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Chris Mackin, president, Ownership Associates | On the Hot Seat

Ideally, employee stock plans can give workers more leverage

(Erik Jacobs/for the Boston Globe)

As founder and president of Ownership Associates in Cambridge, Christopher Mackin advises companies, executives, employees, and unions on employee stock ownership plans, or ESOPs. These are a type of defined-contribution retirement plan that buys and holds company stock. Developer Sam Zell recently used an ESOP to help fund his buyout of the Tribune Co. in Chicago. Mackin spoke to Globe business reporter Ross Kerber about growing interest in the area.

Q There are about 10,000 ESOPs in the country with 10.5 million participants, but growth has been slow. What are the trends behind these numbers?

A You're seeing private-company owners without interested heirs who are selling the businesses to ESOP plans instead. As baby boom generation business owners begin to reach retirement age, we should see a gradual increase in volume. Here in Massachusetts, we have over 110 employers that are employee-owned.

Q You helped the Dow Jones employees union evaluate the bid on the company by News Corp. owner Rupert Murdoch. Couldn't the employees have made their own bid for the company?

A Under most of the scenarios examined, an ESOP was just one component, not a dominant one. It's hard because of the price News Corp. offered. The leverage needed to compete with that price is such that the tax incentives that would apply to an ESOP, in more reasonable economics, like around the Zell deal, don't apply. But we put the investment banking world on notice that unions themselves can be savvy participants in this process and can influence events.

Q Traditionally ESOPs have been used more by small and midsize companies, right?

A Exactly. Away from the klieg lights, this market is doing great things for most people. The fact is that we're now seeing interest from very wealthy investors, too. We're right at the beginning of private equity starting to study it. There's a Yucaipa Cos. LLC group in California that I'm advising, investing in this area. They're looking to the community of 10,000 ESOPs in the country that are looking for capital.

Q Are employees interested in making these deals?

A The fact is that, in most cases, the workers aren't the initiators of these deals; it's the sellers. The sellers need to know about the ESOP alternative to explore it. By and large, the decision about whether a company becomes employee-owned is up to the people who own it now. There are only a few examples of worker-owned companies starting from the ground up, like South Mountain Co. in Martha's Vineyard and Equal Exchange of West Bridgewater.

Q Having ESOPs didn't prevent the bankruptcies of Polaroid Corp. or United Airlines, though.

A There have been a few bad apples. Polaroid used an ESOP as a takeover defense but then did not migrate fast enough into the digital arena. Employees lost a major piece of their retirement. United Airlines had an ESOP but they could not solve their labor-relations problems. Arguably, these cases present not ESOP problems per se, but management problems. Fortunately, most ESOPs ply their trade away from the spotlight with reputable management groups and slowly but surely build wealth for everyone.

Q Where are some ESOP success stories?

A Look at Nypro in Clinton, Atlantic Fasteners in West Springfield, and Litecontrol in Hanson and Plympton. In all three cases, the original business owners likely could have sold to strategic buyers and walked away with more money. The success of ESOPs prove there are business owners who care about their legacy and rewarding the people who helped make them wealthy.

Q What about the argument that ESOPs make employees too heavily invested in one company, compared with 401(k) savings plans that diversify their retirement holdings?

A Research shows ESOP employees are more likely to have these plans, too. Diversification always makes sense, but if the object is to build wealth, one has to begin by concentrating somewhere. To build wealth in the first place, employee ownership is a better bet than simply relying on a paycheck.