[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





                           FINANCING EMPLOYEE
                    OWNERSHIP PROGRAMS: AN OVERVIEW

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
               FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 10, 2003

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-35



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                            WASHINGTON : 2003
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska              PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana          MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice         JULIA CARSON, Indiana
    Chairman                         BRAD SHERMAN, California
RON PAUL, Texas                      GREGORY W. MEEKS, New York
PAUL E. GILLMOR, Ohio                BARBARA LEE, California
JIM RYUN, Kansas                     JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois         CHARLES A. GONZALEZ, Texas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California                 RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               KEN LUCAS, Kentucky
MARK GREEN, Wisconsin                JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania      WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut       STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona             MIKE ROSS, Arkansas
VITO FOSELLA, New York               CAROLYN McCARTHY, New York
GARY G. MILLER, California           JOE BACA, California
MELISSA A. HART, Pennsylvania        JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia  STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio              BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota           RAHM EMANUEL, Illinois
TOM FEENEY, Florida                  DAVID SCOTT, Georgia
JEB HENSARLING, Texas                ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey             
TIM MURPHY, Pennsylvania             BERNARD SANDERS, Vermont
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director
       Subcommittee on Financial Institutions and Consumer Credit

                   SPENCER BACHUS, Alabama, Chairman

STEVEN C. LaTOURETTE, Ohio,          BERNARD SANDERS, Vermont
Vice Chairman                        CAROLYN B. MALONEY, New York
DOUG BEREUTER, Nebraska              MELVIN L. WATT, North Carolina
RICHARD H. BAKER, Louisiana          GARY L. ACKERMAN, New York
MICHAEL N. CASTLE, Delaware          BRAD SHERMAN, California
EDWARD R. ROYCE, California          GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
SUE W. KELLY, New York               DENNIS MOORE, Kansas
PAUL E. GILLMOR, Ohio                CHARLES A. GONZALEZ, Texas
JIM RYUN, Kansas                     PAUL E. KANJORSKI, Pennsylvania
WALTER B. JONES, Jr., North          MAXINE WATERS, California
    Carolina                         NYDIA M. VELAZQUEZ, New York
JUDY BIGGERT, Illinois               DARLENE HOOLEY, Oregon
PATRICK J. TOOMEY, Pennsylvania      JULIA CARSON, Indiana
VITO FOSSELLA, New York              HAROLD E. FORD, Jr., Tennessee
MELISSA A. HART, Pennsylvania        RUBEN HINOJOSA, Texas
SHELLEY MOORE CAPITO, West Virginia  KEN LUCAS, Kentucky
PATRICK J. TIBERI, Ohio              JOSEPH CROWLEY, New York
MARK R. KENNEDY, Minnesota           STEVE ISRAEL, New York
TOM FEENEY, Florida                  MIKE ROSS, Arkansas
JEB HENSARLING, Texas                CAROLYN McCARTHY, New York
SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
RICK RENZI, Arizona


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 10, 2003................................................     1

Appendix:
    June 10, 2003................................................    47

                               WITNESSES
                         Tuesday, June 10, 2003

Adams, Frank, President, Southern Appalachian Center for 
  Cooperative Ownership, Asheville, NC...........................    13
Ceresa, Sherry, Statistical Analyst, Gardener's Supply Company, 
  Burlington, VT.................................................    37
Clem, Steve, Senior Program Coordinator, Ohio Employee Ownership 
  Center, Kent State University, Kent, OH........................     9
Dines, Richard, Director, Cooperative Business Development and 
  Member Services, National Cooperative Business Association, 
  Washington, D.C................................................    15
Keeling, J. Michael, President, The ESOP Association, Washington, 
  D.C............................................................     7
McCune, David K., Chairman, United Steelworkers of America, Local 
  1124-01, on behalf of Massillon Stainless, Inc., Massillon, OH.    34
Megson, James, Executive Director, ICA Group, Boston, MA.........    11
Owenby, Larry, assisted on the employee buyout of RFS Ecusta in 
  Brevard, NC....................................................    39
Payne, Monty, International Representative, PACE International 
  Union, AFL-CIO, CLC, Hattiesburg, MS...........................    40
Ray, George, Chairman and CEO, LeFiell Manufacturing Company, 
  Santa Fe Springs, CA...........................................    31

                                APPENDIX

Prepared statements:
    Bachus, Hon. Spencer.........................................    48
    Gillmor, Hon. Paul E.........................................    50
    LaTourette, Hon. Steven......................................    51
    Adams, Frank.................................................    53
    Ceresa, Sherry...............................................    57
    Clem, Steve..................................................    59
    Dines, Richard...............................................    67
    Keeling, J. Michael..........................................    73
    McCune, David K..............................................    95
    Megson, James................................................   100
    Owenby, Larry................................................   106
    Payne, Monty.................................................   108
    Ray, George..................................................   111

 
                           FINANCING EMPLOYEE
                    OWNERSHIP PROGRAMS: AN OVERVIEW

                              ----------                              


                         Tuesday, June 10, 2003

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 2:02 p.m., in 
Room 2128, Rayburn House Office Building, Hon. Spencer Bachus 
[chairman of the subcommittee] presiding.
    Present: Representatives Bachus, LaTourette, Royce, Lucas 
of Oklahoma, Gillmor, Tiberi, Feeney, Hensarling, Brown-Waite, 
Barrett, Sanders, Maloney, Watt, Sherman, Lucas of Kentucky, 
and Frank (ex officio).
    Chairman Bachus. Good afternoon. The Subcommittee on 
Financial Institutions and Consumer Credit will come to order. 
Today's hearing, which was requested by subcommittee ranking 
minority member, Mr. Sanders, will provide an overview of 
employee ownership programs. Employee ownership programs allow 
employees to buy out their employer in response to an 
announcement that the business will be closing its doors.
    Employee buyouts are accomplished through the creation of 
employee stock ownership plans, ESOPs, or eligible worker owner 
cooperatives, EWOCs. Currently, there are about 10,000 ESOPs in 
the U.S. While ESOPs are found in all industries, more than 25 
percent of them are in the manufacturing sector. Employees own 
a majority of the shares in about 2,500 of these ESOPs. There 
are about 500 EWOCs. Unlike ESOPs, EWOCs are found in all types 
of industries.
    In some cases, worker buyouts using ESOPs and EWOCs have 
led to the creation of successful employee-owned companies that 
are profitable and thriving today. In fact, in Birmingham, my 
hometown, the largest producer of cast iron pipe, ACIPCO, which 
is a model company, is an employee-owned company and was bought 
out from the original owner and has been a fantastic success.
    In other cases, U.S. workers have failed in their attempts 
to purchase businesses due to a lack of financing. This lack of 
financing is caused by a variety of factors. For this reason, 
this hearing will examine proposals to provide financial 
institutions incentives to finance employee buyouts through the 
creation of employee stock ownership plans or eligible worker-
owned cooperatives.
    This hearing will consist of two panels. The first panel 
includes ESOP trade association representatives and experts in 
the field. During the second panel, we will hear from two 
successful ESOP companies as well as two employees who failed 
in their attempts to purchase their companies due to a lack of 
financing. We will also hear from a union representative who is 
currently involved in an attempted buyout.
    I look forward to the witnesses' testimony on this 
important topic and welcome the first panel. In closing, I 
would like to thank Mr. Sanders, who is passionate about this 
issue and who is a leader in the Congress in bringing this 
matter to our attention. I want to stress that this hearing is 
the result of his work and his dedication to bringing this 
issue to our attention. I cannot stress enough his passion and 
resolve to introduce and see meaningful legislation passed, so 
I commend him on that.
    Now, I will be on the floor of the House because our 
Internet gambling legislation, which I have introduced, is 
coming onto the floor I understand around 2:30 or 2:45. We have 
anticipated this for about 2 days, and Mr. LaTourette, the 
gentleman from Ohio, is going to take my place in the chair. 
But he and other members are very interested in this hearing, 
as I am, and I don't want my absence to mean anything other 
than I will be on the floor and don't plan the agenda of the 
overall Congress.
    The Chair now recognizes the ranking member of the 
subcommittee, Mr. Sanders, for an opening statement
    [The prepared statement of Hon. Spencer Bachus can be found 
on page 48 in the appendix.]
    Mr. Sanders. Before you leave, Mr. Chairman, I do want to 
thank you very much. While the chairman was very gracious in 
mentioning that I had requested this hearing, this hearing 
would not have taken place unless the chairman had wanted it. 
And his staff has done a terrific job. And I hope very much 
this is an issue we can work together on, but I do want to 
thank you very much for allowing us to have this important 
hearing.
    Chairman Bachus. Thank you. Mr. Sanders and I pride 
ourselves, and I think this entire committee does, on our 
bipartisan work on issues, and I think because of our 
cooperation we have had many successes in our committee and I 
hope in addressing this matter we will have additional 
successes.
    At this time I will ask the vice chairman of the committee, 
the gentleman from Ohio, to take the chair. And, gentlemen, I 
have read some of your submitted testimony and look forward to 
working with you on this issue.
    Mr. Sanders. Thank you again, Mr. Chairman.
    I recognize that today the NBC, CBS, and ABC Television 
lights are not on us, and the New York Times is not here, but, 
nonetheless, the way things work in the United States Congress 
is sometimes you start off with an idea and that idea expands. 
The fact that we are having this hearing, that Chairman Bachus 
has called this hearing, is a huge first step in what I 
consider to be the effort to make some fundamental changes in 
the way our economy works and in protecting the livelihood of 
millions of American workers.
    Now, why is this hearing important and why is worker 
ownership important? I think everybody here, and I will be 
interested to hear what Mr. LaTourette has to say in a moment, 
because Ohio is represented here and his State has shared, 
along with Vermont, many of the same problems of 
deindustrialization, but one of the least talked about and most 
important economic issues facing our country is the collapsing 
of our manufacturing sector. It is not talked about too much, 
and yet in the last 2 years we have lost close to 2 million 
manufacturing jobs.
    I know that has happened a lot in Ohio, it has certainly 
happened in Vermont, and it has happened all over this country. 
We have lost, if you can believe it, over 10 percent of our 
manufacturing sector in the last 2 years. We are now at the 
same level, at 16-1/2 million manufacturing jobs, where we were 
40 years ago. So I think it is terribly important that we 
address that issue.
    My own view is we have to take a very hard look at our 
trade policies, which are putting jobs in China and Mexico. But 
the bottom line is that we also have got to figure out a way 
that we can protect and expand manufacturing in the United 
States, and I believe that employee ownership can and should be 
one of the essential strategies in combating the decline of 
manufacturing in America.
    Employee ownership has been proven to increase employment, 
increase productivity, increase sales and increase wages in the 
United States. Yet despite the important role that worker 
ownership can play in revitalizing our economy, the Federal 
Government has failed to commit the resources needed to allow 
employee ownership to realize its true potential. On that 
issue, what I want to say is there will be bipartisanship on 
this. You will find some very conservative Members and some 
progressive Members coming together and trying to expand 
employee ownership.
    Mr. Chairman, I am drafting legislation to create a U.S. 
Employee Ownership Bank to provide loan guarantees, 
subordinated loans, and technical assistance to manufacturing 
employees who would like to purchase factories through an 
employee stock ownership plan or an eligible worker-owned 
cooperative to correct this problem. A lot of folks around this 
country would like to move in that direction. They cannot get 
the money, the capital they need, and they do not have the 
technical expertise. We hope this legislation will be able to 
do that.
    In order for employees to receive this assistance, a 
determination must be made that the factory they will be 
purchasing will be profitable in the future so that they will 
be able to pay back the loans and other financial assistance. 
In other words, we just do not want to throw money out there. 
We want to know it is viable. But what is interesting, and we 
have seen this in Vermont, is that companies that are 
profitable are still shut down because some of these owners 
think they can make more money in China. So it is not a 
question of being profitable or not profitable, it is a 
question of how much profit you need. And if you have worker 
ownership and people making good solid middle class wages and 
benefits, they will be delighted to keep that plant going.
    Mr. Chairman, we have a wonderful, just a terrific group of 
panelists here, and I want to thank all of them for being with 
us. This afternoon we will hear from many good people, 
including Larry Owenby with the PACE International Union, and 
we thank him for being with us. Mr. Owenby worked for the RFS 
Ecusta mill in Brevard, North Carolina, for 30 years. Although 
this mill was making profits of $1 million a month, the company 
closed its doors, and we will hear about what they tried to do 
and were not successful in doing.
    Monty Payne, also a PACE Union representative, in 
Hattiesburg, Mississippi, will testify today about profitable 
factories that were shut down by International Paper in Mobile, 
Alabama, and Moss Point, Mississippi, and we will be hearing 
about what we should be doing in the South as well.
    In addition, Dave McCune, a representative with the 
Steelworkers, will be testifying about an employee buyout of 
Massillon Stainless, Incorporated, in Ohio, that has not 
succeeded due to a lack of financial support, and we will see 
what we can learn from Mr. McCune.
    Mr. LaTourette. [presiding.] That is Massillon.
    Mr. Sanders. I wasn't even close. Massillon. All right. 
Well, same company, different pronunciation.
    Steve Clem, with the Ohio Employee Ownership Center, will 
be testifying about three other factories that could have been 
saved. And, Mr. Chairman, in Ohio I believe we have probably 
more activity on this issue than any other State in the 
country, so we have a lot to learn from people in your State.
    So, Mr. Chairman, thank you very much and I look forward to 
working with you. We are really excited about this hearing and 
we thank all of the folks, including those from Vermont, for 
being here today. Thank you.
    Mr. LaTourette. Mr. Sanders, thank you very much for your 
insightful remarks.
    I want to take time to personally extend a warm welcome to 
the two Ohioans that Mr. Sanders mentioned, Mr. Clem from the 
Ohio Employee Ownership Center at Kent State University, and 
Dave McCune, who of course is the President of the United 
Steelworkers, and focusing on Local 1124-01 in Massillon, Ohio.
    And if you ever come to Massillon, Ohio, is known as sort 
of the birthplace of football coaches. They all started there, 
Woody Hays and that bunch, and then they all went down to 
Dennison, and then they all figured out how to lose to Michigan 
until recently.
    So this is an exciting hearing, Mr. Sanders. I thank you 
very much for the suggestion that we have this hearing. The 
idea of employee ownership is something in these changing 
times, and you have cited the statistics relative to 
manufacturing job losses, which I know concern us all. I saw a 
forecast the other day that while certain sectors of the 
economy may be recovering, it looks like manufacturing will lag 
behind regardless of those other sectors.
    The other thing that I thought was interesting, we had a 
facility in a place called Garfield Heights, and for 50 years 
the firm was engaged by contract with Rubbermaid in making 
those dish drainers that everybody has on your drain board. I 
think you can go to the store and buy them for $3.50. The folks 
at Rubbermaid determined it was cheaper to outsource that work 
to China for a $3.50 product than it was to continue to 
manufacture it in Ohio.
    So I congratulate you for your interest on this subject, 
and I look forward, with Chairman Bachus, in working with you 
on this, and with that I yield back my time and, Mr. Sherman, 
ask you if there are any observations you would like to make?
    Mr. Sherman. Oh, many. I share the concern of the gentleman 
from Vermont about a loss of manufacturing jobs. I think it is 
critical that the administration end its ineffectual and doomed 
efforts to support a value for the dollar that is inconsistent 
with our huge trade deficit. And of course the trade deficit is 
a jobs deficit, and when the dollar adjusts, our manufacturing 
companies will be able to deal with many of the problems, and 
of course you have identified others that they face.
    This committee focuses a lot of its time on encouraging 
home ownership. Just as we want to be a Nation of homeowners, 
property owners, we want to be a Nation in which there are 
many, many people who own a share of enterprise, particularly 
the enterprise in which they spend their time. ESOPs are an 
extremely way effective way to achieve that. Another way to 
achieve it, in a more limited sense, is broad-based, I want to 
emphasize broad-based, stock ownership programs. So we want to 
encourage ESOPs.
    Of course we want to do that in a cost effective way, 
because many of the programs, whether it be done at the 
Committee on Ways and Means or this committee, will cost the 
Federal Government money. I would point out that the chief 
incentives have been on the tax side and they have been 
unintentionally slated for repeal. I would hope that we would 
get either testimony from the panel or perhaps more 
authoritatively from Ways and Means and from the Joint 
Committee on Taxation to tell us what is the cost to the 
government of the ESOP incentives that are in the code today 
and what would those costs be if you imagined an income tax 
structure in which there was no estate tax and we had a 15 
percent tax on capital gains, a 15 percent tax on dividends.
    Under such a structure, all of the things written into the 
code last decade and the decade before to encourage ESOPs 
become less significant and, on the other side, less costly to 
the Federal Government. So, then, unless this Congress wants to 
diminish our efforts to encourage ESOPs, we ought to look for 
ways to spend at least an equal amount encouraging ESOPs, and 
that may be through the Tax Code or it may be through what the 
gentleman from Vermont proposes.
    He points out that he would focus on manufacturing 
businesses. I do not know whether manufacturing businesses 
should be targeted or whether we would go broader, but I would 
point out that we do have a special reason to help those 
companies that face foreign competition. Because if a 
restaurant closes down in my district, it just means more 
people eat at the restaurant across the street. If a 
manufacturing company closes down, that just means we buy stuff 
from across the ocean.
    I am not sure we should have a bill in which government 
employees are picking the winners and losers. I doubt that that 
is what your proposal involves. I would prefer to see us 
encourage banking institutions to evaluate lending 
opportunities but to encourage them to do the right thing.
    I think it is important that each person looking at their 
own retirement, each family looking at their own retirement be 
adequately diversified. And the downside of ESOPs is that we 
encourage people to invest their career and their retirement in 
one enterprise. That is why at a very minimum we have to 
preserve Social Security as a guaranteed retirement and not 
create a circumstance in which there are separate accounts, 
which then could also be invested in the company's stock to 
create a trifecta investment all in one company, which even if 
employee run may not be profitable.
    So I look forward to these hearings. I especially commend 
our chairman, who is not here, but I will tell him how I waxed 
eloquently in his praise for holding these hearings, and 
especially for inviting Mr. Keeling to testify, because Mr. 
Keeling had the incredible wisdom to cite the experience of 
Chatsworth Products in his written testimony, which is in my 
district, and is literally the poster boy or poster girl for 
the success of the ESOP movement.
    So I look forward to ESOPs playing an important role in our 
surviving in world competition and look forward to 
Congressional enactments that at least preserve and perhaps 
expand our dedication to the ESOP movement.
    I yield back.
    Mr. LaTourette. I thank you, Mr. Sherman, and I will make 
sure the next time I see Chairman Bachus to tell him of your 
high praise.
    I have been notified that Mr. Lucas of Oklahoma and Mr. 
Barrett are going to submit opening statements for the record. 
I would ask the other Mr. Lucas, the gentleman from Kentucky, 
if he wishes to make any opening remarks before we begin?
    Mr. Lucas of Kentucky. No.
    Mr. LaTourette. Okay. And Mr. Watt, who has just come in.
    Mr. Watt. No, thank you.
    Mr. LaTourette. Excellent. With that, the hearing is 
comprised of two panels and we will begin with the first panel 
today.
    Gentlemen, I want to thank you all for coming. We will here 
from Mr. J. Michael Keeling, who is the President of the ESOP 
Association of Washington, D.C.; Mr. Steve Clem, the Senior 
Program Coordinator of the Ohio Employee Ownership Center and 
Professor of Political Science at Kent State University; Mr. 
James Megson, Executive Director, ICA Group, Boston, 
Massachusetts; Frank Adams, President of the Southern 
Appalachian Center for Cooperative Ownership, Asheville, North 
Carolina; and Mr. Richard Dines, Director of the Cooperative 
Business Development and Member Services, National Cooperative 
Business Association, also in Washington, D.C.
    Again, gentlemen, we thank you very much for coming and we 
are looking forward to your testimony. The subcommittee, as do 
most subcommittees and committees in Congress, subscribes to a 
5-minute rule. We have received your written testimony and each 
member, I would assume, has reviewed it, and so, without 
objection, your written testimony will be made a part of the 
record.
    We are anxious to hear from you, but if you could, there is 
a little box on the other side of the table. It will start out 
green, and then will go yellow, and red will be the end of 5 
minutes. Nothing horrible happens to you if you go beyond 5 
minutes, but so that we can get through all the testimony and 
members have ample time to ask the questions that are on their 
minds, we would ask you to subscribe to that as closely as 
possible.
    Having said that, Mr. Keeling, welcome, and we are looking 
forward to hearing from you.

