EP17 Interview with John Burgess What Owners Can Expect After Forming an ESOP

In this podcast episode, ESOP attorney John Burgess returns to share what business owners should anticipate in the months following an ESOP transaction. From governance changes to employee communication and administrative next steps, Burgess offers practical insights to help new ESOP companies navigate the critical post-formation period with confidence.

Transcript

[0:13] Welcome everyone to the journey to an ESOP and Beyond podcasts where we seek to make information about Employee Stock ownership plans accessible and understandable I'm Jason Miller your host today as we fireside chat with John Burgess uh John is an orisa attorney with Jackson Lewis and an ESOP professional extraordinaire uh returning first third appearance here on the podcasts uh 3 yeah guys let me come back it's crazy I I know right uh so we're John we're glad to have you uh and I think today we're we're looking at uh to focus on the time period, just after an ESOP transition um and but before we get started on our topic today you've somehow successfully dodged our question that we have for all guests but, kind of today's your day and you can't hide from us any longer so I do want to ask get it over with what what what's your favorite movie and why.

[1:12] Favorite movie I've got a I've got to go with a hangover Trilogy and probably number 1 is is is the best 1 um is you know I'm a pretty big Vegas fan you know we we go out to conferences there every year and I try to go more than that of course.

[1:29] But I mean it's just it's just funny it's original there's a lot of crazy things going on in there and you know for some reason or another that brand of humor just like hits me the right way so.

[1:39] That's a that's what I'm going withawesome well now we know and fast and and Furious trips to Vegas with a lot of excitement and strange humor sounds a lot like esops sometimes yeah it can be we you know a lot of people don't know that about esops but once they get get into it you know they they learn really fastvery true very true soas we kind of transition into the topic at hand let me let me frame it up some so we we've got listeners that are exploring the idea of an ESOP for their secession and exit plan some may be in the middle of it now uh some have already kind of stepped through the gate uh into ESOP ownership and we we know that these stages and their respective processes have a life of their own take on a life of their own um and have some extra weight to them through the process and gravity if you will and and all that kind of Demands some FocusI think it's hard to think about or even imagine what the next stage or process is like until you're in it and so what I kind of like to do today is give a preview of that time period just after the ESOP is formedand the goal behind it is really to help people prepare for it.

[2:54] Know that they've got some support through it and then allow themselves to focus on whatever part of the journey that they're in right now so for those that are in that post ESOP Wilderness hopefully we can also lay out a little bit of a road map uh for for them to avoid some of the common pitfalls.

[3:12] Yeah exactly and and you know for a lot of the esops that we do it's in a lot of ways of growing up process for the company itself because previously.

[3:21] A lot of our our ESOP companies their family businesses and even though they become very big and very successful family businesses they still kind of been run that way.

[3:30] Now all of a sudden you have an external shareholder who you know is yes is is not taking over like in a hostile sort of way. Um sometimes you know when when you have companies that have private Equity come in or some strategic buyer. The whole process kind of disrupts everything with the company and the way it's operated and sort of the management structure but the ESOP of course there's a lot of continuity which is 1 of the things that people like about it, but at the same time you still have another shareholder to answer to in the form of the ESOP trustee, and so you're going to want to evolve into more of a you know like I said a mature company where you know you have things that we'll talk about things like outside directors, uh board committees and administrative committees too because uh once you do have the ESOP there. And this same thing goes for 401k plan too you know these things are creatures that are living and breathing you need to pay attention to them you can't just kind of leave them off to the side and and just you know hope that things kind of. Keep going properly you know you there there are things you have to pay attention to. Because ultimately I mean we we don't see this a lot but it can happen you know the IRS or the do or even plaintiffs attorneys uh can be looking over your shoulder and that's you know where where we don't want to go so you want to make sure that you're prepared for these things and you are operating in the right way so that you know number 1 it it's obviously much better for the ESOP it avoids possibly a lot of problems down the road both from internal forces and external forces.

[4:57] It's a great point and what 1 of the questions that I think we get most often from uh clients that are exploring the idea of an ESOP is who who is this trustee uh who is this this new shareholder representative uh and how are we going to interact with with them um really what are they there for and John if you could, unpack that a little bit first then we can go through those other layers that that you had mentioned and what what it's going to look like uh after the transaction, yeah so in short the ESOP trustee is really the person who's representing all of the employees of the company who participate in the ESOP so. They are the 1 that you know is essentially the buyer at the end of the day they represent the trust which owns the shares. And so they are you know watching out for the best interests of the employees and that's you know I don't I don't want to go too far down the rabbit hole of erisa fiduciary duties because that's not really what we're here for, but at the end of the day that's what their job is is to be a fiduciary for these employees so the orisa or I'm sorry the ESOP trustee comes in and you know represents the company and or I'm sorry represents the trust trust.

