stabilized through the Ohio 
Employee Ownership Assistance Program cumulatively through June 30, 
2010, in the firms that implemented ESOPs was $336 per job in Ohio 
Department of Development funds, a small number compared to the costs, 
financial, physical and psychological, associated with unemployment. 
The program is highly cost effective because it helps people help 
themselves.
    As an economic development strategy, employee ownership yields 
long-term benefits in four additional areas:
    (1) Employee-owned firms reinvest in capital improvements in 
existing facilities at a higher rate than other firms. While this is 
motivated primarily by the employee-owners' interest in job security, 
it helps to increase the competitiveness of Ohio firms and to anchor 
capital and jobs in our communities;
    (2) Employee-owned firms also reinvest in their human capital at a 
higher level than is common in our region. The consequence is a 
movement up the scale toward high performance work systems with higher 
productivity and profitability.
    (3) There is growing evidence that employee-owned firms have a 
higher economic multiplier effect in their communities, in part because 
of a preference for local suppliers and in part because anchoring the 
ownership of productive wealth in a community among employees generally 
supports higher levels of home ownership, purchases of consumer 
durables and higher retirement benefits;
    (4) As cited in the chart in the body of this statement, employee-
owned firms create significant assets for Ohio families. That wealth 
creation effect also anchors capital locally and helps solidify our 
communities' economic base.
    In short, employee ownership has proven to be an effective means to 
retain and increase jobs in Ohio. Today, some 350 partially or wholly 
employee-owned companies headquartered in Ohio employ more than 300,000 
people.

Obstacles
    Nevertheless, for many years, the Ohio Employee Ownership Center 
has had to struggle with issues of how to obtain adequate loans and 
equity for employee-owned companies. In theory, capital looks so easy 
to obtain; in practice, however, employee-owned companies and small and 
medium-sized companies in general, have trouble getting financing. The 
median size of the companies we work with is about 100 employees doing 
about $10 million in sales. Of the 75 companies that are part of Ohio's 
Employee-Owned Network, only 4 have more than 500 employees. In short, 
we work largely with classic small and mid-market companies. And they 
are often strapped to get capital for growth.
    Every year, in our technical assistance at the OEOC, we have lost 
at least one otherwise viable employee buyout because of the lack of 
timely, friendly capital. To put it bluntly, almost every year for the 
last 15, we have seen at least one viable employee buyout effort fail 
with the loss of 100-200 jobs because no one could round up financing 
in a timely fashion.
    Following are four potentially viable buyouts in Ohio that could 
have benefited from a friendly lender:
    CSC Steel, Warren, 1,350 employees. The closing of CSC was 
announced in the third quarter of fiscal 2001. The ODJFS Rapid Response 
program funded a two-stage prefeasibility study. Stage one determined 
that the facility was viable and that the shutdown occasioned by lack 
of debtor in possession working capital had dramatically diminished the 
value of the plant while making a re-start extremely difficult for 
employees because of the working capital needs. This stage one study 
found employee ownership could work with an outside equity partner. 
Stage two determined whether a partner for the employees could be 
located and apparently found one in Renaissance Partners, a Pittsburgh-
based investment fund. Throughout the first quarter of fiscal year 2002 
Renaissance Partners continued their due diligence for a purchase and 
the employee buyout group was optimistic about a successful sale and 
re-opening of the facilities. Immediately following the end of the 
quarter, however, Renaissance Partners announced that it had ended its 
interest in pursuing the purchase of CSC; there were, Renaissance 
Partners told the press, better opportunities available for turnarounds 
in the aftermath of September 11th.
    HPM, Mt. Gilead, 500 employees. In fiscal year 2001 a two-phase 
study was commissioned. Phase one reached positive conclusions about 
the viability of a restructured HPM provided a partner could be found 
for the employees. The second phase of the study then offered three 
potentially viable options for restructuring the company. During the 
first quarter of fiscal year 2002, however, HPM failed to keep control 
of the company. The consequence was that the lender, Fleet/First 
Boston, seized HPM's assets, threw the company into bankruptcy and 
closed down the plant. Fleet proceeded to sell the assets of the 
company to a buyer of dubious ability to perform in terms of keeping 
the plant open, or, perhaps, even completing the deal. This was in 
preference to selling to the partner whom the employees had found who 
pledged to run the company and to sell to the employees as an exit 
strategy.
    Massillon Stainless Inc. Massillon, 92 employees. Massillon 
Stainless, Inc. was a stainless cold rolling operation. Major markets 
for stainless steel strips include household appliances, food 
processing and restaurant equipment, elevators, architectural trims, 
pipes and tubing and transportation equipment. At the request of the 
Steelworkers Local Union and members of salaried management, a 
prefeasibility study was commissioned. The buyout group selected Locker 
Associates to perform the study. While the study was being conducted, 
the company announced plans to close the facility.
    The study was completed October 24, 2002 and concluded that the 
facility could restart and operate profitably if it could find an 
outside equity investment partner and assure itself of a supply of raw 
materials. The study also noted that a minority ESOP would make sense 
given the employees' strong commitment to the company and its excellent 
labor-management relations. A supply of raw materials was found, 
however, ultimately, an equity partner was not found, and the plant was 
closed. The machinery was sold to interests in India.
    Cold Metal Products, Youngstown, 116 employees. Cold Metal Products 
was a manufacturer of strip steel products for precision parts 
manufacturers. The company announced closure of the plant on August 15, 
2002 and then filed for bankruptcy the next day. Subsequently, the Cold 
Metal Employee Buyout Group filed an application for a prefeasibility 
study grant that the OEOC approved.
    The Buyout Group selected Kokkinis & Associates to do the study. 
The study got underway late in September and was completed in early 
December 2002. The study found potential for a successful restart of 
the facility, however, because of the capital requirements of such a 
restart, it recommended the employees work to get an outside equity 
investor involved that would entertain a minority employee ownership 
position for the workers. The plant stayed closed, and the equipment 
and material was auctioned off in January 2007.

The Proposed Legislation
    The impetus behind this draft legislation is the fact that the 
United States has lost a couple million good-paying manufacturing jobs 
over just the last few years. The loss of manufacturing jobs has been 
going on for some period of time, although the pace of job loss has 
picked up in the more recent past as we have battled with economic 
recession, the crisis in the steel industry and the adverse effects of 
massive international trade deficits.
    The U.S. Employee Ownership Bank Act is, in essence, aimed at job 
retention and job creation and proposes to retain more manufacturing in 
America by helping American workers buy their plants, educating them in 
employee participation strategies so they can be more competitive while 
anchoring capital locally in the process.
    The act proposes to establish a ``Bank'' within the U.S. Treasury 
Department that will provide grants to the States to provide technical 
assistance, participation training, education and outreach along with 
loan guarantees and/or subordinated loans to help employees purchase 
the business provided a prefeasibility study shows that employee 
ownership is a viable alternative. The existence of such a ``Bank'' 
would, in our opinion, have made a positive difference in the outcome 
of the four buyout efforts cited above.
    The act also includes a provision that would require an employer 
closing a plant to provide 90 days advance notice before such plant 
closing and to offer the employees the opportunity to purchase the 
business. This provision would have been of particular utility in the 
case of Brainard Rivet in Girard, OH. Brainard Rivet is now employee 
owned and part of Fastener Industries, a 100 percent employee owned 
company in Ohio. However, it was a major struggle to get to that point. 
Brainard was part of Textron when the parent shut down this profitable 
specialty fastener operation so that it could move the production to a 
non-union plant in Virginia. The move didn't work out because the 
employees in the Virginia plant did not have the skill level needed to 
be competitive. The turning point in Brainard's road to employee 
ownership came when it was discovered that Textron was sending much of 
the Brainard business to competitors rather than running it at its 
Virginia plant. This revelation resulted in political pressure from the 
Ohio Congressional delegation as well as from State and municipal 
representatives. Since Textron was the recipient of a number of 
government contracts, it became more cooperative in the employee's 
efforts to buy the facility.

    (Contact Information: Bill McIntyre, Program Director, Ohio 
Employee Ownership Center, Kent State University, 113 McGilvrey Hall, 
Kent, OH 44242; 330-672-3028 (general); 330-672-0332 (direct); 330-672-
4063 (fax); [email protected]; www.oeoc
kent.org.)

    Senator Sanders. Bill, thank you very much, and thank you 
for the pioneering work you guys have done in Ohio.
    Let's go now to some of the companies in Vermont that I 
think have done an extraordinarily good job becoming a model 
for other companies and we're very proud of the work that they 
have done.
    Let's start with Steve Voigt who is the Chief Executive 
Officer of King Arthur Flour in Norwich. Steve.

STATEMENT OF STEVE VOIGT, CHIEF EXECUTIVE OFFICER, KING ARTHUR 
                       FLOUR, NORWICH, VT

    Mr. Voigt. Thanks. King Arthur Flour is America's oldest 
flour company. It traces its history back to 1790, the year 
George Washington delivered the first State of The Union 
Address.
    Not known as a big business magazine, The Smithsonian 
actually did an article on us on our 200th Anniversary.
    Building on what is now 220 years of experience, King 
Arthur Flour's leadership believes that our next 220 years 
needs to be rooted in employee ownership. Similarly, we believe 
broader employee ownership will make America stronger.
    King Arthur is the No. 1 brand of flour in New England 
groceries and the No. 1 whole wheat, organic, and bread flour 
across the entire United States. We have a growing catalog and 
Web business that carries high-quality specialty flour, mixes, 
ingredients, everything you need to bake great stuff and the 
information and recipes to help you have success.
    We also have a bakery, a cafe, teaching center, classrooms, 
all at Camelot. That's our name of our building in Norwich, 
Vermont.
    In the early 1990s, we had less than 20 employees and 
started down a path of open book and participative management. 
We used phrases like ``act like an owner.'' So when, in 1996, 
Frank Sands, who was fifth generation owner of the King Arthur 
Flour Company, decided to sell, he started by selling a part of 
it to the employees. It seemed natural. We were already acting 
like owners.
    ESOP for us was part of succession strategy and part of 
foundation for building the type of workplace and the type of 
company that we were striving to build. The initial experience 
with ESOP went well and 3 years later, the second block of 
stock was sold to what was then the majority owner ESOP.
    In 2004, we became 100 percent owned by the ESOP and in 
less than a year from today, all the debt that we incurred 
during that process will be fully paid down.
    Today, King Arthur employs 180 year-round with seasonal 
employment bringing that total to 400 and we're actively 
expanding and seeking permanence as we speak right now to help 
our growth.
    A little detail about ESOP. You can always make it better 
and one of the great things about this State is we share our 
ideas about making things better. We're changing or we've 
changed recently our ESOP to let anybody in with 800 hours a 
year. It used to be a thousand.
    The big benefit for us is the seasonal employment. We have 
a lot of people between 800 and 1,000 and so they're so 
important to us delivering our services during the holidays to 
let them participate in the upside of employee ownership is 
really critical and that was a great change.
    Employee ownership suits us well. We've been growing 16 
percent annually for the past 10 years to about 80 million 
today. We're among the fastest-growing companies in Vermont 
over the longer time frames. King Arthur's available now in 
every State and we're bringing more great products to consumers 
all the time.
    King Arthur's a mission-driven company. We have a higher 
amount of creative energies that our employees bring to their 
work because they care about the future of their friends that 
they have at work and the families and communities that depend 
on us.
    We do really hard stuff all the time, like balancing the 
goals of work, life, small town living, employee ownership, 
open book communication, both for all the employees but also 
governance, transparency about how we are governed.
    On the other hand, ambitions for high long-term 
profitability and growth, hard work, growing our market share, 
very high professional standards, and tough-minded evidence-
based decisionmaking.
    So employee owner productivity at King Arthur is strong. We 
think about improvements all the time. We've built a brand 
around consistent quality, so building better quality 
management systems, not just taking costs out fits our 
definition of productivity. Our high bar for quality extends 
beyond the product to the info and resources we provide people 
who bake and by extension to the team that we hire and motivate 
to make this all happen.
    When this is working, we have near zero turn-over. Overall, 
we've maintained a less than 3 percent employee turnover over 
long periods of time. The growth and success of King Arthur has 
created opportunities for many internal promotions and career 
advancement and hence better compensation.
    The larger business base, our sales, increases the dollar 
benefit of employees' improvement ideas which then further 
justifies higher wages. Completing market competitive wages has 
the strong upside potential of both King Arthur stock and 
annual profit-sharing, and I have two other quick props.
    Senator, one is a Harvard Business School DVD Video, a case 
on employee ownership. It was done 5 years ago, and I go down 
every fall, I'll be going down in October again to teach three 
sections, probably 150 students, about how employee ownership 
works.
    And lastly, proudly on the top of every bag of flour we say 
100 Percent Employee Owned, 100 Percent Committed to Quality, 
and in focus groups the public understands that if the workers 
own the business, they're not going to put junk in the food.
    [The prepared statement of Mr. Voigt follows:]

