Friends:

We have devoted this second issue of the Vermont Employee Owner News to a specific and unusual Vermont  company: Carris Reels. We've included two guest articles from some key Carris employees. Read about how they became employee owned, following a unique path of participation and involvement, and the cutting edge for them today in corporate governance.

We invite your suggests, submissions and photos for future issues. Our next issue will include articles on worker cooperatives and other less common forms of employee ownership, so if you have a story you'd like to tell, please contact us.

Sincerely,

 
Jon Crystal
Executive Director

Employee-Owned Company Profile:
Carris Reels, Inc.


     Carris Reels is a company with a long history which has nonetheless retained a forward-looking perspective and is today among the most innovative Vermont firms with regard to employee involvement. This was recently highlighted by its move, in January 2008, to become 100% employee-owned. While this is relatively rare in itself, in Carris' case it is even more unusual given the extra steps they have taken to empower employees, and to share their profitability with both employees and the community.

Bill Carris and his wife Barbara celebrating the move to 100% ownership

   
    This Rutland-based company, which makes reels for the wire, rope and cable industries, was founded in 1951 and now has branches in seven other states as well as Mexico. It began moving firmly in this direction with the implementation of its ESOP (Employee Stock Ownership Plan) in 1995. Now well over 400 employees are participants in that program.

    From the very beginning its approach was different. Bill Carris, son of the founder and owner at that time, went into planning the approach to employee ownership with two key criteria: he wanted to see a structure of one person/one vote on any major shareholder issues, and wanted to build in a perpetual commitment to donate 7.5% of pre-tax profit to a charitable foundation. These principles were set out in Bill's "Long Term Plan" document which laid the framework for the move to employee ownership. Other key points included a recognition of employees as the "soul of the corporate community" and an explicit commitment to participatory management, including information sharing at all levels. Working within these constraints, he established a diversified steering committee of staff and managers with different tenure in the company, and representing each location (it did NOT include him) to work out the details of this major change.

    Such moves to empower employees have continued. For example, employee-owners at each location have a large say in how the charitable contributions are dispersed each year. They make extensive use of a steering committee (1/3 senior managers, 1/3 site managers, 1/3 employee representatives to recommend changes to the company's governance structures. Currently the company is exploring further ways to involve employees, including granting them the power to select the majority of Board members as well as ESOP trustees.

    Bill Carris' "Long Term Plan" has set in motion a continuing series of innovations at the level of both day-to-day operations and long-term governance.  Carris
Reels is, perhaps, a harbinger of the future: an efficient employee-owned manufacturing operation with a highly participatory business culture that is competing successfully in the global economy and is a good citizen in the communities in which it operates.

Technical Issues:

A Panel of Experts

By David Fitz-Gerald , CPA, MBA, VP, Treasurer and CFO
     Carris Reels

     Carris Reels' ESOP was formed in 1995.  At first, the technical issues seemed overwhelming.  With no previous ESOP experience I attended the National Center for Employee Ownership's Annual Conference in 1994 in Cleveland, Ohio with Bill Carris,owner, and Karin McGrath, HR Director.  After hearing other companies talk about how employee-ownership works for them, and after meeting attorneys, accountants and consultants I was far less worried.
     Also during this conference, we got to attend the home opening night at Jacob's Field and see the first night game at the Cleveland Indians' new stadium - experts in the field!

    Record-keepers
  
    Record-keepers keep track of the shares in each employee owner's account.  A number of companies exhibited at the Cleveland conference in 1994, and one in particular caught my eye.  At Carris Reels, we had used Crowe Chizek's depreciation software  and hence knew their name.  We met, and eventually hired Hugh Reynolds and Ben Wells from Crowe.  Now, most of our recordkeeping work is done by Lori Stuart and Amy Turner in Columbus.  I have always felt that Crowe provided prompt service and exceptional value.  Not only is the service reasonably priced, but the professionals at Crowe know their business, so we don't have to pay them to look it up!
    
    ESOP Attorney
   
    Our ESOP Attorney is Ben Wells, formerly of Crowe Chizek, now with Dinsmore & Shohl in Cincinnati.  At Carris Reels, we have five internal trustees including three non-management employees.  Having spent our fair share on setting the ESOP up initially, the year-to-year maintenance has been much less expensive.  Ben's challenge over the last couple of years has been to explain some complicated legal documents to the trustees as Carris Reels went to 65% employee-owned in 2005 and then to 100% on January 2, 2008.