     STATEMENT OF J. MICHAEL KEELING, PRESIDENT, THE ESOP 
                 ASSOCIATION, WASHINGTON, D.C.

    Mr. Keeling. Thank you, Chairman LaTourette, Ranking Member 
Sanders, and members of the subcommittee. I appreciate the 
opportunity to be here, and I would tell you that I could spend 
hours, Mr. Sanders, talking about why I think it is huge that 
this particular subcommittee and committee of Congress is 
looking at employee ownership. There are many interesting 
reasons for that statement.
    Before I give a little background and history of ESOPs, in 
terms of ESOPs today, demographics, let me say that I believe 
in the vision of the ESOP Association that employee ownership 
increases productivity through greater employee participation, 
creates a broader distribution of wealth in our Nation, and 
maximizes human potential by enhancing the self-worth, dignity 
and well-being of our people.
    ESOPs are tax qualified deferred compensation plans that 
are primarily invested in employer securities, and unlike other 
tax qualified plans may use borrowed funds to acquire the 
assets for the plans, which the assets are employer securities.
    Of the 10,000 or so ESOP companies, I would estimate 96 to 
98 percent are private companies. Federal law since 1990 has 
promoted employee ownership in private companies but not in 
large public companies. There is a general image in Congress, 
that where employee ownership exists in a private smaller 
company, a very special and magical environment can be created 
that is up close and personal, but that is not necessarily true 
in corporations with thousands and thousands of employees 
throughout the globe. Let me quickly say many managers and 
executives of large corporations would vigorously disagree with 
that image.
    The most common reason for creating an ESOP is to provide a 
buyer for an exiting shareholder of a private company. Our data 
indicates that 75 to 80 percent of the ESOP companies in 
America were created in a so-called exiting shareholder 
transaction.
    The second most common transaction is the one that we call 
the ESOP spin-off transaction. We have data that indicates 
about 20 percent of the ESOP companies in America were the 
result of an ESOP spin-off transaction.
    An ESOP spin-off transaction often follows this scenario: 
One day the plant manager gets a call from the home office of a 
big corporation saying you don't fit into our plan, you don't 
make enough money, or something similar, and we are going to 
put you up for sale. After composing him or herself, the plant 
manager calls in the bookkeeper or the comptroller, tells him 
what is about to happen and says we are on the block. They 
frequently then say to themselves, gosh, I wish we could 
control our destiny, I wish we could buy the company ourselves. 
And then somehow or another, often in cooperation with an 
organized bargaining unit, the idea of an ESOP develops.
    How do common ESOP exiting shareholder transactions get 
financing? The financing for the vast majority of exiting 
shareholder ESOP transactions is actually fairly simple. 
Usually, the decision triggers an ESOP exiting shareholder or 
the management of a company going to a regular bank, taking a 
loan of less than $10 million, loaning that money to an ESOP, 
and the ESOP using the money to purchase stock from the exiting 
shareholder.
    Since a spin-off transaction might involve a business that 
is considered to be in financial difficulty, another source of 
funds might actually be the senior management of that 
particular division or plant taking a second mortgage on their 
homes, borrowing on credit cards, sometimes they are able to 
get financing from the State Economic Development 
Administration or employee ownership center. Oftentimes, the 
lenders will insist on wage and benefit concessions in a 
situation like that. Sometimes the necessary due diligence and 
feasibility funds are loaned by a State agency or an employee 
ownership center.
    Actually, there is two distinctions between the types of 
ESOP loans and transactions. From the years of 1974 to 1984, 
generally ESOPs were nonleveraged ESOPs, which meant the ESOP 
itself was not part of the borrowing transaction. There will be 
a witness on the next panel that has an older ESOP that engaged 
in a so-called nonleveraged ESOP. There the corporation is 
borrowing the money and the ESOP is not part of the 
transaction.
    In 1984-86, the Congress created a whole slew of tax 
incentives for leveraged ESOPs. And since that time nearly all 
the ESOPs created do involve leveraged ESOPs. So you would 
estimate that those created from 1974 to 1986, 80 percent are 
nonleveraged; since 1986, 80 percent are leveraged ESOPs where 
the ESOP has actually participated in the loan process.
    Is there money available for ESOP transactions? Please note 
my vantage point. I deal with companies with ESOPs. They tend 
to be very successful companies. Many were very successful 
companies before or after the ESOP was created, and, candidly, 
they do not have trouble getting commercial lending for their 
transactions. I used to get a lot of calls saying where can I 
get money for ESOPs in the early 1980s. I don't get those kinds 
of calls anymore.
    I do know, however, that in spin-off transactions one does 
see particular problems in obtaining funding for the crucial 
feasibility studies, the due diligence studies that will prove 
the case that the company can afford to support itself with a 
leveraged ESOP.
    I want to touch on something. We think the existing 
accounting standards impact the financing of ESOPs. We feel 
that the accounting standards for ESOPs kind of distort the 
balance in the income statements compared to the cash flow 
statements. That can be a hindrance in doing ESOP transactions. 
Also, I want to make it clear that financing of an ESOP company 
is not just up front. ESOPs in the private sector have the 
unique responsibility to buy back the stock from departing 
employees, known as the repurchase obligation. Often that 
involves the financing either through cash flow, borrowing the 
money, putting cash into the ESOP, or even buying key man 
insurance, employee insurance, which of course is a 
controversial step in today's debates over public policy. But 
that is another area of financing that I would welcome some 
exploring by Congress, or someone.
    Let me say this one thing in finishing and conclude why I 
think that this hearing is huge. Think about it. Less than 160 
years ago in our Nation, sadly and tragically the relationship 
between owner and worker was often defined as owner/slave. At 
the turn of the 20th century, if a man or woman belonged to a 
labor union, often he or she were beaten or denied a job. Less 
than 60 years later, in the mid-20th century, the relationship 
between an organized bargaining unit and management often 
defined benefits and wages in all American corporations. At the 
turn of the 21st century, fewer than 11 percent of the private 
sector of American workers belong to an organized bargaining 
unit.
    So what is the message? The message is anyone who thinks 
the relationship of owner, employee and capital remains the 
same, or that it can be reconstituted the way it was 25 years 
ago, candidly, that person doesn't understand what is happening 
in the world of work. Whether you agree with his politics or 
his recommendations on tax policies and health policies, I 
think Bill Thomas had it correct when he opened the debate on 
the 2001 Enron ERISA legislation when he said in his opening 
remarks, ``There has been a quiet revolution going on in the 
United States. That quiet revolution that I am talking about is 
the change that occurred over the last century, speeding 
significantly in the last third of the 20th century, that there 
is becoming less and less a distinction between workers and 
owners and more and more companies are being owned by the 
workers.''
    So this subcommittee is right to say let us make sure that 
the trend of more employee ownership is financed properly and 
that everyone, not just the tax committees and the labor 
committees, get with the trend of growing employee ownership 
and let us have the legal, financial, and accounting systems 
that make division of ESOP advocates a reality.
    [The prepared statement of J. Michael Keeling can be found 
on page 73 in the appendix.]
    Mr. LaTourette. Thank you very much, Mr. Keeling, not only 
for your testimony but your enthusiasm. The only thing you 
didn't do so well on was the clock.
    Mr. Clem, we are anxious to hear from you. Thank you for 
coming.

   STATEMENT OF STEVE CLEM, SENIOR PROGRAM COORDINATOR, OHIO 
   EMPLOYEE OWNERSHIP CENTER, KENT STATE UNIVERSITY, KENT, OH

    Mr. Clem. Thank you, Mr. Chairman. The Ohio Employee 
Ownership Center at Kent State University appreciates this 
opportunity to present its views and your willingness to 
consider them. First of all, though, I am not a professor at 
Kent State; I am a Senior Program Coordinator at the Ohio 
Employee Ownership Center.
    The Ohio Employee Ownership Center is a nonprofit 
university-based program established in 1987 to provide 
outreach, information and preliminary technical assistance to 
Ohio employees and businesses exploring employee ownership. We 
provide ownership training to employee-owned firms. We are 
partially funded by grants from the Ohio Labor-Management 
Cooperation Program of the Ohio Department of Development. We 
also receive funding from private foundations, dues from firms 
belonging to the Ohio employee-owned network, income from 
training contracts, donations, and we also administer for the 
Ohio Department of Job and Family Services, a pre-feasibilities 
study grant program.
    In addition, we administer a program for the U.S. 
Department of Labor called the National Steel/Aluminum 
Retention Initiative. This is a national program to assist 
durable manufacturing firms in dealing with the threat to steel 
and other durable manufacturing industries. We partner in that 
particular effort with the ICA, with the Center for Labor and 
Community Research in Chicago, with the Steel Valley Authority 
in Pittsburgh, and with the Washington State Office of Trade 
and Economic Development.
    We coordinate a Business Owner Succession Planning Program 
in the Cleveland area. We work with about 60 small- to medium-
sized firms that are part of Ohio's employee-owned network. The 
network provides these companies with an opportunity to meet on 
a regular basis and learn from each other's experiences. We 
also provide various types of training on a number of different 
kinds of topics.
    In addition, we have an annual Ohio Employee Ownership 
Conference that provides a forum for discussion on various 
issues relating to employee ownership. It is a one-day event in 
Ohio and draws about 300 folks each year from Ohio and the 
surrounding States.
    Since the inception of Ohio's program in 1987, the OEOC has 
worked with roughly 436 company owners and buyout groups 
investigating whether employee ownership makes sense in their 
particular case. These company and employee groups represent 
83,000 employees. Of these, 63 firms, employing almost 13,000, 
have implemented partial or complete employee ownership. Many 
of these employees would have otherwise lost their jobs due to 
plant shutdowns or some other sort of corporate downsizing.
    Now, the cost of jobs retained, created, or stabilized 
through the Employee Ownership Center at Kent State in calendar 
year 2002, which is the latest information we have available, 
in the firms that implemented ESOPs in that particular year, it 
was $423 per job in Ohio Department of Development funds, a 
very small number, I think you will agree, when compared to the 
financial, physical, and psychological costs that are 
associated with unemployment.
    It is a highly cost effective program because essentially 
we help people help themselves. Nevertheless, every year we 
have lost at least one otherwise viable employee buyout because 
of the lack of timely friendly capital. We have seen that 
happen year after year almost since the inception of the 
center.
    You are going to be hearing from Dave McCune from Massillon 
Stainless. Let me just say a couple of words about that. This 
was a facility that could very well be a profitable facility 
operating today. It had customers. It was mismanaged. A loan or 
a loan guarantee from something like a U.S. Employee Ownership 
Bank for a minority ESOP position could have positively 
influenced some prospective equity investors. As I say, you 
will hear more about this directly from Dave.
    Another more recent instance took place in Youngstown at 
Cold Metal Products, where 116 employees were given 10 minutes 
advance notice of the shutdown of their facility. The next day 
the company filed bankruptcy. Essentially, the banks were 
pulling the plug. Just 6 months before, the company had 
announced plans to expand that facility, spend money for new 
equipment and hire additional employees. In exchange, the 
county and the municipality had given them various kinds of tax 
abatements, a $165,000 grant, and the State granted tax 
incentives as well.
    Given the uproar that came with that shutdown, the 
employees put together an employee buyout group, petitioned the 
OEOC for a pre-feasibility study grant, which we approved. The 
study got underway and showed that a successful business could 
be resurrected at that facility or restarted at that facility. 
It would be restarted at a smaller manning level but restarted 
nonetheless and it could be very profitable. Unfortunately, 
they were not able to attract a minority investor. The plant 
remains closed.
    The folks there are putting together a very small 
operation, which will continue on into the future. But had 
something like the U.S. Employee Ownership Bank existed at that 
point in time, we think that would have certainly helped to 
have attracted a minority investor and the plant could have 
continued in operation.
    I see that my time is up as well. I would like to make just 
one very quick comment. I believe the proposed legislation has 
a provision in there for advance notice and essentially a right 
of first refusal. In other words, the opportunity to buy should 
be offered to the employees, and I think that is a very 
significant part of this particular piece of proposed 
legislation.
    I am reminded of something called Brainard Rivet in Girard, 
Ohio, which finally wound up employee owned and part of 
something called Fastener Industries, which is 100 percent 
employee owned, but it took a long roundabout way to get there. 
This was a profitable company that shut down simply because the 
company wanted to move that production to a non-union facility 
in Virginia. That particular plant was making $2 million a year 
on $14 million a year in sales. It was a very profitable 
facility.
    The only reason it survived was because of Congressional 
pressure once it was found out that this company was sending 
its customers to some of its competitors rather than trying to 
produce the stuff in Virginia, while in the meantime it was 
shutting down the plant in Girard. So we think this is good 
legislation and we certainly would support it.
    [The prepared statement of Steve Clem can be found on page 
59 in the appendix.]
    Mr. LaTourette. Thank you, very much, Mr. Clem, and my 
apologies. Do you want to be a Professor of Political Science 
at Kent State University?
    Mr. Clem. No, sir.
    Mr. LaTourette. All right. Because I think once it is in 
the record, you probably are.
    Mr. Megson, we thank you for coming and we look forward to 
hearing from you.

