EP25 - The Language of ESOPs

In this episode, Jason tells a campfire story to illustrate the learning process of the ‘ESOP language’ and its importance on your Journey to an ESOP and Beyond. He discusses the importance of language in communication, highlighting its role in conveying ideas and facilitating collaboration.

Transcript

[0:10] Welcome to the journey to an ESOP and Beyond podcasts where we seek to make all things related to Employee Stock ownership plans both understandable and accessibleI'm your host Jason Miller. And thank you for joining me today as we delve into esops and language.

[0:31] I've often thought about all interactions and communication throughout my professional career as a subset of language.

[0:41] Every profession has its ownuh and while we may all be speaking English or Spanish or Russian. Uh there are different dialects and there's very specific regions that have very particular. Uses uh and pronunciations and idioms and and other other elements of language uh that bring additional meaningand when you first started your ESOP journey and were exploring online or you came here you likely heard terms that you had never heard before even though you understood the words that were that were being said.

[1:16] And ESOP in and of themselves have their own dialect their own language and that's spread across different professions that are involved not just in your transaction but also afterwardand communication communicating those uh those key points those principles uh that very specific dialect is it remains important uh not not just for you through your journey to an ESOP but the and beyond for your your employees and the new employee ownersSo today we're going to talk about language in and of itself what what what is a language uh how does 1 learn a a language and what are the stages of that and I want you to parallel yourself uh as I go through these uh and just to um.

[2:12] Jew just to give you a highlight of kind of where where this came from uh for our listeners what I'm what I'm showing is the screenshot of uh my my Duolingo streak uh for for Russian for the last 555 daysso today I've got 3 3 segments of 5 Points that line up really nicely about language um and we're we're going to delve right inso there's I I use language today very specifically rather than communication because Communication in esops uh has has a a a particular meaning as I mentioned when we say communicating your ESOP. Or Communications about ESOP uh it's how are we going to convey what we've learned uh or what you've learned through your ESOP transaction to to your employees as I mentioned a couple of minutes ago and then afterwards when we talk about Communications that's an ongoing uh ever growing ever evolving process uh in in the life of an ESOP company.

[3:19] Uh and their Communications committee that uh that send out Communications to employees about the the value uh of of the plan to to them and what they need to knowand so language. In and of itself uh is super important throughout this this entire process for for you to get your arms around. So let's start breaking it down so the first 5 that I'm going to mention are the 5 components of language and you're going to find yourself in this as as we're talking about itthe first is phenology. So that's sound what does it sound like uh and you're you likely first heard things like uh 10 1042 um and you heard things like inside note and you heard things like ESOP compensation expense or non-cash portion of the ESOP compensation expenseum and how what what is. What are those uh and you're likely starting to form those uh and repeat them back and that goes directly into the second part of the components of language which is phenology which is sound. Where how do you say how do you say it um.

[4:40] Sorry uh morphology is word formation so getting comfortable with the terms umand then after being able to repeat it back. That third component of language is semantics and that's meaning what does it mean what is what is a 1042 meuh and that opens up a whole another can of worms uh so so to speak and we we have a number of different episodes that Philip has done on on this very podcast on 1042 with some great guests that I'd encourage you to check out. I always found the word semantics umuh interesting uh because when.

[5:20] Sometimes you hear it in a way that after a long long explanation or uh someone's trying to convey a very very difficult topic um or they're agreeing without. Agreeing or disagreeing without agreeing uh and they say it's just it's just semantics uh semantics as a component of language is the actual meaning of of the word and so when when that becomes something that's flippant uh they're they're basically saying that's just what it means uh and that that that may not be a great thing. Uh in depending on what the subject matter isso the fourth stage or the fourth component of of language is syntax. This is grammar and sentence structure and you know for a long period of time. Um you know the the idea of Grammar Nazis uh it shows up on online and. How are you formulating sentences um the English language is a very particular and I've I've readThere is a very distinct order.

[6:29] Of how you ascribe adjectives uh in front of a noun that's natural to a native English speakersand if you think about. The the words of uh color and and size uh and um you know there there's there's a whole list of those and and inherently native English speakers know which order to put those in for it to make sense and and they they do it just just naturally uh in in that sentence structure. And if they don't it sounds strange so you know the the the the big wide Green Building makes sense other where the green wide big building sounds a little awkward. And that syntax. Uh can evolve oh over time to to be more in line with the language that you're speakingand then finally the fifth component of language is is pragmatics this is the key part of why I wanted to share. Uh esops and language so pragmatics means language in context.

