Ohio Employee Ownership CenterO o p oyee O e s p Ce e

Individual Wealth CreationIndividual Wealth Creation Through Employee Ownership

2010 Annual Conference

Akron, OH,April 30, 2010

Anthony Mathews

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Anthony MathewsBeyster Institute, UC San Diego

Where We Thought We Were in 2007…

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After the Façade Came Down…

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2009 Was the New Beginning…

We’re Not in a Hole –The Ground Is Right Here!The Ground Is Right Here!

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It’s Time to Grow A Different Sort of Business

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A Larger Picture A Larger Picture --

A Significant OpportunityA Significant Opportunity

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About 70 percent of the productiveAbout 70 percent of the productive capital in the U. S. is held by private individuals who are nearing retirementindividuals who are nearing retirement.

The public market cannot absorb anywhere near the amount ofanywhere near the amount of investment they represent.

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Who’s Going To Absorb gall that Equity?

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The Traditional Solutions:Family Transfer: As more burden shifts to later generations family business isto later generations, family business is overtaxed – greater burden with fixed resources.

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The Traditional Solutions:M&A: Uncontrolled mergers and acquisitions create ever largeracquisitions create ever larger companies that experience (GM, AIG t ) h tAIG, etc.) shows are not sustainable.

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The Traditional Solutions:Financial Investors: Private Equity, VC etc generally look to “flip” theirVC, etc. generally look to flip their investments, and about 20 percent

f th i b t d f lt ESOPof their buyouts default. ESOP default rate is under 1 percent.

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A Non-Traditional Alternative:Employee Ownership: ESOPs and other EO vehicles have the bestother EO vehicles have the best track record in terms of growth,

fit bilit b fit t th itprofitability, benefit to the community and benefit to the people involved.

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The Billionaire Dilemma…

• It’s Simple:

– Society as a whole is much better served by the creation of 1,000 millionaires than it is by the support of one billionaire (with h lf h t d l i t th T f th ld )half-hearted apologies to the Trumps of the world…).

– Broadening ownership provides a source of wealth other savings and retirements plans are rarely doing these days.

• But is Employee Ownership alone enough?• But is Employee Ownership alone enough?

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Not Really...

Economic SecurityMake a Real Change

F Ch !Liquidity and Asset

P ti

For a Change!

Poverty Education/ Access to Mainstream Financial

Services/ Savings

Acquisition of Capital Assets

Preservation

gMeaningful Employment

Basic Skills Training

Financial Education and CoachingEmployee Owned Companies Contribute to All These Steps.

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From Building Assets While Building Communities, by Heather McCulloch for the Walter and Elise Haas Fund 2006The report can be downloaded at http://www.haassr.org/html/resources_links/index.cfm

And a new young vacuum shall instruct us…

A Brief Parable

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What does the Vacuum Have to do with Us?

Is Employee Ownership Is the End ofp y pMore than a Tactic? ???? Poverty our Real

Objective?

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Sustainability – The Question of the Day

C O C S i ?• Can Our Company Survive?

• Can Our Company Survive as an ESOP Compan ?Company?

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Research is Conclusive and Continuing

• NCEO Studies.

• TEA Surveys of ESOP Companies.

• National Bureau for Economic Research Studies.

• Blasi and Kruse Findings.

Of 100 t di d t d t th lt i• Of over 100 studies done to date, the result is overwhelmingly positive. Equity sharing works!

• FED and EOF Support for New Research.

• More than 20 Universities around the U. S. participating

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in research initiatives.

So, Why Are We Asking the Question?

• The ESOP Capital Structure is clearly as successful a structure within which to operate a business as any other.

• So What is the Issue with Sustainability?So, What is the Issue with Sustainability?

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The Clear Answer:

Th E l O hi M d lThe Employee Ownership ModelIn Whatever Form

Is Sustainable A L A C L d hi iAs Long As Company Leadership is

Committed to Sustaining It!

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The Keys to the Mainstream…y

• Civic Leaders and Framers of Public Policy

• Professors of Law, Business and Entrepreneurship

• Students of Law, Business and Entrepreneurship

• Current Business Leaders and Entrepreneurs

• Advisors to Business Leaders and Entrepreneurs

• Employees of Employee Ownership Companies

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Thank you!Thank you!

Anthony I. Mathews, DirectorBeyster Institute at the Rady School of Management

University of California, San Diego1-858-822-60101-858-822-6010

amathews@ucsd.eduwww.rady.ucsd.edu/beyster/

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