   STATEMENT OF JAMES MEGSON, EXECUTIVE DIRECTOR, ICA GROUP, 
                           BOSTON, MA

    Mr. Megson. Mr. Chairman, members of the committee, thank 
you for inviting me today. I have worked in the field of 
employee ownership for the last 16 years, 15 as Executive 
Director of the ICA Group, a nonprofit organization dedicated 
to creating employee-owned companies to save and create quality 
jobs, and more recently as the Executive Director of ICA's 
sister organization, the Local Enterprise Assistance Fund, or 
LEAF, a CDFI that provides debt and equity financing to 
employee-owned companies.
    LEAF and ICA have been involved in the creation of more 
than 50 employee-owned companies employing over 7,000 people. 
Employee ownership is a powerful tool. It enables ordinary men 
and women to share in the benefits of capitalism and links very 
directly the rewards they receive with the efforts they invest. 
But it is also a sound economic policy. A recent survey of 
every significant study of employee ownership over the last two 
decades showed that broad-based employee ownership boosts 
company productivity by 4 percent, shareholder return by 2 
percent, and profits by 14 percent over what otherwise would 
have been the case.
    Employee ownership also makes a significant contribution to 
our economy by enabling employees to buy businesses that would 
otherwise close with a resulting loss in jobs. These closures 
occur when small or medium-sized closely-held businesses close 
due to inadequate succession planning, or when large 
corporations close divisions or factories. An employee buyout 
of a company or division scheduled for closure is not easy. 
However, when a company is saved, the return on investment is 
spectacular.
    Some years ago, we helped the employees of Market Forge, a 
manufacturer of kitchen cooking equipment in Everett, 
Massachusetts, buy their company when the parent decided to 
close it. The State, the United Steelworkers of America, and 
the parent company each contributed $10,000 to fund the 
employee buyout effort. As a result, we were able to save 150 
well-paying jobs with generous health and pension benefits, and 
the company is returning over $500,000 each year to the State 
of Massachusetts in various forms of taxes.
    So given their proven benefits, why aren't there more 
employee-owned companies in the U.S. today? I believe this is 
due to a number of factors. First, the employee ownership 
option is not widely known or understood. To my knowledge, only 
two States, Ohio and Vermont, have organizations with proactive 
outreach programs. At its first conference on employee 
ownership, the Vermont Employee Ownership Center attracted more 
than 90 businesses, of which 80 say they are now considering 
this option.
    Second is the cost of putting together an employee buyout. 
This is beyond the resources of ordinary workers, especially 
those who are about to lose their jobs. They need to hire 
professional help to explore whether a buyout is feasible and, 
if it is, to create the business plan and package the 
financing.
    Third, assembling the necessary financing to buy a 
significant share of ownership of a company is extremely 
difficult. A bank will provide senior debt, but only up to the 
liquidation value of available assets. A limited amount of 
equity can be obtained from senior managers and venture funds. 
The employee group must seek subordinated debt to complete the 
financing, and this is extremely difficult to find. My firm, 
the Local Enterprise Assistance Fund, and other community 
development financial institutions fill this gap for some 
smaller transactions, but our resources are minuscule compared 
to the size of the need.
    In 1992, we worked with the employees of a mold making 
factory in Pittsfield, Massachusetts, that was being closed. To 
meet the need for subordinated debt in this transaction 
required the participation of no fewer than four specialty 
development lenders, all of whom were stretched to their 
maximum capacity. The story has a happy ending. Since the 
employees purchased the company, it has more than doubled in 
size, increased its share price by an average of 20 percent per 
annum, and returned more than $2 million to the State of 
Massachusetts.
    Not all employee buyout groups are so fortunate. In the 
spring of 2002, the 350 employees of a machine tool 
manufacturer in Vermont, a company with a strong brand name and 
potential customers, failed to complete an employee buyout 
largely because they could not secure the subordinated debt to 
plug the gap in the financing package. As a result, 350 well-
paying jobs in Vermont were lost.
    In summary, I believe that a Federal Government program to 
encourage the expansion of employee-owned businesses through 
the provision of loan guarantees, subordinated loans, technical 
assistance and outreach programs will yield a very high rate of 
financial return. Some of this return will come from the jobs 
saved at enterprises that would have otherwise closed. The 
majority will come from expanding the number of companies that 
because they are owned by their employees will experience a 4 
percent increase in productivity, a 2 percent increase in 
shareholder return, and a 14 percent increase in profitability.
    Thank you.
    [The prepared statement of James Megson can be found on 
page 100 in the appendix.]
    Mr. LaTourette. Thank you, very much, Mr. Megson. Mr. 
Adams, thank you for coming, and we look forward to hearing 
from you.

   STATEMENT OF FRANK ADAMS, PRESIDENT, SOUTHERN APPALACHIAN 
        CENTER FOR COOPERATIVE OWNERSHIP, ASHEVILLE, NC

    Mr. Adams. Mr. Chairman, members of the committee, thank 
you very much for the invitation.
    The Southern Appalachian Center for Cooperative Ownership 
is only 5 years old. Previously, I worked with the ICA Group 
out of Boston, and prior to that I worked in eastern North 
Carolina establishing worker-owned businesses in a very rural 
and very poor part of the State. I am back in North Carolina 
now and want to share with you some of the data that is related 
to the latest collapse of another industrial sector in North 
Carolina, and that is the forest products and allied paper 
products industry.
    Last year, there were about 440,000 persons still employed 
in North Carolina's forest products and allied paper products 
industry, and it was the second largest for-profit sector in 
the State's economy, at a $20 billion a year business. But 
furniture and fixture imports, mostly from Asia, along with 
paper and allied products, mostly from South America, are 
hammering the State's forest products businesses, leaving 
apprehensive employees constantly wondering if their job is the 
next to go.
    Last Tuesday, a week ago, La-Z-Boy, Incorporated announced 
job cuts at manufacturing plants in Morristown, Tennessee, and 
Monroe, North Carolina, totaling 480 persons.
    Since April 1995, the dreaded termination notice has been 
handed out to 13,740 North Carolinians, 9,415 men and women 
making furniture and fixtures, 3,315 working in lumber yards or 
sawmills, and 1,010 making paper or allied products. Western 
North Carolina's 23 mountainous counties, on average, since 
June 1, have lost 144 employment positions in that region. That 
is, since June of 2001, 144 men and women have lost their jobs 
every month. This is a crisis in small rural communities of 
dramatic proportions. For many people it is the loss of a third 
or fourth generation way of making a living and living a way of 
work.
    What happens to these men and women after they are thrown 
out of their jobs? Lori Kletzner, an economist at the 
University of California, Santa Cruz, as part of a large study 
on how American industries were affected by import competition, 
found that of the half million workers who lost jobs in the 
forest products industry in America between 1979 and 1999, 38 
percent of them never found jobs again. Of those who did find 
jobs, one in five took pay cuts of more than 30 percent. Today, 
if you are a logging operator or equipment operator in North 
Carolina, on average you will earn $11.58. Take a 30 percent 
pay cut of that and imagine what it does to your pantry and to 
your pride.
    There are some bright spots, however, and I will mention 
three. Number one was when Champion International Papers 
announced in--I forget the date, it went on so long--in 1997 
that the employees and the mill were nonstrategic assets and 
that the mill was to be closed or sold at public auction. A 
small handful of members of PACE Local 507 decided they were 
going to try to buy the assets out. Two years later, after a 
rocky, emotional, and draining experience, they were finally 
able to find bankers, subordinated debt and purchase a 40 
percent equity stake in this $253 million transaction that was 
a division of Champion that it no longer wanted making 
paperboard for milk cartons and orange juice cartons.
    Today, that mill is the second largest producer of 
paperboard for milk cartons and orange juice and other liquids 
in the United States. It has grown from 1,600 employees to2,100 
employees and it has never failed to make a stock distribution 
in the years it has operated as an ESOP.
    A second one, and a highly unusual situation, a mental 
health institute in Asheville, North Carolina, where severely 
handicapped individuals have learned how to operate not only 
machinery but a business called Sparkling Clean Janitorial 
Service. They are no longer entirely wards of the State, they 
are making a living to the degree that Federal law allows 
harmed individuals to make a living. That I would encourage the 
committee to consider reviewing. That is to say, if you are on 
the State, as we say down home, those persons should be allowed 
to make a living wage and not be capped.
    The other one that I would talk about is a cooperative yet 
to get started at the initiative of the Blue Ridge Electric 
Membership Cooperative in Wilkes County and the Wilkes County 
United Way. Wilkes County is the largest in North Carolina and 
it is the home of Lowes, which itself is an ESOP and has made 
many people there in Wilkes County millionaires. We have been 
trying to develop a workers and landowners cooperative to 
harvest and produce timber for end users in the marketplace, 
and we are stymied in our efforts by the lack of capital, even 
though we have the support of the two institutional pillars in 
that county.
    So for our purposes, as a for-profit business, the 
legislation that you are considering and its purposes stand to 
serve North Carolinians well, and I wish it were in place today 
to serve North Carolinians right away.
    Thank you for your attention.
    [The prepared statement of Frank Adams can be found on page 
53 in the appendix.]
    Mr. LaTourette. Mr. Adams, thank you very much. Mr. Dines, 
you are the last witness on this panel, and we look forward to 
hearing from you.

 STATEMENT OF RICHARD DINES, DIRECTOR OF COOPERATIVE BUSINESS 
DEVELOPMENT AND MEMBER SERVICES, NATIONAL COOPERATIVE BUSINESS 
                 ASSOCIATION, WASHINGTON, D.C.

