RE: EFES: FW: ESOPs and Regulation

["Ronald J. Gilbert" <esop@esopservices.com>]

Dan Bell has provided an excellent summary of a complex issue!  I've been
involved with ESOPs for a few more years than Dan, and the majority of ESOPs
in the United States today would not exist if there were more restrictions
that applied to privately held companies.  In fact, many more ESOPs would
exist if it were not for the many complex laws and regulations that apply.
U.S. ESOPs are subject to oversight by the Internal Revenue Service, the
Department of Labor, and for most federal government contractors, the
Defense Contract Audit Agency.

I chair The ESOP Association's subcommittee of the Legislative and
Regulatory Committee.  For over a year and a half we have repeatedly asked
the Department of Labor for more guidance on a number of issues, including
the independence of appraisers, and multi-stage ESOP transactions.  We
initially submitted a much longer list of issues that we requested guidance
on, but hoping to get some direction for the DOL we limited our initial
request to these two areas.  We are still waiting.

To validate Dan's point regarding companies that choose to implement more
democratic practices, I will provide a specific example.  I serve on the
Board of Directors of ComSonics, Inc., a 100% ESOP owned company that will
soon celebrate its 30th ESOP anniversary.  The ComSonics ESOP initial
acquired a small block of stock, and over approximately ten years acquired
100% of the stock.  Employees vote their shares for the election of the
Board of Directors.  The ESOP Communications Committee, which is comprised
of non-management employees, elects their chair, and the chair automatically
becomes a voting member of the ComSonics Board of Directors.  ComSonics has
ten members of the board, four of which are outside directors.  The ESOP was
in existence for about fifteen years before the voting rights of employees
were expanded beyond the seven required "vote pass through" issues that are
a feature in all privately held ESOPs.  Of course, in publicly traded ESOP
companies, employees vote their shares like all public stockholders.


Ron Gilbert


Ronald J. Gilbert
President
ESOP Services, Inc.
251 Albevanna Lane
Scottsville, VA  24590

Phone Number:  (434) 286-3130
Fax Number:  (434) 286-3815
Web Site:  www.esopservices.com

-----Original Message-----
From: owner-efes@cog.kent.edu [mailto:owner-efes@cog.kent.edu]On Behalf
Of Dan Bell
Sent: Monday, April 04, 2005 4:12 PM
To: efes@cog.kent.edu
Subject: Re: EFES: FW: ESOPs and Regulation


Dear Daryl and others on the EFES list,

I think it is best to avoid extremes when it comes to whether or not to
regulate
ESOPs and other forms of employee ownership.

Yes, there should be regulations that set forth a general framework intended
to
protect employees from fraudulent behavior.

At the same time, within that framework, there should be a great deal of
flexibility for each company to develop its own model.

Employee ownership can range from nothing more than a few shares of stock
in a retirement account, to a fully developed democratically owned and
operated
company.

While the democratic enterprise is my preference, it is not a bad thing if
an
employee has shares of stock that he or she might not otherwise receive.

My experience over the past 18 years in working with traditional owners
setting
up ESOPs, is that many of them start out rather conservative, but over time,
discover that building a participative ownership culture makes good business
sense. I would not want to deter conservative traditional owners from
starting
down the path of employee ownership, because they found it too restrictive.

A series of progressive incentives like tax benefits that become more
attractive
as a company chooses to implement more democratic practices is fine.

For example, in the US, if the owner sells less than 30% of the stock to the
ESOP, the owner still has to pay capital gains tax on the sale. This
encourages
many owners to start with a significant transfer of capital, while at the
same
time allowing the original owner to retain a controlling share of the
equity. For
sellers who want to transition out over 5 or 10 years, this allows the
company
to avoid taking on too much debt all at once.

Just a few thoughts.

Cheers,

Dan Bell

At 05:08 PM 4/4/2005 +0100, you wrote:




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