The Many Faces of Employee Ownership
In 1999 when a majority of Full Sail Brewing’s owners were considering selling the company to an investment group, Irene Firmat, one of the founders, was troubled by the offer.
“For me, it just felt wrong that others would get the value of the sweat equity of our employees’ hard work,” says Firmat, the Hood River, Ore., company’s CEO. At the time, she was facing a 4–2 vote to sell. She had to move fast to find a solution. Firmat found her answer in employee ownership, (known as an ESOP or Employee Stock Ownership Plan), a counter offer the majority owners eventually accepted. And so, in 1999 Full Sail became the first craft brewery in the country to convert to an ESOP.
Fast forward nearly 16 years and she, along with the 78 current and former employee owners, voted in March to sell to Oregon Craft Brewers Co., a local investment firm. According to Firmat, the ESOP vote was 98.8 percent in favor of selling. Unlike the earlier potential outside sale, everyone will still have a job and the brewery will continue producing beer.
“I took a very idealistic stance back in 1999 and I’m thrilled it has worked out for all,” says Firmat. “ESOPs are not simple to put together or to manage—they are like playing a game of three dimensional chess. But in the end the ESOP fulfilled its promise of sharing equity with our employees.”
Brewery owners sell for different reasons. They want to retire or need cash from their brand equity. And with craft brewing increasingly gaining market share, Big Beer’s response is to buy the competition as a defensive strategy (think Anheuser-Busch’s acquisition of Elysian Brewing). More and more, the ESOP is emerging as both a viable alternative to a corporate or equity buy-out and a way to reward a loyal workforce if a sale is made.
At the RAM Restaurant & Brewery, which includes C.B. and Potts Brewery on Colorado’s Front Range, brothers Jeff and Dave Iverson, whose father founded the business, felt a similar commitment to their employees. In September 2014 they finalized an ESOP agreement relinquishing 30 percent ownership, which they believe will increase staff engagement. Dave Leonard, director of beer, says the ESOP makes RAM special. He has already had several inquires from brewers who have heard about employee ownership and want to work for the company.
“There are a lot of people out there who say they are experts at setting up an ESOP, but that’s not always the case,” cautions Dave Iverson. “Find the best consultants you can and don’t skimp on this cost.”
At New Belgium, which plans to start brewing at its new facility in Asheville, N.C., by the end of the year, employees owned 100 percent of the company by 2012. Bryan Simpson, media relations director, attributes the company’s 93 percent retention rate in part to the ESOP, but also to a shared culture established by founder and CEO Kim Jordan. “Under our B Corporation social structure, New Belgium is beholden to the environment, our communities we serve and social issues. Most of our customers are aware of this back story, which validates spending their money with us,” he explains.
Simpson also pointed out that an ESOP does not completely prevent a company from being sold, per Full Sail. Any board of directors would be obligated to look at an offer if the price above earnings was right. But Simpson says an ESOP puts the decision in the hands of the employee owners.
According to Schlafly Beer co-founder Dan Kopman, the sale of Anheuser-Busch to InBev in 2008 profoundly changed the local beer market in St. Louis. Demand for his beer took off soon afterwards. “Up until then, it was considered a civic duty to drink Budweiser in St. Louis,” says Kopman. He and co-founder Tom Schlafly didn’t want to go into debt to take advantage of the Budweiser brand diminishment. They were also committed to local ownership, a grand St. Louis beer tradition. And they wanted to reward employees who had been with them at least five years.
“What we did is a little different,” he says. “It’s not a traditional ESOP. We set aside 20 percent of the brewery’s value in stock that can be purchased by employees on a pay-as-they-go basis.”
Meanwhile, for Dan Kenary, CEO at Harpoon Brewing in Boston, which just announced a 48 percent ESOP, the transition is about legacy. “I don’t want to drive by the brewery 15 years from now with my grandkids after I sold the brewery to someone else who doesn’t appreciate the history and who decided to make the beer somewhere else,” he reasons. ■