Welcome to Employee Ownership! (Without the Hype)

Hello everyone. Welcome to the 21 Hats podcast. I'm your host, Lauren Feldman. This week we dig into employee ownership with two people who've lived it. Chris Maynard and Justin Jordan of Cathedral Holdings, a 100% employeeowned [music] ESOP since 2011. Chris and Justin are enthusiastic proponents of [music] ESOPS, but they're also candid about what can go wrong. Yes, ESOPs come with big tax advantages, but the transaction can be complex. [music] The debt can fundamentally change the risk profile of a business. And perhaps the most underdis discussed challenge of all, not all employees embrace employee ownership. Some see it as little more than a glorified retirement plan. And here's the thing, ESOPs can be a far riskier retirement plan than many understand. They differ from 401ks in [music] that there's no regulation requiring an ESOP to sequester its employees retirement funds. If the company fails, and like all businesses, ESOPs do fail, those nest eggs can vanish. Chris and Justin [music] explain how they've addressed these issues and what they might do differently if they were starting over. They also emphasize [music] an important point. Not all ESOPs are created equal. If you've seen one esop, Justin likes to say, you've seen one esop. Even in good times, owning and running a business can be a lonely pursuit. Our hope is that these weekly conversations will let owners know they are not alone in facing challenges. [music] In fact, that's the whole idea behind the 21 Hats community, engaging with other owners to [music] get the kinds of insight only another owner can offer. If you're interested in learning more, you can sign up for the Morning Report newsletter, [music] which offers examples every day of owners confronting challenges and seizing opportunities. Just search the 21 Hats Morning [music] Report to subscribe. Joining me this week on the podcast are special guests [music] Chris Maynard, who is co-founder and executive chairman of Cathedral Holdings, a chemical distribution company based near Atlanta, and Justin Jordan, who is CEO of Cathedral Holdings. The episode is titled Welcome [music] to Employee Ownership Without the Hype. Welcome Chris and Justin. It's great to have you here. As you may know, I've had a number of guests on this podcast who I think it's fair to say have been somewhat skeptical about ESOPS. Uh these are not people who've actually done it. They're people who've been thinking about it and trying to get their arms around it and have various concerns. I wanted to try to raise those concerns with the two of you because my understanding is that you've been quite pleased with your ESOP experience. Is that correct, Chris? >> Uh, for sure. Yeah. I mean, we instituted our ESOP in 2011. I guess we're you know, 15 years in now. And uh, you know, I still think as a selling shareholder, it was one of the best decisions I ever made. Um, you know, not just for myself, but more importantly, I think for the sake of our employee owners and the future of what I believe is a great business that we intend to last for many decades. So, Well, I love it. >> That's great. Uh, so first, let's be clear about your roles. Chris, you're one of the co-founders of, uh, I think when you started the ESOP, you were Essential Ingredients. Is that still the ESOP or is it Cathedral Holdings? >> At the time of the transaction, we were just Essential Ingredients, a wholesale chemical distribution company primarily supplying ingredients to the personal care market. Uh since that time uh I guess in about 2019 uh we rolled up a holding company called Cathedral Holdings and at the same time we launched Cathedral we we elevated the ESOP to the holding company uh to give us an opportunity to start uh really new business verticals penetrating different markets you know throughout North America. >> So you were part of the co-founder group that decided to to sell to the ESOP. You were CEO at the time, I believe. After many years, uh you eventually kicked yourself upstairs to chairman. Is that right? >> In fact, at the time of the transaction, we didn't have a CEO. We had uh you know, we had three selling shareholders. Justin was also what we called the office of the president. Uh so we were really the executives at the time. But you're right, since then um I assumed the executive chairman position in 2022 when Justin assumed the CEO position uh after serving as our chief operating officer general manager um you know for two decades. >> So Justin you came in to the company uh before the ESOP. I did and I I joined the company in 2004 which was seven years prior to these >> and as essentially chief operating officer or president as Chris just said >> it was in essence the chief operating officer >> and since Chris became executive chairman you've been the CEO >> that's correct >> can you give us a sense of the size of the business uh employees revenue >> sure uh this year our plan is to do about 200 topline 200 million and we have 120 employees Great. You hear a lot of things when you're talking about ESOPS. Uh, one of the expectations owners who are considering this have is that it will improve the performance of their business both because employees are going to be more engaged and thus perform better and because people just like dealing with employee owned businesses. So, it it generates a certain amount of goodwill and uh good PR. You're a B2B business. I don't know if that that's as big a deal for you in terms of people liking to deal with employee owned businesses, but what has been the case for you