[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


                    CHALLENGES AND BENEFITS OF EMPLOYEE-
                              OWNED SMALL BUSINESSES

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                           FEBRUARY 12, 2020

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
                               

            Small Business Committee Document Number 116-072
             Available via the GPO Website: www.govinfo.gov
             
                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
39-620                      WASHINGTON : 2021                     
          
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                 NYDIA VELAZQUEZ, New York, Chairwoman
                         ABBY FINKENAUER, Iowa
                          JARED GOLDEN, Maine
                          ANDY KIM, New Jersey
                          JASON CROW, Colorado
                         SHARICE DAVIDS, Kansas
                          JUDY CHU, California
                           MARC VEASEY, Texas
                       DWIGHT EVANS, Pennsylvania
                        BRAD SCHNEIDER, Illinois
                      ADRIANO ESPAILLAT, New York
                       ANTONIO DELGADO, New York
                     CHRISSY HOULAHAN, Pennsylvania
                         ANGIE CRAIG, Minnesota
                   STEVE CHABOT, Ohio, Ranking Member
   AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
                          TROY BALDERSON, Ohio
                          KEVIN HERN, Oklahoma
                        JIM HAGEDORN, Minnesota
                        PETE STAUBER, Minnesota
                        TIM BURCHETT, Tennessee
                          ROSS SPANO, Florida
                        JOHN JOYCE, Pennsylvania
                       DAN BISHOP, North Carolina

                 Melissa Jung, Majority Staff Director
            Justin Pelletier, Majority Deputy Staff Director
                   Kevin Fitzpatrick, Staff Director
                            
                            
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Nydia Velazquez.............................................     1
Hon. Steve Chabot................................................     2

                               WITNESSES

Mr. Daniel Goldstein, President and CEO, Folience, Cedar Rapids, 
  IA.............................................................     5
Mr. R.L. Condra, Vice President of Advocacy and Government 
  Programs, National Cooperative Bank, Arlington, VA.............     7
Mr. John Abrams, CEO and Co-Owner, South Mountain Company, West 
  Tisbury, MA....................................................     9
Mr. Mark Gillming, Senior Vice President, Messer Construction 
  Co., Cincinnati, OH............................................    10

                                APPENDIX

Prepared Statements:
    Mr. Daniel Goldstein, President and CEO, Folience, Cedar 
      Rapids, IA.................................................    27
    Mr. R.L. Condra, Vice President of Advocacy and Government 
      Programs, National Cooperative Bank, Arlington, VA.........    35
    Mr. John Abrams, CEO and Co-Owner, South Mountain Company, 
      West Tisbury, MA...........................................    38
    Mr. Mark Gillming, Senior Vice President, Messer Construction 
      Co., Cincinnati, OH........................................    40
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    American Sustainable Business Council........................    49
    Capital Impact Partners......................................    51
    National Center for Employee Ownership.......................    53
    National Cooperative Business Association CLUSA..............    64
    Capital for Communities......................................    68
    Cooperative Fund of New England..............................    71
    Cooperation Works............................................    73
    ECR..........................................................    76
    LEAF.........................................................    81
    NRS..........................................................    85
    Sustainable Economics Law Center.............................    89
    US Federation of Worker Cooperatives.........................    91