[6:02] In the purchase of of the shares and so once, the dust settles on the transaction the ESOP trustee is the legal owner of the shares not the individual employees which is you know this is a Communications issue more than anything else that you need to get to employees. But at the end of the day the ESOP trustee is the shareholder who owns the shares on behalf of employees, so you know there is a and I'm sure you've talked about this plenty of times on the podcast but there is a process where you go through, and interview ESOP trustees make sure that they're a good fit because there are a number of different you know types of Trustees there are institutional ones there are individual ones. And every situation is going to be different and you've got to find a personality who you work with because ultimately.

[6:44] As you reset goes along this ESOP trustee will be with the with you as things go along and you do have to have a trustee for for an ESOP there's no way around that. Um now as companies start to get a little bit more CH more mature maybe you don't necessarily need the outside trustee but. It's always good to have 1 and you definitely don't want to have 1 in the early years because again there's a big learning curve for you as a Nissan company so having that external voice their, to help you along and and make sure that you know you're aware of the things that you need to be aware of. Is really important so getting an ESOP trustee we do this obviously. In the first part of the process as we're starting to get things together once a company has made the decision that yeah we want to do an ESOP. But that's a very important part of the process that um that you have to really. Make sure you have the right person and you don't want to it's 1 of those decisions where you don't necessarily also want to make the decision based on cost you know there are different costs for different types of Trustees, but in the end I think the most important thing is making sure you have somebody who who has experience who knows what they're doing and is going to be a good fit for you and your company because they are going to be there.

[7:51] That's a great point and the question usually evolves in or evolves into is is that trustee going to come in and tell me how to run the business. No um most trustees are trustees on you know dozens and dozens of plans and they're not coming from your business so they you know they are I don't want to say a passive investor but it's a lot more like a passive investor than anything else you know they um they obviously want to make sure that the the financial fundamentals are strong that the board governance and things like that are strong, but they don't know the nuts and bolts in your business they don't they have a sense of how it works, um because they go through that process as we go through the through the transaction they want to understand how the business runs and how it makes money but ultimately it does not you know. Delve into a level where they know every little detail that that has to go on that's not what their focus is their focus is on kind of the big picture. And guiding the company making sure that you know you have the right people in place for the business to run, and continue to to um be profitable and and ultimately benefit the employees at the end.

[8:56] So 1 1 last question on the trustee and then we're going to move to the the board of directors I think that that's important so um how should a new ESOP company uh I guess what should they expect from communication from the trustee how often should that be what what should they be asking uh how do they I guess how do they develop the partnership together once the the transaction is closed and now they're sitting on the same side of the table interested in the company success, yeah I mean again this is 1 of those things where Like There's No 1 size fits all answer you know I know some trustees are a little more. Um you know a little more frequent in their communication some are a little bit less frequent, but you do want to be checking in because the trustee is going to want to receive financials that you know at least once a year probably much more often than that I would say at least once a quarter just you know for them to be able to keep up on on what's going on with the business. You know trustee is a shareholder and you do have to have shareholder meetings this is just a function of corporate law so they are going to have to be there. But a lot of ESOP companies and I do think this is a good idea they will have their uh their trustee sit in on board meetings so.

[10:05] The trustee is not a member of the board they don't have a vote or anything like that but it's also a good way for the trustee to check in and just you know understand what's going on understand again you know the board focus is much like the trustees Focus which is. More sort of big picture items so it gives them a good opportunity to um to be able to check in on the business understand what's going on, understand you know if there are any issues and if there are ways for them to be able to step in and and you know help help solve that you know maybe um you know the the, the business is you know looking for an additional customer base you know they it's always possible that a trustee may have some connections that they can use to help benefit the business so you should never um never underestimate the ability of a good trustee to be able to help grow the business as well.

[10:48] It's not necessarily part of the job description but it can be a good value add is is you're looking to trustee and who you're going to bring in.

[10:57] So let's pivot to the board of directors and uh in the negotiation leading up to the the ESOP transaction I I've always been an advocate for esops because of what I call imposed governance. Having to have a board be established and then the makeup of that board, uh is dependent on how how 1 May currently exists or who currently makes decisions and then uh the the nature of the transaction whether it's a minority sale or majority sale and what the trustee negotiates for some representation on on the board uh from independent board members um you made a really good comment around uh having the the trustee sit in on board meetings but they are not a member of the board and do not get a vote.