                   Prepared Statement of Steven Voigt

    King Arthur Flour is America's oldest flour company, tracing its 
history back to 1790, the year George Washington delivered the first 
State of the Union address. Building on these 220 years of experience, 
King Arthur's leadership believes our next 220 years need to be rooted 
in employee ownership. Similarly, we believe that broader employee 
ownership will make America stronger.
    King Arthur Flour is the No. 1 flour brand in the New England 
grocery trade, and the No. 1 whole wheat, bread and organic flour in 
the United States. Our growing catalog and Web business carries high 
quality specialty flours, mixes, ingredients, utensils, and hundreds of 
other baking-related items and information to help create great baking 
experiences. All this, a bakery, cafe and education center is available 
at ``Camelot,'' our retail store in Norwich, Vermont.
    In the early 1990s, with less than 20 employees we began using open 
book and participative management. The refrain was ``act like an 
owner,'' so when in 1996 Frank Sands, fifth generation owner decided to 
sell part of his company to the employees, it seemed like a natural. 
ESOP for us was part succession strategy and part foundation for the 
type of workplace we were striving to build. The initial experience 
with ESOP went well and in 1999 a second block of stock was sold to the 
now majority-owner ESOP. In 2004, the company became 100 percent owned 
by its ESOP and less than a year from now, the debt that financed the 
ownership transition will be completely paid down. Today King Arthur 
employs 180 year round with seasonal employment bringing that total up 
to 400.
    Recent refinements to the ESOP includes dropping number of hours 
for eligibility from 1,000 to 800 to permit more returning seasonal 
workers who are so key to our success during the busy holiday period to 
participate in the ESOP as well. We often find some of our best regular 
workers from the seasonal pool.
    Employee ownership suits us well. We have been growing 16 percent 
annually over the past 10 years, to $80 million, and are among the 
fastest growing companies in Vermont over longer timeframes. King 
Arthur flour is now available in grocery stores in all 50 States and we 
are bringing more great products to consumers all the time such as the 
only unbleached cake flour and a line of gluten free mixes that 
actually taste good.
    King Arthur is a mission driven company. We have a higher amount of 
the creative energies of our employees because they care for the 
futures of their friends at work and their larger families and the 
vision of our company. We do the really hard stuff as a matter of 
course; such as balancing goals like: work-life balance, small-town 
living, employee ownership, open-book transparency in both governance 
and communication to employees, and the environment, with on the other 
hand, ambitions for: high long-term profitability and growth, hard 
work, growing our market share, exacting professional standards, 
sophisticated analysis, and tough-minded evidence-based decisionmaking.
    Our employee-owner productivity is strong. We think about 
improvements all the time. We are a brand built around consistent 
quality, so building better quality management systems, not just 
``taking costs out'' fits our definition of productivity. Our high bar 
for quality extends beyond product to the information and resources we 
provide people who bake, and by extension to the team we hire and 
motivate to make this all happen. When this is working we have near 
zero turnover. Overall, we have maintained a less than 3 percent 
turnover over long periods of time.
    The growth and success of King Arthur Flour has created 
opportunities for many internal promotions and career advancement and 
hence better compensation. The larger business base increases the 
dollar benefit of employees' improvement ideas, justifying higher 
wages. Complementing market competitive wages is the strong upside 
potential from both King Arthur stock and annual profit sharing.

    (See www.kingarthurflour.com for more background.)

    Senator Sanders. Steve, thank you very much.
    Cindy Turcot is the Chief Operating Officer of Gardeners 
Supply in Burlington.
    Cindy, thanks a lot for being here.

 STATEMENT OF CINDY TURCOT, CHIEF OPERATING OFFICER, GARDENERS 
                 SUPPLY COMPANY, BURLINGTON, VT

    Ms. Turcot. Thank you. Gardeners Supply, for those who 
don't know, is the Number 1 gardening direct marketing company 
in the Nation and we are primarily doing that through catalog 
and our Web site.
    We were founded in 1983 by Will Raap and at that time we 
had about 10 employees and I was one of those, luckily one of 
those employees that started back at that point.
    We currently now have four locations in Vermont and we have 
275 employees and about a hundred seasonal employees. So we've 
had quite a bit of growth over our time and employee ownership 
was always a part of our business plan.
    For those of you who know Will, he started Gardeners Supply 
when he was in his mid 30s and Will did not create an ESOP for 
ownership succession at that time. He created it because he 
wanted to do shared ownership and shared ownership was really 
important to him because he felt like if each of us had a stake 
in the company, we'd be more committed, more dedicated, and 
more invested in how our company ran.
    We started our ESOP in 1987 with that as our premise. Now, 
ultimately, 25 years later, we became a 100 percent ESOP-owned 
and that was an ownership succession strategy.
    How it worked for us is that in 1987, we started our ESOP 
and over time for the 12 years we actually did it really 
slowly. We didn't have the financing to be able to do it more 
quickly. So over 12 years we went up to about 19 percent and in 
1999, we did our first leveraged transaction, a bank-financed 
transaction, to get to 30 percent. In 2006, we went to 45 
percent the same way, and then this past December to 100 
percent which was both a seller-and bank-financed deal.
    When Will really considered his personal succession plans 
to get liquidity, we really did look at different options. 
Obviously employee ownership was one of them. We also looked at 
should we get acquired, should we bring in outside capital, 
should we do a management buy-out?
    Ultimately, what we looked at was that if we were bought 
out by someone else or brought in outside capital, they would 
not have kept us in Vermont. The contact center would have been 
moved and consolidated, potentially offshore. Our distribution 
center would have been moved to the Midwest. That would have 
been devastating not only for us as employees but also for the 
community, a devastating loss if we were to be moved out.
    So employee ownership became the only answer for us because 
we wanted to control our destiny. We wanted to keep our jobs 
and we wanted to continue to be the great company that we are.
    Gardeners, as many of you may know, is locally and 
nationally recognized for our innovative and participatory work 
culture. We speak on it, we win awards on it, and we do our 
best to make it the kind of environment anyone would want to 
work in.
    We involve our employees in decisionmaking. We ask for 
feedback and we get it and we take action and as our business 
has its ups and downs, I think our employees are instrumental 
in helping us figure out how to get through it and be more 
financially and culturally sound.
    Our turnover rate is a third of the national average. 
Seventy-five percent or more of our jobs are internally 
fulfilled and I can vouch for that as I started in an entry-
level position in 1983.
    Our ESOP will eventually become at least three times what 
the national average is for 401(k) contribution and we have a 
really generous cash profit-sharing plan and part of it we pay 
equally because we recognize it's harder to live at the bottom 
end of the scale. So as a percent of pay, it's really important 
that those people get a higher percentage of cash profit-
sharing than the highest-paid person. We really think that 
employees really directly benefit from that and that they 
naturally then think and act like owners because they're seeing 
what the benefit is for them.
    We're a company committed to doing the right thing in all 
parts of our business and obviously employee ownership has been 
a cornerstone, but it was hard. We started in 1987, we didn't 
have the technical resources. We didn't have the Vermont 
Employee Ownership Center. So we really learned the ins and 
outs and we had to do a lot of that ourselves, although more 
recently have had more support to do that.
    So when I look at the two bills Senator Sanders is putting 
out there, both of them, having employee ownership centers or 
bank financing, which we couldn't get in the beginning, are 
both key, and I think as new companies come through they need 
that help and support so that we can have more employee 
ownership and I'll end by saying that I wish that we had had 
both when we started.
    So thanks.
    [The prepared statement of Ms. Turcot follows:]

                   Prepared Statement of Cindy Turcot

    Our Mission--``We are in business to spread the joys and rewards of 
gardening, because gardening nourishes the body, elevates the spirit, 
builds community, and makes the world a better place. We are the market 
leader in developing and marketing innovative, earth-friendly products 
and information that help people garden more successfully.''
    Gardener's Supply was founded in 1983 by Will Raap and a handful of 
enthusiastic Vermont gardeners. Today, we serve millions of gardeners 
nationwide offering everything from seedstarting supplies and garden 
furniture to flower supports and garden carts. As our company grows, we 
remain passionately committed to providing garden-tested, earth-
friendly products that will help our customers have more fun and 
success in their gardens. We are a direct marketing company selling 
through our printed catalog and our on-line Web site.
    We have four locations in Vermont which include a manufacturing 
facility in Georgia, Vermont, a Distribution Center in Essex, Vermont, 
a Retail Store, Customer Contact Center and Administrative offices in 
Burlington, Vermont and a Retail Store in Williston, Vermont. In 1983, 
we started with 10 employees. We currently have 275 regular employees 
and employ over 100 seasonal employees.
    Employee ownership has been a part of our business plan since the 
beginning. Although Will Raap was in his mid-30's when he started 
Gardener's Supply and not thinking of succession, he already believed 
in shared ownership. He wanted to share ownership with all employees 
with the belief that if each of us has an ownership stake, we will be 
more committed, more productive and more invested in the success of the 
company. Ultimately, 25 years later, employee ownership became the 
vehicle for succession planning for Will.
    In 1987, Gardener's Supply started an Employee Stock Ownership Plan 
(ESOP). Over the next 12 years, as profits allowed, the ESOP purchased 
small amounts of stock increasing the ESOP ownership to 19 percent. In 
1999, the ESOP made its first leveraged (bank financed) transaction 
increasing ownership to 30 percent. In 2006, the ESOP made its next 
leveraged transaction to 45 percent ownership. Now, 22 years later, the 
ownership transition changed from a sharing of ownership with Will to a 
succession transition. In December 2009, the ESOP bought the remaining 
stock (through both bank and seller financing) and Gardener's Supply 
became proudly 100 percent ESOP owned.
    When Will Raap considered his personal succession plans and desire 
to get liquidity out of his lifelong investment in building Gardener's 
Supply, we looked at all of the options in front of us. We looked at 
bringing in outside capital, being purchased, a management buyout and 
of course, employee ownership. We knew that if we were to be purchased 
by an outside company, the likelihood of jobs remaining in Vermont 
would be small. The loss of these jobs would have been devastating to 
our community. We knew both our Customer Contact Center and 
Distribution Center, in the least, would be moved out of Vermont and 
consolidated. We wanted to stay in Vermont, we wanted to have control 
of our destiny, we wanted to keep our jobs and we wanted to continue 
the great company we created. Employee ownership was the only answer 
for us.
    In addition to being the No. 1 gardening direct marketing company 
in the country, we are nationally known for our innovative and 
participatory corporate culture. We have an open book policy--we share 
financial information in many forms, we have monthly staff meetings, 
our President holds annual Town Meetings, we call on our employees to 
help us in tough times and we are always asking for ideas for 
continuous improvements. We ask for feedback, we listen to feedback and 
we take action on that feedback. Employee ownership is the key to 
creating an engaging and fulfilling workplace for our employees and for 
the company getting maximum input, commitment and contribution from 
all.
    Employee productivity and satisfaction is high and employee 
ownership is the key reason why. We are always finding ways to improve 
our processes. And, we share the gains with our employees. We have a 
generous cash profit sharing program for all employees. A portion of 
the program is paid equally.This gives a higher percentage of profit 
sharing to the lowest paid employees recognizing it is harder to live 
at the bottom of the pay scale than the top. In addition, the 
contributions to their retirement from the ESOP will be significantly 
higher than a normal employer match to a 401(k). Because employees 
directly benefit as owners from an increased share price, they 
naturally think and act like owners and they receive benefits that 
exceed those paid to employees in our non-employee owned peer 
companies.
    For us, employee ownership is at the heart of our corporate 
culture. We have won many awards over the years for our communications 
excellence and employee satisfaction. We have won the Annual Award for 
Communications Excellence from the ESOP Association, Vermont's Best 
Places To Work Award, Governor's Work Site Wellness Award, the Chamber 
of Commerce Entrepreneurial Spirit Award, the Burlington Business 
Association's Business of the Year award and Will Raap has won numerous 
awards for his personal contributions to our community.
    The effectiveness of our employee ownership culture is evidenced in 
our low turnover rate and high rate of internal promotion. Our turnover 
rate has ranged between 4-6 percent over the past 5 years, a 
significantly lower rate than national averages over any industry but 
especially in the direct marketing industry. We have had strong growth 
throughout our history. Our employee base has increased from 10 to 275. 
We have a strong commitment to internal promotion. The majority of our 
positions are filled internally so the opportunity for growth in both 
position and compensation has been positive for our employees.
    We are a company committed to improving the world through 
gardening. We donate 8 percent of our profits to support programs and 
organizations that are using gardening to improve the quality of 
people's lives and the health of our environment. We started a Garden 
Crusader Award which recognizes people across the country who are using 
gardening to improve the quality of life in their community. In 
Vermont, our company's local donations program helps support more than 
50 organizations. We also founded, and continue to be a lead sponsor 
for the Intervale Center, which oversees 350 acres of farmland and a 
wide range of urban farming initiatives in Burlington, Vermont.
    We are a company committed to doing the right thing in all parts of 
our business. Employee ownership has been a cornerstone to our success 
and to the future of our business. Becoming employee owned has not been 
easy. When we started, technical advice and information about ESOPs was 
not readily available. Bank financing has been challenging to get. We 
have had an ESOP for many years and have learned the ins and outs of 
getting to 100 percent ESOP ownership. However, new companies need 
access to resources to get them started. Having a State-wide employee 
ownership center and having access to funding can be a key piece for a 
company to get started.
    As a company that worked hard to get to 100 percent employee 
ownership, we see the pressing need and support the bills Senator 
Sanders is proposing.
    Thank you for the opportunity to share our story.