 
       CHALLENGES AND BENEFITS OF EMPLOYEE-OWNED SMALL BUSINESSES

                              ----------                              


                      WEDNESDAY, FEBRUARY 12, 2020

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The committee met, pursuant to call, at 11:30 a.m., in Room 
2360, Rayburn House Office Building. Hon. Nydia Velazquez 
[chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Finkenauer, Golden, 
Kim, Davids, Delgado, Craig, Chabot, Balderson, Hern, Hagedorn, 
Stauber, Burchett, Spano, Joyce, and Bishop.
    Chairwoman VELAZQUEZ. Good morning. The Committee will come 
to order.
    I thank everyone for joining us this morning, and I want to 
especially thank the witnesses for being with us today.
    Our Committee has a longstanding tradition of working in a 
bipartisan manner on behalf of America's 30 million small 
businesses. We work together to make the programs at SBA more 
effective and seek ways to encourage entrepreneurship and job 
growth on Main Street.
    And because small businesses are such an important part of 
our economy, what we do here impacts the lives of nearly every 
American.
    At a time when income and wealth inequality are at record 
levels, real wages for middle class workers are nearly 
stagnant, retirement security is no longer guaranteed, one way 
to combat these problems is through the employee-owned business 
model. Employee-owned companies can take on many forms, but the 
central premise is that interests of the employees and owners 
are aligned. As a business generates more revenue and profits, 
a direct connection is drawn between an employees' work and how 
much he or she is compensated, thereby creating a culture of 
ownership.
    This business model helps workers and communities raise 
their standard of living and quite literally feel more invested 
in the success of the enterprise. The best-known kinds of 
employee ownership are the Employee Stock Ownership Plan, also 
known as an ``ESOP'', and cooperatives. There are many benefits 
to employee ownership that can address some of the economic 
issues facing workers today. ESOPs report higher wages, better 
employee benefits, and stronger job security, especially during 
periods of economic distress.
    In addition to better wages and benefits, worker-owned 
firms are also known for reinvesting more in their local 
community than conventional businesses, and for democratizing 
management and decision making. Because the workers themselves 
make the company's strategic decisions, there is little danger 
of a worker-cooperative unexpectedly leaving town or being sold 
to outside investors. This ensures the economic vitality of 
local communities.
    In recent years, the option of converting a business to an 
employee-owned model has grown in popularity, though there are 
challenges in financing and completing such a conversion. For 
example, businesses seeking to transition to an employee-owned 
model frequently face difficulty in obtaining adequate capital 
to cover the costs, which are often prohibitive.
    That is why last Congress, I led and helped pass the Main 
Street Employee Ownership Act, which sought to minimize those 
capital access barriers and encourage more SBA-backed lending 
to cooperatives and ESOPs. By easing some burdensome guarantee 
restrictions, it was my hope that we could continue to make the 
employee-owned model more affordable for local businesses, 
creating opportunities for more entrepreneurs, while 
financially empowering employees with a stake in their 
workplace. The legislation was also intended to help millions 
of baby boomers who own private businesses and plan to retire 
create a succession plan that helps them ``cash out'' while 
keeping jobs and investment in the local community.
    However, we have heard from numerous employee-owned 
businesses and lenders that accessing the SBA lending programs 
has been nearly impossible because of current SBA policy. At 
today's hearing, we will hear about the good work that 
employee-owned businesses, like the cooperatives who are 
booming in popularity all over my district in Brooklyn, are 
doing for their employee-owners and local communities.
    We will also explore the negative impact of SBA's failure 
to follow Congressional intent when implementing the Main 
Street Employee Ownership Act. We know there are still many 
challenges ahead as we seek to encourage greater employee 
ownership of business, challenges that are often unique to 
either cooperatives or ESOPs.
    And as we continue our work here in the Small Business 
Committee, we need to hear about those challenges, too. So, I 
look forward to hearing from our distinguished panel of 
witnesses today about the benefits of employee ownership of 
business, but also the challenges these unique businesses face 
in starting up and expanding.
    Again, I want to thank the witnesses for being here today, 
and I now yield to the Ranking Member, Mr. Chabot, for his 
opening statement.
    Mr. CHABOT. Thank you, Madam Chairwoman.
    In the lifecycle of a business, many important and crucial 
decisions are made. Some of these decisions lead to brilliant 
success; others could mean failure. One of the most significant 
decisions a business must make is how to structure its 
organization. From sole proprietorship to C corporations, there 
are a multitude of options available that could benefit both 
the company and the company's employees.
    Today, we will explore one structure that has assisted 
thousands of companies all across the country. The employee-
ownership model provides employees with an opportunity to own a 
stake in the company that they work for. One form of employee 
ownership is the employee stock ownership plan, or ESOP as the 
Chairwoman mentioned for short. A company that is organized as 
an ESOP provides its employees with the opportunity to obtain 
ownership shares through a qualified defined contribution plan. 
Research shows that ESOPs provide important retirement options 
for employees seeking to save for their retirement.
    This Committee has a long history of examining employee 
ownership to determine both benefits and also some of the 
shortfalls. For example, Chairwoman Velazquez authored the Main 
Street Employee Ownership Act of 2018, which was designed to 
enhance the ability of the SBA, the Small Business 
Administration, to work with businesses interested in employee 
ownership. Ultimately, that legislation was favorably reported 
out of this Committee and was signed into law as a part of the 
National Defense Authorization Act for fiscal year 2010.
    Today, we add another chapter to this Committee's long 
history of discussing employee ownership. In particular, I am 
interested in hearing about what is working and what is not 
working as businesses move through the employee ownership 
conversion process. Additionally, I would like to hear about 
the economic benefits of employee ownership.
    My hope is that this hearing will shed more light on this 
very important business structure.
    And I want to thank all the witnesses for being here and 
participating this morning. I look forward to all your 
testimonies.
    And Madam Chairman, I yield back.
    Chairwoman VELAZQUEZ. Thank you, Mr. Chabot. The gentleman 
yields back.
    And if Committee members have an opening statement, we 
would ask that they be submitted for the record.
    I would like to explain the timing rules. The witness gets 
5 minutes to testify and members get 5 minutes for questioning. 
There is a lighting system to assist you. The green light comes 
on when you begin, and the yellow light means there is 1 minute 
remaining. The red light comes on when you are out of time, and 
we ask that you stay within that timeframe to the best of your 
ability.
    I would now like to introduce our witnesses today.
    Our first witness is Mr. Daniel Goldstein. Mr. Goldstein is 
the CEO and president of Folience, a company that for over 130 
years was primarily a family-owned print and broadcast media 
company. Their ESOP was started in 1986 and became 100 percent 
ESOP-owned in 2012. Today, 570 employee-owners work in Folience 
media business, ambulance manufacturer, and high-end horse and 
livestock trailer manufacturer.
    We welcome Mr. Goldstein.
    And Ms. Finkenauer, would you like to add anything to my 
introduction of Mr. Goldstein?
    I yield to the congresswoman.
    Ms. FINKENAUER. Thank you. Thank you, Madam Chairwoman, and 
thank you for holding this hearing today. We are so excited to 
have you all here, and thank you for taking time out of your 
busy schedules.
    Now, we obviously know employee ownership is good for 
business, it is good for people, and it is good for communities 
like the one I represent in Northeast Iowa. When employees have 
a stake in the company, these businesses have deep roots in the 
area where they are located. These businesses are more likely 
to stay local and invest in their communities. Employees are 
literally bought into the business, often increasing overall 
productivity and success. Employee-owned businesses can also 
offer strong wages and retirement security to people who work 
there. I am lucky to have some excellent employee-owned 
businesses in my own district. VGM Group, a member service 
organization for post-acute care headquartered in Waterloo was 
named Iowa's 2019 Best Large Employer by the Des Moines 
Register. Timberline, an electrical contract manufacturer in 
Marion, has brought innovation and growth to the area.
    Folience, in Cedar Rapids, once a family-owned print and 
broadcast media company, has become an employee-owned company 
of 570 workers. Today, I am pleased to introduce my 
constituent, Daniel Goldstein, president and CEO of Folience, 
who helped transform the company. Since Daniel joined Folience 
in 2016, he has helped diversify its revenue base through 
acquisitions. Today, Folience owns media businesses, an 
ambulance manufacturer, a high-end horse and livestock trailer 
manufacturer, and more. Daniel brings 20 years of executive 
leadership to his current position. He is a passionate advocate 
for employee ownership, and is on the Board of Governors of the 
ESOP Association, the Board of Trustees of the Employer 
Ownership Foundation, and the Board of the Employee Ownership 
Expansion Network. You are a very busy guy, Daniel, and it 
means a lot to me that you took all this time to come here to 
D.C. We look forward to hearing your insights today. Welcome to 
D.C., and thank you again for your leadership.
    With that, Madam Chairwoman, I yield back.
    Chairwoman VELAZQUEZ. The gentlelady yields back.
    Our second witness is Mr. R.L. Condra. Mr. Condra is the 
vice president of Advocacy and Government Programs for the 
National Cooperative Bank, a national financial institution 
dedicated to providing banking solutions for co-ops and their 
members. Mr. Condra also serves on the board for Cooperation 
Works, a national network of organizations focused on co-op 
development. Prior to joining the private sector, Mr. Condra 
served as professional staff on the Senate Committee on 
Agriculture, Forestry, and Nutrition for Chairwoman Blanche 
Lincoln.
    Welcome, Mr. Condra.
    Our third witness is Mr. John Abrams. Mr. Abrams is the 
founder, president, and CEO of South Mountain Company, a 45-
year-old integrated architecture, engineering, building, and 
renewable energy company committed to triple bottom-line 
businesses practices. Located on Martha's Vineyard, South 
Mountain has been a worker cooperative for 32 years, was one of 
the first beneficial cooperatives in Massachusetts, and is 
currently in transition to second generation leadership. Mr. 
Abrams is also the author of the book, Companies We Keep: 
Employee Ownership and the Business of Community and Place, 
which was published in 2008.
    Welcome, Mr. Abrams.
    I would now like to yield to our Ranking Member, Mr. 
Chabot, to introduce our final witness.
    Mr. CHABOT. Thank you, Madam Chair.
    Our final witness will be Mark Gillming, who is the senior 
vice president and secretary of Messer Construction Company, 
which is headquartered in America's greatest city, Cincinnati, 
Ohio. Messer has multiple locations around the country, 
including in several members' districts or close to them on 
this Committee, Mr. Burchett's in Tennessee, and Mr. Bishop's 
district in North Carolina. Messer Construction went through an 
ESOP conversion back in 1990 and is still prospering today. Mr. 
Gillming is a long-time employee of Messer Construction, having 
started his career there in 1985, 35 years ago. Coincidentally, 
the same year that I was first elected to Cincinnati City 
Council. He currently runs all of Messer Construction's 
professional development operations and has multiple degrees 
from the University of Cincinnati, including not one, but two, 
distinguished alumni awards.
    Mr. Gillming, we very much appreciate you being here today 
and all the other witnesses as well.
    I yield back.
    Chairwoman VELAZQUEZ. Thank you very much.
    Mr. Goldstein, you are now recognized for 5 minutes.