[11:41] Um and that's that's probably the the second most common question in relation to that Dynamic of trustee and board. Um but uh talk about that for for a minute uh just a little bit further, what what would the trustee opine on and what are the voting responsibilities of the board of directors and then we can just keep following down the path of of the board.

[12:04] Yeah so you know when when you look at the structure and how the company is run the trustee let's just assume we've got a 100% esap here for example just to keep it simple. The trustee owns 100% of the shares of the trustee is responsible for electing the board of directors so that's you know that's where the board comes from, now you know when the trustee is looking at a board they obviously don't necessarily want to bring in a bunch of Outsiders especially in the early days of the ESOP who aren't familiar with the business who haven't been running it. And I mean nearly all the time you know the the selling shareholder or shareholders or you know some other insiders are going to have most of the of the board. Because again they're the ones who know the business they know how it's operated for the last you know 10 15 20 30 however many years we're talking about before the esoc came into place.

[12:52] So you know the the trustee really doesn't want to lose that expertise now ultimately things are going to have to evolve and you know you're going to have to bring in some some new leadership and new people along the way But ultimately you know the trustee is going to um also in in at least a a situation where we've got a majority, sometimes even in minority transactions the ESOP trustee is going to want to. Have something in in the uh in the purchase agreement where we do the deal which says that we're going to bring in an outside director meaning that somebody who's not working for the company who hasn't been a service provider of the company like a CPA or an attorney or someone like that. Um so that there is an outside perspective and you know that person that outside board member you know doesn't necessarily have the. You know implicit or explicit conflicts that the um the rest of the board members have. And so that outside board member will do things like gr compensation committee or chair nomination committee which is responsible for all the you know finding new board of directors members. So you know that is part of the process that that goes in and again like I said before it is. For an ESOP company that you know that has been a family run company for for a long time.

[14:03] It is a little bit of a growing up process and so that's you know kind of how companies mature in their governance and so the ESOP is I I like the the term you had it's a it's a forced um. For maturity or forced governance where you've actually got to be paying attention to these things now in doing them in uh in more of an intentional way than maybe you were before when you didn't have to.

[14:25] That's a great point I I think that what would be helpful for our listeners is how how what makes a good board member um and then what what doesn't make a good board member, uh what are some qualities of of each of those that they can be on the lookout for yeah I mean you know good board members.

[14:43] Typically I mean you don't necessarily need to have somebody who knows everything about the business or everything about everything. It's always good to have a good mix of people so somebody you know with for example with an expertise in uh Financial issues somebody who has a really good depth of knowledge in the business is important. Probably somebody with you know. Good sort of sales or or you know marketing experience somebody who has is able to provide input about how is a business going to grow because ultimately you don't want the business to keep growing that's really important you always got to be finding new customers and, and moving along and getting new contracts and depending upon how the business is so that's really a good mix of people um you know insiders to a certain extent obviously are good because they have a lot in the institutional knowledge but again. Outsiders also can provide A New Perspective so.

[15:34] You know 1 of the reasons I think why ESO trustees do want to have an outside board member is you know number 1 obviously we do want an independent voice on theirbut also, independent board members can provide a lot of value because maybe they'll look at a problem or an issue a little bit differently than some of the other insiders who have been looking at it the same way for you know years and years before that. And that strikes war with them I was like oh maybe you have a point here maybe you know we can improve by doing this or or or improving a process in some way. And so that's really good and even you know good outside board members. Sometimes they can drive some business into your into your company you know especially if you have somebody who is within the the industry, who has connections with possible customers of of of your business, you know they've also got a duty to the company once they become a board member so if they can drive business in there I mean that's a real bonus again not necessarily part of the job description but always a good bonus they have so you know that that's a good quality for an inside board or a a you know a good board member inside or outside. You know they have more board members I mean I think you can, get a pretty good sense of what that would be you know people who you know are not taking seriously if we're not preparing for meetings we're not you know they'll board members will always get a package before every board meeting.

[16:51] With things like financials reports from management those types of things and they just you know just kind of. Put it in cruise control almost as as they go through these board meetings those obviously are not the type of people you want to have their I think if you start to interview people and and figure out who's going to be a good candidate and who's not but. Um I always like to have a like I said a mix of people with expertise in different areas because you do want those different perspectives you have a bunch of you know Financial people just on there um who maybe don't know Revenue generation lead generation sales, any of those types of things, um it can almost become an echo chamber and so you're focusing on 1 thing but you may be ignoring some of the other important things that the Board needs to be focused on so um so that's what I would say about you know good and bad board members.

