Employee-owned companies – or those majority-owned by employees through a Employee Stock Ownership Plan (ESOP), Profit Sharing Trust or Stock Purchase Plan – barely register as a percentage of all U.S. companies. Many tend to be clustered in consumer-facing market segments (i.e. – supermarkets, fast food), but if you look at the 100 largest (by number of employees) majority employee-owned US companies, there is a fairly diverse industry distribution.
The lack of 100% employee-owned companies counters both the common sense benefits as well as research indicating that employees in such an arrangement work harder and assume more responsibility. Many owners are understandably hesitant because employee-owned companies can be highly leveraged for the first few years and take time to reach profitability, but for those willing to be patient the benefits are tangible.
Consider a UK survey of business owners by the Employee Ownership Associated carried out in 2005 that revealed 72% thought staff worked harder under a co-ownership structure, 81% said they took more responsibility, 49% thought competitiveness was enhanced and 44% confirmed profits were higher. In fact, another UK firm compared the financial performance of employee owned companies with those listed on the London Exchange and found that, since 1992, £100 invested in an index of these companies would have grown to £349 in June 2003; the same £100 invested in an all-share index would only have grown to £161.
While the employee-ownership business model fights to win converts, two local companies that rank on the Top 100 list are demonstrating how to effectively execute this structure: Alion Science and Technology and American Systems.
On September 13th, ExecutiveBiz shined the executive spotlight on Stacy Mendler, Chief Operating Officer at Alion Science and Technology, an employee-owned technology solutions company delivering technical expertise and operational support to the Department of Defense primarily.
The reality is the spotlight has been on Alion quite a bit in 2007, as the Web site press room is so deep with significant news and milestones (after scrolling down for ten minutes I was still in August!) that Alion is not simply a growth story achieved organically and via acquisition (check out Karen Mortenson’s blog post on their recent LogConGroup, Inc. and Anteon acquisitions), but a dynamic success story.
2007 accolades include Washington Technology #2 M&A Deal of the Year, Military Training Technology Top 100, and most recently, a “Contractor of the Year” finalist among companies with annual revenues exceeding $300 million for the 5th Annual Greater Washington Government Contractor Awards. Alas, Alion can’t win them all: it fell just short at the Emmys when it lost out to Jaime Pressly for “Best Supporting Actress in a Comedy Series.”
Alion has grown significantly since its formation in 2002 when roughly 1,600 employees of the IIT Research Institute (IITRI) – founded in 1936 – purchased the majority of assets of IITRI, creating a 100% ESOP-owned company. By the end of last year the company registered over one-half billion in revenue and the employee head count totaled 3,500. Toss in a spate of major acquisitions and you have to believe CFO Jack Hughes is long overdue for a vacation.
Another successful ESOP contractor, American Systems, is on a rapid growth trajectory as well. In his interview with Washington Technology, William Hoover, president and CEO, made clear the path forward involves executing strategic acquisitions and organic growth to push the company beyond mid-tier contractor status. After taking on a lot of debt in the first few years after becoming an employee-owned ESOP in 1997, that debt has now been liquidated and Hoover (interviewed earlier this year by ExecutiveBiz) is positioning the company to grow significantly – with the goal of reaching tier one status (annual revenues exceeding $1B) over the next several years.
All good news for Alion and American Systems employees, who not only contribute to the firms’ success, but own a stake in the fruits of their labor as well.