    Mr. Dines. Good afternoon, and thank you, Mr. Chairman, 
Congressman Sanders, and other members of the subcommittee for 
the opportunity to testify on behalf of the National 
Cooperative Business Association about the need for Federal 
assistance to help the start-up and expansion of employee-owned 
businesses. In particular, I will address the importance of 
worker cooperatives as employee-owned businesses deserving of 
incentives from the Federal Government.
    I am Richard Dines, Director of Co-op Business Development 
and Member Services for the National Cooperative Business 
Association, or NCBA. NCBA represents cooperatives across all 
industries, including agriculture, food retail and 
distribution, health care, energy, finance, housing, insurance, 
and many others. Our members include producer cooperatives, 
consumer cooperatives, and worker cooperatives. NCBA has a long 
and proud history of helping develop co-ops to meet people's 
needs. NCBA is now working on an urban cooperative development 
initiative that will demonstrate how cooperative businesses 
meet the economic needs of urban residents and build wealth and 
ownership.
    There are thousands of credit unions, housing co-ops, 
health care co-ops and others already meeting those needs, but 
community developers and Federal agencies usually overlook the 
co-op business model. We hope to change that thinking with our 
initiative.
    The first project of our initiative will be the development 
of a worker cooperative. This project will demonstrate that a 
worker-owned cooperative will be a critical tool to create jobs 
that pay livable wages and offer solid benefits. I am sure that 
my fellow witnesses will make the case that employee ownership 
works and that Federal assistance to help start and expand 
employee-owned businesses is in the best interest of the 
American taxpayer. We at NCBA also support such Federal 
assistance, but we do not want worker co-ops to be lost in the 
discussion.
    Employee stock ownership plans, or ESOPs, represent the 
large majority of employee-owned businesses in the country. In 
most ESOPs, employees do not own a majority of the company's 
stock. In the ESOP companies that do give majority ownership to 
the employees, only a small percentage give those employees 
democratic control over the business. By contrast, all worker 
co-ops are owned and democratically controlled by employees of 
the business. Workers are members of the co-op, own shares of 
the business, and elect a governing board according to one 
member, one vote. In some smaller worker co-ops, every member 
participates on the governing board. Also, in worker co-ops, 
profits are received when earned, not at retirement, and those 
profits are taxable.
    In my written testimony, I present two excellent examples 
of worker co-ops that are giving their employees ownership and 
control: teamX, of Los Angeles, California, a manufacturing 
worker co-op, and Cooperative Home Care Associates of Bronx, 
New York, actually a service co-op. These cases demonstrate 
that worker cooperatives can empower workers and perform well 
in the marketplace.
    NCBA believes that it is good Federal policy to help 
develop more worker-owned co-ops. The worker co-ops benefiting 
from Federal policy will generate more wealth and ownership 
opportunities in some of our Nation's most distressed areas. 
The small business community will be able to retain jobs and 
productivity in businesses that might have otherwise shut their 
doors when their owners retire. The proven business performance 
results of employee-owned businesses also demonstrates that the 
growth and expansion of these businesses are good for the 
American economy.
    While legislation to create new financial tools for worker-
owned cooperatives is needed, it is also important that 
existing Federal economic development programs explicitly 
include development of worker-owned cooperatives as eligible 
projects. Any new legislation must tackle the issue of equity 
capital for workers starting up cooperatives. This is no easy 
task and would certainly require a substantial investment, but 
the payoff would likewise be substantial.
    The prohibition on lending to cooperatives at the Small 
Business Administration should be eliminated and SBA should 
even be mandated to offer its services to employee-owned 
businesses. Funding should be made available to nonprofit and 
cooperative organizations with expertise in developing 
employee-owned businesses and worker-owned cooperatives. The 
Employee Ownership Centers in Vermont and Ohio, the ICA Group, 
the Southern Appalachian Center, and many universities have the 
necessary expertise to provide this education and outreach on 
worker co-ops.
    Finally, caution should be taken in defining what a worker 
co-op is. To truly be a cooperative the members must own and 
govern the business and control a majority of the seats on the 
board. While outside investors or the sellers of a business may 
retain a financial stake, the workers must control the 
business. If they do not, it is not a co-op.
    Thank you again, Mr. Chairman and members of this 
subcommittee, for the opportunity to testify.
    [The prepared statement of Richard Dines can be found on 
page 67 in the appendix.]
    Mr. LaTourette. [presiding.] Mr. Dines, my congratulations 
to you. That was exactly 5 minutes; we commend you.
    At this time, the subcommittee will move to questioning 
this panel under the 5-minute rule. And I will begin.
    Mr. Keeling, I want to start with you, if I could, because 
I was struck by the use of ``up close and personal.'' I think 
that your observation was that there may be a perception here 
in the Congress that employee ownership can create this sort of 
up-close-and-personal relationship in smaller companies, but 
perhaps--I thought I heard you to say that you may think some 
of us are of the belief that it can't be replicated in larger 
companies.
    My question to you would be, what factors do you think lead 
to that perception, if that is in fact your opinion; and what, 
in your view, can we do to not only change that perception, but 
to increase employee ownerships in some of the larger 
corporations and companies in America?
    Mr. Keeling. Oh, I could take a 5-hour rule to answer.
    First of all, you are absolutely right that it is my view 
that that is the view of Congress, in dealing 30 years with the 
tax committees and the labor committees.
    The idea that smaller units can create special bonding and 
special cooperation is just not unique to employee ownership 
critics and viewpoints. There is a view out there that once you 
get more than 150 people in any unit--we have employee-owned 
companies that won't have a factory or a plant with more than 
150 employees; once they reach that level, they will go build 
another one, so that they can maintain that 150 level. So 
clearly it is something that I scratch my head about.
    I didn't lose all of my hair scratching about this 
question, because the vision of our association is that the 
majority of American employees are significant owners in the 
companies where they work. You eliminate the large public 
companies, you are eliminating 50 percent of the workers in 
America from participating in ``employee ownership.''
    So I think it is a huge challenge for the employee 
ownership world, to address the questions you raised.
    I don't know if the employee ownership world has good, 
simple answers to prove that in a large organization you can 
have the same kind of synergy and magical kind of your work 
that I know Congressman Sanders has seen in Gardner Supply and 
King Arthur Flour and Carris Reels, and a lot of companies in 
Vermont. But I think it is a challenge to those of us who are 
advocates for employee ownership to address this very issue. I 
don't think we give great answers right now.
    I do know this. I have worked with a lot of large 
corporations that have a lot of stock ownership, and I have 
talked to the employees in those companies, both midlevel and 
lower, and they do feel there is something special about their 
company.
    Of course, it has been crushing to see companies of that 
size go through the turmoil that we have seen in the last 36 
months, a la the Uniteds, the Enrons, the WorldComs, because I 
can tell you, having visited with employees in those companies 
during some of their great years, their belief and their 
loyalty and their dedication to their companies was as strong 
as what I would see in the smaller companies. So we see some 
issues.
    I don't come to you with answers, but I think it is an 
imperative that we do get the answers, because I agree with 
Congressman Sanders and Congressman Bill Thomas, this is 
something that is not going to go away. I think in the 21st 
century, more and more people will want to be stakeholders and 
owners in the companies where they work, and we should get it 
right.
    Mr. LaTourette. I thank you for that answer. I think the 
last couple of sentences of your answer really indicate why 
this is an issue that can be addressed in a bipartisan manner 
in the Congress, because you don't often hear Congressman 
Sanders and Congressman Thomas' name mentioned in the same 
sentence on an issue. I think that gives hope to the issue that 
you brought before the subcommittee today.
    Mr. Clem, in your testimony--and Mr. Megson might have 
touched on it, Ohio is only one of 28 States that has passed 
legislation encouraging the creation of employee-owned 
businesses, and one of only a handful that has a State-
supported program to attempt to encourage that end.
    Do you have an opinion as to what barriers or impediments 
that are seen by other States that prevent them from following 
the Ohio model? In your role, in your leadership role, even 
though we have established you are not a professor at Kent 
State, in your leadership role have other States or 
organizations sought out what it is that Ohio is doing in an 
attempt to recreate that in other places in the country?
    Mr. Clem. Well, I am not sure that I can really speak to 
the reasons why other States haven't followed the same path 
that we have. Perhaps it has been the efforts of Professor John 
Logue, who founded the Center in 1987, and has dedicated his 
life essentially to growing the Ohio Employee Ownership Center.
    It is one thing to pass some legislation saying it is good; 
it is quite another to actually promote it to the businesses 
and to the employees in the State. It takes an awful lot of 
work and an awful lot of effort on the part of a number of 
people.
    Mr. LaTourette. If I can interrupt you for a second, I 
didn't write down the number, but I know that Mr. Sanders was 
impressed by it. Was it your testimony that the cost of each 
job that had been preserved by your activities is $423, 
thereabouts?
    Mr. Clem. That is the calendar year 2002, yes. And 
essentially what that boils down to, that was in the Department 
of Development funds from the Ohio Department of Development. 
We got a grant from there. If you divide, you know, the number 
of jobs that go ESOP during a particular year into the amount 
of funds, that is where we come up with that number. It is a 
rough number, but it is a pretty good indication that had there 
not been something like the Ohio Employee Ownership Center 
around to provide technical assistance and so forth, some of 
those facilities, at least some of them would not have been 
employee-owned. They would have closed, and those jobs would 
have been lost.
    As far as--you asked about replication possibilities. I 
think that the Vermont Center, for example, kind of has arisen 
as a result of contact with the Ohio Employee Ownership Center. 
Dr. John Logue has been working closely with the director of 
that Vermont Center in more or less mentoring and helping them 
get this thing off the ground up there. It has worked well.
    And we think that the Ohio experience is a good one that 
can be replicated throughout the United States, and this bill 
would help do that.
    Mr. LaTourette. Thank you very much. It is not only rough 
numbers, but I think it is a pretty impressive number as well.
    Mr. Sanders.
    Mr. Sanders. Thank you, Mr. Chairman. And again thank you, 
panelists, for, without exception, your extraordinarily good 
testimony.
    Let me start off with a simple question, and anybody that 
wants to answer it can jump in. My experience in Vermont has 
been that when we talk about employee ownership, it really 
generates a lot of excitement.
    When I was Mayor a long time ago in Burlington, we had a 
meeting. Hundreds of people came out, including a lot of folks 
who had started their own business, were now about to retire 
and didn't just want to sell it; they wanted to know how they 
could leave it to their workers.
    What is your impression in terms of the kind of excitement 
that worker ownership, or ESOPs, develop? Am I wrong in 
assuming that a lot of people, when they hear about the idea, 
are excited? One of you, I can't remember who, mentioned that 
in fact not a whole lot of people know that that is an option 
out there.
    Who wants to speak to that?
    Mr. Keeling. Two things. One, I think that the word 
employee--the word ``worker'' is a wonderful word, it conjures 
up positive images. And in Western society and in modern 
society the word ``ownership'' is a positive word. So you are 
combining two positive words, and you have a natural positive 
reaction.
    Having said that, I of course have pondered, as you have, 
how could two really exciting words, powerful concepts, end up 
being in the backwater of the American economy, in terms of 
awareness and concern? And this is glib. But I think that we 
have never had national leadership for this kind of policy. I 
don't think that you have had your top executive branch 
leadership ever say, This is my priority.
    This is my priority. And I have a priority also to increase 
the ownership equity in America and to increase employee 
ownership.
    And having said that, I think there are also some 
intrinsic, built-in issues with the ESOP model that we should 
all honestly look at and examine and talk about and not be 
scared of talking about them.
    Mr. Sanders. I am sorry to interrupt you.
    Mr. Megson. What is your view on that?
    Mr. Megson. Well, I would like to state that I think it is 
not as widely known as it should be.
    When you hold a meeting on ESOPs, a lot of people turn up. 
Part of the problem, in my opinion is, short-termism. Outreach 
programs need to operate for several years to be successful.
    The reason that the Ohio Center has been so successful is 
that they have been there year after year after year. My 
experience is, based on speaking to people and owners, about 
selling their business. We hold seminars every spring and fall 
in the Boston area. Nobody sells their business to their 
employees because they hear me speak. They think about it for 2 
or 3 years and then come back.
    So I think there is a lag of about 2 to 3 years. When 
people first hear about the idea, they kick it around, and 
think about it. It takes a sustained program and the 
availability of the kind of resources they have in Ohio. Aftger 
hearing about ESOPs, owners think about them and when they come 
back the resources are there to help them proceed.
    Mr. Sanders. Let me ask a self-serving question as the 
sponsor of the U.S. Employee Ownership Bank. Do you think that 
something like that would play an important role in addressing 
the concerns that Mr. Megson and all of you have raised? Could 
that be a real stimulus to employee ownership in ESOPs 
throughout this country? Is that something that we need in 
America?
    Mr. Dines.
    Mr. Dines. Sure. I would say that the proposed legislation 
would definitely help create new institutions like the employee 
ownership centers in Vermont and Ohio.
    What we have seen at NCBA, when a grant program was created 
at the U.S. Department of Agriculture, a rural cooperative 
development grant--this was a grant program to help fund 
technical assistance centers around the country-- once that 
money was available, centers flourished around the country; and 
all of a sudden we see lots of new co-ops being developed in 
rural America.
    This type of an idea, if it would provide grant funding to 
technical assistance centers like the Southern Appalachian 
Center, like the ICA group, we would see a lot more of them 
popping up around the country.
    Mr. Adams. I think it is both a question of long-term 
support at the political level.
    Certainly Senator Russell Long played a significant part in 
bringing these ideas to public attention and giving them 
credibility, ironically, as a Senator from the South. It is the 
South, at least southern banking institutions, even through 
consolidation, which is the least well informed or the least 
supportive of this.
    And having worked in the South principally since 1978 
developing worker cooperatives or ESOPs on the scale of the 
Champion International plant, I can say that we are often 
greeted not with crowds of enthusiastic people, as I saw in 
Vermont, when I worked up there with Bruce Seifer and others of 
your staff, but we find no enthusiasm on the part of bankers.
    I can tell you a story that came out of Rich Square, North 
Carolina, that still gives me chilblains of anger. A zipper 
company that had operated there for 20-some years, and Rich 
Square closed its doors--this was long before Warren 
Legislation--had been purchased by YYK Japan, and 80 workers 
were out of work. And we were contacted with--I was contacted 
by them.
    I went through the process of getting a long-term contract 
for industrial zippers for the furniture industry in North 
Carolina, and developed a business plan, had a site ready. Went 
to the bank with the business plan, went to the bank with the 
contracts in hand for $250,000 worth of zippers a year, with 
more promised if the product was serviceable.
    The president of the bank was a high school classmate of 
mine. And I will tell you in all candor in no disrespect to 
anyone in this room, he told me and the president, who was a 
woman, and the treasurer, who was a black man, that we don't 
make loans to niggers and women. And that has been burned into 
my consciousness ever since.
    And there is a great deal of----
    Mr. Sanders. I gather what you are saying is that something 
like the Employee Ownership Bank could go a long way in 
educating not only workers but financial institutions. I 
appreciate that.
    My time has run out.
    Mr. Chairman, thank you very much.
    Mr. LaTourette. Mr. Lucas.
    Mr. Lucas. Thank you, Mr. Chairman.
    What year was that, Mr. Adams? What period of time was 
that?
    Mr. Adams. That was in 1979.
    Mr. Lucas. Well, I would hope that we have come a long, 
long ways in a lot of attitudes since 1979 surely.
    Mr. Adams. I hope so, too.
    Mr. Lucas. Surely.
    Mr. Keeling, for just a moment, it seems quite clear that 
one of the common themes here is to get across the knowledge of 
the options that exist and the potential that ESOPs present. 
And in addition to--to Mr. Sanders' bill, I understand there 
are a couple of other efforts out there to generate that kind 
of attention, if I could deviate off of this particular bill to 
that one.
    But I understand one of my colleagues from the Carolinas, 
Mr. Ballenger, has introduced a bill to create a presidential 
commission on employee ownership. Can you offer me an opinion, 
if you have one, about whether something like that would help 
to enhance the visibility of these endeavors?
    Mr. Keeling. Let the record show that Mr. Sanders is one of 
the original cosponsors.
    Mr. Lucas. A great American, Mr. Sanders is, all the way 
through.
    Mr. Keeling. So I am sitting before a friendly audience.
    We feel very strongly about that legislation. We think that 
the very essence of Mr. Sanders' question about, why isn't 
there more attention, is because there has never been a high-
level dialogue. You can say ``debate,'' you can say 
``dialogue,'' you can phrase it any way you wish. There needs 
to be some attention focused on a trend that I think is not 
attracting national attention.
    There are many not-fitting-together policies out there that 
we have developed over the last 30 years to promote employee 
ownership; and I think we need to come to grips with that. We 
need to come to grips with where we want to go with employee 
ownership in this Nation. I think the presidential commission 
could put us there. I think it could do a lot of answering the 
questions that the panel--that the subcommittee has raised.
    I think what is intriguing about it is, the makeup of the 
commission would be dominated by nonmanagement employees and 
management employees of employee-owned companies, and people 
like the friends we have here on the panel, that are expert in 
employee ownership, versus people that are looking at employee 
ownership candidly from a very, very narrow frame of focus.
    So I think it is very important. And I think what you are 
doing here today is absolutely part of that very effort in H.R. 
1778, to get a national dialogue going about employee 
ownership, and that we should get it right for the 21st 
century.
    Mr. Lucas. Thank you.
    Mr. Adams and Mr. Dines, talking about the co-op movements 
in general. There are a variety of endeavors that are going on 
out there. In the Third District of Oklahoma, we have a strong 
tradition of agricultural producer cooperatives both in 
providing resources to farmers and ranchers and in marketing 
the results of their efforts.
    But it almost seems in recent history--and if you have got 
some opinions on this, I would appreciate it; it almost seems 
in recent history like my co-ops in rural Oklahoma have gone 
two directions. One, they have either become the very 
successful multifaceted co-ops--the swine industry and certain 
fruit industries--or they have gone the other direction, as it 
tends to seem like some of my grain co-ops, that support grain 
farmers and kind of wilted away.
    The ones, I think, that have enjoyed tax exempt status 
mainly were started in the beginning of the last century.
    Are there trends like that across the country? Are ag co-
ops under greater strain perhaps than cooperative endeavors in 
different parts of the country or in different parts of the 
economy?
    Mr. Dines. Yes. I would say that ag cooperatives are under 
some very particular types of stress because of the farm 
economy. But also because farmer cooperatives have a very long 
history in the United States, and I think a lot of the older 
farmer cooperatives have, quite frankly, managements that have 
forgotten why they are cooperatives. And it is up to those 
farmer members to remind them that they are co-ops.
    And I think that is a very important message to all 
different types of cooperatives, whether they be ag co-ops, 
rural utility co-ops, which you also have a lot of in your 
State, and worker co-ops, that the purpose of those cooperative 
businesses is to serve their members. That is why they are 
there. And what we have seen is a lot of larger agricultural 
cooperatives and cooperatives in other industries forget their 
purposes, why they came into being as cooperatives. And some 
have even sold out to for-profit ventures.
    But, fortunately, there is a lot of discussion and debate 
within the cooperative business community about that, and a lot 
of those larger and smaller co-ops are recognizing that there 
is a good reason why they were founded as cooperatives; and 
they will continue as such.
    Mr. Adams. If I may add one thing, Richard is absolutely 
right, that many people have forgotten the purposes, at least 
in the worker-owner sector, which is growing rapidly enough so 
that next year there will be a meeting in the Midwest, probably 
in Minneapolis, to establish the North American Federation of 
Worker-Owned Cooperatives.
    Having said that they are growing, I fear that they may 
suffer, the successful ones, and they have the same rate of 
success as any other business, success or failure. I fear that 
they too may forget their origins, because there is no single 
academic institution that I know of in the United States, with 
the exception of the University of California at Berkeley, from 
time to time, that is offering sustained courses on management 
of worker-owned cooperatives where the relationship between 
capital and labor is significantly altered.
    And I feel that without the development of informed and 
educated young men and women to prepare themselves for 
leadership in these worker-owned cooperatives, we will witness 
a dearth of leadership and a return to normalcy. It is also a 
very serious problem in the industrial sector.
    Managers in this country are educated to represent the 
interests of the capital investors. And that, for all intents 
and purposes, means directing the lives of men and women in the 
corporation that they are working for.
    That said, when there is a transformation through a buy-out 
or through a 1042 rollover into an employee-owned firm, the 
managers are seldom prepared for allowing new owners to offer 
up ideas that can genuinely improve the productivity and 
efficiency of the corporation. And this has happened on several 
occasions at Blue Ridge Paper Products, the name of the 
corporation that resulted from the Champion buy-out. I would be 