 STATEMENTS OF DANIEL GOLDSTEIN, PRESIDENT AND CEO, FOLIENCE; 
    R.L. CONDRA, VICE PRESIDENT OF ADVOCACY AND GOVERNMENT 
 PROGRAMS, NATIONAL COOPERATIVE BANK; JOHN ABRAMS, CEO AND CO-
   OWNER, SOUTH MOUNTAIN COMPANY; MARK GILLMING, SENIOR VICE 
               PRESIDENT, MESSER CONSTRUCTION CO.

                 STATEMENT OF DANIEL GOLDSTEIN

    Mr. GOLDSTEIN. Thank you, Chairwoman Velazquez, Ranking 
Member Chabot, and members of the Committee.
    I am Daniel Goldstein, CEO of Folience, a Cedar Rapids-
based company in business since 1884, and 100 percent owned by 
our employees since 2012.
    I also represent the ESOP Association, a non-profit whose 
purpose is to protect and grow employee stock ownership plans, 
or ESOPs.
    6.6 percent of the U.S. workforce has ownership in an ESOP. 
That is more than 10.6 million employees. ESOP employees 
outnumber the workforce of the entire U.S. auto industry by 
more than half a million. We outnumber the combined workforce 
of the Federal and state government by 3 million.
    ESOPs contribute substantially to our economy, and we 
believe they hold a solution for many of the intractable issues 
facing our economy.
    As you know, one of the biggest challenges ahead is the 
looming retirement in the next 10 years of baby boomers who own 
2.5 million small businesses. Known as the ``Silver
    Tsunami,'' it will be the largest transfer of business 
ownership in the shortest period of time in our Nation's 
history.
    The businesses, and their employees face difficult futures 
if supportive policies are not adopted. I have seen what can 
happen if a succession plan is not made and the role employee 
ownership can play in preventing catastrophe.
    Let me tell the story of a typical small town. Sumner, 
Iowa, population 2,000, has one major private employer. Life 
Line
    Emergency Vehicles designs and builds ambulances that 
provides 180 good-paying jobs. Ten years ago, the founder 
passed away leaving control of Life Line to his 69-year-old 
widow. When I met her, she was 75 and had no heirs prepared to 
take over the business.
    Most in this situation face three choices: sell to private 
equity, to a competitor, or close and sell off the parts.
    Folience gave them another option--sell to their employees 
through an ESOP. Folience's ESOP purchased Life Line, and those 
180 employees became owners of Life Line and every other 
business in the Folience portfolio.
    Despite the many well-known benefits of employee owned 
businesses--benefits, those seeking to launch ESOPs face 
multiple, unnecessary obstacles, and I would like to focus on 
three.
    The first is an absence of clear Federal regulatory 
guidance, particularly on business valuations. Second, a 
shortage of lending capital for ESOP formation or acquisitions. 
And, third, education. There is low public and professional 
awareness about ESOPs.
    Today, I ask Congress to task Federal agencies with 
solutions to all three.
    First, I submit that the biggest obstacle to forming and 
expanding ESOPs is the chilling effect of the U.S. Department 
of Labor. DOL has perpetuated an absence of formal regulatory 
guidance, while simultaneously pursuing a litigious approach to 
oversight. The effect has been a deep chill on the market. 
Every year, hundreds of business owners attend educational 
events the ESOP Association hosts to learn about ESOPs. And 
once exposed to the lack of clear
    guidance, many turn away out of fear that some unknowable 
misstep will invite never-ending DOL scrutiny.
    Forty-five years after ESOPs were established with the 
passage of ERISA, the Department of Labor has yet to finish its 
rulemaking process. They started. They nearly finished in 1988. 
But they never issued regulations. But here is the travesty. It 
is impossible to prove how many American workers have lost the 
opportunity to become employee-owners as a result of this 
chilling effect.
    The solution can start very simply. Congress should require 
DOL to define one thing: what constitutes adequate 
consideration when an ESOP trustees values the price to be paid 
for a company. This one simple piece of guidance could be a 
gamechanger for employee ownership.
    Second, to start addressing lending shortages, the SBA must 
streamline lending for the ESOPs, as outlined in the Main 
Street Employee Ownership Act. Unfortunately, in implementing 
the legislation, the SBA excluded ESOP loans from the Preferred 
Lending Program, instead continuing to require headquarters 
approval for all ESOP loans.
    We ask that the SBA be unambiguously directed to include 
ESOP loans in the Preferred Lending Program.
    Third, the Main Street Act tasked the SBA with promoting 
awareness of ESOPs and employee ownership. The ESOP Association 
knows that some in the agency already take this task seriously, 
but they are too few and they lack adequate support, structure, 
and resourcing.
    Business owners must know the ESOP option exists and be 
able to obtain useful, unbiased information. To that end, we 
ask that the SBA be directed to resource a specific office, 
such as the Office of Small Business Development Centers, with 
active public education and information efforts. These three 
actions will provide a clearer path to launching and expanding 
ESOPs.
    Thank you for the privilege of sharing the testimony.
    Chairwoman VELAZQUEZ. Thank you, Mr. Goldstein.
    Mr. Condra, you are now recognized for 5 minutes.