    Valuation Advisor
   
    One of the most serious duties the trustees of an ESOP have is to hire a valuation advisor, and to review the resulting appraisal in order to then determine the share value of the stock.  Our valuation advisor is Davin Gustafson at Apple Growth Partners in Cleveland.  We can't recommend Dave Gustafson enough.  Dave has done the valuation since the ESOP was formed, and knows the company extremely well.  Sometimes I think he knows us as well after just one day on site as people who are here every day!  Between Dave's interviews and his spreadsheets, he has the valuation "art" down to a "science."  And so, we think Dave's service is a great value!  

    Repurchase Obligation

    One of the risks that was on my mind when the ESOP was formed was that one day the repurchase obligation would grow to such a size that it would create a financial hardship for the company.  At the conferences, repurchase obligation is a frequent discussion topic.  I always come away from these presentations believing that the ultimate "check and balance" is that if the repurchase obligation is growing that means that the company is doing very well.  If the repurchase obligation gets too big and begins to have a detrimental affect on cash flows, that will bring the share value down and hence the repurchase obligation will decrease as well.  Perhaps this is a good problem to have!
     We have used ESOP Economics software to make projections of the repurchase obligation every couple of years.  This past year, we had a formal repurchase obligation study performed by Crowe, using ESOP Economics' software.  We usually find that the easy part is becoming confident that the repurchase obligation will be affordable in the near future.  Longer term projections of the repurchase liability can be much more sensitive to the assumptions.
     We have found that it is helpful to study the repurchase liability internally.  Sometimes it's good to have the experts study it.  For us it has proven to be something that we need to understand, but not something that we need to spend a lot of time worrying about.

    ESOP Summit

    As we approached the date for becoming 100% employee owned, our local auditors and tax advisers at Tyler, Simms & St. Sauveur in Lebanon, New Hampshire recommended that we get all the experts together.  We held the ESOP summit on July 20th.  I can tell you it was one expensive day! There were three lawyers - Bill Carris' attorney, the company's attorney and the ESOP's attorney.  There were two partners from our local CPA firm.  The rest of the attendees included the valuation advisor, the record-keeper, the company's lender, and the company's senior management team.  We think that one day got everybody on the same page.  Everyone left knowing what they needed to do, and when they needed to finish.  And so our big day was relatively peaceful!
    
     Looking back, part of what makes being an ESOP so easy and affordable is working with well qualified experts.  These well qualified experts can be found at the conferences held by the NCEO, The ESOP Association and the Vermont Employee Ownership Center.  Fifteen years later, we're still working with the experts we met at one of these conferences!

Working Together:
Governance at Carris Reels

By Karin McGrath , HR Director, Carris Reels and Cecile G. Betit , Independent Researcher
   

    At Carris the goal of 100% employee ownership is accompanied by the goal of 100% employee governance within our professionally managed company.  When Bill Carris wrote of this in 1994 in the Long Term Plan, there were no models for easy implementation of 100% employee governance.  From the early days of the transition, participation was seen as key to the development of the new governance process.

    The Long Term Plan Steering Committee designed the ESOP and allocation formulas (how shares were distributed) for the employee vote.  Early in the actual transition it was decided that corporate and site managers would join with elected representatives (1 employee rep for every 50 employees at their site) to form the Corporate Steering Committee to steer the process toward the implementation of the Long Term Plan, 100% employee ownership and 100% employee governance.

    With Ownership Associates and their product "Frontiers and Boundaries," the Corporate Steering Committee implemented a decision-making structure that made business decisions transparent and accountable at all levels. Early into the process, Mike Curran (President) recognized the value of adding a reporting mechanism when decisions were made as both educational and informative: a "decision report". The decision report communicates the decision, date of decision, action taken, the 'why' behind a decision, the decision makers, who needs to know about the decision, and the evaluation of the decision. A strength of the system was that when fully implemented, it allowed individual sites and corporate headquarters to see how an individual decision should and would be approached and the time line for evaluating it. Corporate and site governance and the Corporate Steering committees worked to outline the decision-making process within their respective view points.  The first step was "how decisions are currently made." The next step is a continuing one: "how we would like to see decisions made - pushed down into the organization so that they can be made at the level of employee experiences."  

    Through the years, the role of the elected representative has become a more critical one. In recognition of that, it is now a paid role.  Agendas for the Corporate Steering Committee's two meetings annually come up through the system and discussion, decisions and questions from the Committee come back through the representatives who are also members of the site Strategic Planning Committee and Governance Committees.  Presently the Corporate Steering Committee is working on its own strategic plan, clarifying its role and relationship to the Board of Directors and corporate management, as it guides Carris Reels toward the goal of integrating 100% employee governance with 100% employee ownership.