glad to share that with you later, but I don't want to take any 
more of the committee's time.
    But there are innumerable examples in that company alone 
where good ideas have come up out of the work force and 
management. Unless they were asked by the board of directors, 
have you passed this by the joint labor-management committee, 
have habitually--not out of maliciousness or out of mean-
spiritedness, but out of their custom--circumvented asking 
employees how to get a better product and more efficiency.
    Mr. Lucas. Thank you, Mr. Adams. You, too, are a great 
American, for the record.
    Mr. LaTourette. Thank you very much, Mr. Lucas, for your 
good questions and kind comments.
    Mrs. Maloney.
    Mrs. Maloney. Thank you, Mr. Chairman, and Ranking Member 
Sanders for holding this hearing. And I thank all of the 
panelists. It is a very exciting idea as a way to expand jobs 
and ownership and, really, capital in America. I think, if used 
adequately, it could probably save many manufacturing jobs in 
America, and other jobs, industrial jobs.
    I found your remarks, Mr. Keeling, very interesting when 
you referred to Dr. Kelso, who envisioned ESOPs not as a tax 
incentive program, but more as part of the financial services 
structure of our country; and it is has always been a tax 
incentive program. So it is very interesting that it is here 
before Financial Services where he envisioned it to be.
    I had the opportunity to work with Dr. Kelso when I was a 
member of the city council in New York, and tried to save a 
steel manufacturing company in my district. And what happened 
at the time we got involved, at the time that the workers came 
to us and I reached out to Dr. Kelso to package it, they had 
already sold the equipment, the buyers had gone elsewhere, and 
we were just at the point where it was impossible to salvage 
the company and to salvage the jobs.
    And I feel that the proposal that my colleague from Vermont 
has put forward, if we had had technical assistance, if we had 
had a loan line, possibly that plant would still be in New York 
providing services, paying taxes, with the employees with a 
stake in the South Bronx there and still working and helping 
the economy.
    So I would like to join my colleague, Mr. Sanders, in this 
effort. I think it is a very interesting proposal, and one that 
could help expand the economy in our country and keep our jobs.
    I would like to ask Mr. Keeling--I represent an urban 
district, and really the backbone of many urban districts are 
service jobs and small businesses. Most of the businesses in a 
lot of urban areas are small businesses. And can ESOPs work, 
say, with a real estate management program, or with a pizzeria 
that does catering? Or how small can an ESOP be? Do you have 
models of how it has worked with small businesses? Could you 
comment on that?
    Mr. Keeling. I also want to comment that, I appreciated 
your reviewing your history with employee ownership when you 
were on the city council in New York City. You may recall at 
the time you came to Washington and worked very hard with the 
New York congressional delegation to preserve a tax incentive 
that was unique at that time to lenders, where they excluded 50 
percent of their interest income for giving loans to ESOP 
companies. And there was often a feeling that if that had been 
preserved--we didn't succeed, but you certainly tried mightily, 
along with others, to preserve it--perhaps some of the distress 
loans would still be made.
    I mentioned that in my written testimony, by the way, and I 
am happy to hear you relive your experience with Dr. Kelso 
during that time.
    To answer your question, there is a general rule of thumb, 
that a corporation should have a payroll of at least 20 
employees to be viable for a leveraged ESOP.
    Having said that, Congresswoman, in your Congressional 
district, I think we have five or six smaller businesses that 
are ESOP, and who belong to the association. They are in the 
printing business, architectural firms and other businesses 
typical of what you would see in some of the Manhattan office 
buildings in your district.
    The service industries are probably the fastest growing 
group of companies, in terms of creating ESOPs, of any. I think 
that is why we have seen a growth of the number of companies in 
the mid-Manhattan, northern Manhattan areas that you are 
representing in Congress.
    I do believe, once you get below 20 employees it becomes 
problematic. I think certainly at less than 20, at that size, 
you are looking at your one person one vote worker co-ops. That 
is an area that is not being promoted as well, because most 
businesses are hiring more than ten or eight people.
    The only final thing I would say is, some of our more 
successful companies--Hot Dog on a Stick, Round Table Pizza--we 
have a lot of restaurant, fast food, service provider-type 
companies; and I can't cite one for you in New York City, but 
we will certainly work on that.
    Mrs. Maloney. I always thought that taxi companies would be 
examples of what would really work for employee stock 
ownership. I think it is a great idea. It is really a win-win 
for the economy, for the workers, saving the jobs, saving the 
businesses. And I really have been interested during my term in 
Congress, to see really a lack of support or enthusiasm, 
because if we put our tax incentives there, and our structure 
there, the opportunity to grow jobs is tremendous, and it has 
been successful.
    I thank all of you for your work. And the inspiration of 
Dr. Kelso. You bring back a lot of memories. He was an 
extraordinary individual, and it was an honor to work with him.
    Mr. Keeling. One tiny comment about what you just said.
    The fact that I think you don't see the enthusiasm that you 
would have anticipated before you came is that the people who 
work on employee ownership policy in this nation, both in the 
congressional committees and in the agencies, the ownership 
piece is a subset of what they think about. It has not been 
escalated to being Roman numeral I of the piece of paper of the 
outline.
    That is why it is so important that this committee is 
interested breaking the barriers to getting another bigger 
focus on ownership. I think that is why, as Congressman Lucas 
mentioned, we need a national debate about employee ownership, 
so it is thought of in grander terms than just being a detail 
in the Tax Code.
    Mrs. Maloney. I agree. Thank you very much. My time is up.
    Mr. LaTourette. I thank the gentlelady.
    Ms. Brown-Waite.
    Ms. Brown-Waite. Thank you, Mr. Chairman. I am not sure who 
to address this to. I recently attended a meeting with SCORE, 
Service Corps of Retired Executives. They were presenting 
awards to some of the SCORE members and also to one of the very 
successful businesses that they helped.
    While relating this to a cooperative, having employees who 
may have built widgets and been darn good at it, then becoming 
the owners of the company or participating in the cooperative, 
what kind of support services are given to them so that we are 
sure that the now employee-owned business or the cooperative is 
truly a success?
    Do you utilize SCORE? What kind of additional kind of 
management services are available to help those businesses?
    Mr. Keeling. Congresswoman, I sit here and I talk about 
public policy. But probably the biggest thing that this 
association, and the Ohio Center--and I think the Vermont 
Center will do the same thing, and the gentlemen at this 
table--is providing education and technical services on how to 
manage an employee-owned company. It is not an easy task for 
the very reasons you mentioned, because a lot of traditional, 
the ways we used to do things, are being broken.
    It is a very rewarding way to manage an organization if you 
get there. But it takes a lot of education. And one of the 
things that we preach, and I know all of the organizations 
preach, it of course takes leadership and a commitment from the 
executives of those companies--and I think you are going to 
hear from some in a second--that they are committed to the 
time, the energy and the effort to have their employees learn 
about our capitalistic system, free enterprise, profit and 
loss.
    We certainly welcome any organization such as SCORE, or the 
organizations we run dedicating time and energy, break-out 
sessions, videos, pamphlets, booklets, we all have them, that 
are designed to do exactly what you are talking about.
    That is an essential piece of making employee ownership 
work. Absent that, I am afraid that it may just flounder as 
something that a few people put together for a service fee.
    Mr. Megson. My organization helps groups, especially inner 
city groups, start worker co-ops around the country. We do tap 
SCORE, particularly for board members.
    Part of the services we provide are, training and 
education, SCORE can be extremely valuable in providing a board 
member to worker owned companies. Outside resources who come in 
and provide a larger overview, are very valuable. We do use 
them and we appreciate them.
    Mr. Clem. In Ohio, at the Ohio Employee Ownership Center, 
we have an employee-owned network. And we provide about 18 days 
of training each year on various topics, supervisory practices, 
high performance workplaces, how to read your financial 
statements, a number of things that they are involved with on 
how to be an employee-owner.
    But those are open to any employee-owned company--well, any 
nonemployee-owned company, for that matter. But we primarily do 
it for the employee-owned network. But as I say, others are 
available or, you know, are certainly permitted the opportunity 
to attend if they so desire.
    And we coordinate this business succession planning 
program, which tries to educate folks that are thinking about 
retiring and don't want to see their facility liquidated, and 
they don't want to see somebody else buy it, close it, send it 
overseas whatever, and are willing to explore employee 
ownership and let their employees have a shot at running it.
    Ms. Brown-Waite. Just a follow-up question. Other than 
money and maybe management skills, what would you say is the 
third greatest impediment to more employee-owned business, or 
cooperatives?
    Mr. Keeling. Fear. Fear of letting go. Giving up. 
Delegation. Losing control. That is a personal opinion of mine, 
but I have been around ESOPs since 1982. I have been in over 
300 ESOP companies in the last 10 years. And it does take a 
certain set of core values to be willing to, ``lead from the 
center'' versus being a top-down leader. And I think that we 
see in management books and management training the last 25 
years, more and more emphasis on that leading from the center.
    I think there is a transformation going on. It is not as 
fast as some of us advocates would like to see.
    But I think it is a fear of losing control of something 
that you created and nursed and grew yourself.
    Ms. Brown-Waite. Thank you.
    Mr. LaTourette. I thank the gentlelady.
    Mr. Watt.
    Mr. Watt. Thank you, Mr. Chairman. I don't think I will ask 
any questions. I did want to come back and welcome Mr. Adams, 
who is from my home State, and thank him for being here, and 
apologize to the rest of the witnesses other than the first one 
I heard. And then I had to run out the door to another 
obligation and couldn't make it back in time to hear any of the 
rest of their testimony.
    But I think we are addressing some things that, especially 
in North Carolina, are critically important. And if we can 
figure out a way to make more of these things work, we would 
solve some of the employment problems that we have had. And we 
have certainly seen it in the--first, in the textile industry, 
and now in the furniture industry, and some of the industries 
related to furniture.
    We are having some hard times in North Carolina. So if this 
has some good possibilities and we can incentivize it to 
happen, I am certainly going to try to be supportive of it.
    So thank you again for being here, and I will yield back 
and maybe we can expedite the next panel.
    Mr. LaTourette. I thank you very much, Mr. Watt.
    Mr. Sanders.
    Mr. Sanders. Just very briefly.
    Thank you, Mr. Chairman. I just again want to thank the 
panelists. Also I have been very pleased by the number of 
members from both sides, actually more Republicans than 
Democrats who have been down here to listen to this. That 
suggests to me that there really can be a bipartisan approach. 
We are all losing good-paying jobs in our districts. We are all 
searching for solutions to rebuild manufacturing and other 
sectors of our economy.
    And I hope very much that this is a start to a good 
bipartisan effort to create legislation that will move us 
toward ESOPs and worker-owned plants throughout this country.
    So I feel very excited and look forward in a moment to 
hearing the second panel.
    Mr. LaTourette. I thank the gentleman very much. We are 
going to be delayed a couple of moments for that.
    Mr. Feeney, you are next.
    Mr. Feeney. Thank you, Mr. Chairman. I will try to be 
brief. And, really, I just wanted to throw out to some of the 
panel members that have been advising some of the employee 
groups in these situations, because I will tell you candidly, 
it is not typically my party that is trying to protect people 
from themselves in the area of investments and market 
decisions. And we are very much, and I certainly am very much a 
free marketer, and tend to be laissez-faire when it comes to 
running one's own affairs.
    I am also a huge advocate for anything that will help 
encourage people to put a portion of their savings away for 
retirement, for future needs for things like ESOPs and for 
401(k)s. If everybody would save for retirement 10 percent of 
everything they earned, I don't care how low their wage scale 
was, we would be a much better country and they would probably 
be much better off individually. But having said that, most of 
those plans rely on professional money managers, and they also 
rely on diversification.
    My wife, for example, is an engineer. For quite a bit of 
time, if she had lost her job, she would have lost her health 
care. If she had lost her health care and her job, about 50 
percent of her retirement savings, because of the way that 
things were structured 15 years ago, would have been lost if 
the company, for example, had gone bankrupt.
    Having all of your eggs in one basket is almost always a 
terrible idea, unless you happen to hit the one wheel on the 
roulette wheel that finishes first.
    And so it occurs to me that, to play devil's advocate for a 
minute, I certainly am not opposed to ESOPs being given 
favorable or at least reasonably fair treatment if there is a 
considered reason and value for employees to go ahead and 
purchase an employer. It seems to me that next to the employer 
and his or her accountant, they are probably in the best 
situation often to know about the future prospects of the 
business. But it does also tend to have some incentives to put 
all of your eggs in one basket.
    If you are going to lose your job if the plant moves, it 
may have been a perfectly reasonable decision to move that 
plant elsewhere, but you are not able to make a reasonable 
decision in the short run if it means unemployment. If you have 
got a whole host of people that are incentivized to make an 
unreasonable decision, it seems to me that what you do is, you 
take people who are burdened by a potential plant closing or 
downsizing and you incentivize them into a situation where they 
have gone from a bad situation to a horrible financial 
situation.
    And then, finally--and I know there are some management 
folks that advise these employees. But--and again to play 
devil's advocate and throw it open to whoever would like to say 
a few words--it occurs to me that a great wide receiver on a 
football team is not necessarily the best coach. And the best 
coach on a football team is not necessarily the best general 
manager when all is said and done.
    And it occurs, further, that to the extent that you are 
going to democratize the process, that possibly the worst way 
to run a football team is that on the 50 offensive plays or so 
every game, and the 50 defensive plays, is to huddle up and 
take a vote, six votes in each huddle wins on what the next 
play is going to look like.
    So, again, I love the idea of making every American a free 
market capitalist. To the extent that is where we are going in 
general, I am very sympathetic.
    But if you can address some of my concerns.
    Mr. Keeling. Let me jump in, because you just raised an 
issue that I have spent the last 36 months discussing. And with 
all due respect, I will probably say some things that you 
totally disagree with, just as you said some things that I 
don't agree with.
    Number one, let me point out that 85 percent of the 
companies in America with employee stock ownership plans have 
other diversified plans. In those 85 percent companies, usually 
their 401(k)s hold no company stock.
    Number two, let me point out that in this Nation, oddly 
enough, company stock compensation has been very normal since 
the 19th century, long before the Income Tax Code, long before 
the labor laws, long before Social Security. And, candidly, I 
defy anyone to point me to a time in our society when there was 
a significant number of Americans that were living in poverty 
or near poverty because they had worked for a company that 
engaged in company stock compensation.
    Do I deny that there are exceptions to the rule? No, I am 
not stupid. I don't deny there are exceptions to the rule.
    Number three, I would point out that the concept of 
diversification comes out of 12th century England, and it 
arises from a common law concept that once you have something, 
it is smart to diversify. Our ESOP laws, in essence, endorse 
that. Lou Kelso endorsed that idea. You don't make a lot of 
money from taking a little bit of money and spreading it around 
in little bitty places. John Rockefeller didn't do that. The 
duPonts didn't do that, et cetera.
    Mr. Feeney. I am talking about the bout. That is where we 
get into----
    Mr. Keeling. Let me go to the next thing.
    We had cited on the panel 60 studies in the last 20 years 
that these companies that were employee-owned, in essence, did 
better, et cetera. Now, those are average numbers. I accept 
that. In the capitalistic society, people don't hit home runs 
all the time; often they are lucky to get a bunt single. But 
the track record is strong.
    Finally, you think about the football team, that one is 
right down my alley, because I like to give speeches about a 
well-run employee-owned company being just like a good football 
team. And probably the best example is to take what the tight-
end does. They give him a big playbook. But that tight end has 
been given the tools and the knowledge and the study time to 
recognize maybe 50 different defenses that he is going to see 
when he steps up to that line of scrimmage.
    Guess what? He doesn't run over to the coach every time he 
walks up to the line, and say, coach, they are in this defense, 
what in the world do I do now? The coach has delegated to him, 
provided him the education, the tools, to recognize the 
situation that he, as the tight end, is facing. And he makes 
the decision, who is his primary blocking assessment on the 
play--one of about a hundred in the playbook, by the way, to 
decide.
    So the well-run employee company, no, doesn't sit down and 
have votes on each and every thing. But guess what? People are 
given the tools to make the decisions right there in a 
dignified self-sustaining, self-worth way that makes that play 
work.
    And that tight end made the right decision and didn't have 
to run to the coach or to the quarterback saying, what do I do 
now?
    That is--an example of good employee ownership is a good, 
well-run coached football team.
    Mr. Adams. I would encourage the Congressman to look at 
Springfield Remanufacturing in Missouri. It is a paragon of 
exactly what our colleague is speaking about where employees 
have been provided, instead of being excluded from information 
that is needed to make an assessment about what assets they 
need to produce Product A or Product B, they are incorporated 
in the process and encouraged to make a decision about the 
financial needs that they have, and the hours that they need to 
do it, to produce a certain number of remanufactured diesel 
engines.
    And that company has spawned several dozen other companies, 
including the company called the Great Game of Business. So I 
think that there are examples, certainly in the United States, 
and certainly in Spain, where the questions that you raise have 
been answered, and are being answered daily by men and women 
who are included in understanding the financials, understanding 
the financial market, understanding their market, and 
understanding what it takes to make their product or their 
service competitive and profitable and efficiently done.
    Mr. LaTourette. Thank you, Mr. Feeney.
    Mr. Royce.
    Mr. Royce. Well, I am going to wait until our next panel.
    Mr. LaTourette. Well, gentleman, you go with our thanks. I 
have been reminded that Chairman Bachus has requested that the 
record of this hearing remain open for 30 days. If there is 
additional information you wish the subcommittee to receive, 
and it may have just been as desirous so Mr. Sherman can submit 
more nice things about him, I am not so sure.
    But if there are answers to questions you think need to be 
supplemented based upon your oral testimony, please feel free 
to do that. And on behalf of the subcommittee, we thank each of 
you for your time this afternoon and your informative 
testimony.
    The second panel to come before the subcommittee this 
afternoon will include Mr. George Ray, who is the CEO of 
LeFiell Manufacturing Company in Santa Fe Springs, California;
    Mr. Dave McCune, who is the President of the United Steel 
Workers of America, Local 1124-01, on behalf of the Massillon 
Stainless, Inc., in Massillon, Ohio, Ms. Sherry Ceresa is a 
Statistical Analyst, Gardener's Supply Company in Burlington, 
Vermont, Mr. Larry Owenby, who assisted on the employee bout of 
RFS Ecusta, in Brevard, North Carolina, and Mr. Monty Payne, 
the International Representative, Pace International Union, 
AFL-CIO, CLC, Hattiesburg, Mississippi.
    As with the last panel, we thank each of you for coming 
this afternoon. And before we hear from you, a couple of 
housekeeping matters.
    We have been notified by the floor that the Internet 
Gambling Bill, which has occupied the attention of our 
chairman, there may be a series of votes between 3:45 and 4:15. 
And if that is the case, we will take the necessary recess. We 
apologize for that, but that darn voting thing sometimes gets 
in the way of what we like to do in the committees.
    Before listening to testimony, Mr. Sanders has asked to 
make a few remarks about our witness from Vermont, and then Mr. 
Royce also wishes to make some introductory remarks.
    Mr. Sanders. I wanted to welcome all of the panelists, and 
especially thank Sherry Ceresa for being with us. Gardener's 
Supply is an outstanding business in Burlington not only in 
terms of employee ownership, but in a million different 
contributions to our city and our State.
    So, Sherry, thanks very much for being here.
    Mr. LaTourette. Thank you, Mr. Sanders.
    Mr. Royce.
    Mr. Royce. Thank you, Mr. Chairman. I want to take this 
opportunity to introduce one of our witnesses, Mr. George Ray, 
of LeFiell Manufacturing Company, which is an employee owned 
ESOP in Santa Fe Springs, California. George is the chairman of 
the board and a member of the board of governors of the ESOP 
association.
    But one of the reasons that I think it is important to have 
him here today is because this has been one of the longest 
operating ESOPs. I don't think we would find a better example. 
And he began his career with LeFiell in 1962, working his way 
to become CEO in 1987.
    This is an aerospace firm. It became, as I mentioned about 
30 years ago, an early ESOP. Under George's leadership, this 
ESOP has grown to ownership of 60-some percent of the stock 
from about 30 percent before his tenure. So this is sort of the 
ambition of ESOPs.
    At the same time, they have put about 15 million in cash 
into the ESOP.
    I am going to take the opportunity to commend you and also 
our ranking member, Mr. Sanders, for the interest that you have 
shown in this topic and bringing this issue to the 
subcommittee.
    And I think there is no question, but that ESOPs have 
played an important role in the U.S. Economy and have allowed 
thousands of employees to share in the benefits of their 
respective firms' successes through stock ownership. And there 
are no doubt ways that we can assist in this.
    And so I look forward to hearing from our witnesses. Thank 
you, Mr. Chairman.
    Mr. LaTourette. Mr. Royce, thank you very much.
    Once again, to all of our witnesses, welcome. I tried to 
talk to the last panel about the 5-minute rule. They ignored me 
and they kept talking anyway. But do your best if you can. And 
the lights are in front of you.
    And, Mr. Ray, thank you for coming. We look forward to 
hearing from you.