[7:37] My my team probably gets really tired of me always saying what what's the context or we have to build context or we have to uh help. Uh speak to or from contextand it's it's a common word for for me in my interactions with with you with with clients and and with my team what what's the context we want to know what we're saying uh not just has meaning and it doesn't just make sense but it makes sense in light of uh and that's. Really important and and ESOP transaction and it's really important even afterward as an ESOP company. We get questions all the time around oh well after afterwards uh what should we do with uh if we we feel like we're we're doing great and we have excess cash what what what do we do with thatuh and ha how how do we deploy it we can can we do a b or c with with that what's the best useand. My answer usually is my favorite Banker answer and many of you have heard that from me before which is it it depends.

[8:55] And the reason it depends is and what it depends on really is the context of the situation if you can spell out here is where we are this is what we are are thinking about doing with our excess cash at this point in time for these reasonsuh then it. It allows you to make a decision with confidence in contextwithout that. Anything that anyone says to you or perhaps anything that you would say in that scenario without without that that context uh is is just words or it's just the decision made in a vacuum and the these componentsof language are really vital for you to evaluate where where am I with this have I heard this term before as an adviser speaking is my banker is speaking is my my legal counsel is speaking and they say something what what what really are they saying. And I would encourage you as you uh continue on this journey.

[10:02] My other uh largest encouragement for you is to be curious remain curious. And get the answers to your questions because the the semantics uh and the pragmatics uh the the context of anything that is said in an ESOP transaction matter to you and that allows you to. Bring it into your decision making into your uh into your context and then allow you to relay that back to the the individuals that are helping you uh through through this this process.

[10:45] So the next 5 are the 5 stages of language learning so we've talked about the components of language and kind of what but they what they mean and then now we're going to how how are you learning this what what are where are you on the scale of fluency uh for for the ESOP language. And the first 1 is silent and receptive.

[11:11] The second is early word productionthe third is speech emergence.

[11:21] And thenthe fourth is intermediate fluency and the fifth is Advanced fluency.

[11:28] And I know I went through those very quickly um. And I'll repeat them very I'll repeat them and then I'm going to illustrate that uh with a reference to a movie um. So again silent and receptive early word production speech emergence. Intermediate fluency and advanced fluencyand there's no better way for uh me to convey what this looks like in practicality than to refer to uh the the 90s movie The 13th Warrior that starred Antonio Banderas if you've seen the movie before you can probably imagine the the scene that that I'm about to describe and and reference so the the setup of the of this particular.

[12:16] A movie uh it it's a retelling of the Bao wolf Legend. And in the beginning uh that this Norse like culture it has a a visitor and Ambassador that is sent from an Arab country uh Middle Eastern country um and in in the midst of 1 of these celebrations they talk about this great evil um and they they. 13 warriors get selected by by a prophet or or whatever she she may be and the 13th Warrior is the Arab Ambassador but he doesn't understand any of the language uh that the the other 12 and their their community that their their culture is speakingum and he he has to go or there there won't be success I think is the way that that that it pans out but they have a long journey ahead of them and all 13 of them are on this journey and there's a scene that takes place over a couple of minutes and I'll never forget it.

[13:19] They're sitting around the evening and a campfire and evening after evening it changes and uh they're they're speaking that their particular language and I I don't know what it is it may be you know some some Norse uh dialect and um. The it's from the perspective of Antonio Banderas who's sitting there and so obviously the audience. Probably doesn't speak it and then it moves on to another scene where or another cut to another day another evening around the campfire and he's listening.

[13:55] So this is the silent and receptive piece of the stages of of language learning. And then you can see his eyes narrow and then they keep speaking and then an English word pops up uh to convey to the audience that he's starting to understand what what they're saying uh and his lips don't quite move but I think you you want them to as he's trying to to kind of reproduce the wordsum and then it kind of Skips over this this speech emergence and they cut to another fire campfire scene and there's more English words and then they cut to another campfire scene and there's a uh he he understands the entirety of the of the conversation uh what they're saying and 1 of them hurls kind of an insult to him and they all kind of laugh uh and then I would say that he jumps through and intermediate fluency to Advanced fluency uh because he he well he responds slowly.

