Entrepreneurs

Company’s Cohesive ESOP-Based Culture Helped It Manage Through Covid And Ransomware

The pandemic has served to highlight with a glaring intensity racial inequities and the growing chasm between haves and have nots. For Kerry Siggins, the CEO of Durango, Col.-based manufacturer StoneAge, one tool that small businesses can use to address those problems and spread the wealth is to offer employees an employee stock ownership plan (ESOP).

According to Siggins, whose company has 140 or so employees and makes high-pressure water-blasting cleaning tools, the loyalty and long tenure engendered by employee ownership helped StoneAge get through a double-whammy that hit the enterprise last year: Covid, of course, but also a potentially debilitating ransomware attack. “2020 was an incredibly tough year for many companies, including StoneAge, and I believe that our culture absolutely pulled us through it,” she says.

Siggins, in fact, has become proselytizer for these plans, both through her role on the Colorado Employee Ownership Commission and in the Colorado chapter of YPO.

An ESOP is a type of employee benefit plan, in which a company typically sets up a trust fund for employees, then contributes new shares of its own stock or cash into that fund to buy existing shares. There are about 6,501 ESOPs in the U.S., holding total assets of over $1.4 trillion, according to the National Center for Employee Ownership.

Businesses usually use ESOPs to provide a market for the shares of owners who plan to retire or to tap the ability to borrow money for purchasing new assets in pretax dollars. But perhaps most important, the more successful the company, the greater the value of those shares. And that typically motivates employees to work harder and more collaboratively than they might otherwise.

Homegrown Plan

It all started about three decades ago, when John Wolgamott and Jerry Zink, the company’s founders, started a profit sharing plan for employees. (StoneAge is more than 40 years old). With the success of that effort, they created a homegrown stock ownership plan, whereby employees could buy stock in the company and receive quarterly dividends.

But as Wolgamott and Zink edged toward retirement age, employee participation also peaked, sending the plan into the territory of SEC safe harbor rules. They mandated that, at companies selling over $1 million of stock, employee-buyers had to be accredited. “That was not our model,” says Siggins, who became CEO in 2015. “Our model is that everybody can participate.”

Plus the owners wanted to keep the business in Durango. While they could sell to a private equity outfit, they knew that most likely meant the company would move. And employees wouldn’t benefit. “All that would do is continue to let the rich get richer on the backs of employees who provide the real value in the organization,” says Siggins. According to Siggins, she gets frequent offers from buyers that she turns down for that reason.

So in 2015, they decided to form an ESOP with the co-founders’ shares, a portion of which would be sold every year to employees until they were all in employees’ hands.

Ransomware and Covid

The plan has paid off mightily in employee loyalty and willingness to pitch in. That became particularly apparent last year, according to Siggins. In February, the company was the target of a ransomware attack. Siggins says she enlisted about 25 employees, including some with 20-plus years of experience at the firm, to put together a manual shipping and inventory tracking process that replicated the company’s ERP system, so she wouldn’t have to give in to the attackers’ demands that she pay $240,000, an amount they increased to $350,000. The team was able to build a system pretty quickly using Excel and Microsoft Access.

 “The reason we pulled it off was because we have employees who’ve been with us for so long, they remembered when we used to do it all the old-fashioned way,” says Siggins.

Then, the day the attackers liberated the company’s software, Siggins called her employees together to discuss how they would handle what was then a new pandemic. After moving to a virtual workplace, multiple employee surveys demonstrated that morale stayed high. The company finished the year with revenues down 15%—one of the only yearly declines in the firm’s history—but Siggins says she’s hoping for a full recovery this year.

“We stuck together as a team and supported each other, even when there were communication breakdowns or feelings of disconnect due to isolation,” she says. “Everybody understands they have a role to play to keep our culture together and they take that responsibility seriously.”

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