    (For more information about our company, please visit 
www.gardeners.com.)

    Senator Sanders. Cindy, thank you very much. Jeff Clark is 
the Operations Manager of Chroma Technology in Bellows Falls.
    Jeff, thanks for being here.

STATEMENT OF JEFF CLARK, OPERATIONS MANAGER, CHROMA TECHNOLOGY 
                    CORP., BELLOWS FALLS, VT

    Mr. Clark. Thank you, Senator. My name is Jeff Clark. I'm 
the Director of Operations for Chroma Technology, a 100-percent 
employee-owned company in Rockingham, Vermont.
    Chroma Technology is a manufacturer of precision optical 
filters. Precision optical filters are used in applications, 
such as biomedical imaging, DNA sequencing, and fluorescent 
microscopy by hospitals, universities, and research facilities.
    In 1991, Chroma Technology was formed by six people. These 
founders wanted to work for themselves. So they started Chroma 
Technology and modeled it after a law firm. It was a 
partnership and everyone was equal.
    Initially, their salary was $30,000, flat $30,000 a year, 
which was a good salary to earn in Brattleboro, Vermont, in 
1991. Each founder purchased and received a thousand shares of 
stock, had equal vacation, health benefits, and they split any 
profits equally twice a year.
    When the company started to grow, they added more people. 
They continued with the same approach. New employees were 
partners, as well, with the same salary and benefits. The 
company also paid for the 200 shares of stock for each person 
that were allocated each year. Profits continued to be split 
equally amongst the owners.
    In 1996, there were adjustments to the salary structure. 
The adjustments changed the $30,000 flat to $35,000 to $55,000 
over the course of 5 years. All the other benefits remained the 
same.
    In 2000, the salary range increased to a maximum of $75,000 
a year, regardless of the job position, and in 2007, because of 
market forces, Chroma instituted a four-tier system with 
different salary ranges within each tier, based upon the skill 
sets needed for the different positions but no one's salary was 
cut and most people at Chroma still earned way above market 
rate.
    So today, Chroma's benefit package includes salary, company 
healthcare plan, profit-sharing twice a year, company-funded 
SEP IRA, stock distribution, dividends on stock if declared, 
vacation 3 weeks after 1 year and 4 weeks after 5 years with 10 
personal sick days.
    Becoming an employee-owned and operated company allows 
Chroma to have a unique approach to management. Since we're 
responsible to ourselves, we need to work within the system we 
create. This means that we're not forced to take the textbook 
approach to management.
    Our business structure is a little bit different than most. 
We try to minimize management. When the company was smaller, it 
was easy to meet as a group, discuss problems and make 
decisions. No one person was in charge. However, as we grew to 
30, 40, and 50 people, it became more difficult to meet as a 
group. Decisions in departments were made by departments but no 
one was looking after the company as a whole.
    In 2005, the company developed a steering committee. This 
committee facilitates information and makes sure the decisions 
that need to be made within each department are made. It works 
with the departments not as managers but as collaborators. It's 
a fine line to walk but when it's done correctly it's the best 
way.
    Since we do not have direct supervisors, we spread some of 
the burden for running the company to all employee owners. This 
allows us to minimize the amount of people we need to employ 
which in turn keeps our costs and prices down.
    Our turnover rate is extremely low in comparison to other 
companies within our industry. Chroma's turnover for Fiscal 
Year 2010 was 6.74 percent and for the 2009 Department of Labor 
statistics for our industry turnover rate was 24.1 percent.
    In recent years, Chroma has expanded its footprint. In 
2007, we opened our first sales office in Germany. In 2009, we 
opened two sales offices in the United States, one in North 
Carolina and one in Oregon. In July of 2009, we also opened a 
subsidiary in Burlington, Vermont, named 89 North, which 
employs five engineers, one microbiologist, and an office 
manager, and, of course, it's employee-owned, and, finally, in 
2011, we're going to be opening a representative office in 
Xiongma, China, for the sales of filters.
    Over the past 2 years, Chroma has also won multiple 
awards--2009 and 2010, Inc. Magazine named Chroma as one of the 
fastest-growing privately-owned companies in the United States; 
2009 and 2010, WorldBlu listed Chroma as one of the most 
democratic workplaces worldwide; 2010, Inc. Magazine and 
Winning Workplaces named Chroma as one of the best places to 
work in the country.
    Over the past 13 years, I've seen something special. You 
can see it in the data and you can hear it in the stories. I'm 
proud to have been given the opportunity to work and own such a 
company like Chroma.
    I'm hopeful that the Work Act and the U.S. Employee 
Ownership Bank Act bills are passed so other employees will 
have a chance to learn about employee ownership and the funds 
will be available to make it happen.
    Thank you.
    [The prepared statement of Mr. Clark follows:]

                    Prepared Statement of Jeff Clark

    My name is Jeff Clark and I am the Director of Operations at Chroma 
Technology, a 100 percent employee owned company in Rockingham, 
Vermont. Chroma Technology is a manufacturer of precision optical 
filters. These optical filters are used in applications such as 
Biomedical imaging, DNA sequencing, and Fluorescent microscopy by 
hospitals, universities and research facilities.
    In 1991 Chroma Technology was formed by a group of six people. 
These founders wanted to work for themselves so they started Chroma 
Technology and modeled it like a law firm; it was a partnership and 
everyone was equal. Initially, their salary was a flat $30,000/year, 
which was a good salary for someone living in Brattleboro, Vermont in 
1991. Each founder purchased and received 1,000 shares of stock. They 
had equal vacation, health benefits and split any profits equally twice 
a year.
    When the company started to grow and they added more people, they 
continued with the same approach. New employees were partners as well, 
with the same salary and benefits. The company also paid for the 200 
shares of stock per person that were allocated each year. Profits 
continued to be split equally amongst the owners.
    In 1996, there were adjustments to the salary structure. The 
adjustments changed the flat $30,000/year to a range of $35,000 to 
$55,000/year over 5 years and all the other benefits remained the same.
    In 2000, the salary range increased to a maximum $75,000/year over 
10 years regardless of the job position.
    In 2007, because of market forces, Chroma instituted 4 ``tiers'', 
with different salary ranges within each ``tier'', based upon the skill 
sets needed for the different positions. No one's salary was cut and 
most people at Chroma continue to earn above market rate.
    Today Chroma's benefit package includes:

     Salary
     Company funded health care plan
     Profit Sharing twice/year
     Company funded SEP IRA
     Stock distribution
     Dividends on stock if declared
     Vacation: 3 weeks after 1 year, 4 weeks after 5 years and 
10 Personal/Sick days

    Being an employee owned and operated company allows Chroma to have 
a unique approach to management. Since we're responsible to ourselves, 
we need to work within the system we create. This means that we are not 
forced to take the ``text book'' approach to management. Our business 
structure is a little different than most. We try to minimize 
management. When the company was smaller, it was easy to meet as a 
group, discuss problems and make decisions. No, ``one'' person was in 
charge. However, as we grew to 30, 40 and 50 employees, it became more 
difficult to meet as a group. Decisions in departments were made by the 
departments, but no one was looking after the company as a whole. So, 
in 2005, the company developed the steering committee. The committee 
facilitates information and makes sure the decisions that need to be 
made within each department are made. It works with the departments; 
not as managers, but as collaborators. It's a fine line to walk, but 
when done correctly, it's the best way.
    Since we do not have direct supervisors, we spread some of the 
burden of running the company to all employee/owners. This allows us to 
minimize the amount of peoples we need to employ, which in turn, keeps 
our costs and prices down.
    Our turnover rate is also extremely low in comparison to other 
companies in our industry. Chroma's turnover in fiscal year 2010, was 
6.74 percent while the 2009 department of labor statistic for our 
industry is 24.1 percent.
    In recent years, Chroma has expanded its footprint. In 2007 we 
opened our first sales office in Germany which is staffed by an 
Applications Scientist. In 2009 we opened two sales offices in the 
United States; one in North Carolina and one in Oregon. They are 
staffed with OEM Sales Engineers. In July of 2009 we also opened a 
subsidiary in Burlington, VT, name is 89 North. It is employee owned 
and has 5 engineers, one microbiologist and an office manager. They 
design, manufacture, and sell fluorescent-based light sources. Finally, 
in February of 2011 we will be opening a representative office in 
Xiamen, China. It will be staffed by an OEM sales engineer and an 
Applications Scientist.
    Over the past 2 years Chroma has also won multiple awards:

     2009 and 2010 Inc. Magazine: Named Chroma as one of the 
Fastest Growing Private Companies in the United States; (Aug. 2009 and 
Aug 2010).
     2009 and 2010 WorldBlu: Listed Chroma as one of Most 
Democratic Workplaces Worldwide: (April 13, 2010).
     2010 Inc. Magazine/Winning Work Places: Named Chroma as 
One of the Best places to work in the country: (June 2010).

    Prior to coming to Chroma, I worked for some other large 
corporations. They were very efficient at manufacturing products, 
cutting costs and keeping an eye on the bottom line which was good for 
their stockholders. Chroma has these same concerns, but we also 
consider the impact of our decisions on our employee owners and local 
communities.
    Over the past 13 years at Chroma, I've seen something special. You 
can see it in the data and hear it in the stories. I'm proud to have 
been given the opportunity to own and work at such a company. I am 
hopeful that the WORK Act and the United States Employee Ownership Bank 
Act bills are passed so other employees will have a chance to learn 
about employee ownership options and the funds will be available to 
make it happen.

    (Jeff Clark, Chroma Technology, 10 Imtec Lane, Rockingham, VT 
05101: 1-802-428-2527; [email protected].)

    Senator Sanders. Jeff, thank you very much.
    Tom McCabe is the Treasurer, Pizzagalli Construction 
Company in South Burlington.
    Tom, thanks for being here.

