William Flynn started Franklin Street marketing 32 years ago and had a number of partners over the years. In 2015, when he started thinking about retiring, he transitioned the firm to an Employee Stock Ownership Plan (ESOP) where, instead of selling to a new buyer or closing shop, he turned the firm into an employee-owned business. “This structure keeps jobs and engages the employees,” Flynn says.
Franklin Street, a Richmond-based, nationwide brand innovation firm serving health and wellness companies, has about 20 employees, and Flynn works part time. He studied ESOP structures over two years and met with consultants to learn and crunch numbers. An ESOP seemed the best way for him to become semiretired while continuing the business he had worked so hard to develop.
An ESOP is a tax-qualified employee benefit plan that gives employees beneficial ownership, according to the Washington, D.C.-based ESOP Association. Company assets are held in a trust so that as the company increases in value, the stock of the ESOP, including employees’ shares, also increases in value. For each year of employment, the company can make a contribution to the individual’s ESOP account. Company performance is also a factor in determining the value of the stock.
Franklin Street, like most ESOP companies, is privately owned. The per-share value of the company stock is determined by an appraisal performed annually by an independent valuation firm.
ESOPs have been around for more than 30 years. Data provided by the National Center for Employee Ownership, a nonprofit providing resources on ESOPs and ownership culture, shows 315 ESOP businesses in Virginia. Fifteen are in metro Richmond, including law firms, tech companies, consultants and wealth management companies.
The Publix supermarket chain, based in Florida and making forays into Virginia, is the largest employee-owned company in the United States. Publix employees, from cashiers to corporate executives, benefit from a stock ownership plan that contributes Publix stock to associates each year at no cost to them. Employees may also purchase additional shares of the stock.
“Publix has a very unique corporate culture,” says Kim Reynolds, media and community relations manager for Publix. “Our common stock is not traded on any public exchange. Our philosophy of employee ownership goes back to Publix’s very beginning. George Jenkins, Publix’s late founder, believed in profit sharing and employee ownership. From the start, he wanted his associates to have a stake in the company. But in the midst of the Great Depression in 1933, his associates were hardly in a position to buy stock.”