guys? Do you think it has made you a better performing business? >> Let me take you back to 2011. At the time of our transaction, at that time, we were a just under a $60 million business with 46 employees. So, over the course of those 15 years, we we've had decent growth. And uh to the question about whether or not people enjoy dealing with an employee owned business, I think most of us appreciate the fact that we're we're when we engage another business, we're looking to have a conversation with somebody who has the ability to uh make an impact, make a decision, to care well for us, to advocate on our behalf. And when you're talking to an owner, whether that owner is an account manager, that that owner works in logistics or customer care, knowing somebody that has an understanding of the business is we always want to do it. >> Yeah. I would say just on the heels of that, Lauren, too, that I think people enjoy doing business with really good companies and I do happen to believe that employee owned companies that are run well are really good companies. Um, some of it is that employee engagement. Some of it is the retention that we have because we don't tend to lose many people. You know, a lot of that has to do with the culture that we propagate as an employee owned company and uh, you know, our core purpose and our values. So, again, I think companies enjoy doing business with great companies. That said, Chris, if I recall correctly, you did have an issue shortly after you sold to the ESOP and and I only know this because you you shared it publicly previously. Uh I think your business did suffer for a while and if I remember correctly, you even had to kick some money back into the business. Am I right about that? >> You had to bring that up, didn't you, Lauren? >> Yes, I did. [laughter] Yeah, I I we we entered what right after the transaction really what we uh affectionately call Death Valley and uh for whatever reason uh you know in the fall of 2011 we hit a bit of a drought uh you know in terms of uh sales and performance and for the first time in our lives we were under bank covenants. We had taken some level of debt uh for the transaction. We sell our financed a good amount of it, too. But, you know, I I found myself starting to really perform differently and run the company differently than we had previously. You know, one of the reasons we didn't sell to an outside suit or a a competitor or a private equity or anything like that was because, you know, I never wanted the numbers to determine how we behaved. But I found myself doing the exact thing that I didn't want uh, you know, if a private equity owned company or a competitor had bought us. I was micromanaging our sales team, you know, nagging them about closing business and orders and I remember distinctly sitting in front of our banker uh one morning. We had a monthly meeting and and we had failed covenants. Um and he looked across the table at me and he said, "Chris, what keeps you up at night?" And I I said, "Are you kidding me?" [laughter] I said, "Every time I close my eyes, I see your face." And you know, I just it was this haunting feeling. And you're right. And my partners and I got together and I just said, "Guys, listen. I can't live like this. I don't think it's good for me. It's not good for our business. You know, let's kick some money back uh to the bank, get outside of these covenants, and get back to doing business the way we've always done it. And we did that. And once that pressure was off of us, you know, we're back off to the races again. >> Did you think there was any possibility that going ESOP was responsible for the the decline in performance or was that just a coincidence? I think there was a there was a level of um you know probably disengagement from us as selling shareholders and senior leadership in terms of uh you know a distraction you know for six or eight months nine months of that year uh you know really being heads down on you know trying to get a pretty complex uh transaction done. Uh, so there was an element of that. I think Lauren, I think some of it was there was a bit of bad luck, you know, in terms of timing, but I think the important thing is that, you know, we recognized some of our mistakes, I think, and we had the wherewithal to get out from under a rock and get back to doing what we do. >> Lauren, let me let me contribute a little bit to that, >> please. If you can imagine a business that had run for decades without debt, uh we've had small revolver debt up until 2011, but in essence, no debt. I think no covenants, no debt. All of a sudden, you leverage 100% of your business, 100% everything. It changes the way you think. It changes the way you you you run the business, how you manage the business, manage people. the pressure that that debt brings, it's no surprise to any will change the way you behave. And that I think is as much as anything contributed uh along with what Chris shared. So we closed in August, but the month of September and the month of October was one of those odd arrangements where the market was weak. We didn't have the type of revenue we typically were accustomed to. That just happened to span two quarters. two quarters where we held covenants and uh we're off to the races with conversations with bankers. What started with a quarterly review became a monthly review became a weekly review to almost a daily. How are we going to change this? Uh and that's where the generosity of the reselling shareholders allowed us to reset. when they brought uh a portion of their closing assets which were pledged dollars back, it allowed