  STATEMENT OF TOM McCABE, TREASURER, PIZZAGALLI CONSTRUCTION 
                 COMPANY, SOUTH BURLINGTON, VT

    Mr. McCabe. Thank you, Senator Sanders, and thank you for 
championing the cause of ESOPs in Washington.
    We're a $400 million general contractor. We're located in 
South Burlington. Our company employs approximately 750 
employees in about 10 States.
    The employee owners of Pizzagalli celebrated 50 years of 
business in the Spring of 2008. The company was founded and 
continues to be headquartered in Vermont. It's grown from 
humble beginnings with two young brothers who installed a flag 
pole foundation at the Post Office in Bilbury, Vermont.
    It's grown from there to regularly employing nearly a 
thousand people to construct buildings and water treatment 
plants throughout the United States.
    In 1998, the owners began to transition the management of 
the company to a new generation of leadership and in 2001 
formed an ESOP to transition ownership. In 2009, the company 
also became a 100-percent employee-owned.
    The founders decided to sell the company to the people who 
had helped them make their business a success rather than an 
outside firm. They wanted the employees to reap the benefits of 
ownership, to continue what they helped create, and take 
control of their own destiny.
    Employee ownership has been a foundational element of who 
we are and the decisions we make every day. Because employee 
owners share in the benefits of the company's success, they've 
come to understand what they do directly impacts the company 
and what impacts the company impacts them.
    I have a couple examples of how our employees, for 
instance, keep costs down to improve their share value. We made 
a presentation a few years ago to all of our employees as an 
effort to make them understand that what they do has a positive 
impact on how we run the business and we compared the increase 
in net income, the company's net income, from saving a third, 
one-third of a penny on every dollar we spend in the field, the 
cost of constructing a project, versus saving 10 percent of our 
overhead or our back office costs.
    The saving of a third of a penny on every dollar in the 
field increased our profitability by 20 percent and saving 10 
percent on our overhead just had a marginal increase in our 
profitability.
    So a few months after that, one of our vice presidents was 
out at a project and he noticed three craft workers, the guys 
in the field, sort of hustling across the field rather quickly 
and the health and safety of our employees is paramount to us, 
particularly in the construction industry. It's very important.
    So he called out to the men and told them, he said, hey, 
slow down, you've got to think about safety first. So they 
wandered over to him and said, hey, wait a minute, we're just 
working on our third of a penny.
    [Laughter.]
    Mr. McCabe. True story. Another example is our health and 
wellness program. Employee ownership helps people have a 
greater sense of control over their company, their jobs, their 
selves, and because we're constantly talking about how things 
they do have an impact on them from work and the company 
standpoint, we use the same concept to promote a state-of-the-
art health and wellness program which our employees have taken 
a significant responsibility for their own health.
    Prior to implementation of the program, 40 percent of our 
employees over a 2-year period didn't use healthcare systems at 
all. Forty percent never saw a doctor, never had a mammogram, 
never had a physical, nothing. In contrast with that today, 
just 3 years after implementing the program, over 90 percent, a 
little different stat, but 90 percent of our employees who were 
identified by an independent party as being high risk for 
future health programs are engaged with a health professional, 
a coach, provided to the employees at no additional cost who's 
helping them deal with their problems, if you will, and it's 
not a doctor visit to deal with sickness. It's a visit with a 
healthcare professional, someone who is not sick and wants to 
stay that way.
    We've seen the number of employees with high cholesterol 
drop 12 percent during that period and obesity is down 5 
percent. Most impressively, our cost per month per employee for 
health insurance has not increased in 3 years.
    The last example would be overall company performance and 
how it translates into employee owner stock price and 
retirement benefit. We've had our best years in the history of 
the company in terms of bottom line in 2007, 2008, and 2009.
    We are scheduled, we are on track to have a similar type of 
year in 2010. While the rest of the stock market's been 
faltering, we've thrived and flourished, and we attribute much 
of that success to the employee owners who are ensuring our 
engine is firing on all cylinders.
    Thank you.
    [The prepared statement of Mr. McCabe follows:]

                    Prepared Statement of Tom McCabe

    Employee owners at Pizzagalli Construction celebrated 50 years of 
business spring of 2008. The company was founded and continues to be 
headquartered in Vermont. It has grown from humble beginnings with two 
young brothers installing a flagpole foundation in Middlebury, Vermont, 
to regularly employing nearly a thousand people who construct buildings 
and plants throughout the United States.
    In 1998, the founders began to transition management of the company 
to a new generation of leadership and in 2001 formed an ESOP to 
transition ownership to the employees. In 2009, the company became 100 
percent employee owned.
    The founders decided to sell the company to the people who had 
helped make their business a success rather than to an outside firm. 
They wanted the employees to reap the benefits of ownership, to 
continue what they had helped create, and to have control over their 
destiny.
    Employee-ownership has become a foundational element of who we are 
and the decision we make every day. Because employee-owners share in 
the benefits of company success, they have come to understand what they 
do directly impacts the company and what impacts the company impacts on 
them.
    Several examples may help. We made presentations a few years ago in 
an effort to help employees understand how they could make a positive 
impact on the value of the company. We compared the increase in net 
income of saving \1/3\ of a penny on every dollar spent in the field 
versus saving 10 percent of our overhead costs. In essence, saving a 
\1/3\ of a penny on every dollar spent in the field increased our 
profitability over 20 percent whereas saving 10 percent on overhead 
only marginally increased profitability.
    One of our vice presidents was visiting a project a few months 
after the presentation. He noted three craft workers moving rapidly 
across the project. The health and safety of our employees is of upmost 
importance so the vice president yelled out to these men that they 
needed to slow down and think safety first. The three walked over to 
the vice president and politely told him that they were just working on 
their \1/3\ of a penny.
    My second example is about our health and wellness program. 
Employee ownership helps people have a greater sense of control over 
their company, their jobs, and their self. Because we are constantly 
talking about how the things they do have an impact on them, from a 
work and company standpoint, we used this same concept to develop and 
promote a world class health and wellness program in which our owners 
are taking significant responsibility for their own health.
    Prior to implementation of the program, 45 percent of our employees 
over a 2-year period did not use the healthcare systems at all. These 
employees did not get a physical, mammogram, colonoscopy . . . nothing. 
I contrast that with what is happening today, just 3 years after 
implementing the program. Over 90 percent of our employees identified 
by an independent party as being at high risk for future health 
problems are engaging with an independent professional health coach 
provided at no cost to the employee. This is not a doctor visit to deal 
with sickness. It is a visit to a healthcare professional by someone 
who is not sick and wants to stay that way. We have seen the number of 
employees with high cholesterol drop 12 percent and obesity is down 5 
percent. Most impressively, our cost per month per employee has not 
increased in 3 years.
    For my final example, I'll use overall company performance as it 
translates into an employee owner's stock price and retirement benefit. 
We have had our best years, in terms of bottom line results, during 
2007, 2008 and 2009. It appears we are on schedule to have a similar 
year in 2010. While the rest of the stock market has been faltering, we 
have thrived and flourished. I attribute much of this success to owners 
who are ensuring our engine is firing on all cylinders.

    Senator Sanders. Tom, thank you very much.
    I think in our State we have a lot to be proud of from the 
stories that we've heard and there are other stories out there, 
but I just want to thank the four companies who have been here 
today.
    Now I want to turn to two people who have years and years 
of experience in the concept of employee ownership. I remember 
when I was Mayor of Burlington, Bruce Seifer helped me put 
together a meeting where we had hundreds of people coming out 
in the auditorium at City Hall there which made me realize that 
this really was a potent issue.
    So, Bruce, why don't you say a few words about your 
perspective on employee ownership?
    Bruce is the Assistant Director for Economic Development in 
CEDO in the City of Burlington.

  STATEMENT OF BRUCE SEIFER, ASSISTANT DIRECTOR FOR ECONOMIC 
    DEVELOPMENT, COMMUNITY AND ECONOMIC DEVELOPMENT OFFICE, 
                         BURLINGTON, VT

    Mr. Seifer. Thank you, Bernie. Thank you for the 
opportunity to testify at the hearing.
    I have worked, as Bernie mentioned, in employee ownership 
since 1983 when I was hired by the City of Burlington and 
Bernie was Mayor at that time. I started in 1983. The City of 
Burlington worked with Chris Mackin, who you will hear from in 
a minute. Chris worked with the Industrial Property 
Association, with Jon Crystal, and we created a long-term 
economic development framework that focused on local ownership 
with a preference for employee ownership.
    The overarching economic development approach focuses on 
jobs and people and the concept of local ownership. The focus 
is on fusing local business opportunity with employee 
development. It's a smart approach to root businesses and the 
workforce in our community and have them become part of our 
economy for generations to come. We're hoping for 220 years.
    We are still following this overarching economic 
development framework 27 years later because we have a firm 
belief that this supports and fosters a strong local economy.
    As we heard from Cindy, Gardeners Supply is a shining 
example. They have benefited from this approach which has in 
turn served our community.
    We started working with them over 23 years ago at the 
conference Bernie talked about, Bill came, and they worked 
diligently over the years when they were a small little company 
and they've grown tenfold since that time and recently, as you 
heard, sold their company to all their workers. That's 
something I'm truly proud of.
    The City of Burlington provided financial and technical 
resources to support the establishment and development of the 
Vermont Employee Ownership Center. Senator Sanders provided 
funding and Senator Leahy, as well, follow-up funding which has 
provided, I think, the State of Vermont an opportunity for 
companies to work together in this industry and to foster the 
growth and development of those firms.
    Through the efforts of the Employee Ownership Center in 
Vermont, a number of firms have decided to become employee 
owned and also, importantly, they've provided information to a 
broad range of business people to help them consider employee 
ownership as an option to seriously consider.
    When I studied accounting in college, they didn't teach 
employee ownership. I'm glad to hear that Steve goes down to 
Harvard. It's not part of the lexicon in the colleges or in 
high schools and I think it needs to become so people can 
understand that this is a viable opportunity.
    Vermont and the Nation, I think, would benefit if there 
were more financial and technical resources available to 
support employee ownership in States around the Nation. The 
choice of employee ownership is derived from the following 
assumptions that we've looked at over the years: that 
successful employee-owned companies over the long term provide 
for stable employment opportunities since key corporate 
decisions will tend to be made by residents with a long-term 
interest in the future of our local communities, that 
successful employee-owned companies will strengthen their local 
economy as they both retain wages and profits and are more 
likely to be retained and invested by the employee owners.
    You heard Gardeners Supply have four locations in Vermont. 
They were 15 when we started working with them.
    That successful employee-owned businesses are more familiar 
with local resources and institutions developing a higher-
trained and promote local residents, thereby promoting a higher 
percentage of quality employment opportunities for local 
residents.
    I asked Cindy when I got here, are you the Cindy Davis? I 
looked at an old article. She was quoted as Cindy Davis and now 
she's been promoted to somebody who's helping to run the 
company, but back then she wasn't.
    Employee-owned and controlled companies should particularly 
be encouraged because of their demonstrated potential and 
performance potential, the breadth of local ownership which 
they can provide and the quality of employment opportunity 
which affects the business over time.
    Two bills that Senator Sanders has proposed will be a big 
step forward for rooting our firms in our communities and 
leading to better-quality jobs and spread economic democracy. 
The communities in the United States will benefit by retaining 
and growing businesses, thereby creating more jobs. In this 
way, our political democracy would also support our economic 
democracy.
    Lastly, I'd say employee ownership is a growing trend in 
Vermont that can spread across the Nation. This would help to 
stabilize local communities by creating jobs, preserving and 
growing the tax base, and providing opportunities for common 
people to build wealth.
    Thank you, Senator Sanders, for the opportunity to testify 
and I welcome the opportunity to respond to any questions.
    [The prepared statement of Mr. Seifer follows:]

                   Prepared Statement of Bruce Seifer

    Thank you Senator Sanders for the opportunity to testify at this 
hearing.
    My name is Bruce Seifer. I am the Assistant Director for Economic 
Development for the City of Burlington's Community and Economic 
Development Office or CEDO. I have worked on employee ownership since 
1983 when I was hired by the City of Burlington. Senator Sanders was 
Mayor of Burlington at this time.
    Starting in 1983, the City of Burlington, working with Chris Mackin 
of the Industrial Cooperative Association, created a long-term economic 
development framework that focused on Local Ownership with a preference 
for Employee Ownership.
    The overarching economic development approach focuses on Jobs and 
People and the concept of locally owned businesses. The focus is on 
fusing local business opportunity with employee development. It is a 
smart approach to root businesses and their workforce in your community 
and have them become part of your economy for generations to come.
    We are still following this overarching economic development 
framework 27 years later, because we have a firm belief this supports 
and fosters a strong local economy. Gardeners Supply is one example of 
a company which has benefited from this approach and which in turn has 
served our community. We started working with them over 23 years ago 
when they were still a small company. They have since grown tenfold and 
recently sold 100 percent of the company to their workers.
    The City of Burlington provided financial and technical resources 
to support the establishment and development of the Vermont Employee 
Ownership Center (VEOC). VEOC is a good example of having the employee 
owned businesses work together through an organization that fosters 
their growth and development. Through the efforts of VEOC, a number of 
firms have decided to become employee owned. They also have provided 
information to a broad range of businesspeople to help them consider if 
employee ownership is an option to seriously consider.
    Vermont and the Nation would benefit if there were more financial 
and technical resources available to support Employee Ownership in 
States around the Nation. The choice of employee owned businesses 
derives from the following assumptions:

     That successful employee owned businesses will, over the 
long-term, provide more stable employment opportunities since key 
corporate decisions will tend to be made by residents with a long-term 
interest in the future of local communities.
     That successful, employee owned businesses will strengthen 
their local economies as both wages and profits are more likely to be 
retained and reinvested by employee owners.
     That successful employee owned businesses, being more 
familiar with local resources and institutions, are more likely to 
hire, train, and promote local residents, therefore promoting a higher 
percentage of quality job opportunities for local residents.