[17:39] I like to share with clients that, the the board is an enhancement to strategy to what you'd said fee find uh something that can enhance the delivery of the company or grow the company or bring a skill set, that isn't currently represented on on the board itself or necessarily in management or leadership where uh they're headed in a certain direction. The keyword there are strategic the board's job is to be strategic and to look forward. And figure out okay you know how is the landscape changing what is the business going to look like and how do we you know how do we adapt to it. So strategy and being able to kind of look into maybe not you know necessarily have a crystal ball but to be able to at least look enough into the future to say okay.

[18:27] Um this is how we need to adjust or or change things in order to keep our business being successful or take it to the next level. I also think that clients as they approached forming the board uh with independent directors um that, uh control is a uh a a. 2 2-edge uh kind of controlling the the board from from a number standpoint having a majority um and inviting an outside perspective can be daunting um and I I I think many tend to how do I meet the qualification of an independent uh board member uh to put forth to the trustee or to the the broader board um and still still have some influence or still have some control over that individual um or who that individual is so that we're we're not disrupted.

[19:33] 1 of the comments that you made earlier around what the benefit of an ESOP is that there there's not the same disruption as changing ownership to another individual or to another company but then we think about inviting these outside parties to the board and I think that that's an area uh of some concern to to many people that are listening and are thinking about an ESOP um. Is where would I go to find individuals like that if I really wanted to strategize around who to put on the board um are there resources that are available uh to help me vet new board members or get a slate and an interview process and items like that.

[20:11] Sure you you know there are a number of ways to to do that number 1 your trustee may have some ideas, uh may have some connections within your business you know as they start to learn about it they you know they are familiar with people with other, you know similar businesses that's 1 way to do it um certainly you need to think about too people who are also you know typically in your industry uh maybe they're sort of in the supply chain or maybe they're an ancillary part of of the the overall. I guess industry you you your business is in. But you know that those are really good places to to do it um there's a an organization called um the I think it's called the.

[20:49] Uh private Directors Association and they actually have a um a a good a lot of good resources on esops they can be a resource for finding board members.

[20:58] I I wouldn't start there where I would really start is again people who you know who you respect in the business and the industry, who you know you think you know if if I have this person I have their advice you know maybe they they would add something and they would add a lot of good good context that as far as being able to you know, see into you know how are how are things you know how are events sort of in the broader world. Affecting their business they take that they take that insight and they bring it into yours and that also helps you so I would I would start there but again there are lots of resources and as you go through the process of interviewing and figuring out who a new um good new board member is.

[21:35] Yeah certainly the trustee is going to be involved in that process because, remember the trustee is the shareholder and they elderly have the right to make the appointment of the person to the board so you do want to you know you do want to bet this with your trustee you know typically when we do interviews of of outside board members the trustee will be in on on that interview along with some of the other board members. And you know usually business owners and and uh board members they've got a pretty good sense of who's going to be good and who's not so it's a pretty rare situation where you bring up somebody in a trustee says Nah not not really sure about that person I mean it does happen. But not too often.

[22:13] And 1 last question might be a sticky question um that that we often get is you know what's how how should we think about uh compensation for an outside board member um and at the early stage of post ESOP and then beyond. Yeah so most board members are just paid on a on a simple retainer basis so they'll you know they'll get a specified dollar amount per year. For being on the board and you know that that number is there's a pretty big range for it based on you know the size of the company the complexity the number of meetings that they have to attend. Um but you trustees will have a pretty good sense of what that market is even if you don't and and I'm sure other resources like private Directors Association would know that so and there there I think there is data I think the nceo might even have some data out there on that um I know they do a bunch of executive comp studies and they may have some information on board members but. Yeah I mean outside board members your idea are compensated.

[23:09] You usually with a 100% ESOP company it's just going to be straight cash compensation you know we're not giving out Equity of the company to uh to outside board members not to say that you can't give them some sort of phantom Equity like SARS. But you you know usually you want to reserve stars for your your employees and your Executives so for most outside board members in an ESOP company it's just a.

[23:31] Cash cash amount every year.