                    STATEMENT OF R.I. CONDRA

    Mr. CONDRA. Thank you. Good morning, Chairwoman Velazquez, 
Ranking Member Chabot, and members of the Committee. I am 
honored to discuss the benefits and challenges of employee-
owned businesses. Thank you for bringing this topic out to the 
light and providing a forum for discussion it so richly 
deserves.
    Today, I will discuss how a prohibitive policy requirement 
by the Small Business Administration is hindering the growth of 
the cooperative business sector. If this issue is resolved, 
lending institutions like the one I work for will be able to 
make loans that will help to grow small businesses, create 
quality jobs at increased wages, and provide healthy food and 
grocery options for communities throughout the country.
    My employer, the National Cooperative Bank is a national 
commercial bank headquartered in Arlington, Virginia. With $2.8 
billion in total assets, NCB delivers banking and financial 
services throughout the Nation to cooperative organizations 
complemented by a focus on economic development in low-income 
communities.
    A cooperative is a business that is organized, owned and 
governed by the people who use its products or services. Those 
people are called member-owners, and they own the business. 
They have a voice in its operations through a board of 
directors that members elect, and the profits from the 
cooperative flow back to the member-owners. Employee-owned 
cooperatives, also known as worker cooperatives, give employees 
an ownership stake in the company in which they work.
    Cooperatives have evolved since the 1960's when the SBA 
recognized them as buying clubs. There are now over 40,000 
cooperatives in the U.S., and the top 100 generated $222 
billion in annual revenue in 2018. Some notable cooperatives 
include REI, ACE Hardware, Ocean Spray, Land O'Lakes, and 
Congressional Federal Credit Union.
    Since the Great Recession, worker cooperative numbers have 
doubled, and have become a business option for young people, 
women and minorities. According to the 2019 Worker Cooperative 
Economic Census, 50 percent of owners in worker co-ops are 
Latino and African American, and 62 percent of women make up 
the majority of the workforce.
    Municipalities have also recognized that co-ops are a 
viable business option and have taken steps to promote the 
growth and development of worker cooperatives in cities such as 
New York, Philadelphia, Madison, Minneapolis and Austin.
    Over the past 40 years, my bank, NCB has provided loans of 
more than $2 billion to cooperative businesses and independent 
retailers including over $77 million to consumer-owned food co-
ops. Per our loan policies and guidelines, NCB does not require 
a personal guarantee for consumer and worker-owned co-op loans 
due to the unique structure of our cooperative borrowers.
    In contrast, the SBA requires a personal guarantee from 
anyone who owns 20 percent or more of a business and will not 
guarantee a loan under the program if there is no such 
individual. This agency requirement makes it impossible for 
cooperative businesses to access the agency's lending programs. 
For decades, the co-op sector has asked the SBA to level the 
playing field for cooperatives to no avail from the agency.
    In 2018, Congress passed the Main Street Employee Ownership 
Act that directed the SBA to recommend and implement practical 
alternatives for cooperatives that will satisfy the agency's 
loan guarantee requirements.
    We were greatly disappointed to learn the SBA did not 
provide practical alternatives as the law required. Instead, 
the agency relied on its existing requirements that continue to 
block cooperative businesses from much needed access to 
capital.
    Further, SBA's recommendation regarding an existing 
business to be sold and converted to an employee-owned 
cooperative would create new barriers. The agency recommends 
that a selling business owner provide a full, unlimited 
personal guarantee for the life of the loan. Imagine a small 
business owner selling their business to a buyer, but also 
having to put up their home as a guarantee for the buyer's own 
loan until it is paid off.
    The SBA's guarantee requirement is also contrary to 
industry practice for cooperatives. As mentioned, my bank does 
not require a personal guarantee, and CDFIs that specialize in 
co-op lending do not require one. The Department of 
Agriculture's Business and Industry loan program does not 
require a personal guarantee for loans to cooperatives.
    In addition, the SBA has shown flexibility with respect to 
the guarantee in similar situations in the past. Thus, the SBA 
does not require a personal guarantee when a loan is made to an 
ESOP business.
    The SBA has stated that cooperatives can satisfy the 
requirement by providing an ``entity guarantee'' to be the 
guarantor of the loan. We were recently approved by SBA using 
an ``entity guarantee'' for a food cooperative loan in 
Fredericksburg, Virginia. To my knowledge, this will be the 
first food cooperative loan in the history of the agency. While 
we are excited that SBA approved this loan, we have strong 
concerns that the ``entity guarantee'' is not a long term 
solution for cooperative businesses for the following reasons:
    SBA is not prepared for an ``entity guarantee'' submission 
with its application process; the borrower adds more debt to 
the loan than is needed; the lender adds more risk to the loan 
than is needed; and only wealthy communities with the ability 
to raise cash will be able to use this process.
    I am here today to discuss how the SBA's taxpayer-funded 
loan programs should be fair and available to everyone, 
including cooperative businesses.
    I look forward to answering your questions. Thank you.
    Chairwoman VELAZQUEZ. Thank you.
    Mr. Abrams, you are now recognized.

                    STATEMENT OF JOHN ABRAMS

    Mr. ABRAMS. Ms. Velazquez, Mr. Chabot, members, thank you 
so much for having us. It is an honor.
    South Mountain, the company I founded nearly a half century 
ago, is an integrated architecture, engineering, building, and 
solar company. We do all the parts, from beginning to end. For 
33 years it has been a worker co-op. Nearly 2/3 of the 37 
employees share ownership today. We balance the triple bottom 
line of people, planet, and profit--quality, performance, and 
mission are all more important to us than growth.
    The company is built on humble beginnings. I had an older 
friend and mentor who followed our work in the early days. One 
day we were showing him a house in progress, and he said, ``It 
is beautiful work. It is artful.'' And then he said, ``Are you 
making any money?'' ``No,'' I chuckled. ``We seem to lose money 
on every project we do.'' And he said, ``Well, Abrams, you've 
got a unique idea here. Subsidized housing for the rich.''
    And that bombshell inspired me to learn about business--
what it is, the impact it can have, and how to make fair 
profits--and that pursuit has become a passion. Now we make 
subsidized housing for those who need it. We devote ourselves 
to service to each other, to the communities we work in, to 
strengthening our local economy.
    In 1987, two long-time employees told me they preferred to 
spend their careers at SMC rather than going off on their own, 
but they needed more of a stake than an hourly wage. Not long 
after, I agreed to restructure as a worker co-op, to make a 
system that would welcome them, and other committed employees 
over time, to ownership.
    To be honest, at the time I thought this was more symbolic 
than substantive. Nothing could have been further from the 
truth. Worker ownership has been more far meaningful and 
valuable than I ever imagined. There is no question in my mind 
that it has been a critical factor in our modest long-term 
success.
    I believe that owning our work is as essential to a good 
life as is owning our homes.
    Former Treasury Secretary Laurence Summers once remarked, 
``In the history of the world, no one has ever washed a rented 
car.'' Ownership is powerful. When employee-owners are making 
the decisions, it is more likely that companies will stay 
rooted in place and be positive forces in the community.
    Economist Richard Wolff says, ``If our workplaces had been 
democratized long ago, would the workers have stopped raising 
their own wages? Hardly. Would they have destroyed their own 
jobs by moving production overseas? Doubt it. Would they have 
employed technologies that pollute the local environment? No, 
they live there. Would they have allowed some to earn 
astronomical salaries while the rest got no raises? No way. Our 
economic history over the last thirty years would have been 
radically improved if we had had a different way of organizing 
our enterprises, with a more cooperative community-focused 
method that is democratic at its core.''
    Growing the worker cooperative approach has the potential 
to positively affect the economy, our democracy, the quality of 
working peoples' lives, and I do not think it is a stretch to 
say that the benefits of the democratic workplace may even aid 
and influence the essential repair of our battered civic 
landscape. It could change, in effect, the chemistry of our 
culture. If you spend your days working in an environment of 
collaboration, mutual respect, and shared power, it is bound to 
spill over into other parts of your life--better parenting, 
kinder relationships, more civic engagement.
    Today, we are among the highest scoring of the 3,000+ 
certified B Corps (among them are socially responsible icons 
like Patagonia, Ben and Jerry's, Seventh Generation), and we 
annually make the B-Lab ``Best for the World'' list. During the 
past 7 years, six first-generation employee-owners have retired 
who, collectively, represent 180 years of employment. Six 
people, 180 years. That kind of stability is rare in business 
today.
    We are deeply engaged in transitioning to our next 
iteration. As a new group of owners take the reins, I am 
grateful that we will only have to change leadership, having 
dealt with the ownership part many years ago.
    We often assist companies transitioning to employee 
ownership. It is not uncomplicated, and all companies making 
this move need technical and legal assistance. The need is 
great. The Main Street Employee Ownership Act of 2018 was a big 
step forward, but there is far more to do.
    The value and benefits of employee ownership continue to 
fly under the radar, and you cannot take this important step 
without knowing the option exists and understanding what it 
means. So perhaps the greatest need is extensive education and 
publicity. The stories of employee ownership successes need to 
be shared and celebrated. Employee ownership ``ambassadors'' 
should be funded to visit companies considering transitions, to 
teach, to train, to advise, to inspire. Widespread technical 
assistance should be made available. Employee ownership should 
be the number one business succession planning option. But it 
is not. I hope this Committee will build on the great work that 
it has done so far, and I am grateful for the opportunity to 
make this request.
    I would be happy to answer questions. Thank you.
    Chairwoman VELAZQUEZ. Thank you, Mr. Abrams.
    Mr. Gillming, you are now recognized.