 STATEMENT OF GEORGE RAY, CEO, LEFIELL MANUFACTURING COMPANY, 
                      SANTA FE SPRINGS, CA

    Mr. Ray. Good afternoon, Chairman LaTourette, and Ranking 
Member Congressman Sanders, and members of the Subcommittee on 
Financial Institutions and Consumer Credit.
    First, I would like to thank Congressman Royce for his kind 
introduction. Back in California, we appreciate all of the good 
work that he does for us and our communities.
    I am here to talk about ESOPs. And the ESOP community, 
first of all, we appreciate Congressman Sanders and the fact 
that he has pushed open the door to review how this Nation can 
finance more employee ownership.
    I will tell you a little story about vision and sharing and 
ESOPs. As Congressman Royce said, I started at LeFiell 
Manufacturing in 1962 as a machine operator. And today I am the 
Chairman and CEO.
    LeFiell Manufacturing Company traces its roots all the way 
back to 1930 when Mr. LeFiell began a small machine shop 
business in southern California in Los Angeles. And from 1930 
to 1954 its primary business was supporting the meat packing 
industry, but in the 1950s, the company began to produce 
structural parts for the aircraft industry. And when I joined 
LeFiell in 1962, its primary work was in that industry.
    At that time we had about 40 people. Today we have 110 
employees, and they are all owners. And we are now the leading 
supplier of precision tubular parts in the world. We make 
aerospace assemblies. For example, we produce 6 miles of 
hydrogen fuel lines for each Space Shuttle.
    But in 1954, Mr. LeFiell incorporated to a privately held C 
Corporation. And the reason he did that was so that he could 
share the company with the employees, being able to give them 
stock. And in 1974, when the legislation to allow creation of 
ESOPs was enacted by Congress, LeFiell was one of the first 
companies in the United States to form an ESOP. And from 1974 
to 1986, the ESOP and the company growth was funded through 
earnings, company credit, and the issue of new shares.
    By 1986, the ESOP then had accumulated 30 percent ownership 
in the company. With current retired employees owning the 
balance of the company, there were no shares outside of the 
company employees.
    In 1987, a new strategy was initiated to purchase stock 
from retired employees, because now the people that started 
there in the 1940s were trying to retire and trying to get some 
of their money back out, along with Mr. LeFiell. Today the ESOP 
has 67 percent ownership. And now, there are over 250 owners of 
the company.
    In fact, it would take the 40 top owners of private and 
ESOP shares to reach 50 percent ownership of the stock today. 
And that is what I would consider to be broad-based ownership.
    Today, we are also studying a plan to purchase the balance 
of the shares so that in the next months we can become 100 
percent owned by the ESOP.
    It has been a wonderful journey for me and my family, and 
all of the employee-owners of LeFiell, where each employee has 
received a major benefit for retirement from the company that, 
in fact, they helped build.
    Has an ESOP been good for employees and LeFiell? You bet. 
Yes, sir. Let me give you some examples. The average employee-
owner at LeFiell has an account balance of $129,000. 19 
employees with 21 to 25 years of service have average account 
balances of $217,000. And there are 11 employees who have over 
25 years of service, and they have an average account balance 
of $357,000. This will certainly contribute to a much happier 
retirement for these employees and their families.
    And one other thing. At LeFiell, we pass on the voting to 
the employee-owners in the ESOP, and they elect the board of 
directors each year. In fact, I was just elected to the board 
again last Saturday. We also have pass-through dividends. So 
the employees as LeFiell understand ownership while they are 
working. Each year when we have a profit there is an ESOP pass-
through dividend.
    As the President of The ESOP Association said earlier, 75 
to 80 percent of the employee ESOPs created in America are the 
result of existing owners trying to sell their stock exactly 
like Mr. LeFiell did. Tax laws enacted in 1984 and 1986 
triggered companies to leverage their ESOPs formally, where 
debt is supported by the ESOP and the stock all goes into ESOP 
suspense accounts; this is the method that LeFiell is currently 
considering.
    Being an employee-owned ESOP has had many benefits for us 
over the years. In fact, our customers recognize the value of 
our ESOP and the stability of working with a company that is 72 
years in business.
    I know that your full committee oversees the Nation's 
accounting standards and has reviewed the work and proposals of 
the Financial Accounting Standards Board, FASB. Oddly enough, 
the manner in which the accounting standards treat ESOPs, in 
some instances, healthy companies might be impacted as 
employee-owned companies get financing more than money is 
available.
    There is no question in my mind that the 1993 accounting 
standard hinders the creation of ESOPs. Now, I am not an 
accountant, and today's hearings are not about accounting 
treatment of ESOPs. I wish to make two comments, however. One, 
our problems are not about reporting the ESOP stock 
compensation as expense. In fact, ESOP contributions are 
reported as expense.
    In conclusion, let me summarize my statement. The 
experience of LeFiell Manufacturing Company with employee 
ownership through ESOP has been very positive for us. I would 
state that LeFiell has not had significant issues in getting 
financing because we have been an ESOP, and those of other 
companies that I am aware of have not had a problem getting 
loans. I think that, as President Keeling said, it might have 
something to do later on with repurchase liability.
    I do have a concern that recent accounting standards may 
make it harder for companies to obtain financing from lenders 
to execute an ESOP leveraged bout or raise capital for 
expansion.
    We believe that your hearing is sending a signal that 
employee ownership is more important to the well-being of our 
economy and our employees than the arcane tax laws or hard-to-
fathom retirement income security. Your hearing reveals areas 
that need more review. I believe, however, that as the 
Financial Services Committee commits to ownership, we will see 
more financing available for those companies that might not 
otherwise have been able to get it, and enable those employees 
to be owned just like LeFiell Manufacturing Company.
    Thank you very much for giving me this time.
    [The prepared statement of George Ray can be found on page 
111 in the appendix.]
    Mr. LaTourette. Mr. Ray, thank you very much for your 
testimony.
    The bells that have just gone off indicate that we are in 
the process of having a 15-minute vote. We are going to try to 
get your testimony in, if we can, Mr. McCune. I see my tough 
clock talk really had an impact on Mr. Ray. And let's see if we 
can get you--we welcome you here, we are thankful you are here. 
We look forward to your testimony.