[23:34] So we've talked about the trustee and a lot of thought goes into that prior to the transaction because of their negotiating for the transaction itself and then becoming an ongoing trustee. And then we've just talked about the board of directors that may or may not be in place before but is certainly being thought about and negotiated through uh that's going to survive the the transaction in in the new State uh uh in in the new format uh I'm going to skip over management for for a minute as we we kind of walk walk through the the different pieces and then now. After the transaction takes place and we're we're an ESOPhow do we get people involved and let's talk about committees uh which ones are also negotiated in in the deal um and then which ones are the most important to set up and get started and let's let's just name that and then walk through them. Okay so you usually when we're going through a transaction we're really just talking about board committees now there's a bunch of other things we're going to talk about that aren't necessarily negotiated. But within the board of directors you know I think I already mentioned compensation and nomination committees which you know again we're you know since we have an outside shareholder here in the form of the ESOP trustee.

[24:44] You know most for most ESOP companies pre- ESOP you know the the owners kind of running things they're setting their comp they're setting the comp of their key people, but now we've got an outside um shareholder coming in so we do want to make sure that we have you know some. Uh so I guess some guard rails around that as far as you know the the amount of it and what we're um things like what expenses were reimbursing and and some other things that maybe. You can get away with it when um when it's just you as a shareholder but not So Much Anymore going forward.

[25:15] So we've got we'll usually have a compensation committee set up uh to do that. And our independent board member assuming we have 1 is going to be in charge of that compensation committee so, again that's just to make sure that you know we're we're compensating our officers fairly but at the same time we're not you know overpaying them and taking away value from the ESOP participants. The other committee we usually see is What's called the nomination committee. Which is as people start to roll off the board you know maybe um maybe you have some longtime inside board members who have decided they're ready to retire from the company for good and this you know this can include selling shareholders. We got to replace them we've got to bring a new board member so a nomination committee will also be there to you know again help find good board members, um go through that process and make sure we get the right people in place again and the trustee will will have a a um.

[26:06] A lot of say in in who we appoint, that committee also we like that to be run by an independent director because because again we you know we want to we want to bring in more external influences in the company than we had before so having those committees be um be.

[26:23] Run by independent board members is really the best practice and and trustees especially in a majority deal are going to insist on us doing it that way.

[26:32] So that's that and then you know the other the other committees you know we we like to look at and and none of these are are technically required but I always think they're a good idea. You know 1 is we're going to have a Communications committee which is more along the lines of of it's not a fiduciary function it's not an official function with the plan it's just. Getting the word out to employees making sure that they understand the ESOP they understand how it works they understand how. They can benefit from it and just really you know kind of being a little bit of a cheerleader for for the ESOP which, um which may sound a little corny but I mean it it is really good and they're really successful companies the ones with the really good culture they have committees out there you know.

[27:12] Getting out and making sure people understand that they're having events they're they're making sure that the ESOP is you know big part of what they do as a company it's a big part of their identity is. A company as well sothat's important, and then 1 thing that I like to to do with all of my ESOP companies is set up what's called a fiduciary committee or just an ESOP administrative committee, which is really responsible for overseeing the plan and making sure that it is running properly so the TPA is getting the data that they need they're doing their job properly, um the annual process runs properly um they don't really have a lot of say in the valuation because that's technically a function that the trustee has. But you know they're just making sure that everything is is running there the the people are getting Communications that they need people are getting participant statements out on time. Um and its really you know that's really not a huge time commitment as as you may think it is you know for most companies the ESOP admin committee maybe needs to meet twice a year for you know an hour hour and a half. Um because unlike a 401k plan you know esops really just kind of have 1 annual administrative process that happens you know in the spring and over the summer once the um. What's all the participant data comes in and wants all the valuations come in so it doesn't have to be a heavy lift but it is something that you we want to make sure people are are doing and and um making sure that all the fiduciary functions and the things that they need needs to do from a legal standpoint are getting done.

[28:39] So let's talk a little bit about let's go back to the communications committee um as as a best practice and I think 1 of the the things that most new ESOP companies experience uh is what's occurred over the last 6 months from the individuals that are in the know um whether that's everyone uh or just. Uh ownership and executive leadership and maybe a broader swath of leadership as you get closer and closer to uh to the transaction. Uh and then then it happens and they're super excited because they've just spent you know 6 months a year or whatever however long their process was in in making uh this transition and this transformation happened. Um and now you have the the broader population of employees that are like what what's an Esau, uh and there they're starting from from zero or from some history or from Google uh and there's there's almost like a No Man's Land uh for a period of time after the announcement they're after the communication of of the ESOP to tangibility I think is the word that I'm looking for for for the employees so talk talk about that period of time. And then the communication committee as a tool to help kind of shorten that that period of time and on the the communication commit.