us to take leverage which for us our senior leverage was four times even. We dropped that down to three and all of a sudden we're off to the races. It changed everything. Debt is the issue >> and that's a necessary part of most ESOP uh arrangements. Are you aware that this has happened to other companies? I've never talked to anybody that kind of ran into the same uh situation we did. Lauren, I think if I had it could go back in time. Uh you know, obviously we wouldn't have borrowed as much from from the bank as we uh we did. You know, a lot of selling shareholders will uh do 100% seller financing so they don't ever feel that pressure. Um you know, any pressure they feel is self-inflicted, you know. So again, going back in time, I would have we would have seller financed a bit more than we did keep us out from under any kind of covenants. Um, and that would be probably my recommendation if somebody asked me that question going forward. >> Were your employees aware of what was going on during that difficult period? >> No. I mean, at the time, uh, I didn't know what the great game of business was or what open book management was. Um, and when I talked to a lot of selling shareholders these days that are on the front end of a of contemplating an ESOP, you know, one of my regrets just strictly out of ignorance. I, you know, we didn't know what that tool was or what that system looked like. Um, but I believe, you know, when we integrated that into our into our game plan in 2015, uh, you know, opening up the books and involving our people in in learning what it looks like to be an employee owner, just the educational part of that was, uh, really quite a revelation. So, you know, when folks are asking me, you know, what would you have done differently? Uh, you know, one of those things I would have rolled out the great game of business, you know, at the exact same time we rolled out the ESOP. For those who don't know, that's the idea of open book management where you share the financial performance of the business with employees. Obviously, it's important to train those employees so they can read the numbers, know what they mean, and and make sense of them. And that did make a big difference for you. >> I'd say it made a huge difference for us, and I know it made a huge difference for me personally. I mean, so, you know, when I think back on that fall of 2011, uh, I mean, the fact that our employees had no idea, you know, that, um, you know, I was experiencing these kind of pressures, you know, we were keeping that on a, you know, in a secret vault, you know, at the same time, my behavior is changing. They probably noticed something, but there was no correlation to uh, because we had never shared at all, you know, what the finances of the operation were. I I've spoken to uh some owners and also employees of ESOPS uh who along these lines have raised the issue of are are they really employee owners? And I guess I would ask you to think back to that period before you opened the books. Did their lives change in any material way at that point or was it really that they got a retirement plan? >> I'd say their lives changed in one way. They didn't get a big Christmas bonus every year. [laughter] You know, you know, previous to the ESOP, we had a profit sharing plan and uh, you know, me and my partners would get together and we would, you know, we would just, we called it our Santa Claus bonus in retrospect. You know, we would hand out cash, you know, based on the profitability of the business. And the, again, the folks didn't know if we had a great year or a bad year until they got their Christmas bonus. When we rolled out the ESOP, we decided to replace the profit sharing program with uh, you know, with the ESOP. Essentially, we maintained our 401k and the matching program, but for those first couple years, you know, and we had a few folks that are like no Christmas bonus and uh we gave a little bit of money, but it was nothing like we had been given previously in l of the estop. So Justin's got a fun story about that actually. >> Yeah. >> What's that Justin? >> Prior to 2011, as Chris said, we had a profit share program that that generally contributed about 10% of your pay into the 401k. you could see that deposit every year. Let's just say you were making $30,000 a year at that time. You're expecting every year you're seeing about $3,000 contributed to the 401k. So, we do our transaction in August. Our share price at the end of the year when we're 100% leveraged up is uh just got $2.30 a share and this individual gets 100 shares. So, they get a statement at the end of that year that says, "All right, you've got a share price of 230. You got a 100 shares. That equates to, wow, $230. You told me, Justin, this was a good deal. Last year, I got 3,000. This year I've got [laughter] real slow. Help me understand." And I explained, just like when you buy a house, you buy $100,000 house, you put 30% down or whatever. You still have a $100,000 house, but you don't have that much equity and you don't have as much equity in the share, but it will continue to appreciate over time. Give it time as we pay off our debt. Next year rolls around, our stock price goes from 230 to call it 450 or an annual statement shows you just uh you get $900 contributed this year. Now you're your 230 now is also worth uh $900. So, combined over two years, you've got $1,800 compared to the $6,000 you were expecting the year before uh before the ESO. Now, year three rolls around. Now, we've figured it out. Now, we're actually starting to think and operate like owners. Our share price pops