    Employee owned and controlled businesses should be particularly 
encouraged because of:

     Their demonstrated performance potential. Studies have 
found employee owned businesses to outperform conventionally owned 
business structures on measures of productivity and profitability;

     The breadth of local ownership which they can provide--in 
placing long-term strategic decisions that could affect the local 
economies in the hands of a broader number of local actors than one or 
two local entrepreneurs;
     The quality of the employment environment they can create 
by involving local residents in decisions which affect companies that 
they own; and
     The fundamental equity and fairness of employee ownership 
as a business structure--which helps distribute the gains of economic 
success to the people most responsible for that success--the blue, 
white and green collar employees working under the same roof together.

    The two bills proposed by Senator Sanders would be a big step 
forward in rooting our firms in our communities and leading to better 
quality jobs that spread economic democracy. The communities in the 
United States will benefit by retaining and growing businesses thereby 
creating more jobs. In this way our political democracy would also 
support economic democracy.
    Employee ownership is a growing trend in Vermont that could spread 
across the Nation. This would help to stabilize local communities by 
creating jobs, preserving and growing the tax base and providing 
opportunity for the common people to build wealth over time.
    Thank you Senator Sanders for the opportunity to testify, and I 
welcome the opportunity to respond to any questions.

    (Contact Information: Bruce Seifer, Assistant Director for Economic 
Development, City of Burlington Community and Economic Development 
Office, 149 Church Street, Burlington, VT 05401; Tel: (802) 865-7179/
email: [email protected].)

    Senator Sanders. OK. Bruce, thank you, and thank you for 
the work you've been doing for years.
    Last but not least is somebody I've known for almost 30 
years. I don't want to embarrass him but he is one of the 
fathers, if you like, of the worker ownership movement in the 
United States of America. He has been active on this issue 
successfully for so many years.
    Chris Mackin, thank you very much for being with us.

     STATEMENT OF CHRISTOPHER MACKIN, PRESIDENT, OWNERSHIP 
                ASSOCIATES, INC., CAMBRIDGE, MA

    Mr. Mackin. Thank you, Senator Sanders. My name is 
Christopher Mackin. I have worked professionally in the field 
of employment since 1978. It's been 32 years.
    I run a private consulting firm based in Cambridge, 
Massachusetts, by the name of Ownership Associates, that 
provides assistance to the community of employee-owned firms 
nationwide.
    I serve as a member of the core faculty of the Harvard 
Trade Union Program where I teach an annual course on this 
topic called Capital Strategies for Labor, and I'm a Special 
Advisor to American Working Capital, LLC, a merchant banking 
firm providing financing for employee-owned firms.
    In addition to those vantage points on the field, during 
the time period 1998 through 2008, my company managed the 
Massachusetts Office for Employee Involvement in Ownership or 
Mass EIO, a State program regarding employee ownership 
analogous to the Ohio and Vermont programs.
    Mass EIO was funded entirely with State dollars and was 
closed or, perhaps more optimistically, frozen in 2008 as a 
result of the State budget crisis in Massachusetts.
    There remains strong interest in providing this 
Massachusetts office and hope that S. 2909, the Work Act, will 
provide a means to achieve that goal.
    I've been asked by hearing organizers to comment on how the 
legislation introduced by Senator Sanders might strengthen our 
local and national economies and contribute to decent-paying 
jobs.
    In order to respond to that request, I'd like to first 
comment on my role as practitioner, advising companies of 
various sizes and shapes around the country, and, second, 
comment in my role as a contributing academic to something 
called the Shared Capitals and Research Project, a 13-year 
research project funded by the Russell Sage Foundation and the 
Sloan Foundation, and based at the National Bureau of Economic 
Research.
    I served as one of the original organizers for this 
research project in 1997 and contributed to one of the newly-
published studies to be found in a book published earlier this 
year by the University of Chicago Press, Senator Sanders' alma 
mater, that I'd like to present to Senator Sanders. This book 
is called Shared Capitalism at Work: Employee Ownership, 
Profit-Sharing, and Gain-Sharing in the American Economy. If 
you would hand that to him?
    First, if I might, a couple of observations from my own 
personal experience in the field.
    In my role running the State office I provided assistance 
to a community of approximately 125 employee-owned businesses 
that collectively employed 25,000 Massachusetts residents. Most 
of these firms were organized as ESOPs but half a dozen were 
organized as industrial or workers cooperatives.
    According to the last formal Census performed in 2006, the 
median size of these companies was 110 employees. The 
overwhelming majority of these cases follow the standard 
profile: privately-owned closely-held businesses where owners, 
motivated by a combination of tax incentives and belief in the 
concept of employee ownership, have sold these businesses 
gradually through an employee stock ownership trust 
representing their employees.
    Three observations about these cases. First, these 
companies are largely successful, typically representing the 
life's work of the owner entrepreneurs. Second, because these 
firms are successful, the owners have alternatives in the form 
of active suitors who wish to absorb them into existing 
business platforms, and, third, following this last point, had 
these companies not been sold internally to employees, the 
overwhelming majority of the jobs that they created would be 
gone quietly and without a trace.
    Business failures, plant closings where people lose their 
jobs make headlines. The everyday sale of businesses, even the 
sale internally to employees, do not. To the accepted public 
policy rationale of using employee ownership to increase 
productivity and company performance we should therefore add 
the important fact of job preservation.
    Few of the businesses helped by employee-ownership 
legislation already on the books or under discussion today, 
involve the rescue of companies near commercial extinction. 
Many, if not most, of these businesses and the jobs associated 
are extremely viable but instead at risk of a more quiet form 
of extinction of being absorbed elsewhere, including overseas, 
unless this internal option, the employee ownership option, 
remains viable. Both of these pieces of legislation would serve 
to address that problem.
    The second point I'd like to make based on my experience as 
a practitioner is that this is a vignette really and it's a 
formative interaction that I have that I was sharing ahead of 
time with our friends from King Arthur Flour.
    It's some work I did 15 years ago for a company called G.W. 
Lisk Corporation in Clifton Springs, New York. G.W. Lisk 
manufactures solenoids which are complex starter devices used 
in the automobile and aeronautical industry.
    In 1995, my company was hired to deliver introductory ESOP 
training to the company's 600 employees. The CEO of this 
company, a gentleman by the name of Drew Morris, watched over 
every one of our sessions with an eagle eye. It seemed that 
this rather forceful and flinty Republican CEO had a concern or 
two about these Cambridge consultants, likely Democrats or 
worse, that he was about to let loose on his workforce.
    Fortunately for us, Mr. Morris was sufficiently satisfied 
with what he saw during the Monday morning sessions and he 
invited my colleague and I to lunch. As we waited for our meal 
to be delivered at a nearby restaurant, one could see out the 
window to a large community hospital that Mr. Morris had helped 
to found.
    Next to it sat several buildings of the Lisk Corporation. 
Slightly above our heads in clear view to all was a television 
screen broadcasting the nonstop business news with the Wall 
Street ticker crawl streaming across the bottom of the screen.
    During a lull in conversation and some babble from the 
television commentator about the stock market took over the 
room, Mr. Morris pointed forcefully towards the television 
screen and literally sneered. ``That's not capitalism,'' he 
exclaimed. He then pivoted in his seat towards one of his 
company buildings and pointed once in the direction of the 
plant. He said, ``That's capitalism.''
    I swallowed hard. Because of that incident I felt a 
connection with this flinty Republican businessman who'd begun 
the process of sharing ownership of his family business with 
employees that exceeded the connection I felt with many of my 
liberal Democratic fellows in Harvard Square.
    The point is a simple one and I will conclude with this. 
Employee ownership is an ideologically, ambidextrous issue. 
That quality may be the single most important strength as we 
look forward to using this idea as a plank in any future 
economic policy. It's safe to say, and there's an entire book 
in front of you, Senator, that the research is close to settled 
on this issue, that this is a high-performance strategy that 
creates value and creates jobs and the two pieces of 
legislation you've introduced would help mightily to bring this 
issue further into other parts of our country.
    Thank you.
    [The prepared statement of Mr. Mackin follows:]