[30:01] Yeah so I think the thing that that new ESOP companies and you know the people who have been involved in the transaction they've been learning about it from you know their advisors and and people who have been helping put the deal together for them. You know they need to think about like how how long does it take them to really wrap their heads around it and understand how it works. Now you're rolling this out to your employees and you say hey this is great but they're also like you said they're starting from zero so it is a long learning curve and you have to go into it understanding that so you have to you have to. Have a committee or you want to have a committee because ultimately I think the most important thing in enrolling the South successfully is consistency. Um it's sometimes it's repeating the same message over and over again sometimes you know maybe you vary it up a little bit but ultimately you know you want to make sure that people are getting information you know you don't want to have them dragging out of a fire hose too much because again it is a lot, but you do want to consistently feed them information. And what all what happens at at the end you know it it is that they are still going to start to get participant statements where it's going to show. This is how many shares are your own account in your account this is how much is vested and this is what it's worth.

[31:12] And so once you get to that point where you're handing out statements to people every year you know you don't want you want you do want there to be some meaning for them and again that's just a matter of doing it rolling it out, um it is good to typically you know have a roll out meeting for instance where you get everybody together and you know you'll have your reset trustee there sometimes you know you'll have your your company attorney maybe you'll have someone like Diana from Birmingham who goes in there and really you bring in the outside perspective from somebody who's not the business owner and, gives a good you know it doesn't have to be any more than an hour presentation where you kind of walk through the basics of it this is what it is. This is how it works this is how you get shares this is how you get vested this is how you get paid out. And so again it's not all going to the light bulbs isn't going to come on right away. But you just start to build that process up and then you have a Communications committee take it from there and you know as. Big things happen throughout the year as your stock price gets released as your your participant statements go out you really use those moments to again make the points about you know this is where we're at this is how it affects you, and so again it's just saying the message over and over again and 1 thing that I will say too for for new ESOP companies.

[32:27] Is that when you go to things like ESOP Association conferences or nceo conferences you know you need to be talking to people from other companies because. A lot of times you're going to find companies that are very similar to yours and they've been in that spot before and they have a really good sense of what works and what doesn't work. And that's really how you figure out what's going to be best for you there's. Always going to be some trial and error some some things are going to work better than others but if you do talk to other ESOP companies you know they're they're always willing to share on these types of things and so, use that experience that other people have gained over the years to your advantage and then I think that'll help your your process go a lot better, and again it's not not going to happen overnight no matter how good of a program you have but you need to be consistent and you need to communicate you know just more than once a year when the um when when the statements come out.

[33:18] So let's talk about what should be communicated uh to to the employees and maybe touch on some topics that shouldn't be communicated to employees soon after the the the transaction uh in in that time frame, understand company is different and the culture is going to be unique to to each particular company um but uh the shoulds and the should might give some of our listeners and idea of where to start.

[33:46] Yeah you know you again you need to really start at a very basic level about you know how you know yes you quote own the company but you don't really own the company and it's important to understand that this official ownership versus right right exactly because a lot of the times you know this is the first question a lot of employees will ask I was like okay great I own the company now you know do I get to vote on on board members or other things like that and the answer is no because again that's that's all in the in the uh in the trustees hand so you need to be very clear about that um go initially is that yes we're we're calling you owners but in reality you know you're just a beneficial owner not a real owner, but at the same time you know part of the cultural thing too is that we want you to think like an owner because all you know this is, 1 day you may not see it right now you may not think it's going to happen anytime soon but 1 day all those Shares are in your or in your account we're going to. Take a value of that and then you're going to receive a retirement benefit or a distribution based on whatever their Shares are worth so you need to be thinking about this from an owner's perspective and understanding that the things that you do you know every day.

[34:54] Are going to affect that share price and It ultimately affect what what you're going to get paid out at so that's an important thing but you don't want to you don't like I said you don't want to overload them with with too much information with too much technical stuff they don't care about the technical stuff they don't care about the tax code limits they don't care about the. Discrimination testing any of that stuff they just want to understand okay how does this help me and how do I get shares in my account, and you leave it at a very basic level there and then you go forward now some companies also even before they were an ESOP you know some of them are a lot more open with open book management than some others are and, you know just having an ESOP doesn't necessarily need to change that I mean in some cases it does serve as a little bit of a an impetus for people to be or or owners to become more open booked and maybe they normally are but again that's that depends on your culture that depends on your employees appetites for things. But uh you know for initially when you when you first start out I wouldn't say you don't really need to change much, um because again you know they're the employees are are not real shareholders so they don't have access to or a right to any of the information that under you know State corporate laws.

