Employee stock ownership plans, or ESOPs, could help serve as a sea wall to the so-called “Silver Tsunami” — a looming wave of retirements that stands to challenge longtime businesses.
But a lack of regulatory guidance from the U.S. Department of Labor creates a “chilling effect” for business owners with potential interest in forming ESOPs, said Daniel Goldstein, CEO and president of Folience, parent company of The Gazette.
Goldstein spoke Wednesday at a U.S. House Small Business Committee hearing in Washington, D.C., testifying as to the benefits of employee ownership and the drawbacks companies can face under a lack of clear federal guidance.
Nearly 2.5 million baby boomer business owners are set to retire over the next 10 years, said Goldstein, who also is a member of the not-for-profit ESOP Association.
If those businesses have no succession plan or qualified buyer, they often must sell to a competitor or private equity group, or close and sell off parts, he said.
On the other hand, Goldstein said these companies can remain afloat by selling to their employees through an ESOP, as was the case with Life Line Emergency Vehicles, of Sumner, Iowa, which Folience acquired in 2017.
“Average employees pay the price when business owners turn away from forming ESOPs because the Department of Labor hasn’t done its job,” Goldstein said in a news release. “Fear of making a misstep because the Department of Labor has not given guidance costs average employees wealth and job security.”
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Goldstein and others who testified want federal lawmakers to regulate “adequate consideration” — or what constitutes fair market value when an ESOP is paying for company stock — an ambiguously defined term that has recurred in ESOP lawsuits federal labor regulators have filed.
ESOP advocates also asked for the employee-owned companies to be included in the U.S. Small Business Administration’s Preferred Lending Program, and for the administration to set up a centralized office with public education efforts about ESOPs.
In concluding the hearing, Rep. Nydia Velazquez, D-N.Y., the committee’s chairwoman, said, “Despite our work in the 115th Congress to address some of the obstacles to employee ownership, it is clear we still have more work to do and progress to achieve. And I heard you loud and clear on the Department of Labor — we’ll be dealing with that issue.”
Goldstein’s testimony can be viewed at https://www.youtube.com/watch?v=Zp_Rn4c31As.
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