September 19, 2011 | last updated June 1, 2012 10:46 am
FOCUS ON THE WORKPLACE

Employee ownership offers pride, roots | Connecticut firms show business model brings benefits for company, workers

In 2004, Kansas City consulting and engineering firm Burns & McDonnell eyed a Connecticut electrical transmission project as a possible profitable venture.

At the time, the employee-owned company had virtually no New England presence and very little experience in major power projects; but the firm opened a Wallingford office with 15 people in 2005, and landed the program management contract for the $1 billion Middletown-Norwalk Transmission Project of Hartford-based Northeast Utilities.

"We all had a pact. We're not coming out to do a project. We are coming out to start a business," said Brett Williams, Burns & McDonnell associate vice president and head of the New England office.

After the successful completion of Middletown-Norwalk and a solid referral from Northeast Utilities, the Wallingford office of Burns & McDonnell became the center for the region's energy project management, with a $10 billion portfolio including Northeast Utilities' New England East West Solutions transmission project, the Cape Wind renewable energy project in Massachusetts, the NStar-Northeast Utilities' Northern Pass transmission line from Canada, and the nuclear reactor at the Tennessee Valley Authority's Bellefonte Plant in Alabama.

And the success of Burns & McDonnell at a time when other companies struggled is linked to the entrepreneurial spirit born out of the fact that every single one of the company's 3,200 employees is also an owner.

"You are working for yourself and your fellow employees," said Mike George, Burns & McDonnell construction manager for the New England East West Solutions project. "There is a lot of pride there."

Modern employee-owned companies first caught on in the 1970s and 1980s when changes in tax law helped business founders cash out for retirement by selling their companies to their workers.

Nearly 19,000 employee-owned companies exist today — about 10 percent are in New England — offering a dynamic rivaling businesses where ownership lies in one or a handful of people at the top. Workers at employee-owned companies are more loyal and work harder than their counterparts; but they also want a larger say in major business decisions and can make it harder to adjust to the evolving business world, such as changing the company direction or moving to less expensive locales.

"Most people treat what they do here as more than just a job," said Larry Clarke, chairman and CEO of Waterford employee-owned engineering firm Sonalysts Inc., which has 400 employees. "It does make us more successful, and it makes people more willing to work together."

Burns & McDonnell, with its size, is the exception in the employee-owned world. Most employee-owned companies are smaller than 500 people; were organized that way either following the exit of the founders or the founders' first generation; and share ownership under employee stock ownership plans, or ESOPs.

They represent a variety of industries but traditionally come from manufacturing, construction and engineering, although professional services such as architecture increasingly are represented.

"One of the big points of emphasis here is when an ESOP is founded, it is more likely to continue the founding family's legacy," said Dave Fitz-Gerald, president of the New England chapter of the ESOP Association.

ESOPs typically are set up as a way to buy out an owner's stock in a private company over a period of time, and the ESOP can own all or a part of the company. Employees become vested in the ESOP after working with a company from a certain number of years — ranging from one to six — and can receive payouts from the program, among other benefits, during employment.

But the major benefit to employees is when they leave the company and cash out their shares. The idea that employees' individual financial future is tied to the success of the company tends to resonant, said Michael Keeling, president of the ESOP Association.

"Employees do things better when there is shared capitalism," Keeling said.

Nearly all employee-owned companies retain hierarchies, Keeling said. There is still a management structure and decisions come from the top down, and not all employees own an equal share in the company.

But because employees have that extra stake in the company, they want more control over how decisions are made, said Bob Reynolds, chief operating officer and co-chief executive officer for Portland packaging manufacturer Standard-Knapp, an employee-owned company of 66 people.

"There is some positive benefit there, but not as much as people think," said Reynolds, whose company has $16 million in revenue this year.

Standard-Knapp's employee ownership is set up differently than an ESOP. Employees pay a certain amount depending on their position to buy part-ownership of the company, and when they retire or quit, they receive a payout based on the value of the company as determined by an independent appraiser. No employee can own more than 10 percent of the company.

"People feel they have a little more control over their destinies," Reynolds said.

Because of the employee ownership, the company stays headquartered in Connecticut, which comes at a cost, Reynolds said. Some of Standard-Knapp's work could be performed elsewhere for cheaper — thus bolstering the company and employee bottom line — but that work stays in state because the employees don't want to marginalize themselves.

But the entrepreneurial spirit that comes with employee ownership benefits the company, too, Reynolds said. Standard Knapp makes its money by creating new products, and employees have extra motivation to innovate for the good of the company and themselves.

Burns & McDonnell has grown exponentially since it developed an ESOP in 1986. The company had 600 employees in 1986 and has more than 3,200 today, with a greatly expanded service portfolio including architecture, transportation management, information technology, and energy services.

Burns & McDonnell employees are driven by opportunities to make profits, as those ventures add direct value to the business and the employees, Williams said.

"Revenue means nothing to us," Williams said. "It's the profits we're after."

This mindset is what turned Burns & McDonnell onto the New England transmission projects in the first place. The company has projected another 20 percent growth for itself over the next five years.

Next up for the Wallingford office of Burns & McDonnell New England is power generation. The company made money with power transmission projects over the past six years, but generating electricity is the next step, Williams said, particularly with natural gas.

Success will come from quality people meeting high expectations. Reflecting on the principles of many employee-owned companies, George said Burns & McDonnell knows potential employees like the idea of ownership, and the company uses the benefit to find the people it wants.

"We attract some of the best minds and people in this industry," George said. "We are very picky about who we hire. We don't just take anybody. We say, 'Is this someone we want to become owners with?' "

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