[36:06] Sure shareholders are eligible to get but I think is is is Esau companies evolved and things go over time they start to, open things up a little bit more and and and help you know share a little bit more information with employees and maybe the otherwise did before. But you know this is the great thing about this is and I think you know hopefully this has come through to people there's no 1 size fits all solution here, like we say this all the time Jason you've seen 1 Esopus, you've seen 1 es not all the same everybody's different and that's what's cool about it and so you get to customize and and take account of your population and figure out what makes the most sense for them and then go with it and you know try things and if they work keep doing them if they don't then try something else.

[36:51] Very good um I let's talk a little bit about um the the differentroles of.

[37:02] Uh owners and and management we we've mentioned specifically governance roles in the trustee the board of directors and the management and then committee members but this is a both the journey and and a transition, right um and uh that that imposed governance idea uh that we've been talking about with the board and how to utilize the board and thinking ahead and post-transaction um really presents an opportunity for uh selling shareholders um for former owners to still participate and the the overall strategy and you know leave their fingerprints on on the company on a date uh day-to-day basis and then at a at a board level moving ahead to allow them to to transition uh kind of gracefullyum from where where they might be prior to to to afterwards um and so uh talk talk a little bit about what you've seen and the the right timing if there is such a thing as right timing or how other uh selling shareholders have utilized the the board uh to uh to kind of gradually FAA phase themselves into whatever their next chapter is, yeah I mean again 1 of those things where everybody's different, but I think in most cases when when we do the transaction especially where it's a partial transaction where we're not doing 100% of the company.

[38:30] The the ESOP transaction itself is really kind of a kickoff for the owner CEOs succession plan. And moving out of that role and and sometimes they'll move to a part-time role or maybe they'll just move to a role where they're just on the board and they're not. You know working in the in the CEO CEO anymore.

[38:49] Uh but sometimes it's not sometimes they've still got a lot of energy left in them you know some of this depends on their age on sort of what they want to do after they retire if they even do want to retire a lot of them just want to keep going. So but ultimately you know the the board's job is. Once they do have a CEO who decides it's time for me to go or it's time for me to cut back the board's responsible for finding the next person to come in and take over that role so.

[39:14] A lot of the times it's going to be somebody who you've been bringing up through the organization you think they're a good fit for the next CEO and so it's it's nice in that situation because you can kind of have a gradual Handover um where maybe you know the person doesn't necessarily have the CEO CEO role yet or the title but you know they're starting to really um really operate the business and and taking over the the duties of the CEO as the CEO starts to step away. But also don't be a don't be afraid if you don't think you have that person inside the the company to go out and find someone else from the outside. Um and and the board will conduct that process they may bring in a search firm or something like that to help them with with that process. And you know it it does help especially if you're a relatively young ESOP. You know you can find people from other ESOP companies who have you know been in leadership roles and they understand the ESOP they've been around for a long time and so they're not intimidated by the fact that your company. Yeah its ownership structure is a little bit different so um again everybody's got got to have some sort of succession plan in place you know ESOP or non ESOP. Um that's a universal thing that all businesses have to deal with but. With the ESOP company that does buy you some you know maybe not buy you some time I I don't think maybe that's the right word but it does give you the opportunity to start to make that transition in the way that you want to make it, um and then as the former CEO who you know well you kind of steps aside from the CEO duties.

[40:41] They usually will will want to stick around the board for a long time because because. Frequently they've got the the seller notes that are outstanding so they want to make sure that they get those paid off before they officially leave the board and really step away for good. Um but you know again don't hesitate to keep them around like they've still got a lot of institutional knowledge and some of that's going to get transferred to the Next Generation. But sometimes you know having that perspective and and having that history is is a good thing and so you want to make sure to keep that even if it's in a a much more limited role even if if it's not a formal board role but maybe some sort of.

[41:14] Advisory role where they're not a voting board member but you set up something like a board of advisors which, kind of helps the Board and strategy and and insight and things like that so. You know lots lots of ways to do this and and there's no you know there's no right or wrong way which is the beauty of it.

[41:31] I I like to tell clients you should always be thinking about succession with your your leadership team with your core team with all of your pivotal roles and I heard something from someone just just this week um in light of the ESOP transaction you know what what does that mean to everything and the way they put it was that the ESOP transaction is succession at the ownership levelright. And planning around that whether it's short term or long term, we have to consider not just at a role level um and a functional level but at an ownership level what what's your secession plan and how how does this dovetail into what that that could look like and so um that that was as long as I've been doing this that that was very um uh meaningful for me to to hear in that context because we try to convey that all all the time this is a tool that you can use this is your Glide path to an exit um that this is an option for you uh but really it it's succession at at an ownership leveltotallyso.