                   STATEMENT OF MARK GILLMING

    Mr. GILLMING. Chairwoman Velazquez, Ranking Member Chabot, 
and distinguished members of the Committee, thank you for 
inviting me to testify before you today to share my story of as 
our retired CEO phrased it, ``inclusive capitalism,'' and the 
impact it has had upon hundreds of my fellow employees at 
Messer Construction. Thank you for holding this hearing to 
learn more about ESOPs and the legislation that can encourage 
more small businesses to become employee owned.
    My name is Mark Gillming. When I began working at Messer 
Construction, it was a Cincinnati-based, medium-size, family-
owned construction company with a long history and a good 
reputation. But, like most companies in construction, it had 
little in the way of employee benefits. By 1990 company-funded 
retirement benefits totaled only $1.5 million on behalf of 
about 99 participants.
    In 1988, the last son of the company founder died, and we 
found ourselves with an uncertain future. The grandchildren of 
the founder wanted access to their wealth, and having no 
connection with the employees, were not committed to 
maintaining employment at the company. In 1990, the Messer 
employees were able to buy their future from the Messer family 
using the ESOP structure. I was one of the employees that 
participated in that purchase, and we could not have purchased 
the company if not for the important tax advantages that the 
ESOP model afforded us.
    Our country's investment in ESOPs allowed 99 Messer 
employees to purchase their future, and the engagement that 
opportunity created has resulted in growth. Today, operating 
from 10 regional offices, Messer performs more than a billion 
dollars in construction annually.
    And, here is the measure of how that change our ESOP 
brought to our retirement savings. Messer now provides quality 
jobs and predictable retirement for over 1,200 individuals and 
has company-funded retirement assets for those employees 
totaling more than $400 million.
    Through our engagement with the Employee-owned S 
Corporations of America (ESCA), we have come to know of 
hundreds of companies with stories similar to ours, and the 
data from ESCA's quality research shows that ESOP companies are 
more robust, more sustainable, and provide higher levels of 
diversified retirement benefits than non-ESOP companies. The 
Messer ESOP is in place and working well for us. However, 
Messer manages a vendor supply chain of small local 
subcontractors who are increasingly at risk from forces both 
external and internal. For that reason, Messer supports ESCA's 
work to promote bipartisan legislation, H.R. 2258, that would 
encourage more employee ownership by providing incentives to S 
Corporation business owners to sell to an ESOP when they are 
looking to transition out of the business. This will allow more 
American workers to build meaningful retirement savings that 
those of us at Messer have realized through employee ownership.
    It was more than 20 years ago that Congress passed 
legislation creating S ESOPs, and in addition to what I have 
shared with you about Messer, data shared by ESCA continues to 
show that S ESOPs are a remarkable success story from young 
workers to retirees.
    Just a few highlights from recent surveys that Committee 
members will find of interest:
    Close to 90 percent of ESOP retirees said their savings and 
ESOP benefits are enough to meet their retirement needs. Less 
than half of non-ESOP retirees said the same.
    56 percent of millennial workers at ESOP companies said 
they had at least 6 months' salary saved for retirement, while 
66 percent of their non-ESOP counterparts said they had no 
savings at all. The opportunity to become an employee-owner has 
helped Messer Construction recruit and retain millennial 
workers in a tight labor market. These individuals share the 
vision of working as an owner and not just an employee and 
embrace the challenges and opportunities that come with being 
an employee owner.
    Messer is a clear example of the power of inclusive 
capitalism that results from supporting S ESOPs. I invite you 
to visit us or an employee-owned company in your district or 
state so you can see firsthand the pride employee-owners take 
in their work and the confidence that employee-owners have in 
their future.
    Ms. Chairwoman and Committee members, I thank you for this 
opportunity to address the Committee and share Messer's story, 
and for your consideration of legislation that will allow more 
hardworking Americans to share in the American dream at work.
    Chairwoman VELAZQUEZ. Thank you, Mr. Gillming, and thank 
you all for the insightful information and stories that you 
have shared with us.
    I will now recognize myself for 5 minutes.
    Mr. Goldstein, the Main Street Employee Ownership Act now 
allows the 7(a) preferred lenders to process ESOP loans under 
delegated authority streamlining the process for small firms. 
Unfortunately, the proposed rule implementing the law says 
those loan cannot be processed under delegated authority. What 
is the impact to the ESOP community with SBA taking this 
position and contradicting the clear language of the statute?
    Mr. GOLDSTEIN. Thank you.
    While Folience has not utilized the SBA's 7(a) loans, and I 
probably would not given the delay in how long it takes to get 
them approved, I can speak to the importance of timing in 
completing ESOP deals. There are two principles that I have 
learned from my experience. The first is that time is the enemy 
of all deals, and the second is that accessing capital is the 
greatest bottleneck in timing.
    So when Folience acquired Cimarron Trailers in 2018, we had 
a 12-day delay due to a financing issue, and just 12 days 
called into question changes in inventory, work in progress, 
working capital, finished goods delivered, and a variety of 
other criteria that mean that the adequate consideration, the 
fair price of the deal had to be recalculated. And as you look 
at moving the local approval of SBA loans to preferred lending 
providers who have local knowledge of the companies, they will 
have more direct knowledge to make more timely decisions which 
will get more funding to create more ESOPs.
    Chairwoman VELAZQUEZ. Thank you.
    Mr. Condra, how many businesses that you work with have 
been good candidates for the 7(a) loan program but could not 
get one because of the personal guaranty requirement?
    Mr. CONDRA. Thank you for that question. And some of my 
answers today will refer to food cooperatives, like Park Slope 
in your district in Brooklyn.
    Chairwoman VELAZQUEZ. Yes.
    Mr. CONDRA. Because the food co-ops and worker co-ops are 
in the same boat with SBA. And food co-ops are a more mature 
sector at this point. But we get multiple inquiries every month 
from cooperatives. There is a nonprofit called the Food 
Cooperative Initiative that provides technical assistance 
through startup food coops. There is currently 125 in different 
phases, and in employee-owned, in the worker co-op sector, 25 
new worker co-ops are created every year. And all that being 
said, we do not know what the need is, the total need out there 
is because it is common knowledge among the industry that you 
cannot access the SBA programs. And also, additionally, a 
letter was sent to you in December from the Village of 