from 450 to call it. Now I've got that same group of people lined up outside of my office saying, "Help me explain what I have to do in order to make sure that happens again next year." [laughter] It it was great. The fourth year, I had a member who was part of our our committee that that oversaw the ESOP, our employee committee, and she comes to me and says, "Justin, this just isn't right. I'm I'm looking at my statement. It can't be right." And I said, "Well, help me understand, Michelle, why it's not right." Well, I've been in the 401k for 10 years and I have this much in my balance. If I'm to believe this statement, in four years, I have more than Esau than I had years worth of of effort in the 401k. I said, "Welcome to the ocean." [laughter] It was more where that came from. It was great. That preceded our our open books. Now we really have a group of people that want to understand what can I do to contribute. >> That still brings me back kind of to the same question, Justin. Those those people you just described, do you think they were looking at this as an enhanced retirement plan once they realized how enhanced it was? Uh or did they feel like they were part owners of the company? >> I'd say both. I think uh clearly they're looking at and comparing one retirement plan 401k to their ESO plan. They're they're clearly comparing that and they're thinking that way. But when they ask you that question, what can I do to help improve the value of the business? They're starting to think like an owner and in very engaged. >> Yeah. And again, Lauren, until we it was just a faulty expectation, you know, for us to expect our people to start thinking and acting like owners before we gave them any education whatsoever on, you know, how to read a P&L, you know, what does a balance sheet look like? Um, how do we make money around here? How do we lose money? You know, so it was an unfair expectation for us to even consider them to think like an an employee owner until we gave them the tools to be able to do that. One of the things I've heard from owners is that when they discuss this possibility with employees, they hear from some employees and and this it sounds like it could have been the situation for you. They hear, "But wait a second, I'm going to get my reward in retirement. I need the money now." And that's the situation your employees were in initially where they were looking at giving up a profit sharing plan that g put money in their pockets every year. and instead getting the money down the road in retirement. How do you think about that? >> Well, Lauren, the the profit share program was a contribution into their 401k. Okay. So being deposited into a retirement >> but um what I'd tell you is you you really have highlighted at least in our situation where there is a dilemma and the dilemma is are we caring for our employees at a level that uh they can really sustain themselves uh live a life of dignity and and this whole question of what's the proper pay for somebody to uh really enjoy life as an employee and as an employee owner. our business is doing remarkably well. They're seeing that each and every year. But if you're struggling to uh buy groceries, to pay rent, uh cover student loans, we've got a problem. And Chris, do you want that little story about what we what we discovered during CO? >> Yeah, I don't want to sidetrack us too much, Lauren, but it seems like you're taking us there. But um >> please >> uh you know so during co uh you know we we had heard some of this you know a little bit of noise about uh you know folks uh you know needing more cash today to pay the electric bill or the car payment you know versus uh the holy grail of a great retirement. Um during COVID it was we were I think two or three weeks into co um because everybody we were so used to working together we had always been you know 8 to 5 in the office all together all the time. uh we found ourselves not at all together any of the time and uh my assistant came to me one day and uh she said um you know what if we put together a care package uh just a co care package and send out to all the employees it'd be fun you know we found a couple of cases of toilet paper in the warehouse that were up on a top rack and everybody needed toilet paper we knew and so we made a fun basket you know we included RC colas and moon pies and toilet paper and hand sanitizer and all the stuff [laughter] people here in the south appreciate um and Then Justin and I divided the uh uh the local employees up into kind of zip codes and locations and we loaded up our cars on a Friday and you know off we went delivering care packages personally to each of these homes. So pull up to a house you know run up ring the doorbell ding-dong ditch kind of thing and uh drop the basket on the porch and take a picture of our surprise employee when they come out and say hi and talk to them for me a few minutes and then off to the next house. When we finished our rounds that afternoon, I called Justin on after my last house and I and I I was really discouraged actually. I was uh I asked him how it went and those sorts of things and I said, "Did you notice anything?" And because I had noticed a few things and he said, "Yeah, I noticed a few things." He said, "I was, you know, kind of surprised. You know, some of the houses I I you know, I visited were there was a level of disrepair that was surprising." And I mean, I had gone up to a couple houses, the grass was, you know, chest high. You know, one house I went to, the steps were so bad in the front you couldn't walk up them. So, I had to found myself going