Wall Street Journal – Founders Cash Out, but Do Workers Gain?

Founders Cash Out, but Do Workers Gain? April 17, 2013

As the old expression goes: “All’s well that ends well.” And that certainly is the case with the April 12, 2013 Wall Street Journal article, “Founders Cash Out, but Do Workers Gain?”

The article begins benignly enough with a discussion of the recent Dansko (shoe maker) ESOP transaction and states that “This week a bipartisan group of lawmakers introduced a bill to encourage employee-ownership plans.” However the article then quotes two outspoken critics of ESOPs and mentions a failed ESOP company of note, Enron.

The remainder of the article is a very strong endorsement of ESOPs with citations of studies by Harvard, Rutgers, and the National Bureau of Economic Research which found that ESOP companies “fared better during the recession than more traditionally structured firms, including fewer layoffs, higher productivity, and stronger employee loyalty.” The article concludes with quotes from employees of several ESOP companies who discuss their overwhelmingly positive ESOP experiences.

The focus of the WSJ article is the use of ESOPs as an ownership succession strategy. The article points out that not all companies that use ESOPs for this purpose succeed and that when they don’t, employees can suffer negative economic consequences. Unquestionably, this a true statement. However, it should also be noted that other ownership succession planning strategies- such as a sale to a strategic or financial buyer-also have risks and sometimes fail. The failure rate of these alternative strategies may be equal to or greater than the failure rate of ESOPs, and surely these failures have negative economic consequences for the company’s employees. ESOP critics would do well to keep in mind that while there are no guarantees in business or in ownership succession planning, at least ESOP companies put their employees’ interest first and offer employees the opportunity for greater financial rewards.


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