[42:39] I think um.

[42:44] You'd mentioned already uh if if there's an executive role that that's going to be uh changing that the board at at kind of the sea Suite level would have uh responsibility and influence around that that individualum, and that's going to depend on uh from client to client not necessarily going to happen in that first season of post ESOP uh but they should be thinking about that that that succession in in the future uh and what whatever they need uh for their particular company and then knowing knowing how that that worksumwhat, uh what advice would you give to uh a new board and a a management team a functional management team and their first year what what should they focus on now that they have 1 more thing, to focus on and that 1 more thing being all things ESOP.

[43:44] Yeah so you know number 1 they still need to focus on running the business ultimately the ESOP is not successful if the business is not successful. Um but make sure that you know it any good you know manager any good CEO 1 thing they're really good at is delegating so, delegate this stuff to um you know to a an ESOP administrative committee or a cultural committee.

[44:09] And make sure that you know you have people there who are enthusiastic about it who care who want to be a part of that and and so that'll allow them to to do that obviously, they will you know keep you a prize of things they'll report back up to the board every so often just to make sure everybody is aware of what's going on. But you know as a as a board and as a you know as as an executive team. You you still got a business to run even though you've got a new owner you've got a lot of new things going on and and they're great things they're exciting things I mean nobody's you know saying that esops aren't great. But you know I I think that the most successful is our companies are the ones that still you know figure out what their their Core Business is they know what they do it well they keep doing it well and esops shouldn't change any of that I mean yeah you come in after an ESOP transaction happens and the business is still going to be there the next day, um you're just going to have a little bit of a different structure and maybe you'll have some additional things going on but ultimately you know make sure you've got strong people in place to lead your ESOP to lead your Communications. And let them do it and give them the resources that they need to do it because um.

[45:13] You know it it it does it does cost you know some some money to run an ESOP and to run a Communications committee but the investment is well worth it and you will see the added productivity out of your employees you'll see, you know just uh it's a lot of great stuff all over the place I don't I don't have to go and and tell you about all the studies that there are about how much you know better ESOP companies run on conventional companies, those are out there you just have to make the Investments and um part of leadership too is you know. Letting people go do things giving them responsibility and letting them go with it and running the ESOP is is is 1 of those things. And they're not going to be alone either you know you you still got people like me and you around who are going to help them we don't we don't expect people who are on an ESOP committee or even CEOs of ESOP companies you know everything that that needs to be known about esops. But if you got to go third party administrator if you got good advisors Good attorneys good CPAs. They'll help you through that and you know don't be afraid to ask and don't be afraid to ask people from other companies too right I said that before but it's really something I want to emphasize.

[46:17] Is our companies are really good at sharing stuff that works. Because they don't feel threatened by it and they want to see other you know new ESOP companies succeed too they they you know they they love the concept they're fully bought in on it, and so to the extent that they can help other ESOP companies do great like that makes everybody better and so, um use those resources they're there we want to help others have companies companies want to helpso just use use that stuff.

[46:45] Completely agree and I think that that's uh the hope that I wanted to uh to Foster and to offer to our our audience today and that this this next phase in your ESOP Journey after the transaction that you're not alone um and that there are plenty of resources and people willing to help you to to be successful so John for the bonus round what's the best way for our audience to connect with you.

[47:11] Yeah so um my uh email address John J O hn Burgess Burr GSS at Jacksonville list.com that's my email, um I've also got a profile on LinkedIn which I haven't been paying enough attention to recently so I'm going to have to start getting getting stuff up on there um and uh you can also find me on the Jackson Lewis website my phone number 813-5123 223. Uh but however you want to contact me happy to to help out and if you're looking at a new you know possibly starting an ESOP like I'm happy to take an hour or so and just talk you through it talk you through some of the details how transactions work. Um you know I don't I never Bill people for that type of thing because again I want to want people to be educated and uh you know hopefully the more he stops we can create the better. Um

[47:59] Also I'm uh involved in the uh in the Florida Chapter for the esops association where relatively new we've been around as a separate chapter about 2 years now. And I know we got an event in Naples coming up on September 12th we're looking at a big conference in Tampa in February so, stay tuned for that and uh and I'll if if I don't see if any of those places um it pretty much every Big N CEO event so uh don't don't hesitate to track me down there. And Vegas don't forget and Vegas of course well John thank you for joining today and to our listeners thank you for listening in. Uh please subscribe give us a rating if there's a topic that you want to hear more about connect with us on the website journey to an ESOP calm and submit your topics. Thanks again for joining us today and we'll see you next time.