around the back door because the steps were broken out front. And I'm thinking to myself when I get back in the car, like, you know, can't believe we've got folks working for us that I care for so much um that are living in in conditions like this. And u so Justin and I talked about that and I said, "Let's just let's wrestle over this over the weekend and on Monday, let's you and I get together and, you know, talk about our experience." And out of that whole thing um you know after uh you know talking to other leaders about that and our board we developed what we call a living wage program. So, we did a study on what it takes to live here in our local county uh for, you know, a family to get by on and we instituted a living wage program and made a commitment to getting our folks to a living wage so that they could, you know, live that life of dignity and that Justin mentioned. >> It's it's not really related to the ESOP though, right? There was no ESOP element to it. >> No. >> Got it. There wasn't and there was uh because we explained to our employee owners uh this is the right thing to do. You want everybody that's part of your team not showing up with work trying to wonder how how am I going to get groceries? And uh so any extra dollar we put into compensation is dollars that aren't there on the bottom line when values established not generating well one could argue is it not generating free cash flow going forward or is it I would argue an engaged employee body who feel valued and rewarded for the work they do is going to be a far more productive employee. So I think it's paid for itself. >> Yeah. And I would say although it may not be directly tied to ESOP, it is directly tied to our purpose and our culture here, Lauren, you know, and how we care. >> Sure. >> I mean, so, you know, one of our core values is who for what >> and um, you know, our people are are more valuable to us than the Ebida. >> Here's another question about the retirement plan aspect of an ESOP. We often hear about people who work on the front lines of an ESOP for decades and eventually retire with a a million-doll nest egg or or if not a million dollars, a very substantial nest egg. And that's a great thing, of course, incredibly rewarding for all involved, I would think. But there is some potential risk there. Uh like any business, an ESOP can fail. And if it does, that nest egg can disappear, at least in some ESOPs, because ESOPs aren't required to segregate that money the way it would be if it were a 401k. I'm curious how you guys think about that. >> Well, I I'll jump in there. One of the things that we did early on is we realized we knew what we knew and we knew what we did not know. So, our board of directors, we're very intentional about bringing independent directors on who have had been down this path before. So we brought in uh several people who actually understood what an estop was and what were the traps that other estops had had found themselves in. So we were very intentional about bringing in wisdom that could help us avoid pitfalls that that would come in the future. We've got a liquidity dashboard where we look and estimate what are our next three years worth of liquidity requirements in order to buy our shares the best we can forget and we make sure at the end of each year we've got that three years worth of cash sitting basically in a reserved account that's nothing but four repurchase of the stocks and every year we replenish it. So we're being very intentional about not finding ourselves in a very difficult position where we have to borrow money to beat the obligation. Yeah, I think in intentionality is the is the word there, Lauren, the horror stories that I've read, you know, that the autopsies I've done on ESOPS that have failed. There was a lack of intentionality around that. Um, so they find themselves in a situation where they've got a, you know, a bunch of senior people walking out the door at the same time. They've got a huge obligation to pay those folks and they haven't planned for it. So we we addressed that early on and made a commitment that we're going to keep that three years uh in reserve at all times. So we we don't find ourselves in that situation. >> Your nest egg is really a minimum. It's not a maximum. We're beyond that right now. >> Do you have a sense of how other businesses handle that? I mean my my understanding is that you're you're doing this by your choice. There's not a government regulation that requires you to set aside that money. at businesses that are not as healthy as yours, they could even have the same intentionality but run into a rough spot and feel compelled to to dig into that money they've set aside. Are you aware of that happening [clears throat] at the businesses that you talk to, the ESTOPS you're familiar with? >> We stay in uh several communities within the ESOP space. Uh I have heard some stories. What I'll tell you is something I heard early on, which is if you've seen one, he thought, well, you've seen one. And uh just because we do something doesn't mean everybody worth it. This is why it was so important to us once again to have had people who've been down this road 15 years ahead of us that could guide us and coach us and mentor us on the jury. Do you think your employees are aware of the difference between having money that they're expecting that will come from the ESOP versus money uh that they put in the 401k? >> Yeah, they do understand that money is being sourced from two different places. This is why I I point back to the great of business. The transparency of our financials allows employees