                Prepared Statement of Christopher Mackin

    My name is Christopher Mackin. I have worked professionally in the 
field of employee ownership since 1978, a span of 32 years. I run a 
private consulting firm based in Cambridge, Massachusetts by the name 
of Ownership Associates that provides assistance to the community of 
employee-owned firms nationwide. I serve as a member of the core 
faculty of the Harvard Trade Union Program where I teach an annual 
course on this topic called Capital Strategies for Labor and I am a 
Special Advisor to American Working Capital, LLC, a merchant banking 
firm providing financing for employee owned firms.
    In addition to those vantage points on the field, during the time 
period 1999 through 2008, my company managed the Massachusetts Office 
for Employee Involvement and Ownership or MASSEIO, a State program 
promoting employee ownership analogous to the Ohio and Vermont employee 
ownership centers. MASSEIO was funded entirely with State dollars and 
was closed, or perhaps more optimistically, frozen in 2008, as a result 
of the State budget crisis in Massachusetts. There remains strong 
interest in reviving this Massachusetts office and hope that S. 2909, 
the WORK Act might provide the means to accomplish that goal.
    I have been asked by hearing organizers to comment upon how the 
legislation introduced by Senator Sanders might strengthen our local 
and national economies and contribute to decent paying jobs. In order 
to respond to this request, I would like to first comment in my role as 
a practitioner, advising companies of various sizes and shapes around 
the country and second comment in my role as a contributing academic to 
something called the Shared Capitalism Research Project, a 13 year 
research project funded by the Russell Sage Foundation and the Sloan 
Foundation and based at the National Bureau of Economic Research. I 
served as one of the original organizers of this research project in 
1997 and contributed to one of the newly published studies to be found 
in a book published earlier this year by the University of Chicago 
Press that I would like to present to Senator Sanders. This book is 
called Shared Capitalism at Work: Employee Ownership, Profit Sharing 
and Gain Sharing and Broad-Based Stock Options.
    First, if I might, a couple of observations from my own personal 
experiences in the field. In my role as a contractor to the State of 
Massachusetts to manage the Massachusetts Office for Employee 
Involvement and Ownership I provided assistance to a community of 
approximately 125 employee owned businesses that collectively employ 
over 25,000 Massachusetts residents. Most of these firms are organized 
as ESOPs, about a half dozen are organized as industrial or workers 
cooperatives. According to the last formal census performed of these 
firms in 2006, the median size of these companies was 110 employees. 
The overwhelming majority of these cases followed the standard profile; 
privately owned/closely held businesses where owners, motivated by a 
combination of tax incentives and belief in the concept of employee 
ownership sold these businesses gradually to an Employee Stock 
Ownership Trust representing their employees.
    Three observations about these cases. First, these companies are 
largely successful, typically representing the life's work of founding 
owner/entrepreneurs. Second, because these firms are successful, their 
owners have alternatives in the form of active suitors who wish to 
absorb them into an existing business platform and third, following 
from this last point, had these companies not been sold internally to 
employees, the overwhelming majority of jobs they had created would be 
gone, quietly and without a trace.
    Business failures, plant closings where people lose their jobs make 
headlines. The everyday sale of businesses, even a sale internally to 
employees, do not. To the accepted public policy rationale of using 
employee ownership to increase productivity and company performance we 
should therefore add the important fact of job preservation. Few of the 
businesses helped by employee ownership legislation already on the 
books or under discussion today involve the rescue of companies that 
are on the brink of commercial extinction. Many if not most of these 
businesses and the jobs associated with them are commercially extremely 
viable but instead at risk of a more quiet form of extinction of being 
absorbed elsewhere, including overseas, unless the internal option, the 
employee ownership option, remains viable. Both S. 2909, the WORK Act, 
that can help ensure that business owners are made aware of this 
alternative and S. 2914, the Bank Act that can help finance necessary 
transactions decrease the risk of job loss and promote job 
preservation.
    The second point I would like to make based on my practical 
experience in this field stems from a particularly memorable, even 
formative, interaction that took place 15 years ago at a company called 
the G.W. Lisk Corporation in Clifton Springs, New York. G.W. Lisk 
manufactures solenoids, complex ``starter'' devices used in the 
automobile and the aeronautical industry. In 1995 my company was hired 
to deliver introductory ESOP training to G.W. Lisk's 600 employees. The 
CEO of this company, a gentleman by the name of Drew Morris, watched 
over every one of our sessions with an eagle eye. It seemed that this 
rather forceful and flinty, Republican CEO had a concern or two about 
these Cambridge consultants, likely Democrats or worse, that he was 
about to let loose upon his workforce. Fortunately for us Mr. Morris 
was sufficiently satisfied with what he saw during the morning 
sessions. He had invited my colleague Loren Rodgers and I to lunch.
    As we waited for our meal to be delivered at a nearby restaurant 
one could see out the window the large community hospital that Mr. 
Morris had helped to found. Next to it sat several buildings of the 
G.W. Lisk Corporation. Slightly above our heads in clear view to all 
was a television screen, broadcasting non-stop business news with the 
Wall Street ticker crawl streaming across the bottom of the screen. 
During a lull in the conversation as some babble from the television 
commentator about the stock market took over the room, Mr. Morris 
pointed forcefully toward the television screen and literally sneered. 
``That's not capitalism'' he exclaimed. He then pivoted in his seat 
toward one of his company buildings and pointed once again, this time 
in the direction of the plant. ``That's capitalism!''
    I swallowed hard. In that instant I felt a connection with this 
flinty Republican businessman, who had begun the process of sharing 
ownership of his family business with his employees, that exceeded the 
connection I felt with many of my liberal democratic pals in the coffee 
shops of Harvard Square. The point here is a simple one. Employee 
ownership is ideologically ambidextrous issue. That quality may be its 
single most important strength as we look forward to using this idea as 
a plank in any future economic policy.
    While it is ideologically flexible, what employee ownership also 
appears to do is to distinguish what we might call ``responsible'' 
capitalism from its almost purely speculative, finance-driven evil 
twin, ``irresponsible'' capitalism. Responsible capitalists can be 
found in companies across this country and its proponents can be found 
in both of our major political parties. So can irresponsible 
capitalists. I therefore applaud the efforts of Senator Sanders to take 
the lead on this issue and urge him to find common ground with leaders 
of the Republican party who are ready to make similar and necessary 
distinctions. In the wake of the financial crisis of recent years, S. 
2909 and S. 2914 are two pieces of legislation that contribute toward a 
species of ``responsible'' capitalism that is needed today more than 
ever before.
    Finally a few short words in my role as a part-time academic and 
academic organizer that are relevant to the proposed legislation. In 
May of 1997, Professor Richard Freeman of the Harvard Economics 
Department and I organized the first Shared Capitalism Research Project 
conference at the Madison Hotel in Washington, DC. Among the luminaries 
we attracted to that inaugural conference included Alan Blinder of 
Princeton and the Federal Reserve, Doug Kruse and Joseph Blasi of 
Rutgers and Ralph Nader. Thirteen years later, that project produced 
the aforementioned book, Shared Capitalism at Work: Employee Ownership, 
Profit Sharing and Gain Sharing and Broad-Based Stock Options.
    Research is never definitive but this body of data is compelling. 
On page 12 of this book, Exhibit 1 presents a table that summarizes six 
``take-away'' findings from this research on shared capitalism. I will 
not take the time to summarize all six findings here but will instead 
pull out three:

          First, shared capitalism improves the performance of firms. 
        It is associated with greater attachment, loyalty and 
        willingness to work hard; lower chances of turnover; worker 
        reports that co-workers work hard and are involved in company 
        issues; and worker suggestions for innovations. Shared 
        capitalism is most effective when combined with employee 
        involvement and decision-making and with other advanced 
        personnel and labor policies.
          Second, the risk of shared capitalist investments in one's 
        employer is manageable. Portfolio theory suggests employee 
        ownership can be part of an efficient portfolio as long as the 
        overall portfolio is properly diversified.
          Third, shared capitalism improves worker well-being. It is 
        associated with greater participation in decision-making, 
        higher pay, benefits and wealth, greater job security, 
        satisfaction with influence at the workplace, trust in the firm 
        and assessment of management and better labor-management 
        relations practices.

    The message to take away from these findings is that the public 
policy outcomes that S. 2909 and S. 2914 seek to promote stands on firm 
research ground. It is prudent public policy that helps both our 
economy and our workforce. More research is necessary because it will 
always be necessary, particularly research that can uncover mistakes in 
implementation that must be discovered and reversed. There should be 
little doubt however that the overall public policy trajectory of these 
ideas, started in 1974 in the 93rd Congress by Senator Russell Long and 
his contemporaries, remains sound. These two bills under discussion 
today will productively build on those earlier achievements.

    (Contact: Christopher Mackin, Ownership Associates, Inc. 122 Mt. 
Auburn Street, Cambridge, MA 02138; Tel. 617-868-4600; email: 
[email protected].)