[14:51] Uh he responds deliberately and Returns the insult with with anotheruh and the uh the person who who first through the first Barb says how how did you how did you learn our language and he he rushes at him and uh he wants to get confrontational and the Antonio Mer's character says. I listened.

[15:19] And then the rest of the interaction within that group for for the entirety of of the movie is obviously an English which uh is supposed to imitate that it's there um that their particular language and so he got to Advanced fluency very quickly. And the speed at whichuh he got caught up.

[15:40] Uh was probably incubated and necessitated by the emergency of of of his mission of his quest. And uh you hopefully have have time or have built time into your your process and into your journey uh to learn the language of of esops.

[16:03] On a a longer Pace that isn't so emergent um but I do hope that you are picking up.

[16:12] More and more every time you listen to us every time that you you read a white paper every time you do some research uh and every time that you you interact with with your other professionals that you've chosen to sit at your table uh for your your ESOP Journey1 other thing that I want to say about dialects uh and ESOP as a dialect and why that's important um I remember as as a banker clients would often ask um you know why why why should we work with your your team. Um you know why why would we need to consider um you know what what's what's the benefit of doing that and I would often say that we we were translators so we. Understand and speak the language of of creditum of loans.

[17:00] Uh and also we speak the language of esops so that when we're communicating internally uh with with decision makers around funding your ESOP transaction or helping to uh provide some financing for for an ESOP company later in and it's uh in its life cycle that we can accurately uh conveywhat repurchase obligation is and what the relevance of that is in in a trance an initial transaction compared to a maturity sub company that's 20 or 30 years old and are facing different circumstances related to repurchase obligations and.

[17:43] Communicating those details to uh other people that are making decisions or are doing things um for you and for your company is is a a very. Great asset and it doesn't just apply to to Bankers but also to your legal counsel you may have a great corporate attorneyum and their specialty has been in helping you with organizing your company and providing advice and and the standard business practices that you need a corporate attorney for on retainerum but if they can't spell odisha. Um that that that particular attorney may not be the right 1 to to choose to help generate the documents required for the plan in your ESOP journey and they're going to work alongside each other it's not a replacement you just need an interpreter or a translator that that understands the dialect of esops and that as well and your TPA when we think about your 401k uh third party administrator today uh do you do they understand the the language of esops as it relates to the compliance and the the needs uh for the the allocation under the plan and to administer the uh the ESOP and or the 401K.

[19:06] It is absolutely vitaluh that your professionals and who who you choose again to sit at your table can can speak the language.

[19:18] I thought just occurred to me in that um how do you how do you evaluate. Who who to do that is it just that they their ESOP professionals is it just that they have an ESOP. Division is it uh just uh you know the guy that I heard on on a podcast uh that that talked about this um.

[19:38] And the understanding of of esops itself is is really importantum. But it's also vital for you when you're choosing your providers that they understand where your company isuh. And it's it's it's own life cycle and what this transaction is bringing what changes this the the potential transaction is bringing to you uh and I go back to to Bankers again my my career has been mainly in banking um and I think about the life cycle of a company and the the changes that occur and how you interact with a banking team depending on the the size of your company and the growth of your company and the industry that that you're in and when you're first starting out. Uh you're you're not going to need a corporate Bankeruh but you do need someone who understands the struggles of of uh running a small business and are able to help with uh those particular products and advice to get you the the loans that you need or the services that you need at that juncture and as you grow you're just like your company evolves your needs evolve.

[20:53] Andnot every it's unlikely uh as you grow from a small business to a a 7-figure business to a 10-figure business to a 9-figure business uh that your your Banker is going to follow you from day 1 to uh day x whatever that might be um as as your your company grows you're going to need you're going to have different needsfrom that professional. Uh and they have to understand where you are on that curve and again for for Bankers its kind of delineated by by size and complexity of company um and I think a lot of you as successful business owners know when you've outgrown a provider. And uh I just want to say that it's okay it it's actually a great thing that you outgrow your providers and they're going to change from when you start uh as you you move to to finish or continue in your and Beyond uh you know after an ESOP transaction or or or after a change of ownership.