Williamsburg outside of Buffalo, New York. They were counting 
on SBA for this alternate requirement for the guarantee and 
they sent you a letter saying that now they are hindered from 
moving forward because there is not an option for them.
    Chairwoman VELAZQUEZ. So I know that in the USDA Business 
and Industry loan program they offer a waiver from the personal 
guarantee requirement for co-ops, and that is a $25 million max 
loan program. So do you think a waiver provision like the one 
the USDA has would work at the SBA?
    Mr. CONDRA. I think it is a good option. I need to get more 
knowledge about that waiver process to learn more but that is 
just another example of thinking outside the box of how SBA 
could do this along with the other alternatives that the 
sectors recommended. And they said no to all of that. And I 
just want to remind you as well that SBA met with their 
counterparts at USDA to talk about alternatives and USDA 
recommended a number of those and the agency said no to those 
as well.
    Chairwoman VELAZQUEZ. Okay. Thank you.
    Mr. CONDRA. Yes.
    Chairwoman VELAZQUEZ. Mr. Abrams, well, the new 
administrator that was recently confirmed is coming before this 
Committee at the end of February. Rest assured that we are 
going to ask the question about this.
    Mr. CONDRA. Thank you.
    Chairwoman VELAZQUEZ. Mr. Abrams, I know that in a co-op, 
employee-owners have a seat at the table when important 
business decisions are being made. Can you tell us how this 
process enhances employee morale and drives strong wages and 
benefits for employee-owners?
    Mr. ABRAMS. I think it is at the heart of----
    Chairwoman VELAZQUEZ. Do you have your mic on? Is it on?
    Mr. ABRAMS. I believe so.
    Chairwoman VELAZQUEZ. Okay.
    Mr. ABRAMS. Can you hear me?
    Chairwoman VELAZQUEZ. Yes.
    Mr. ABRAMS. Okay.
    I really think it is at the heart of what makes these 
businesses successful, that the employees know that they have a 
seat at the table, that they know that their voice is heard 
loud and clear, and that in the end they are going to make the 
decisions about policy. And I think when the people who are 
making the decisions bear the burden of the consequences of 
those decisions but also benefit from the rewards of those 
decisions, we just get better decisions.
    Chairwoman VELAZQUEZ. Thank you.
    My time is up. So now I recognize the Ranking Member, Mr. 
Chabot.
    Mr. CHABOT. Thank you, Madam Chair.
    Mr. Gillming, I will go with you first.
    Your company was being sold or transitioning from the 
family that owned it and 99 employees purchased it. And 
obviously it has gone very well. What are a couple advantages, 
benefits would you say versus any downsides?
    Mr. GILLMING. I do not see any downsides.
    Mr. CHABOT. The mic.
    Mr. GILLMING. I do not see any downsides. It has been a 
great experience for us. But what it has meant is we became 
employee owners and there were 99 of us when we started out. We 
were all in this----
    Mr. CHABOT. Was there any magic in that number at the time 
or anything?
    Mr. GILLMING. No, it just----
    Mr. CHABOT. It just seems like such an interesting number, 
99. Not 100, not 98, but 99.
    Mr. GILLMING. It is just where we were.
    But what it has meant is that it changed some, you know, we 
had a great culture to begin with but it made it even better 
because I no longer was worried about, well, I want to succeed 
so I want to see one of my coworkers not do so well. I am 
interested in seeing them succeed because a rising tide raises 
all boats. And the culture just got better. And it becomes 
cohesive. And when you are an employee-owner and making 
decisions as an employee-owner, you know, those small decisions 
become big decisions and you are making them. How we treat our 
owners, how we treat our subcontractors is so important.
    Mr. CHABOT. I remember at a previous hearing we had one of 
the witnesses that talked about that they had gone to an ESOP, 
and it may have even been Messer, I am not sure, but they 
talked about things like some employees in the past may have 
walked off with tools or office supplies or things like that. 
Other employees, hey, that is my stuff you are doing. And they 
would amongst themselves stop bad things from happening. Is 
that accurate?
    Mr. GILLMING. Good observation. We had two mid-year career 
hires that came in, and about 6 months after they had been 
there they were talking. They said, do you know what is 
different? They turn the lights out when they leave the 
conference room.
    Mr. CHABOT. Excellent. Excellent.
    Mr. Abrams, I will go to you next.
    In your testimony you mentioned that your decision to 
restructure as a worker cooperative was really critical in 
South Mountain Company's success. How did it contribute to the 
success of your company in particular?
    Mr. ABRAMS. Well, for one thing, I think the origin----
    Mr. CHABOT. I am not sure if the mic is on.
    Mr. ABRAMS. Sorry about that.
    Mr. CHABOT. That is all right.
    Mr. ABRAMS. The origin of that decision was inspired by 
employees coming and saying this is where we want to be. But, 
the usual path is to achieve some level of competence and then 
go out and start businesses in your own. The fact that they 
wanted to be there meant that we needed to have a structure 
that would keep them there. And that was repeated time after 
time.
    So first of all, I see a level of dedication that I do not 
see in other businesses, and this fact that people want to make 
their careers there and stay till the end, till retirement.
    Mr. CHABOT. Thank you very much.
    Mr. Condra, could you walk us through with what a small 
business would experience if they approached your office to 
inquire about becoming an employee-owned ESOP?
    Mr. CONDRA. Let's give an example, a landscaping worker co-
op. If it was in a certain state, we would immediately direct 
them to cooperative development center, and that center would 
provide the technical assistance and the needs for how they do 
that. That co-op would then, if they were moving forward, 
create a planning committee. They would create a business plan. 
They would form a board. And they would go through the steps 
just like any other business would. And then at the end of the 
day they would provide an application to our bank. One thing to 
note on that is USDA provides technical assistance grants to 
these development centers in rural areas. So if you are in 
rural Ohio, you can go to a development center and get some 
assistance. If you are in Cincinnati wanting to form a worker 
co-op, there is not any Federal technical assistance to provide 
that.
    Mr. CHABOT. Thank you very much.
    Mr. Goldstein, before I run out of time here, in your 
written testimony you had described a chilling effect caused by 
``policy of regulation by litigation by the Department of 
Labor.'' Could you tell us in a little more detail what small 
businesses are going through with the Department of Labor with 
respect to what you were talking about?
    Mr. GOLDSTEIN. Yes, absolutely.
    The most important element in an ESOP formation or 
acquisition is price. And adequate consideration is the process 
by which the trustee determines the fair price to be paid for 
that transaction. The trustee is representing the buyers; the 
buyers being the employees. For over 45 years, the DOL has 