to see what the cash builder how are we doing towards those journal how much money has been set aside. So, uh, I think they have an appreciation that it's got to come from the business. We're very intentional about helping them understand and we're also very transparent with letting them see how are we doing against those objectives. >> I think the the point I'm hearing from you is that it it's a very different animal if you do an ESOP but don't open the books and let your employee owners actually know the finances. >> Yeah. I I just I think it's uh shortcircuiting the system in a lot of ways. Um you're trying to create an employeeowned community. Um without that education again, it's really hard to expect them to to think to think and act like an owner without the right tools and education. >> So here's another concern I've heard and in fact I heard it from you Justin more than 5 years ago at a conference that we both attended. If an owner chooses to sell to an ESOP, it obviously means that the owner cares about his or her employees and cares about preserving the culture that has been created at the business as opposed to selling it to a PE firm that's likely to strip mine it. And that owner has probably left some money on the table. Not necessarily, but there's a good chance. But then a new generation of leaders comes along and there's a chance that they don't feel the same sense of commitment to to that culture. they might be more open to taking a deal and in some eyes they might even have a fiduciary responsibility to take an offer from a PE firm or or some other type of business. I believe you guys have solved this problem. Tell me how we've solved it, Lauren. I'd say we've done our darnest to uh insulate ourselves against that kind of risk uh through a couple of different tools. Um first thing we did was work with our board and our trustee really on what we call our unsolicited offer policy. So, in a lot of these esop circles, you know, you'll hear folks all talk about the boogeyman under the bed. Um, you know, this this person walks in someday some way and, you know, dumps a bunch of cash in the parking lot and, uh, wants to buy your company. That just never happens. First of all, you know, typically, you know, when an ESOP sells, it's because, you know, like you described, and it could be a second generation uh owner who didn't get a real big bite at the first apple and they see an opportunity and they're motivated to really kind of line their own pockets. Um, you know, we developed this unsolicited offer policy which really uh, you know, again in in conjunction with our attorney, our ESOP trustee, and our board that sort of defines what does that look like? you know, if if if if this does happen, you know, you get somebody walks in and they make what's called a bonafide offer, what are you going to do about it? And so, this document really spells out what that transaction would demand, what it would look like, and the hurdles they're going to have to cross in order to uh to get to the castle. >> Is this some kind of poison pill? Is the aim to make it impossible, or does it remain a possibility? Yeah, I mean it's it's a possibility, but it's it's designed intentionally to make it very challenging. Uh, you know, you know, part of our unsolicited offer policy, for example, indicates that at the point we get to your best offer, we're not going to do an exclusive arrangement with you. We're going to shop your best offer. Because I made up my mind years ago, if we if we end up getting to that point, to me, you know, we can kiss our culture, our purpose, all that stuff goodbye. It's really about maximizing value for our shareholders. So, if I'm going to if that's the decision I've got to make, it's it's now all about the money where before it was all about the culture and the purpose. Um, if it's going to be all about the money by God, it's going to be all about the money. Bring a barrel of it and we're going to shop your best offer. Uh, so, you know, most folks who are in inquiring into, you know, purchasing company want some kind of exclusivity when they get uh, you know, down to the bottom of the ninth and we're just not going to give it to them. I'd add a couple of things to what we've done to limit the likelihood of a of a takeover or a sellout warrant. One, Chris just highlighted our our unsolicited offer policy. It really is a process that governs what is a bonafide offer, what do we do and offer table. Uh, a second is we become a public benefit corporation. Uh, so we registered with the state of Georgia. We're we're a benefit court. Tell us what that means. >> Yeah, we exist to provide uh benefits to the to the public and to the communities where we serve. One of our tenants is we evangelize the notion of employee ownership. What that looks like is we invite people in that are contemplating this as a journey. We participate in conversations like this one to help educate people. My goodness, 15 years ago there were about 7,000 esops. Many of them have been sold, but there's still only about 7,000 today. So, uh, we we want to promote it. Uh, we want to educate others about it. Another public benefit that we offer is we believe in employee ownership. So, we exist to make sure that, well, we deal with wealth equality by offering ownership to our employees. So you'd have to really make a good hard case as to how post transaction we would still be living out that purpose if indeed employee ownership is part of it. Selling to private equity equity would make that difference. Uh and then lastly um we we hire to a standard and we we preach