[21:59] But it is crucial that you have the the rightpeople in that seat and then that they also have a team or an understanding of an ESOP specifically as you're entertaining in any subtraction because things change uh and if you know the rules of the game and you've heard me say this before if you know the rules of the game then you know better how to play. And you need the team that can speak to that level of fluency in their own language whether it's banking or legal or you know the third party Administration or your accountantum. And this is an opportunity as you're thinking about an exit to explore um with your current providers the the depth of of their teams um and you know or are they going to be in in the right place and how do you need to supplement that to to honor your relationships because I believe that that's really important too. So we get to our third set of 5 for our our 555 today of language in esops.

[23:09] How do how do you how do you learn this this language how do you how do you pick up. This uh this vernacular how how can you uh get from from just word formation or phonetics to word formation to pragmatics to be able to use it in contextuh. So that when you're sitting around a campfire. Uh and people are saying things that you not only understand but can participate in in the conversation with them because you are the most important person at the table.

[23:45] Your voice matters more than anyone else at at the table.

[23:54] And that should be honored.

[23:59] So how how do you improve your your voice and participate in this this particular language of esopsthe first is to set a clear and personal goal.

[24:10] I would like to understand more about. And friend you're in a great place we are very grateful that you've been listening into the podcast we have a lot of resources here for you to go back to listen and re-listen to. Um

[24:26] But you get to set your goal of I really need to understand this topic I really need to understand this terminology.

[24:36] Second is choose the right learning environment and again this is 1 way to learn uhand there are other ways. That may be more applicable to you rather than watching or listening uh it it may be going to conferences before uh a a transaction so that you can listen to others that have been in your shoes uh that you can meet people uh in a a place that is conducive to learning about esops and I would encourage you to do that through the ESOP Association the national Center for employee ownership uh or ask. Um and and just just look for for those but your right learning environment may be different than someone else's um but think about what's right for you to learn this this language.

[25:28] Third is immerse yourself in the language uh just like Antonio Banderas was in the The 13th Warrior um had to sit around that that campfire with those uh those other gentlemen. To have those other Warriors um you know there's no better way than to immerse yourself in that and uh the the ways that that you can pick that up there are a lot of Publications that are relatively inexpensive uh through through the nceo Google can sometimes be your friend I know you often hear me say uh you know Google is is not your friend but it is um or or chat GPT whatever you can take uh take some time expend some effort in immersing yourself in into the ESOP world into the ESOP language.

[26:13] And this is probably the most important and I hope that it's 1 of the most helpful things about what we do here and that's build consistency into your routine. However you've chosen to learnand whatever ways that you can immerse yourself into the ESOP language the next is being consistent. And we are making a concerted effort to uh to keep up with our our content release on on a weekly schedule and a and a Cadence so that you always have something new uh to listen into as you run or as you drive or as you sit in your office or you sit at home and think and contemplate about whether or not uh an ESOP is right for you or if you're on the other side of of the transaction and go I I really hope that I can pick up something to today from from Jason and McKenzie and Philip um but do it consistently and then we're going to do our part uh to to remain consistent and help you in that.

[27:09] And fifth is celebrate your your progress and stay inspired.

[27:17] When you hear terms or when you come here and we start talking about a particular topic uh and you're like I know that I I read about that um it is a great way for you to celebrate what you've already learned and how far you've come from the first time that that you heard something really strange about repurchase obligations and 1042 and inside notes and note flips and uh all all of those particulars and I hope that those little moments of going I got it um or I get more of it uh help you to stay inspired.

[27:54] And it should be an inspiring Journeyfor youboth. Up to and afterward and I applaud all of you each of youuh for considering an employee ownership exit. For yourself or transition it's not always an exit it doesn't always have to be um but. That that is an an inspirational and aspirational. Way to consider the Legacy and culture that you've built um and you know I I applaud you for this journey that you're on and grateful to be a part of it.

[28:38] Soin conclusion today. Um I hope that you found this helpful I hope that there was something that you could take away from to today's topic that allows you uh to celebrate. Your progress on your your journey to an ESOP and Beyond. So thank you again uh like subscribe. Share this podcast episode with a friend interact with us at journey to an ESOP calm I would love to hear from you what you want to hear from us. To help you further on your journey thank you and I'll see you next time.