refused to define what this process is and over the last 10 
years there has been aggressive litigation which has 
scrutinized and challenged ESOP valuations. The chilling effect 
is that because there is no clear guideline on this and there 
is the fear of litigation that there are a lot of transactions 
that otherwise would not happen. There is evidence that you can 
see with the SEC of issuing robust guidelines for public 
companies that are being bought by other public companies or by 
private companies and the process is evaluated by the SEC. A 
letter of no action is given if that process is determined to 
have been followed. So all we are asking is that the DOL issue 
guidelines that adequately define this process, the adequate 
consideration.
    Mr. CHABOT. Thank you very much.
    I appreciate all the witnesses, and my time is expired, 
Madam Chair.
    Chairwoman VELAZQUEZ. The gentleman's time has expired.
    And now we recognize the Chairman of the Subcommittee on 
Contracting and Infrastructure, from Maine, Mr. Golden.
    Mr. GOLDEN. Thank you, Madam Chair.
    Mr. Goldstein, I think following up on that a little bit, 
could you try and walk the Committee through how an ESOP 
trustee might currently determine the value of ESOP stock?
    Mr. GOLDSTEIN. Sure. Absolutely.
    The ESOP trustee uses a valuation firm. They may look at 
other comparables with small private companies. There is not a 
good amount of information so they may have to extrapolate the 
information from public companies. They may have to look at 
what is the best next comparable that is available from 
transactions that are known but that is not from all 
transactions. There is no checklist of items to examine. There 
is no suggested metrics to use. There is no system of 
comparison. The DOL has used litigation which some say has set 
precedent but that precedent can be very individual to the 
actual transactions. So the metrics used for acquiring a 
manufacturing company will be very different than those used 
acquiring a technology or service company.
    Mr. GOLDEN. Thank you.
    Do you have a preference or some input about how you think 
the Department of Labor should define the term ``adequate 
consideration'' in this context?
    Mr. GOLDSTEIN. Yes. Again, if they were to give clear 
guidelines that unequivocally can be followed by a trustee to 
ensure that a process is going to be followed, it eliminates 
that fear that once a transaction has been done it will be 
under scrutiny that can be costly and take a lot of time and 
could be undone years later. And that is really what is causing 
a lot of these transactions to not happen. The employees of the 
companies that do not become employee owned are the ones that 
lose because the business owners will find another buyer. They 
will find private equity or strategic. It is those employees 
that are losing because there is not an adequate consideration 
regulation that is clearly identified.
    Mr. GOLDEN. So you just want clarity and consistency.
    Mr. Abrams, because you assist companies that transition to 
employee ownership, I know you know a lot about some of the 
technical and legal assistance that is necessary in the 
process. And I wanted to ask what more might be done to help 
promote companies transitioning to employee ownership. What 
kind of assistance to people generally need to pull this off 
successfully?
    Mr. ABRAMS. That kind of publicity would be welcome and 
could be effective. In terms of technical assistance for making 
the conversion, the most important thing is that people know 
that there are companies and consultants that are doing this 
work. There are accountants that are well-versed in co-ops and 
others, mostly, they are not. So to know who to go to, what 
attorneys to go to, all of this information is important. But I 
think even more important, at the beginning, employees often 
feel like this is an owner leaving and they need to understand 
that it can be inclusive and the owner can stay and work with 
them through the transition.
    Mr. GOLDEN. Thank you.
    Just going back to Mr. Goldstein, you mentioned in your 
testimony that you thought small business development centers 
might be a good place, a focal point for educating people about 
this particular option and maybe helping people through the 
transition. I cannot remember if it was you specifically or 
someone else who also mentioned about small business 
development centers, that some regions are doing this kind of 
work, others are not. I was not sure if that was anecdotal or 
if anyone had any feedback about that.
    Mr. GOLDSTEIN. Yes. What I have seen is that it is 
anecdotal. There are different regions of the company that may 
have a more proactive approach to giving information about 
employee ownership. And what is most important is that any 
business owner that is looking at this transition in the 
``Silver Tsunami,'' the 2.5 million small businesses that need 
to change ownership in the next decade or two, that they have 
access to that information, unbiased, and that they are not 
going to be misled by professional service providers that are 
going to steer them away from that. They need to see that that 
is an option, which is going to keep companies and jobs in 
communities.
    Mr. GOLDEN. Thank you very much.
    Madam Chair, I yield back.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    And now we recognize the gentleman from Ohio, Mr. 
Balderson, Ranking Member of the Subcommittee on Innovation and 
Workforce Development, for 5 minutes.
    Mr. BALDERSON. Thank you very much, Madam Chair. And good 
afternoon, panel. I thank you all very much also for taking the 
time to be here today.
    Throughout this hearing we have heard numerous times about 
the benefits that exist in employee-owned businesses. Some of 
these benefits include higher wages, better working conditions, 
and more flexible working hours. However, one aspect that is 
vital to employees and employers alike is health care. Would 
you all please elaborate, and you can start with Mr. Goldstein 
and just go down the line there, on some of the challenges of 
this healthcare space, and are the associated health plans part 
of the solution?
    Mr. GOLDSTEIN. Certainly. ESOPs do address income 
inequality through competitive pay and benefits, and we offer 
both to our employees. Certainly, increasing costs can be a 
challenge to any business. I would like to stress that the 
other benefit is the retirement accumulation which ESOPs 
address, which is wealth inequality. And it is important to 
point out that the difference between income inequality and 
wealth inequality is that income inequality will get the 
employee and their family through their next pay period; wealth 
inequality, if you address that, gets them and their family 
through a funded retirement. So it is very important that they 
have the benefits which we offer and also that they are 
accumulating these retirement benefits.
    Mr. BALDERSON. Okay. If you all could just be more specific 
on the healthcare piece of it. I am trying to dial in on the 
associated healthcare plans and some of the tools that are out 
there, whether it is the HSAs, the health savings accounts.
    Mr. GOLDSTEIN. Yes. So we do offer the high-deductible 
plans with HSA. Of course, it is important to educate an 
employee so that they are contributing to the HAS as they take 