 STATEMENT OF DAVID MCCUNE, PRESIDENT, UNITED STEELWORKERS OF 
AMERICA, LOCAL 1124-01, ON BEHALF OF MASSILLON STAINLESS, INC., 
                         MASSILLON, OH

    Mr. McCune. Thank you, Mr. Chairman and Mr. Sanders and all 
distinguished members of the committee. I am David McCune, 
United Steel Workers Local 1124, unit 01, unit chairman.
    I represent the employees of a long-standing stainless 
steel cold rolling facility, last known as Massillon Stainless, 
Inc., located in Massillon, Ohio.
    Mr. McCune. I am here today to provide you a history of our 
facility along with a brief summary of our ongoing efforts to 
save and reopen the facility in which we worked. For, you see, 
we have fought for the last several years to keep our facility 
operational not only because of our jobs there but also because 
we believe we fight for a piece of American history.
    The facility in which we worked was originally part of the 
old Republic Steel Corporation. At that time we were known as 
the Enduro Division of Republic Steel. Our facility was the 
first all-encompassing manufacturer of stainless sheet and 
strip in the United States.
    As I alluded to earlier, we consider our plant, our 
facility, as being a part of the history of America. Much of 
the product that was manufactured in our facility over these 
past many years contributed to some of the most famous 
landmarks of our Nation, has aided in the arming of our Armed 
Forces during war, along with supplying normal everyday 
businesses as well.
    If you have ever had the opportunity to visit the former 
World Trade Center, the Twin Towers, if you will, when you 
stood in that big, shiny beautiful lobby, that shiny stainless 
steel was produced in our facility.
    If you ever visited the Empire State Building, again, the 
shiny stainless steel trim, not to mention some of the unseen 
heavy construction material was produced in our facility.
    The same can be said in regard to the Chrysler Building, 
for we produced the shiny ornamental stainless that you see on 
and in that building as well.
    These are just but a few examples of our contribution to 
our Nation's history.
    Our facility also contributed to the arming of our Armed 
Forces in World War II, Korea, and Vietnam. We feel as workers 
in this facility we have, through the production of high-
quality stainless armor plate, contributed not only to our 
Nation's freedom but to the freedom of many other nations of 
the world as well.
    As I mentioned earlier, our product is seen by nearly all 
of you, depending on your health and your eating habits, 
possibly on a weekly if not daily basis. When you are sick, 
need care, have to visit your physician, these patient care 
facilities quite probably contain stainless steel produced in 
our facility. Many, many of the hospitals and doctors' offices 
east of the Mississippi River quite probably utilize stainless 
steel produced in our facility in their patient care facilities 
through many, many different applications.
    The same can be said for those of you that might 
occasionally eat at a McDonald's restaurant built prior to 
1999. The stainless steel you see being utilized as countertops 
in the serving area, anywhere you might see stainless in a 
McDonald's restaurant east of the Mississippi was more than 
likely produced in our facility.
    So I believe you might understand, with our contributions 
to our Nation's building history, our contribution in providing 
armor plate to our forces in time of war, along with our 
contributions to people's everyday lives, why we are proud of 
and willing to fight for the continued existence of the 
facility and our jobs there.
    We--and by ``we'' I mean not only those of us that still 
hold out hope of reopening the facility and working there 
again, but also because so many of us are second- and even 
third-generation steelworkers of the facility, we believe we 
fight for our fathers and grandfathers as well. We believe we 
fight not only for our manufacturing facility but also for a 
piece of American history, a history that not only we but a 
history that our fathers, grandfathers and, yes, even some of 
our grandmothers contributed to through these many, many years 
of stainless production in Massillon, Ohio.
    It is because of our willingness to continue to fight for 
survival that I am here today. For I truly believe that if a 
vehicle such as The Employee Ownership Bank had existed last 
year, when I was first made aware of the financial position of 
the company, we would still be in operation today, rather than 
hoping and praying that our last interested entity steps 
forward, purchases the facility and, in the process, saves our 
jobs and a piece of all of our American history.
    I will share with you a brief history of our most recent 
efforts to save the facility, along with why I believe we were 
unsuccessful, at least to this point, in saving the facility.
    Last April, through a joint Labor/Management Steering 
Committee, the employees were notified that the company's 
financial position was eroding and that cost-cutting measures 
would need to be implemented. At this point, as I had nearly 
since the initial purchase of the facility by Jindal Strips, I 
inquired of their interest in a possible ESOP of the company. 
But I believe, due to our cultural differences, the ownership 
was unwilling to explore, as they had been unwilling before, a 
shared ownership of the company with the employees. You see, 
Jindal is a company from India, where employee involvement is 
taboo.
    Most people were amazed I was able to get management groups 
to involve themselves in a team-based work system. No one was 
surprised I could not convince them to share in the ownership 
of the facility, until July of last year when management 
approached me with their willingness to explore the possibility 
of an ESOP. It was at this time we requested representatives of 
the Ohio Employee Ownership Center to come to the facility and 
explain the hows and whys ESOP companies make sense in today's 
business world.
    At this meeting, it was decided that pre-feasibility 
studies should be performed and that its findings would 
determine what course, if any, could be taken to save the 
facility and our jobs. The pre-feasibility study rendered a 
decision that the company had waited too long, the business was 
now in dire straits, and that an ESOP was at this time not an 
option. It was also at this time that our efforts became a 
``save the facility'' effort through the hopeful identification 
of a strategic partner.
    We followed the guidelines set forth by the OEOC, and after 
interviewing several firms it was jointly decided that Locker 
Associates, headquartered in New York City, presented us the 
best opportunity to identify a potential strategic partner. 
Through the funding of the OEOC, along with the generous 
donations by the City of Massillon, along with both the 
district and local union, we were able to retain Locker 
Associates to begin the search.
    Locker Associates contacted many entities and were in the 
process of identifying a potential partner when the owner/CEO 
of Jindal Strips arrived at the facility and informed everyone 
he no longer desired to be a part of the facility in any 
capacity and shortly thereafter announced the impending 
shutdown of the facility. This was last September.
    At this point, the effort to save the facility by now 
identifying a purchaser became an ``employee only'' effort.
    Rather than bore you with all the many ups and downs we 
have endured these past several months, I will give you but one 
example of how, had an employee-ownership bank existed, why I 
believe we would still be operational today.
    Locker Associates identified a long-standing domestic 
company that was willing to purchase the facility and in the 
process include the employees in the ownership of. But because 
of the financial climate not only in the country but in the 
steel industry in general at the time, this entity was unable 
to identify a lending institution willing to invest in a shut-
down stainless cold rolling facility.
    Ladies and gentlemen, it is at this point that I truly 
believe, had a vehicle such as the proposed Employee Ownership 
Bank existed, we would have been able to jointly purchase our 
facility in a partnership with this entity. But because no such 
vehicle exists, I find myself out of work and hoping that, as I 
indicated earlier, our last interested party will step forward 
and purchase the facility and save our jobs.
    But should they decide to not purchase, our jobs and a 
piece of our American history will cease to exist forever. This 
site will be razed, the equipment sold, most likely to a Third 
World nation, and the machinery that has produced material that 
has fought three wars, aided in the construction of some of 
this Nation's most notable buildings and landmarks will be 
producing stainless steel in another country only to be shipped 
back into our country at the cost of American manufacturing 
jobs.
    I appreciate everyone taking the time here today to listen 
to the story of our plant and of our most recent fight for 
survival but, most importantly, that you are here today to 
hopefully take a giant step in the direction of creating a 
vehicle that will help workers of this Nation help themselves 
now and into the future.
    Mr. LaTourette. Mr. McCune, thank you very much for your 
testimony.
    [The prepared statement of Dave McCune can be found on page 
95 in the appendix.]
    Mr. LaTourette. As indicated, we are in the middle of a 
series of votes. We have about 5 minutes to cast this vote. I 
understand we have four votes.
    The committee will be in recess for probably about half an 
hour. We will come back as quickly as we can.
    [recess.]
    Mr. LaTourette. The subcommittee will come back into order. 
Again apologize for the voting schedule getting in the way.
    I have finished listening to Mr. McCune's remarks.
    Ms. Ceresa, welcome to you; and we look forward to hearing 
your testimony.

  STATEMENT OF SHERRY CERESA, STATISTICAL ANALYST, GARDENER'S 
                 SUPPLY COMPANY, BURLINGTON, VT

    Ms. Ceresa. Thank you, Mr. Chairman and Congressman 
Sanders.
    As stated, I am here to tell the success story of 
Gardener's Supply Company in Burlington, Vermont. I am a 
nonmanagement member of our ESOP committee and also represent 
all the employee owners on the company Advisory Board. We are 
the largest mail order supplier of garden tools and equipment 
in the country and last year purchased Dutch Gardens, a bulb 
and perennial mail order business from Holland that is a 
perfect complement.
    Will Raap, our founder and CEO, started Gardener's Supply 
Company in 1983 and our ESOP in 1987. As we celebrate our 20th 
anniversary, we are stronger and prouder of our mission and 
vision than ever. We have grown from 10 people working out of a 
carpet factory to over 250 permanent employees, and we expand 
to as high as 375 seasonally. We now have over 200,000 square 
feet of office and warehouse space. In addition to our 
catalogue and award-winning Web site, we have a destination 
retail store and outlet and we manufacture many of our own 
exclusive products. We are proud to say that we had our most 
profitable year in the history of the company last year, and we 
did it by pulling together all employee owners and having them 
be proactive in anticipation of hard times ahead.
    This could be the story of many companies, but why do we 
feel ours is different? Because of the reason that we are 
employee owned. Many ESOPs are started as a part of ownership 
succession. Ours started for a very different reason. Our 
founder, at age 35, felt that ownership was key to how 
employees perceived their jobs. I would like to read from a 
letter written by Will Raap that describes his philosophy.
    ``from our very conception, Gardener's Supply Company has 
been a business that is about much more than just making money. 
Our vision, mission, and business principles speak to our goals 
to both create a profitable and sustainable business as well as 
to make a positive difference for our employees, our community, 
and our planet. We believe that the key to success to achieve 
this complex undertaking would be involving employees in ways 
that perhaps run counter to the conventional rules.
    ``we felt and still believe that the secret to unleash the 
potential in our business and to figure out how to achieve what 
at times seemed contradictory goals lies not only in the minds 
of corporate management but as much in the insights of every 
employee at every level. To unlock these insights, we needed a 
way to help all employees understand our business in a deeper 
and broader perspective beyond their individual positions and 
departments. In addition, we needed to create a context of 
trust and company loyalty and commitment so all employees would 
see their future linked with Gardener's Supply's, be thinking 
about these larger issues every day, and be eager and 
enthusiastic participants in creating our company's success.
    ``finally, we wanted a way to allow all employees to share 
in the company's success beyond their regular wage. Although 
employees are not putting up the financial capital the business 
needs, they are putting up the physical, intellectual, and 
emotional capital that are equally important. Therefore, we 
sought to create an organization and ownership structure to 
serve our business vision and mission. We chose an open book/
participatory structure as the best way to give employees a 
more complete sense of how we are doing, of what we saw as 
opportunities and challenges, and of how they as individuals 
could influence the results of the organization as a whole.
    ``we coupled that with employee ownership in the form of an 
ESOP. Our ESOP supports this management philosophy and closes 
the loop in terms of not only creating a mechanism for all 
employees to participate in company ownership but to truly feel 
and act like owners and share in the rewards of the capital 
value that they are creating. Sixteen years later, we have 
found the ESOP to be an integral element of our business 
success. We have weathered the buyout of all outside minority 
shareholders and the consequential debt burden we took on. We 
have mastered the dynamics, flexibility, and challenges of 
managing a fast-growing business, and we have bested an 
onslaught of new, deep-pocket competition.
    ``we identify the strength and commitment of our employees 
and the value of the input we get from each employee each and 
every day, created through the organizational mechanism and 
corporate culture of an alive and activist ESOP, as a key 
sustainable competitive advantage creating our business 
success.''
    On a personal note, my official role at Gardener's Supply 
and Dutch Gardens in Burlington is statistical analyst. My 
employee owner roles are many. When our telephone sales 
representatives are overloaded with customers calling in 
catalogue orders, employee owners, all of us, get on the 
phones. When our mail trays overflow, we help open mail so that 
orders are fulfilled in a timely manner. When our warehouse is 
behind, we pack boxes. It is common to be sitting or standing 
next to the President, the CFO, perhaps the CEO during any of 
these activities. We are all employee owners with the same 
focus. You don't hear ``that's not my job.'' it is our job. 
Those unanswered phones, that unopened mail, and those unpacked 
boxes all add up to decreased profits and bad customer service. 
It is our responsibility as owners to ensure we do all we can 
to meet our goals.
    A bank such as the U.S. Employee Ownership Bank would have 
made our life much easier. In the earlier years of our ESOP, 
having loan guaranties and technical assistance would have been 
a blessing. But we did it alone. We have succeeded, but so many 
other companies that would have provided much-needed jobs were 
unable to wend their way through the complex ESOP world. There 
are many choices to be made early when establishing an ESOP 
that have long-term ramifications. I believe for those 
companies that cannot obtain private-sector financing, this 
would be a tremendous support system.
    In closing, I must say that, prior to coming to Gardener's 
Supply and Dutch Gardens, I had 26 years of working for 
nonemployee-owned companies. At absolutely no point in time did 
I feel the immense pride, fierce loyalty to my coworkers or the 
desire to succeed that I feel now. As an employee owner I make 
a difference in the life of our customers, our employee owners, 
and our community.
    Thank you.
    Mr. LaTourette. Thank you very much, Ms. Ceresa.
    [The prepared statement of Sherry Ceresa can be found on 
page 57 in the appendix.]
    Mr. LaTourette. Mr. Owenby, thank you for coming; and we 
look forward to hearing from you.

 STATEMENT OF LARRY OWENBY, ASSISTED ON THE EMPLOYEE BUYOUT OF 
                    RFS ECUSTA, BREVARD, NC

    Mr. Owenby. Thank you, Mr. Chairman, Mr. Sanders, and 
members of the subcommittee. I thank you for the invitation to 
be here.
    In August, 2001, our mill was sold to a foreign entity that 
immediately went into contract negotiations with plans to cut 
wages and benefits by 30 percent. Throughout these times, we 
were told by the owner that cuts had to be given in order to 
maintain a level of business that we were accustomed to. Also, 
we were told that these cuts would be rewarded back to us in 
due time.
    After some investigation of this new owner, it was learned 
that not only were they trying to destroy our mill but were 
also in court for spending pensions from another mill that was 
previously owned by them.
    In trying to save our jobs and the impact that would occur 
should we lose the mill, we tried to raise money to buy the 
now-struggling facility from certain doom. We learned the hard 
way that when it came to finding investors who were willing to 
put money up for a long term was nearly impossible.
    Our argument was a very simple one: Who else but the people 
that had spent 20 to 30 years inside the mill were capable of 
carrying on a tradition that had been very fruitful for more 
than 60 years? These people knew the markets, they knew the 
machines, and they knew the customers.
    This mill, through feasibility studies, was still a very 
viable site and had potential for many types of new markets. It 
was also turning $1 million profit every month.
    Because of a term labeled ``labor dispute,'' the owner put 
the mill into bankruptcy after raping all assets that could 
possibly be sold. This created another problem for the workers. 
How could we show the investors that knew nothing about the 
business that it was still a viable mill?
    We, through our local union, our national union, and local 
politicians began the process of trying to find other companies 
that had the same interest in business that we had. There were 
two such companies that took notice of the situation. One was 
our strongest competitor, and the other wasn't really sure 
about the investment capital that had to be spent.
    While all this was occurring, the site itself became more 
involved in court litigations, while the important parts of the 
operation were slowly wasting away. We began to lose customers 
because they needed the security that we could no longer 
provide. We lost important vendors that were not being paid. We 
lost important staff that could not risk the loss of revenue. 
And we began losing hope.
    We were asked by media--and some of you may be wondering 
the same--why didn't we try to settle instead of putting 
everything in jeopardy? As I have already stated, after our 
investigation, this was normal procedure for our new owner. 
This put us back to square one with all the people we had asked 
to help trying to find ways to get investors.
    Because of the nature of the mill, this downtime put a 
strain on all the environmental systems, causing some concerns 
from the EPA, the North Carolina Attorney General's office, and 
so on, therefore creating even more problems for potential 
investors.
    This brings to date what has happened now. We are currently 
a dead mill with no hope of ever starting up again. We have, 
over the last 3 years, lost more than 1,000 jobs in western 
North Carolina. This could have been prevented had we had the 
opportunity to find the funds to save our mill when we first 
began to seek the assistance that was needed.
    I urge you to take into careful consideration the bill that 
you are discussing because we believe that it could become a 
very important tool for our manufacturing community to ensure 
health and stability in our economy.
    I appreciate your time.
    Mr. LaTourette. Mr. Owenby, we appreciate your time and 
your testimony.
    [The prepared statement of Larry Owenby can be found on 
page 106 in the appendix.]
    Mr. LaTourette. Mr. Payne, thank you for coming. Look 
forward to hearing from you.

