I don't mean to cast aspersions at Bob or his company, but articles frequently suggest that Bob gave his company away and that's simply inaccurate.
That's not what happens in an ESOP.
What does happen is that (as an account specializing in ESOPs explained it to me) owners sell their companies to employees at "the most boring accounting valuation available."
This does mean that the owners are often leaving significant money on the table. A competitor or investment group might be willing to offer a multiple of that "boring accounting valuation" in order to realize future growth, or recognize the value of eliminating a competitor or keep another company from getting a competitor.
But it's typically far from nothing.
The reason I suspect that Bob's ESOP transaction happened in stages over a 10-year period (from 2010 to 2020) was that companies don't typically have the cash-on-hand to buy out an owner all in one go, even at that lower "boring accounting" valuation.
Don't get me wrong. I think ESOPs are a great tool and should be used more often. I've had the chance to work with several ESOPs, and companies going from family-ownership to ESOP ownership. Employees really do behave differently when they "own" the company and have a direct stake in its future, and ESOPs provide stability and "employee first" thinking that corporate ownership and investment groups simply won't.
Bob absolutely did the right thing and should be commended for it. But it's helpful to accurately understand what actually happens in an ESOP transaction as well.
I won't argue that gifting the company would be innately bad. However, I don't think selling it to the workers is bad either.
I don't agree with the "founders take all" model where risk and initial investment trump all future efforts and contributions. At the same time, there are merits to creating, managing, and sustaining a company which deserves some reward. Selling the company to workers over 10 years at a price they can feasibly afford while still earning good salaries and maintaining good finances seems kind of perfect to me.
I don't know the specifics; perhaps the company had to go into debt and the acquisition was a precarious thing. Regardless, it seems to me that a scenario where the sale is fair to both parties in this way seems ideal. The founder/owner is compensated reasonably and the workers gain agency and control over the capitalization of their own labour.
That's only to say I don't think it would need to be a gift to the workers to still be a virtuous or good thing to do. If it was a gift, great, that's nice that the owner can afford this and the workers get an incredible windfall they can all share in. It doesn't seem innately good because it's a gift, though.
I don't mean to cast aspersions at Bob or his company, but articles frequently suggest that Bob gave his company away and that's simply inaccurate.
That's not what happens in an ESOP.
What does happen is that (as an account specializing in ESOPs explained it to me) owners sell their companies to employees at "the most boring accounting valuation available."
This does mean that the owners are often leaving significant money on the table. A competitor or investment group might be willing to offer a multiple of that "boring accounting valuation" in order to realize future growth, or recognize the value of eliminating a competitor or keep another company from getting a competitor.
But it's typically far from nothing.
The reason I suspect that Bob's ESOP transaction happened in stages over a 10-year period (from 2010 to 2020) was that companies don't typically have the cash-on-hand to buy out an owner all in one go, even at that lower "boring accounting" valuation.
Don't get me wrong. I think ESOPs are a great tool and should be used more often. I've had the chance to work with several ESOPs, and companies going from family-ownership to ESOP ownership. Employees really do behave differently when they "own" the company and have a direct stake in its future, and ESOPs provide stability and "employee first" thinking that corporate ownership and investment groups simply won't.
Bob absolutely did the right thing and should be commended for it. But it's helpful to accurately understand what actually happens in an ESOP transaction as well.