    Senator Sanders. Chris, thanks very much.
    What I want to do now is just have an informal discussion 
with the folks up here. I'll throw out a couple of questions 
and we'll go from there.
    I think it's fair to say that in this country there are a 
whole lot of employees who are kind of demoralized, who go to 
work every day because they need a paycheck but not happily, 
not feeling part of the process, not with a lot of pride.
    What I was very interested in hearing from all four of you, 
I believe, is employee morale, low turnover, people's pride in 
being part of the process.
    Can each of you or whoever chooses say a few words about 
what happens to an employee in an employee-owned operation? How 
does that change his or her life?
    Tom, why don't you start off.
    Mr. McCabe. I think a lot of people didn't understand in 
our situation, didn't understand what an ESOP was, and we had a 
very interesting--another strange situation where we had our 
pension--our administrative principal handles our ESOP and our 
401(k) and we had him out in the field interviewing people, 
talking about retirement benefits, explaining the benefits to 
them again, and hard to believe, a particular individual he had 
with him never really understood what his 401(k) and his ESOP 
contribution was going to or where and he found out during the 
course of the conversation that he had $30,000 balance in his 
account and he broke down in tears, and we have never 
experienced that. Remarkable that somebody wouldn't know that. 
It's incredible.
    I can't say that that's a very small unique situation that 
they wouldn't know that, but I think people really look upon an 
ESOP in our company has they work hard, it's for their futures, 
it's for their retirement plan, and it's a significant benefit 
to them when it comes to retirement and you can see that in the 
examples I used already in just the way they approach work.
    Senator Sanders. You see the difference.
    Mr. McCabe. You do. You do. And people are aware of it. 
We're actively promoting it. I think people like Cindy and 
Steve, I will tell you, do a much better job because they're a 
more mature ESOP company than we are in promoting it and making 
their employees understand it, but I think we're starting to 
get the drift of how to do it and it's working.
    Senator Sanders. Jeff, you talked about low turnover. How 
does the work at Chroma seem to be different than other 
employees in the area, in your judgment?
    Mr. Clark. After they've learned how Chroma operates as in 
minimizing management and it might take some employees 6 
months, it might take some employees 5 years, to understand 
that we're paying a salary to people that are way above market 
rate because we spread the decision-making process for their 
departments back to them.
    Some employees coming from large companies or more 
regimented companies with supervisors, managers, and what have 
you just don't get it right off. It takes years to understand 
that we're paying extra because someone's not going to make 
that decision for you. If you need extra equipment, if you need 
to alter your work habits, work time or do whatever needs to be 
done, you need to either make that decision or help others make 
that decision.
    Senator Sanders. Do you find people stepping up to the 
plate in that regard?
    Mr. Clark. Some people that you wouldn't even expect. Ideas 
come from the quietest person in the company. If you give them 
the opportunity and it might take comment cards, it might take 
conversations, it might take barbeques or what have you, but 
the ideas come. You've just got to be able to be open to 
listening.
    Senator Sanders. OK. Cindy, what's your experience in terms 
of employee morale, ideas coming from people in your business?
    Ms. Turcot. I think we've probably become masters of 
getting input from people. I'd like to say that our business 
has always been steady state, always growing and doing great 
and, unfortunately, we've been a fluctuant company.
    So for me, it's all about how do we get input and how do we 
hear the input and maybe some of these guys want to talk to 
that, but for me it's always giving those opportunities so 
people have the opportunity, whether it's staff meetings, town 
meeting.
    Senator Sanders. Do you do town meetings?
    Ms. Turcot. Town meetings, yes, small groups where Jim 
Fines, our president, meets with groups of 15 and just have 
smaller discussions about whatever it might be that's coming up 
and so the feedback comes in many ways and you're right. You 
have to have different forums for that so that people know how 
to give that input and have the guts to give it.
    But I see that more people give it and are willing to give 
it, the more other people are willing to give it, and I'll give 
one example right now, which is that we had a tough spring and 
we're doing better now, but we took a tough spring. So our top 
managers took a pay cut. Our ESOP Committee is doing a surprise 
lunch for them to thank them and so for me, even the employees 
are willing to say, hey, thank you, managers, for doing that. 
They don't have to do that. They came up with their own idea. 
It was a surprise and that's why there aren't more people here 
today, but it's those kinds of things that are always happening 
that made you realize people get it and care about everybody, 
no matter who you are.
    Senator Sanders. I visited Steve's operation at King Arthur 
over a year ago and he had a whole lot of workers out there and 
people just are very comfortable. I mean, it was just a very 
nice environment where I think people felt--you got that 
feeling that they believed they were part of the process.
    Steve, what's your observation here?
    Mr. Voigt. Well, I was thinking about that same visit and 
Laurie used to work at the telephone company. She'll remember 
the conversation with you forever. But it was a very dramatic 
moment where she was fired from the phone company. Compare and 
contrast it, what it was like for her to work there versus to 
come and actually help people have success baking, whether it 
was helping them on the phone or helping them in the store. She 
showed up with an energy and enthusiasm, that we talk about 
health and wellness, and I think that's a topic in and of 
itself that's really interesting, just what ESOP companies are 
doing there and how that might also be other benefits to a 
broader community.
    But Laurie was a different person working for King Arthur 
and then the other example I thought of is on the anniversary 
of every employee's joining King Arthur, I go around, thank 
them. Each year we have a little something different, you know, 
a travel coffee mug or a license plate holder that talks about 
King Arthur employee-owned and stuff like that, and in a recent 
one, somebody in the Fulfillment Center was saying, You know, 
this is the longest I've worked at any place. I said, You know, 
King Arthur's the longest I've ever worked, and after 5 and 6 
years you just feel like it's yours and it's part of your life 
and you think about how to make things better on weekends and 
you care about the people there and your energy is devoted 
towards making things better and it's not just for the bottom 
line. It's for all the other things you heard.
    So it's a totally different sort and some of these measures 
that were quoted here today get to it, but it's way bigger than 
that.
    Senator Sanders. Steve, thank you very much. Let me ask the 
experts over here. There is great concern in this State and all 
over this country about the outsourcing of jobs. I think people 
feel very uncomfortable that increasingly it is difficult to 
buy a product manufactured in the United States of America and 
they look over their shoulders to whether their job is going to 
end up in China or India or some place else.
    Obviously people who have control over their own jobs, who 
own the companies that they're working in are not going to move 
that company to China.
    How significant is the issue of outsourcing in terms of 
providing motivation for employee-owned companies in the United 
States? Who wants to start? Jon, you want to start with that? 
Pass it on down.
    Mr. Crystal. I don't think that there's been a really 
comprehensive study of that issue, but we have heard 
anecdotally stories of employee-owned companies during the last 
year or two when the economy's been so tight and where cuts 
were faced who have turned around and have started to outsource 
certain services and they've turned that around and brought 
them back in-house. Employees at the company that otherwise 
might have been laid off to complete those services that had 
been out-sourced previously.
    Maybe some of the others----
    Senator Sanders. Well, Bill, maybe you could. Ohio has been 
hit very, very hard. I mean, Ohio is a major manufacturing 
State and the economy is in rough shape and outsourcing. I know 
Sherrod Brown is the co-sponsor of this legislation and he and 
I chat about this all the time.
    What's going on there, Bill?
    Mr. McIntyre. Ohio has been devastated in the last few 
years with the loss of manufacturing jobs, many of them going 
overseas.
    In the ESOP world, though, we've seen fundamentally during 
that same time period an increase in jobs at ESOP companies. If 
all of the companies in Ohio were employee-owned, who knows, 
the picture may be somewhat different because other people have 
said it. Employee owners simply don't send their jobs offshore. 
They do what they can to keep their jobs intact.
    I'll echo Jon's comments that anecdotally, what we have 
seen is that employee-owned companies are much more reluctant 
to lay off folks. They will, in the true example of 
participative management, they'll figure out some way to cut 
back everybody's hours or somebody will say I'm 58 years old, I 
have tons of money in the bank, you're 26, you're married, you 
have three kids, you work, I'll lay myself off, things like 
that happening for the greater good of everybody that you're 
working with and working for the company.
    It's, as I mentioned before, in the long run, it amounts to 
a better way of doing business and your one-third of one cent 
really does add up.
    Senator Sanders. Well, let me ask--I'll ask Chris and Bruce 
their view. Outsourcing is, I can tell you, a major concern in 
this country. Is ESOPs and worker-owned companies an antidote 
to that?
    Mr. Seifer. I think there was a study done in Vermont in 
2005 by the Sustainable Jobs Fund and it looked at communities 
in Vermont that have a dominant employer as one employer in 
their community and the risk of ownership transition of the 
owners getting near retirement age and so there's 60 or so 
different communities that were reliant on one company and a 
number of those companies have turned over some of that time.
    I think our Nation needs a national study to look at, you 
know, retiring owners and what do they do as an option, and I 
think local ownership, employee ownership is a good strategy to 
root our companies, those companies. You could plan ahead. We 
heard about ownership over time is being sold to their workers 
and I think if you strategize with those employers, we've heard 
examples of people having that forethought that we need market 
research and then the follow-through and that requires the 
employee ownership centers.
    Senator Sanders. Right. But the choice here would be an 
owner could sell to a large company which could eventually shut 
down that plant to be more profitable operating in China or 
that owner could sell to a worker-owned company that would stay 
in the community.
    Mr. Seifer. Without a doubt, and I think, you know, 
Gardeners Supply is a good example, you know. That could have 
been sold many times over to an out-of-state firm and they've 
sold it to their workforce and they're growing at this point in 
time.
    Senator Sanders. All right. Chris, your thoughts about 
this?
    Mr. Mackin. Yes. A couple of vignettes come to mind as 
examples. The largest ESOP we have in Massachusetts is a 
company called Nypro. They manufacture plastic injection molded 
pieces. They start with the Gillette throwaway razor actually 
and they make medical equipment and sell phone casings and the 
like. They've got 1,100 people in Clinton, Massachusetts.
    They have been able to minimize offshore. They're a 
worldwide company. So they actually do have to follow some of 
their customers around the globe and set up across the street 
from where they're doing plants, but I just heard from them 
that they've had their best year ever and, interestingly, their 
Massachusetts operation, their Clinton operation, which is 
their largest operation, is out-competing China and what that 
company has done, which is ownership alone is obviously not 
going to solve all these problems, they've invested heavily in 
training for their employees so that the higher value-added 
stuff, the breaking technologies, if you will, in their 
business is happening close to home and that's how they have 
been able to avoid it.
    One other thought that is probably applicable to Vermont. A 
company called Light Control that manufactures architectural 
lighting fixtures, fantastic company, 200 people down near 
Plymouth on the way to Cape Cod, has manufacturing that can be 
servicing government procurement, you know, out-of-state and 
Federal level and there are--I would urge my colleagues at 
Vermont, if you haven't done it already, to go about that 
business and to look at what your community of employee-owned 
companies does already and see about how our tax dollars at the 
State and Federal level might go to keep the jobs.
    Senator Sanders. Excellent, excellent point.
    I want to thank Ted Brady from Senator Leahy's office and 
Fred Raymond from Congressman Welch's office. We thank them for 
being here, as well.
    What I want to do now is open it up to any questions or 
comments from anybody in the room. Just stand up, give us your 
name.
    Mr. Hazlett. Jeff Hazlett. I feel like I've come into the 
light here hearing all of you talk. I'm so glad I came.
    It brings to mind a quote from Abraham Lincoln when he 
talked about his concerns for the money power corporations. I 
like to call them the empire corporations. I've got a new word 
``you're the employee corporations.''
    So my question is what impact would we have on our 
democracy if we had more--because the values that you have, the 
core values that you have fundamentally would change the 
eroding democracy that we all live in. So is there a central 
organization, okay, an alliance of you or you as a special 
interest, you as lobbyists in Washington could try to offset 
the onslaught of the empire corporations having on our society 
because you could be a tremendous hope for reversing the trends 
against our democracy and bringing about wellness for people 
and so I compliment all of you for the hope you've given me.
    Senator Sanders. Well, thank you for the question, Jeff. I 
see these guys in Washington every year, right?
    So, Cindy, I see you. Cindy leads a delegation. Cindy, you 
want to respond to Jeff's question.
    Ms. Turcot. Oh, I'm trying to think of the best way to 
respond. It's difficult because what we're trying to do is to 
be the spokespeople or to work with the VEOC to be also doing 
what we're doing now which is to--and we do it all the time.
    We're out there as employee-owned companies sort of 
preaching to whoever will listen to us, that this is the way to 
go, and so we're all involved, whether it's the Vermont 
Employee Ownership or at the national level with the Employee 
Ownership Foundation, to sort of spread the message and how do 
we get out there?
    The only thing I feel like we can do right now is to be 
teaching the classes or to be out there doing what we can do 
just one at a time, the power of one. How do we get out there 
and get the message out there? That's the only way I feel like 
I can do it.
    So I do bring the whole delegation. We all meet with you, 
whether----
    Senator Sanders. We have a great time every year.
    Ms. Turcot [continuing]. You want to meet with us or not, 
we meet with you. We might say the same things but he meets 
with us and there's new people and there's new employees that 
are coming through always that you're trying to spread that 
message so that when they move on to the next place, maybe 
they'll think about it.
    Senator Sanders. This is Warren Gunnels. Warren has worked 
on this issue with me for years. We have a number of co-
sponsors on some of these legislations. That's because people 
all over the country are putting a little bit of pressure on 
their senators. Senator Leahy has been very strong on this 
issue. Senator Shaheen, Senator Sherrod Brown of Ohio has been 
very strong on it.
    But I think it's fair to say that these don't quite have 
the clout of Wall Street. I think you probably haven't put many 
hundreds of millions of dollars into lobbying and campaign 
contributions the last few months, right?
    Steve, what's your experience in terms of the political 
process?
    Mr. Voigt. Well, I agree with you on the opportunity and in 
a way it's been kind of a head-scratcher why it hasn't taken 
some more, and I think maybe Chris mentioned that the media 
headlines grab at the failures but don't talk about the 
successes, the nice warm story really doesn't sell a lot of 
papers, and so a combination of the grassroots that Cindy 
talked about.
    There is an ESOP Association in DC which brings us down 
there. There's an educational-oriented, research-oriented one 
on the West Coast called NCEO. I think Chris and I were talking 
before just how much has changed even in the last 5 years in 
terms of academic interest in ESOP whereas before it was a 
total wasteland. There was nothing and now there are classes 
actually taught at business schools, undergraduate and graduate 
level, on this. There's a sharing of case studies. The Aspen 
Institute's involved.
    So maybe some of these think tanks are beginning to spread 
the ideas which then may catch on like a brush fire on a windy 
day and take off that way, but the classic, as the Senator 
said, dollar for dollar, can't really win that battle.
    Senator Sanders. Anybody else want to comment how we're 
doing politically in spreading--yes.
    Mr. Mackin. Well, I can project here. I don't know if it's 
for the record.
    Senator Sanders. It's for the record.
    Mr. Mackin. OK. Well, that's fine. The gentleman raised a 
really interesting point and one that I've been thinking about, 
about how we convert these ideas from something more than an 
interesting little business trend to something that's a 
challenge to what's wrong about what's going on.
    If there's one U.S. Senator in the Congress who's not 
afraid of that, it's this gentleman, and I think it's fair to 
say, and here's a distinction that's been coming to me, we're 
talking about a kind of responsible capitalism here and that's 
to be distinguished deliberately from irresponsible capitalism 
and I think it's time that responsible capitalists banded 
together and spoke about what they're doing that's good, like 
the people around this table and many others who are not here. 
We made some distinctions about the kind of capitalism that we 
think is good and we found a capitalism that isn't and that 
kind of general normative and moral framing of this issue 
hasn't happened yet.
    I mean, I'm toying with creating a center for responsible 