 STATEMENT OF MONTY PAYNE, INTERNATIONAL REPRESENTATIVE, PACE 
       INTERNATIONAL UNION, AFL-CIO, CLC, HATTIESBURG, MS

    Mr. Payne. Thank you, Mr. Chairman.
    Good afternoon, Mr. Chairman and Representative Sanders. It 
is a privilege and an honor to appear before this committee.
    I have been an international representative for PACE 
International Union for the past 15 years. My duties cover 
large areas of Mississippi and Louisiana. Prior to that time, I 
worked in a paper mill and made a very good living for over 20 
years.
    In the past 4 years, this country has lost many thousands 
of high-paying manufacturing jobs. Our union alone has lost 
over 20,000 jobs through partial plant closures or through 
total plant closures.
    Paper workers are the second-highest-paid jobs behind the 
auto industry in this country. The loss of these high-paying 
jobs has had an incalculable effect on the communities, 
counties and States. Many companies look at the bottom line in 
making decisions on whether to close a plant or sell a plant. 
They do not look at the effect on employees, their families, or 
the communities in which the plants are located.
    I have personally been involved with several partial 
closures since 1998 and a number of total closures. I am more 
in tune with what goes on in the forest products and paper 
industry. Many companies have purchased other companies and 
then picked the best and most modern facilities of the two and 
closed the unwanted facilities.
    One company in particular, International Paper Company, has 
purchased other companies such as Champion International, Union 
Camp, Federal Paperboard, and then picked the best and most 
modern mills and closed less profitable mills. Some of these 
were making money, though not as much as the company wanted--
Mobile, Alabama; Moss Point, Mississippi; and, lastly, Natchez, 
Mississippi, just to name a few.
    Moss Point was a profitable mill, had top-quality 
production, but it was closed, and the company refused to talk 
with anyone about buying the mill and keeping it open. The same 
with Mobile and several others. The reason being they did not 
want competition from the mills.
    Natchez, Mississippi, however, is unique in that it was the 
only International Paper Company facility which made chemical 
cellulose. Therefore, the company was agreeable to discussing 
selling the mill. This mill is in a small southwest Mississippi 
city and is the largest employer in the city and this area of 
the State as well. It also has a large impact on the 
southeastern part of Louisiana. In its heyday, this mill 
employed upwards of 1,000 people. It has reduced the staff to 
700; and now the plant will close production forever during the 
week of July 15, 2003.
    When the announcement of the decision to close this plant 
was made by International Paper Company, there was a meeting of 
many elected officials, including United States Representative 
Charles Pickering. The community saw the urgent need to save 
these good-paying manufacturing jobs. To say the least, there 
was concern and panic among the employees and members of the 
community.
    PACE International Union stepped forward due to the success 
of its ESOP effort with Champion International in Canton, North 
Carolina, and pushed forward this concept. Starting from 
scratch, the local employees and myself saw a need for large 
sums of money to conduct feasibility studies, environmental 
audits, and many other required things to make this happen.
    We have received very little help from the government due 
to the red tape, and banks do not take employees seriously in 
the early stages of an ESOP effort. We have had to beg money 
from every source. The employees have contributed several 
thousand dollars. The International Union donated a matching 
amount of what the employees could come up with. But it is 
still a long way from what is needed. Even though in Natchez we 
have had a unique but rare instance, due to the fact the 
Natchez Chamber of Commerce president committed $30,000 to our 
cause, it is still far short to get all done that is needed to 
be done.
    In closing, this legislation that you are considering would 
be a great help to employees who have dedicated a lifetime to 
an employer who does not want to continue in operation but who 
would be willing to sell the plant to the employees. The 
employees would have an option to save good- paying jobs in 
their own communities so that they could continue to live where 
they want to, raise their children in these communities, and 
also help save the tax bases of the cities, counties and States 
of this great country.
    Thank you, Mr. Chairman.
    Mr. LaTourette. Mr. Payne, thank you very much.
    [The prepared statement of Monty Payne can be found on page 
108 in the appendix.]
    Mr. LaTourette. I was struck, I think, when you were 
talking, Mr. Owenby, that one of the unique things about Mr. 
Sanders' proposal is that we have a number of Federal programs, 
like the emergency steel loan guarantee; and we had a situation 
in Cleveland where people would go and talk to the board and 
the answer would be, well, your company is not a good risk so 
we cannot guarantee the money or loan you the money. It has 
been my experience that if you are doing well and you have a 
really thriving business you probably don't need a loan 
guarantee.
    So we sort of have it backwards, and that is I think one of 
the good things about Mr. Sanders' proposal that he has brought 
before the committee, and I would again commend him for that.
    Mr. Ray, you talked about the fact that, prior to 1987, 
employee stock ownership was 30 percent; and then in 1987, if I 
have my dates right, that that jumped up to 67 percent. Can you 
describe for us the strategy or from whom you sought guidance 
and advice to go from that 30 to 67 percent figure?
    Mr. Ray. Yes, sir. What we did was join the ESOP 
association and we started studying our options. We have had 
the same legal advisers since 1974, and so we leaned on them. 
And, in our particular case, we have not leveraged the ESOP. We 
have been able to use our corporate earnings and financing. 
Like you pointed out, if you have a company with a strong 
balance sheet, it is not hard to get those kinds of funds.
    The point that was made by Congressman Sanders in the bill 
is, okay, what about the companies that can't do that and how 
does that work? And I certainly support the private sector 
first, but, on the other hand, I also support H.R. 1778, to be 
able to study the options where, as a last resort, there would 
be help for these companies to create employee ownership.
    Mr. LaTourette. Thank you.
    Mr. McCune, Massillon Stainless, I think it is not over 
yet, if I understood that right.
    Mr. McCune. We have one remaining entity that we are 
hopeful is going to step forward and save the facility. We are 
still in the waiting period, and they are doing their due 
diligence.
    Mr. LaTourette. And are you able to, without revealing any 
state secrets, give a prognosis? Hopeful? Not hopeful?
    Mr. McCune. I met with the VP of acquisitions 6 weeks ago. 
He requested I sit down with the management team and put 
together a start-up-in-business plan to be submitted to them, 
which we did 3 weeks ago. So we are waiting on their decision 
now. Hopefully, it will be sooner rather than later.
    Personally, most of my fellow employees have been out of 
work since November of last year. I went out in March of this 
year. So we hope to have it reopened by the end of the year. Do 
we know that for sure? No.
    Mr. LaTourette. I will ask Mr. Sanders a gratuitous 
question so he doesn't have to--but, obviously, if an idea such 
as his were in place, do you think that would have assisted 
you?
    Mr. McCune. I think it absolutely would have helped us when 
we had the domestic entity that was interested this past 
November. But because there was no lending institutions out 
there that were willing to invest into a shut-down stainless 
cold rolling facility, we were unable to. But if the bank 
existed, as Mr. Sanders has proposed, I absolutely believe we 
would be in operation today.
    Mr. LaTourette. Let me just ask about traditional lending 
institutions. Mr. Adams, when he was on the last panel, told, I 
think, a rather disturbing story; and I trust most people in 
the financial institutions don't respond the way his former 
high school classmate did. However, did you and your group make 
approaches to traditional lending institutions, and is there a 
flavor as to how your endeavor, without a vehicle like Mr. 
Sanders proposal being in place, how your group of employees 
seeking to become employee owners was regarded by banks within 
Massillon, or wherever you went?
    Mr. McCune. We as an employee group never had an 
opportunity to sit down with a lending institution. Had we, I 
think possibly I could have convinced them we were worthy of 
the risk. But the entity itself went to I know of at least 
three institutions and was turned away.
    Mr. LaTourette. Thank you very much.
    Mr. Sanders.
    Mr. Sanders. Thank you very much, Mr. Chairman.
    I will tell you, this has been one of the more interesting 
hearings that I have attended in a very long time. Both panels 
have been fantastic, and we are just hearing many aspects of 
what employee ownership is about.
    It seems to me this panel is looking at two different 
things.
    The success stories that we heard from Mr. Ray and Ms. 
Ceresa seem to indicate--and I want both of them to comment on 
this--that when employees are involved in a worker ownership 
enterprise it means more to them than just going to work every 
single day.
    We have millions of Americans who wake up at 8 o'clock in 
the morning, they go to work at 9 o'clock, and they get their 
paycheck, and that is about it. They disassociate the moment 
they leave the plant. But what I heard from Ms. Ceresa and I 
think from you, Mr. Ray, as well, that when you are involved in 
an employee ownership effort your work means a lot more to you 
than just working 9 to 5.
    Why don't we start with Ms. Ceresa and then go to Mr. Ray 
on that.
    Ms. Ceresa. Absolutely. It is a feeling that is really hard 
to describe. It is not only how you feel about your work but 
how your other employee owners feel. You all have a common 
goal, you all are there to help each other, and it is just a 
really special feeling that Mr. Keeling was talking about in 
companies. It is a cohesiveness. It is a just an amazing group 
of people that are there for the same reason.
    Mr. Sanders. Ms. Ceresa, would you suggest this has an 
impact on absenteeism and turnover and so forth? Do you find 
less of that?
    Ms. Ceresa. Yes. Yes. We have a large seasonal population, 
which, of course, is a great turnover, but I was thinking about 
that the other day. In the area that I work in, which is 
probably about 40 people on my floor, I can think of four 
people that have come since I started 4-1/2 years ago. Everyone 
else was there when I came, and I have not heard anybody 
talking about leaving.
    Mr. Sanders. That is interesting. That is interesting.
    And, Mr. Chairman, I know Gardener's Supply very well. It 
is about 5 minutes away from where I live, and not only do they 
do a good job in terms of employee ownership, they have cleaned 
up and improved what we call the Intervale, the largest 
nondeveloped area in Burlington. Just tremendous community 
efforts they have made.
    Mr. Ray, do you want to respond to that? How is it 
different from an emotional perspective working for an 
employee-owned company?
    Mr. Ray. Well, I have been there 41 years in August.
    Mr. Sanders. You haven't left.
    Mr. Ray. I haven't left, and I enjoy every minute of it.
    On the absenteeism question, our absenteeism that we track, 
because we reward people for being there on time, is less than 
one-half of 1 percent.
    Mr. Sanders. Wow.
    Mr. Ray. Yes, less than one-half of 1 percent.
    Mr. Sanders. Which I gather is a lot better than most?
    Mr. Ray. Tremendously. And, frankly, we don't have to hire 
as many people. Pretty simple.
    Mr. Sanders. What about turnover?
    Mr. Ray. Our on-time delivery to our customers is 98.8 
percent. Our quality record with all of our customers is 99.8. 
We are a silver supplier to the Boeing Company, which is only 
one of 200 companies in the world that have that status. So 
that takes a lot of tender loving care by a lot of people to be 
able to do the incredible things.
    Mr. Sanders. What about turnover? Do people stay on the 
job?
    Mr. Ray. Absolutely. Right now, we are at about--average is 
about 15 years. We are in the aerospace industry, so we are 
going through some really tough times and we are not immune to 
that, unfortunately. So will we have layoffs? Yes, 
unfortunately, Congressman, the toughest thing to do is layoff 
an employee owner.
    Mr. Sanders. Of course. Of course. But what is interesting 
here, and perhaps, Mr. Chairman, an added benefit from this, is 
without absenteeism or with much lower rates of absenteeism and 
much lower rates of turnover and a dedicated work force, you 
have a more productive work force, a more cost-effective work 
force, a more competitive operation, it seems to me. And that 
is an added benefit.
    Now, those are the positives. We are hearing two really 
wonderful stories, and then we have heard three stories that we 
don't know the ending yet, and these are folks who are 
struggling. I think the issue there at this point is financial; 
and the issue is, as employees who are struggling to hold on to 
their jobs and their plants, you have had a rocky road of it.
    So my question for Mr. McCune and Mr. Owenby and Mr. Payne 
is, if there was a Federal--if there was Federal help out there 
providing the kind of technical assistance and these kind of 
loans, how would it have impacted the struggles you are 
currently engaged in?
    Mr. Owenby, do you want to start on that?
    Mr. Owenby. Be glad to.
    I think an institution like that would have helped us 
tremendously. Because when we did go out and try to find 
investors, even with the feasibility studies that we did, it 
was long term because of the damage that the previous owner 
did. And he did it maliciously. So instead of him just saying, 
okay, we will sell it to you, he kept things into litigation 
and tried to destroy the mill. We were in a different situation 
than most people. We had a vindictive owner.
    But if we had had that opportunity, we could have, during 
the process of the sale itself, when he finally did release it, 
we could have stepped in and bought it. But at the time we did 
not have the financing, and we could not make a bid, and they 
sold it through auction.
    Mr. Sanders. Mr. Payne.
    Mr. Payne. Yes, sir. I think it would have helped us. It 
would help us greatly in our effort because we could go 
somewhere, get the money, spend the time on the feasibility 
studies, the audits, things of that nature that are required 
instead of out trying to raise money from individuals, from 
Chambers of Commerce, from the city. We could spend our time, 
and it would shorten this time span from start to finish.
    Mr. Sanders. Which is very, very important, as Mr. Owenby 
just indicated.
    Mr. Payne. Absolutely, it is important. The longer that 
time span, the more nervous the employees get. They get itchy. 
And also the investors, when you have to go to them and they 
see that, yes, you did this part and then you waited and you 
did this part, if we could all be real consistent and flow real 
good and shorten the span on these studies, it would just help 
tremendously, I believe.
    Mr. Sanders. Mr. McCune.
    Mr. McCune. Our studies show that we had a solid business 
plan in place; we had the ability to be very profitable; we had 
a customer base that was very loyal, still is loyal. If we show 
back up on the scene, they will come back. For whatever reason, 
with all those things in our corner, because the steel industry 
in general was and still is depressed, we could not get a 
lending institution to step forward.
    I really and truly believe if the Employee Ownership Bank 
existed, that with all those things behind us and with an 
entity willing to make a purchase and include the employees 
within that purchase, as I said earlier, we would be in 
business still today. But because we ran up against basically 
the same thing Mr. Owenby and Mr. Payne did, with institutions 
that would not listen to us or weren't willing to bankroll us, 
so to speak, the facility shut down; and it shouldn't be shut 
down.
    Mr. Sanders. Mr. Chairman, I think this has been terrific 
testimony, and I want to thank each and every one of the 
panelists who have been with us today. You played a very, very 
important role and I think have given us some energy to 
hopefully go forward in a bipartisan way to do something which 
I think will be extraordinarily important for the working 
people of this country.
    So I want to thank you; and, Mr. Chairman, I want to thank 
Mr. Bachus, of course, and your staff. Your staff has done a 
good job, and Warren Gunnels of my staff, in helping to bring 
together these excellent panelists. So I thank you very much 
for your efforts.
    Mr. LaTourette. Well, first of all, I want to thank all of 
you. It has been a long day, I know. I saw, Ms. Ceresa, when I 
said we would be gone for half an hour, I got the feeling you 
had a plane to catch and maybe were not so happy about that. 
Thank you for being with us all day.
    I want to agree with Mr. Sanders that this is one of the 
better hearings I have been at all year, and it is because of 
your willingness to share your experiences with us. I want to 
thank Mr. Sanders again for the idea of the hearing.
    If there is nothing else to come before the subcommittee, 
we stand adjourned, and you go with our thanks.
    [Whereupon, at 5:09 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                             June 10, 2003

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