here's why we're on this evergreen journey. Here's why we believe if you take a hundredyear mindset, which is one of our core values, and look at how the value we appreciate over a hundred years versus three, four, five years, we believe employee ownership is a far better deal. So just there are many things that we're doing to protect against a road approach. >> Justin, what what's the mechanism by which that is enforced? How does being a benefit corporation I mean what's the difference between just espousing those goals of you know preaching employee ownership versus making it really difficult for the company to sell to someone who would not practice the same way. >> Right? So the articles of incorporation for cathedral uh reference our benefit for purpose. They're the purposes that we exist to do. So we codified it. Our board of directors holds us accountable to every year producing a report that demonstrates how we're achieving those things. What are we doing to deliver on that promise? Uh our trustee who represents the uh the employees in our in our trust too had to agree with uh us converting to a benefit. So uh there's governance and there's responsibility and accountability to uh living it out each and every year. So, it's really up to the people in those positions and that's part of the reason a sale remains at least a hypothetical possibility. If everybody involved were convinced that this was the right step, it it could in fact happen. [clears throat] >> Yes, it could. >> Since you guys did this, a couple of other forms of employee ownership uh have kind of gotten trendy, namely employee ownership trusts and worker co-ops. um much smaller, fewer numbers even than the 7,000 you you quoted uh for ESOPs, but seem to be gaining some momentum at least in conversation. Have either of you looked at them, thought about them? Uh is there any chance that you would have picked one of those uh formats if you'd been aware of it back uh when you made your decision? >> Got a number of friends that have taken those paths. I think we share the same friends, uh, Lauren, but um, yeah, and I'm not saying what they if it was right for them. Um, you know, when I think about our desire to live out this purpose for a hundred years, to me, there's a level of comfort uh, in in some of the legal restrictions around uh, you know, being an escort ESOP as defined by the Department of Labor. Um so you know some of those other models I don't think offer that sort of um I don't like bureaucracy at all right um but I think there's there's uh opportunities to use uh you know some form to define you know what we want this to look like in the future so that gives me comfort uh you know versus uh an undefined uh you know future that could dramatically change under uh you know some different leadership. I think I just heard an entrepreneur say good things about regulation. >> That's the one time you're gonna hear me say it. [laughter] >> It's interesting because that is one of the reasons I've heard that people lean in the other direction. They like the flexibility. They like the idea that I mean they they understand they're not getting the tax benefits that you get with an ESOP, but they also don't get the government intrusion that they would. >> Yeah, government intrusion is uh I think is a bit of an overstatement. Um, I mean there's some obviously some guidelines that we got to live within and uh certain practices we got to do, but I think we'd be doing those anyway. Uh, so and we sure do like the tax benefits. >> Yeah, I would say that um the regulatory burden to offer a 401k is no greater than what I've experienced with the ESOC. So I I heard when we did our transaction, you could expect an IRS audit, a B audit within seven years of your transaction. I can almost guarantee it. Seven years came, seven years went, we never got a sniff of it. And I've been asking other people, have did you guys get audited? Do you all get Nobody seems to have been audited. So I think there's more noise around that. And maybe that's the ESOP machine uh in the advisor community, but they caution you this could happen, but I'd be cautious. It's not a guarantee that it's going to happen. And if your ESOF is delivering, if you're growing the value for the shareholder, I wouldn't welcome the the regulatory scrutiny. Uh, but I wouldn't be fearful either. >> So, what's the answer to the the question that you raised, Justin? Why aren't there more ESOPs? >> I'm not sure I can really answer that question. Um, I was not one of the the owners of the business pre ESOP. Uh, I think some really their why for wanting to sell may just be different. uh maximizing the return. If that's really what your your objective is and you want the money guaranteed, you want it real real fast, ESOT may not be the way, but uh the ESOT from where I sit has uh been a good investment for the employees. And I Chris, you can speak to whether or not it was for a selling shareholder. It looked good from where I sit. >> Yeah, I would I would say we're a purple unicorn, Lauren, in a lot of ways. Um >> what do you mean by that? I'm just saying that, you know, I do think Justin's right. I think a lot of uh ESOPs, you know, get to the point, you know, where they create some value and they've got these employees that have been around a while and they see a nice payday and they feel good about taking care of this group of employees that are sitting in front of them right now. And that's fine. You know, we've just we we've got this this core value that we're going to try to last 100 years and uh we want to bless generations of employee