1 OA Ownership Associates Practical Aspects of Governance in an ESOP Company ESOP Association Two-Day Conference November 20 and 21, 2003 Las Vegas, NV Ron Ludwig Bill McIntyre, Ohio Employee Ownership Center Loren Rodgers, Ownership Associates, Inc.

2 OA Ownership Associates 1.Reasons to Involve Non-Managers in Governance 2.Psychology of Ownership 3.Mini Case Studies Employee Ownership and Involvement

3 OA Ownership Associates -1- Reasons to Involve Non-managers in Governance

4 OA Ownership Associates Reasons to Involve Non-Managers in Governance 1: Legal Requirements Voting on major corporate decisions –Liquidation or dissolution –Sale of substantially all assets –Recapitalization –Reclassification –Merger or consolidation Required communications Possible Role re: trustee, administrator

5 OA Ownership Associates Reasons to Involve Non-Managers in Governance 1: Legal Requirements Congress set the “floor” the regulations that set minimum requirements for participation. You set the ceiling as participatory as you want to be

6 OA Ownership Associates Reasons to Involve Non-Managers in Governance 2: Philosophical Commitment Bill Carris, President, Selling Shareholder of Carris Reels The company will be “employee owned and governed” in order “to improve the quality of life for our growing corporate community.” The company will create “a new style of corporate governance, one characterized by community, trust, and inclusiveness.”

7 OA Ownership Associates Reasons to Involve Non-Managers in Governance 3: Educational Experience Information about the Company Key strengths, threats and issues Trust in the Company Opening some “closed doors”

8 OA Ownership Associates Reasons to Involve Non-Managers in Governance 4: Bottom-Line Results ESOP companies, on average, outperform non-ESOP companies by approximately 2.3% on a number of measures. ESOP companies file for bankruptcy less often than non-ESOP companies. On average, ESOP participants have approximately 2.5 times more retirement assets than non-ESOP participants, with no loss in income.

9 OA Ownership Associates InvestmentReturn Incentive Only Low to Medium Reasons to Involve Non-Managers in Governance 4: Bottom-Line Results

10 OA Ownership Associates InvestmentReturn Incentive Only Low to Medium Low (-1 to 2%) Reasons to Involve Non-Managers in Governance 4: Bottom-Line Results

11 OA Ownership Associates InvestmentReturn Incentive Only Low to Medium Low (-1 to 2%) Culture + Incentive Reasons to Involve Non-Managers in Governance 4: Bottom-Line Results

12 OA Ownership Associates InvestmentReturn Incentive Only Low to Medium Low (-1 to 2%) Culture + Incentive High Reasons to Involve Non-Managers in Governance 4: Bottom-Line Results

13 OA Ownership Associates Reasons to Involve Non-Managers in Governance 4: Bottom-Line Results InvestmentReturn Incentive Only Low to Medium Low (-1 to 2%) Culture + Incentive High High (5 to 13%)

14 OA Ownership Associates -2- Psychology of Ownership

15 OA Ownership Associates 3% 11% 3% 13% 8% 18% 21% 7% 13% 0% 10% 20% 30% 40% 50% 60% not at allvery much OCS Data from an anonymous company “How much do you feel like an owner of this company?”

16 OA Ownership Associates Involvement is not inevitable. Expectations about involvement are inevitable. Ownership Expectations

17 OA Ownership Associates Means-of-Acquisition Control Attachment Rudmin and Berry, 1987, “Semantics of Ownership,” Psychological Record, Vol. 36 pp Roots of psychological ownership Research Results

18 OA Ownership Associates Rights and Responsibilities

19 OA Ownership Associates Management versus Governance What KIND of involvement creates psychological ownership? Autonomy (management) Participation (management) Influence (management and governance)

20 OA Ownership Associates Legal definitions of ownership versus “cultural” definitions of ownership The emphasis is up to you But perception is a large part of reality Is it an ESOP? Or is it ownership?

21 OA Ownership Associates -3- Mini Case Studies

22 OA Ownership Associates 1.Physical Working Conditions 2.Election of Employees' Committee 3.Speed of Production 4.Job Assignments 5.Safety Rules and Practices 6.Quality Standards and Measurement 7.Hiring 8.Promotions, Job Evaluations 9.Equipment Layout 10.Asset Purchases 11.Employee Compensation & Benefits 12.Firing 13.Marketing & Advertising Strategy 14.Raising Capital, Relationships with Banks and Investment Groups 15.Product, Technology, and Investment Strategy 16.Lay-off Policy, Employment Levels 17.Selection and Compensation of Senior Management 18.Distribution of Profits (dividends, reinvestment, debt reduction, etc.) 19.Corporate Strategy 20.Constitutionalism: Setting & Moving Decision-Making Boundaries 21.Selection of Board of Directors 22.Fate of the Company: merger, sale, major location change Standard List of Corporate Decisions

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25 OA Ownership Associates About 800 employees at 8 locations. 100% family-owned until % ESOP-owned; committed to 100%. Manufacturing. Self-Designed ESOP. Corporate Steering Committee. Case Study 1: Carris Reels

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27 OA Ownership Associates Robert Frost – Mending Wall “Good Fences Make Good Neighbors” “Something there is in us that does not love a wall.”

28 OA Ownership Associates 1.Review / Approval by Steering Committee 2.Organizational Assessment 3.Company-wide “Ownership Culture” Training 4.Review / Adaptation by Steering Committee 5.Pilot Site Develop Guidelines for Categories of Decisions Training for Supervisors; Training for Workforce Begin Using the Guidelines 6.Future: General Rollout

29 OA Ownership Associates Over 1,000 employees at 12 locations. Public Company. Minority ESOP Ownership. Financial Difficulties. Recent Rescue by Outside Investors. Multiple Unions. Case Study 2

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31 OA Ownership Associates 1.Establish Steering Committee 2.Organizational Assessment 3.Convene “RapidResponse” Conferences 4.Task Teams: Analysis and Recommendations 5.Decide on Recommendations and Report Back 6.Evaluate the Process Company Response

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33 OA Ownership Associates Questions and Answers