1. 1 OA www.ownershipassociates.com© 2003Ownership 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. 2 OA www.ownershipassociates.com© 2003Ownership Associates 1.Reasons to Involve Non-Managers in Governance 2.Psychology of Ownership 3.Mini Case Studies Employee Ownership and Involvement

3. 3 OA www.ownershipassociates.com© 2003Ownership Associates -1- Reasons to Involve Non-managers in Governance

4. 4 OA www.ownershipassociates.com© 2003Ownership 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. 5 OA www.ownershipassociates.com© 2003Ownership 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. 6 OA www.ownershipassociates.com© 2003Ownership 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. 7 OA www.ownershipassociates.com© 2003Ownership 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. 8 OA www.ownershipassociates.com© 2003Ownership 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. 9 OA www.ownershipassociates.com© 2003Ownership Associates InvestmentReturn Incentive Only Low to Medium Reasons to Involve Non-Managers in Governance 4: Bottom-Line Results

10. 10 OA www.ownershipassociates.com© 2003Ownership Associates InvestmentReturn Incentive Only Low to Medium Low (-1 to 2%) Reasons to Involve Non-Managers in Governance 4: Bottom-Line Results

11. 11 OA www.ownershipassociates.com© 2003Ownership 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. 12 OA www.ownershipassociates.com© 2003Ownership 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. 13 OA www.ownershipassociates.com© 2003Ownership 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. 14 OA www.ownershipassociates.com© 2003Ownership Associates -2- Psychology of Ownership

15. 15 OA www.ownershipassociates.com© 2003Ownership Associates 3% 11% 3% 13% 8% 18% 21% 7% 13% 0% 10% 20% 30% 40% 50% 60% 12345678910 not at allvery much OCS Data from an anonymous company “How much do you feel like an owner of this company?”

16. 16 OA www.ownershipassociates.com© 2003Ownership Associates Involvement is not inevitable. Expectations about involvement are inevitable. Ownership Expectations

17. 17 OA www.ownershipassociates.com© 2003Ownership Associates Means-of-Acquisition Control Attachment Rudmin and Berry, 1987, “Semantics of Ownership,” Psychological Record, Vol. 36 pp.257-268. Roots of psychological ownership Research Results

18. 18 OA www.ownershipassociates.com© 2003Ownership Associates Rights and Responsibilities

19. 19 OA www.ownershipassociates.com© 2003Ownership Associates Management versus Governance What KIND of involvement creates psychological ownership? Autonomy (management) Participation (management) Influence (management and governance)

20. 20 OA www.ownershipassociates.com© 2003Ownership 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. 21 OA www.ownershipassociates.com© 2003Ownership Associates -3- Mini Case Studies

22. 22 OA www.ownershipassociates.com© 2003Ownership 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

23. 23 OA www.ownershipassociates.com© 2003Ownership Associates

24. 24 OA www.ownershipassociates.com© 2003Ownership Associates

25. 25 OA www.ownershipassociates.com© 2003Ownership Associates About 800 employees at 8 locations. 100% family-owned until 1995. 47% ESOP-owned; committed to 100%. Manufacturing. Self-Designed ESOP. Corporate Steering Committee. Case Study 1: Carris Reels

26. 26 OA www.ownershipassociates.com© 2003Ownership Associates

27. 27 OA www.ownershipassociates.com© 2003Ownership Associates Robert Frost – Mending Wall “Good Fences Make Good Neighbors” “Something there is in us that does not love a wall.”

28. 28 OA www.ownershipassociates.com© 2003Ownership 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. 29 OA www.ownershipassociates.com© 2003Ownership 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

30. 30 OA www.ownershipassociates.com© 2003Ownership Associates

31. 31 OA www.ownershipassociates.com© 2003Ownership 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

32. 32 OA www.ownershipassociates.com© 2003Ownership Associates

33. 33 OA www.ownershipassociates.com© 2003Ownership Associates Questions and Answers