owners. So uh rather than looking at the generation sitting in front of us now uh you know we dream about you know what what's it going to look like in 20 years for these you know 20 these 20somes that are coming in here now who will be in their 40s at that point um you know still enjoying this great place to work still fulfilling this great purpose we have and uh you know really I mean to me you know being a great example of what business can look like in a business community that you know can can look pretty sour sometimes. One effort to uh increase the number of ESOPs that's gotten some attention uh is what it sounds like an oxymoron, but a private equity firm KKR has been buying businesses and converting them to employee ownership. One partner there, Pete Stavros, uh has been behind this. I think 60 Minutes uh did a story about it and gave it a very positive review. I'm curious what you guys think about their approach. a private equity firm creating employee uh owned businesses. [clears throat] >> Do you really want to know? >> I do. I absolutely want to know, Chris. >> Yeah, I uh personally I don't like it. Again, I think it's a very short-sighted approach. Um you know, it it does some good for a handful of people at a at a I'd say a minimal level. Uh you know, because there's obviously an a desire to to flip that business at some point. That's what private equity does. You know, it could be a longer flip perhaps. instead of being five or seven years, maybe it's eight or 10, you know, so they come in typically from my what I understand into a, you know, a 10% ESOP on a purchase like that. And folks in those situations may walk around with, you know, a six-f figureure number, low six-figure number or something like that when the deal is all done. And to me, it really misses the point of, you know, what a great purposeful company can do for the long haul. So, it really comes back to just the dollars. And uh when I think people focus strictly on uh the dollars defining what great looks like to me that's where I think we start missing the mark you know because to me you know purpose culture you know the way we interact with our customers our suppliers our stakeholders um to me that's where the real value is created it's in those relationships and interactions and to me the the byproduct is you know a very profitable fantastically run uh rewarding company so I just get discouraged When when people start minimizing success over cash, >> I think there's opportunity for that model to get better. I love the notion that those employees, an engaged workforce basically has a stay bonus for only three to five years, whatever it takes for that trans that second transaction occurs, it's a stay bonus. And it's it's leveraging the power of employee engagement. And if if that ownership stake would enhance the the likelihood of success in that model, it makes sense. I'd just like to see that model perpetuate in the second transaction that they would still maintain some degree of equity in that business. But when it completely goes away in that second transaction, the equity of the employees have they got a bonus and that's good, but it doesn't perpetuate employee ownership. I've tried to ask you the kinds of questions I hear from skeptical owners who who are thinking about this, but in I I don't want to miss whatever joy you've experienced uh operating an ESOP. Um tell me what makes this all worthwhile. What should somebody considering this decision know about what it's like to run an ESOP over a period of many years? I would say, you know, it's a fantastic opportunity. Um, which was a fantastic opportunity for me to experience a liquidity event. You know, I grew up in a lower middle-ass family, three boys in a oneb house. Um, you know, to experience a liquidity event that I could have never dreamed of, right? Could we have sold it for more if we had done a different type of transaction? Probably. So, but I'm telling you what, I mean, I've been blessed beyond measure. So to be able to do that and at the same time, you know, be able to repeat uh something similar to that on a lower level, but to bless folks around here as employee owners with more than they could ever dream of working somewhere else over a long period of time. At the same time, they're building value in a business because they are treated like employee owners. They're educated. Uh they're trained to think like an owner and uh they do their job with excellence. And you know when you see all that you see that engine running uh so fantastically it is one of the most rewarding things you can imagine. I think the latest stats that I heard is uh we've retired or will retire at least 21 millionaires based on our current value and um and that's just unheard of and that's just basic that's just based on the ESOP uh you know value not not their 401k. So I've got friends who've got even much grander stories than that. So I think for me as a selling shareholder, you know, being able to to to touch lives in that way and again at the same time create a business that I think is just beautiful in so many ways and the way we care for people and our stakeholders um to me is one of the most rewarding experiences of my life. >> My thanks to Chris Maynard and Justin Jordan of Cathedral Holdings. Thank you both for taking the time. I really appreciate it. >> You're welcome. And if there's, you know, folks listening to this and they're like still on the fence and they want to call me, you got my number and give it out. I appreciate that. Uh, I certainly will. 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