capitalism for this very purpose because that's sort of beyond 
technical lobbying. That's more of a kind of a challenge to 
what's going on, but the challenge wouldn't be happening, this 
hearing wouldn't be happening unless Senator Sanders saw 
through this, and again it's one of the most interesting 
things.
    This is the first left wing person in the U.S. Congress and 
there are Republicans who love this idea, too. And there are 
some decent Republicans who can also make that distinction 
between responsible and irresponsible. So we'll see.
    Senator Sanders. OK. Other questions.
    Mr. Maynard. I'm a product engineer at IBM and I went 
through those two layoffs.
    Senator Sanders. Your name, if you could, please?
    Mr. Maynard. Robert Maynard.
    Senator Sanders. Robert.
    Mr. Maynard. There was one time where I was trying to look 
for work afterwards and there was a number of us decided to go 
into business for ourselves and so some of them, in conjunction 
with one another and some of them by ourselves, and I want to 
bring up another perspective on layoffs and some of this 
unemployment.
    You've got jobs going overseas but you also have 
manufacturing jobs being lost overseas, as well, because you 
have new technology because you have a segment of our 
technology revolution that is doing more with less. So that is 
a challenge for employment but it's also an opportunity because 
the new technology that's making companies lay off also makes 
smaller companies be able to do things that they weren't able 
to do before in terms of reaching for market.
    So there's a shift with this new technology and information 
age coming I think, potentially away from big companies towards 
smaller companies and the tendency of a smaller company, you 
know, because the entrepreneur tends to hear you're trying to 
start a company, there's risk involved. So the idea of sharing 
the risk is something--is not only a nice idea that you have to 
convince people, it's practical, too, because if you have self-
ownership, if you have employee ownership, you're going to 
share the risk involved.
    So instead of one person all alone risking this new capital 
venture, which is a very scary thing, I can tell you, I've been 
through it, you share the risk. So there's a practical reason 
for it, but there's also the reality of the percentage of 
start-ups that go bankrupt.
    It's hard for a small company to compete with a large 
company in an environment, in the political environment you're 
talking about, the lobbying. There's a lot of us that haven't 
got the time for that or the inclination and it would be a lot 
easier if we didn't have to lobby if there was a little bit 
leaner--we can't hire tax lawyers and lobbyists and things like 
that.
    If the process was leaner and the government officials 
recognized we're not in the industrial age anymore, we don't 
have massive bureaucracies, so whether they be government or 
private sector, it's not the leading edge. There's streamlining 
regulations, taxes, stuff like that.
    I've been involved with these federations of independent 
small businesses and it's killing them. You know, it hurts big 
business but it kills the small business and if we really want 
to have employee ownership, we want to have all these creative 
ideas, then the encouragement of small business start-up is a 
good idea and one of the best ways that you can encourage them 
is to get out of their way because the kind of obstacles that 
the big businesses face, it's a barrier to them, it's a much 
bigger barrier to the small business which is not set up to 
deal with that kind of thing.
    Senator Sanders. OK. Robert, thanks very much. Other 
thoughts? Ma'am? Please stand up. Your name, please.
    Ms. Constantina. Hi. I'm Constantina from the Vermont 
Sustainable Jobs Fund, and mainly today you've spoken about the 
social fabric that's built through employee ownership and yet 
we see quiet shutdowns or sales of businesses all the time, 
sometimes with employees finding out about it in the paper 
alongside everybody else, and so it speaks to me of barriers 
with the idea of the sales of businesses.
    I'm wondering if some of you can speak to what you will do 
to address, proactively addressing those barriers when 
companies decide to sell. I understand the finance one is a big 
part of it, but if you could describe other ways you could 
address that.
    Senator Sanders. Jon.
    Mr. Crystal. I think one of the greatest barriers is the 
lack of information in a timely fashion. One of the real 
focuses of our work is to educate business owners and employees 
about the opportunities that may exist in employee ownership 
and while it doesn't fit all situations of a potential plant 
closing, there are many, many situations where if the owners of 
a business knew sufficiently in advance about what they could 
do through employee ownership and had time to act on that, they 
could have avoided the kind of situation you're describing.
    So I think the Work Act that Senator Sanders is proposing 
that would set up centers like the VEOC around the Nation, that 
would help educate business owners and employees about these 
opportunities is one of the most proactive things that could be 
done.
    Senator Sanders. I mean, would you guys think it's fair to 
say that if some entrepreneur started a business and was 
successful, he was aging, that he would have--and he was going 
to leave the business, that he knew about or she knew about the 
option of employee ownership, they would take a look at that 
and many just don't know about it? Is that a fair statement?
    Mr. Crystal. Absolutely.
    Mr. McIntyre. In Ohio, probably 75 percent of the ESOPs 
that we've helped create have been succession planning 
situations and that's the reality and another reality is that 
the baby-boomer generation aren't babies anymore. They've been 
running their businesses for 30, in some cases 40-some years 
and they're ready to retire and there's an outstanding 
opportunity for employee ownership right now, to have many of 
those conversions lead to sales to the employees and form ESOP 
companies or worker-owned cooperatives.
    As Jon said, the problem is that the business owners don't 
know about this option. A service provider, an attorney, 
banker, accountant type of person mentioned to us about 4 years 
ago that no service provider is going to recommend to a client 
something that they don't have a fundamental understanding of 
themselves and that the problem is that the service providers 
don't understand ESOPs or worker-owned cooperatives.
    So in our State, we've expanded our succession planning 
program throughout the entire State and, frankly, we're 
focusing on educating the service providers with the thought 
that they will be the ones who are for every accountant they 
know 30 to 50 small businesses in their area who are their 
client and when they face succession planning situations, 
they'll have heard about an ESOP and say yes, that might be 
something that would apply.
    The act does provide for the individual State employee 
ownership centers to provide succession planning training which 
is absolutely terrific and right on the mark and I think will 
be unusually successful.
    Senator Sanders. Other thoughts on that one? Yes, ma'am.
    Ms. White. Hi. Abby White with NRG Systems. Many of you are 
familiar with our company. We're not employee-owned but we do 
have an active profit-sharing program and I just wanted to 
share with you the challenge that we face and that is our 
company has been around for a long time and our relative size 
compared to other companies that are in our industry is 
shrinking. So our relative power compared to like GE or 
Mitsubishi, companies that are now flocking to this industry is 
changing and so I'm just curious to hear from you all if that's 
an experience that you've faced, as well.
    Our company is a very mission-driven company. We care very 
much about doing the right thing and we're employee-driven and 
having employee incentives. So, a company likes ours, how do we 
use that to our competitive advantage and how have some of your 
companies addressed this?
    Senator Sanders. I think I hear two questions there. One is 
the smaller company trying to compete in a climate where 
there's increased concentration of ownership.
    Ms. White. Yes.
    Senator Sanders. The second, I don't know this or not, but 
the second part of your question, which I think is interesting, 
it's been touched on, maybe we can elaborate on it, I find, you 
know, many Americans see (a) a product manufactured in the 
United States of America, everything being equal, they would 
like to buy that product and I think we also heard that if a 
company--you guys are advertising that you're a worker-owned 
company and I've seen that certainly in other areas.
    My guess would be that that is a marketing advantage, 
right? Would I rather buy a product manufactured in the United 
States by a worker-owned company or a product manufactured in 
China?
    Ms. White. Although I think the environment is somewhat of 
a different kind of pitch that you would be making. We're a 
manufacturer of technical products that we sell to others. So I 
think it's somewhat different than your example of the 
injection molding company which still needs to outsource but 
they have a global market the same way we have a global market 
but that they brought more of those higher skills, higher wage 
jobs and they've grown at a faster pace.
    Senator Sanders. Who wants to respond to Abby's question?
    Mr. Mackin. Well, I think one--it's a complicated question, 
but there's a couple key words here, buzzwords. Remember the 
word ``modernize.'' If you want to understand how worker 
ownership could look,----
    Senator Sanders. This is very interesting. He and I talked 
about this 30 years ago. Listen closely.
    Mr. Mackin. Right.
    Senator Sanders. Because this concept, you know, didn't 
start with King Arthur Flour.
    Mr. Mackin. That's right.
    Senator Sanders. Talk about Spain just a little bit.
    Mr. Mackin. Sure, sure. My hair was a different color back 
then.
    Well, in Northern Spain, the Basque region of Spain, it's a 
very high-tech federation of democratically-owned industrial 
cooperatives and I've been over there several times and they 
invest--they have the power of having all of the companies that 
are part of their group pool their capital and they started 
their own bank called the Caja de Ahorros de Galicia, which is 
now the 12th largest bank or 10th largest bank in Spain.
    They pooled their research and development function so that 
they're able to do all this and help the university base which 
could be done in a place like the University of Vermont, some 
other places like that, because the problems with high-tech/
high value-added companies are rather unique and they require a 
lot of capital. They require a lot of technical expertise but 
those are problems that can be solved, as well, if you do the 
proper kind of organizing.
    In Northern Spain, it happened to have been a priest who 
fought resistance against Franco who came back and devastated 
part of his--of the world who said, you know, I've got to do 
something for my people here and he started an engineering 
school and then he didn't want to just enable his young 
engineers to go out and be capitalists and exploit other people 
but they actually went to work for the few capitalist companies 
in the area in the '50s and they were interested in the sort of 
social philosophy that the priest taught about worker 
participation and the like.
    When they weren't getting anywhere with those companies, 
they came back to the priest and the priest said, well, the 
hell with them, we'll start our own companies but we're going 
to do it in a way that's not just going to be owned by the 11 
of you, we're going to set up a structure that's in perpetuity, 
will be owned by people around----
    Senator Sanders. And how many people, how many employees?
    Mr. Mackin. There are now about a 150,000, I think, or 
somewhere around between a 100-150,000 companies and they're 
the largest producer of white goods, consumer durables of that 
kind. They're big in software, as a matter of fact, and 
research in that.
    It's a little bit of a bigger picture visioning here that 
has to happen. If you're interested in doing this, you have to 
begin to develop the infrastructure around universities, around 
financing, around that kind of research, in addition to--we've 
been talking here largely about how do we hold up the companies 
we've got, but it's possible to marry these ideas with enough 
advance thinking with the same kind of values.
    Senator Sanders. OK. Other questions? Sir? Bruce, briefly, 
though.
    Mr. Seifer. What I think about that, if I could, I was on 
the Board of the Montclair Ocean Center for about 7 years, the 
first 7 years and there's a number of business people who 
served on that Board and represent the companies you see at 
this table and the one thing I found is I work for the 
government, so I guess I'm an employee to some degree, you all 
make--but we own each other, but the thing I found out about 
is, to get to your point, it's like a sorority or fraternity. 
People who work with employee-owned companies, it's like a 
secret handshake.
    So I think to get to Chris's point is if you work with 
other like-minded companies that are employee-owned, they 
realize that there's something bigger than just going to work.
    Mr. Mackin. And this structure does appear to provide an 
unusual appetite for collaboration across different platforms 
and stuff.
    Senator Sanders. Sir? Name?
    Mr. Thrail. I am thoroughly in love with ESOPs.
    Senator Sanders. Your name, please, sir?
    Mr. Thrail. Bill Thrail, Advanced Illumination, Rochester. 
We attended the briefing and all-day session in Burlington and 
so we're really interested in doing it.
    One reason we want to do it is so that we can keep the jobs 
in Vermont. I want to throw that out. We've taken people that 
are basically untrained and have trained them to perform 
various tasks and we've been offered to move the company twice, 
one to Massachusetts and once to New Jersey, for ownership.
    But I'd like to know more about what you're going to be 
introducing in 2914. What kind of--do you have any details on 
that yet?
    Senator Sanders. I'll let Warren speak about that.
    Mr. Gunnels. Simply, S. 2914 is the United States Employee 
Ownership Bank and it would authorize $500 million in funding 
to create this bank to provide loans, loan guarantees, 
technical assistance, to employees that want to start their own 
business.
    Before they would get the loans or loan guarantees, they 
would have to get third party feasibility study that would show 
that if they receive those loans or loan guarantees to start up 
their own companies or an ESOP or worker-owned cooperative, 
that those companies would be able to make a profit. They would 
become successful and they would be able to pay back those 
loans and loan guarantees.
    So that's really the essence of the legislation.
    Senator Sanders. In essence, the government provides 
billions of dollars right now in loans and loan guarantees to 
various types of economic activity but not to those people, 
those employers who want to convert to employee ownership or 
workers who want to move in that direction. So we think that 
that economic model also deserves some Federal help.
    Ma'am.
    Ms. Messick. I'm Carrie Messick, and I'm part of the Ohio 
Worker-Owned Network, and I was on their Web site and I noticed 
and listening to the man who was talking about the company 
start-ups and I noticed that in Athens, they have an incubator 
there to help companies start up to deal with their overhead 
costs. Do you know how that's going and is that something that 
Vermont should know about?
    Mr. McIntyre. Actually, I'm sorry to say I don't know about 
the incubator in Athens. There are several business incubators 
around the State. I thought you were going to talk about the 
worker-owned cooperative restaurant in Athens.
    Ms. Messick. I know about them, but no.
    Mr. McIntyre. One topic that has not come up is, and it 
works very well with the whole idea of employee ownership, and 
that is buying locally and it's a nice transition to that or 
segue because it's a worker-owned cooperative restaurant that 
has arranged with the local farmers to grow the things that 
they're going to be using in the restaurant and back when you 
were asking about the outsourcing, there have been some studies 
done that have indicated that if you have employee-owned 
companies, that the multiplier, the number of times that the 
cash revolves around the community is higher for an employee-
owned business than for a regular domestically-owned business, 
certainly higher for a business that's offshore. It's another 
positive impact of employee ownership.
    Senator Sanders. All right. Maybe one or two more 
questions, if there are any.
    Mr. Maynard. Small technical question. You talked about 
outsourcing. If ESOPs outsource, is there any reason that they 
don't outsource with employee ownership overseas?
    Mr. Mackin. That's been tried and I think that the state-
of-the-art is relatively--well, a couple points there.
    The people who've done it best and in fact they've done it 
through trial and error. They have acquired businesses in Latin 
America and not so much here in the United States that some of 
them were owned by--seemingly in contradiction to their 
philosophy, right, and they have decided that that's not the 
way to go, that when they need to expand and go into other 
markets, they're going to use the same structure.
    Now this is one of the reasons why Leo Girard of the United 
Steelworkers has taken an interest in Montergand, as well, as 
this sort of new model because there's no incentive to not 
saying you don't have to operate around the globe. I mean, this 
is a global economy and you've got to be able to sell into 
those markets. You need to understand what's going on.
    How you actually do that in Montergand is probably at the 
leading edge. It's complicated because there are different 
legal regimes. We have one that's ESOP that doesn't apply in 
China. So you have to do the work of figuring out how to invent 
something in that country and into your structure.
    So there's thought going on about that but the Basques are 
ahead of everyone else.
    Senator Sanders. Let me just thank our panelists for being 
here and thank all of you for being here.
    I think, especially given the state of the economy right 
now and all of the anxiety that workers are feeling from one 
end of this country to the other, the model that we are looking 
at, that we're talking about now, the legislation that we have 
introduced is going to gain increased interest. So I think the 
purpose of this hearing is to stimulate some interest. This 
will become part of the record of the Health, Education, Labor, 
and Pensions Committee. We'll be talking to Chairman Harkin 
about it. We have some pretty good support in the Senate, 
trying to get some hearings in Washington, trying to get some 
kind of legislation like this passed as soon as possible.
    I want to thank all of you for being here. This is an 
enormously important economic issue and let's go forward 
together.
    Thank you all very much.
    [Applause.]

    [Whereupon, at 12:37 p.m., the hearing was adjourned.]

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