After completing a plan 15 years in the making, Haviland Enterprises now is 100 percent employee owned.
The chemical manufacturer and distributor first initiated an Employee Stock Ownership Plan in 1997. But until its finalization in November 2012, 54 percent still belonged to the Haviland family, which founded the Grand Rapids, Mich.-based firm in 1934.
“We’re excited the employees now will be able to control their own destinies,” CEO Bernie Haviland said. “They like the path we are on, and this gives them the opportunity to stay on that path if they so choose.”
Haviland is one of nearly 11,000 ESOP plans in the United States. covering approximately 13 million employees, according to the National Center for Employee Ownership. ESOPs are a type of benefit plan, similar to profit-sharing, in which a company sets up a trust fund and contributes shares of its own stock or cash to buy existing shares. The ESOP also can borrow money to buy shares, with the firm making cash contributions to repay the loan. Shares in the trust are allocated to employees based on criteria established by the existing law and the firm. As employees accumulate tenure, they acquire more shares and eventually are vested.
The plan also provides certain benefits to the company and employees, such as tax deferrals and deductibles.
At Haviland, the ESOP was set up as a longterm retirement plan in which workers received points equal to shares based on salary and service. Employees were fully vested after six years.
The firm has roughly 220 employees with nearly half having served at least 15 years. With the ownership transfer, all positions remain the same, including the board of trustees.
Haviland’s motivation was to reward employees while also establishing an exit strategy for the family with a mutually beneficially plan for all parties, he said. Preserving the family’s legacy also was of equal importance, he added.
“The best chance for growth and survival was to make an offer to the shareholders,” Haviland explained. “By selling to the employees, we protect them. If we sold to a major company, 25 percent of the jobs would be eliminated.”
Before moving forward, however, he knew full participation from the majority shareholders would be necessary. This included his 11 siblings, their children and grandchildren. He initiated talks with the family in 2011, and after the economy showed improvement, they moved forward with the process in July 2012.
The employees knew the company eventually could belong to them, but completion of the ESOP still came as welcome news.
“To make that final leap for the Havilands to relinquish control was a surprise to a lot of [them],” said CFO Terry Schoen, a Haviland employee of nearly 34 years.
Since its completion, Schoen has noticed greater enthusiasm and interest from employees concerned about company operations, an observation often reported with ESOPs.
“They are looking around and asking questions,” he said. “It has empowered [them] to have more input.”
While the Haviland transition has proven successful, not all ESOPs end that way.
After 25 years as owners, Fred and Linda Butler formed an ESOP in 2006 for their firm, Pools Plus. At that time, the company had three locations, a staff of 32 and annual revenue of $5.2 million.
However, a sour economy coupled with issues concerning two long-term key employees forced them to take back ownership and foreclose on the business in 2010.
Eventually, they resold the business, now named Backyard Essentials by Pools Plus, in January 2012 to an outside buyer.
The experience taught Butler a hard yet valuable lesson about the complexities of ESOPs, and he encourages peers seeking exit strategies to consider other alternatives.
“It’s not an option for everyone,” he said. “It’s a better application for a larger company, one with annual sales of at least $20 million and 50 or 100 employees.”