those high-deductible plans. We use wellness programming to 
improve the wellness of the employees so that it is proactive 
and not just reactive. We do lots of wellness challenges. That 
is an important part of taking care of our employee population.
    Mr. CONDRA. So I am discussing worker cooperatives, which 
are separate from the ESOPs. Examples for worker co-ops in my 
mind are construction, retail, custodial, daycare, hourly paid 
wages for the smaller ones. So it would be up to the co-op if 
they were able to bring in their own insurance or that nature. 
There are larger worker cooperatives such as Equal Exchange and 
Home Care Associates that have over 1,700 owners which they 
would have their own healthcare plans.
    Mr. BALDERSON. Thank you.
    Mr. ABRAMS. Our employee-owners feel that health insurance 
is absolutely essential for them and their families, so we 
provide 100 percent coverage of everything imaginable, all 
deductibles paid. It is a high priority. Meanwhile, the Amicus 
co-op, which is a purchasing co-op of 50 solar companies 
nationwide, is working to bring insurance to lower those costs 
because most of their members are worker-owned and they are 
looking for ways to provide these benefits at lower cost.
    Mr. BALDERSON. Thank you.
    Mr. GILLMING. We provide healthcare benefits for our 
employees as well. The employees pay a portion of it. The 
company pays a portion of it. But because we are employee-
owners, there is realization that this falls right to the 
bottom line and expenses are important. So we have the benefit 
programs, you know, the wellness programs trying to reduce it 
and I am one of the healthcare trustees for our company. So I 
am aware of what we do every year of going back out to the 
market to see what we can do to provide the best healthcare for 
our employee owners that we can at the best pricing.
    Mr. BALDERSON. Okay.
    Mr. GILLMING. So going to the high-deductible plan was one 
of those ways to help provide that as well.
    Mr. BALDERSON. All right. Thank you all very much.
    Madam Chair, I will yield back my remaining time. Thank 
you.
    Chairwoman VELAZQUEZ. Thank you. The gentleman yields back.
    And now we recognize the gentleman from North Carolina, Mr. 
Bishop.
    Mr. BISHOP. Thank you, Madam Chairman. Thank you, panel.
    And Mr. Gillming, in particular, I represent Charlotte, 
part of Charlotte, which is one of Messer's expansion markets. 
And I am curious whether ESOP ownership impacted your decision-
making concerning expanding to markets like Charlotte.
    Mr. GILLMING. It absolutely has. As we continue to grow, we 
are not growing because we want to do more work. We are growing 
to provide additional opportunities for individuals within 
Messer to continue to grow. It does not have to be a narrow 
pyramid where I have to retire for someone to take my place.
    I was asked in 2002 to go move to Louisville to run the 
Louisville region. When I left the Cincinnati region, someone 
had to take my place. In 2010, I was promoted again to cover 
multiple regions. Someone had to take my place, so we do it for 
the growth of our employees and we look for very active, 
vibrant communities because our people become part of the 
community. So that is obviously one of the reasons we are in 
Charlotte.
    Mr. BISHOP. I am grateful for that and I congratulate 
Messer on your success, all your employees.
    Picking up on Mr. Balderson's point, earlier in this 
Congress I introduced H.R. 5224, the Increasing Health Coverage 
through HRAs Act. And that legislation would codify, that is, 
give permanent effect in statutory law to the new IRS, DOL, HHS 
rule that allows employees to use health reimbursement 
arrangements funded by employers to purchase individual market 
coverage and correspondingly allows employers to fund those 
accounts and deduct the amounts as pay but it does not increase 
taxable pay to the employees. And then employees can obtain and 
maintain their own coverage that way. Early estimates are that 
this option will increase by 800,000 the number of Americans 
with health insurance coverage.
    And so my first question for the entire panel is, do you 
think the availability of new benefits, flexibility like that, 
puts smaller companies, especially employee-owned forms of 
businesses in a better position to compete for top talent? 
Anybody who wishes to volunteer for that?
    Mr. GOLDSTEIN. As was previously said, we do go out to the 
marketplace every year and look at what are the available 
options, pricing, looking at ensuring that we do not 
disadvantage any one population as we have different companies 
that we bring together. And so absolutely increasing the 
options is always advantages as we look at how to best provide 
benefits at the most cost-effective method to our employees.
    Mr. BISHOP. Thank you very much.
    Madam Chairman, I yield back.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    And now we recognize Mr. Spano, from Florida, for 5 
minutes.
    Mr. SPANO. Thank you, Madam Chair. And thank you all for 
being here today. Thank you for your testimony. Appreciate it 
very much.
    As many of my colleagues know, I am personally familiar 
with many of the challenges that small business owners face. 
Before coming to Congress, I owned my own small business for 13 
years. In the entire time that I owned that business I used an 
employee-owned model. I found that by giving employees stake in 
the business, it not only allowed them to feel more invested in 
the business, but it motivated them to succeed. They had skin 
in the game, so to speak. But it also gave them a taste of what 
it was like to be entrepeneurs.
    One of the most daunting aspects of small business 
ownership is getting started. You see so many businesses fail. 
And I think entrepeneurs take enormous risk in their business 
and often with little experience when they first start. So the 
employee-owned model can correct this problem in my opinion 
because it allows people to develop the skills of business 
ownership with substantially less risk essentially than making 
a go of it on their own. It better equips these folk to start 
businesses with that knowledge.
    Some of the most rewarding moments in my experience as a 
business owner is to see some of the folks that have been 
owners in my business then step out and start their own 
business. I have enjoyed that on several occasions. But, so I 
strongly believe that that employee-centered model can really 
make for better businesses and more productive employees.
    One theme that I have been noticing is that because 
employees are directly involved in ownership decisions of the 
business, that organizations tend to make decisions that 
benefit the employees, which makes sense. The question I have, 
however, does this impair a business potentially from making 
tough decisions sometimes that may be necessary for the health 
and growth of the business? For instance, if you have a market 
that is dynamic and changing rapidly and there need to be quick 
changes, potentially downsizing and so forth, how do you get to 
the point where you get employees who are, by nature, self-
interested to come together and make a decision?
    And I will just open the floor to anybody who wants to 
answer that.
    Mr. ABRAMS. In 2008, in response to the financial crisis, 
we set out six layers of actions and the last on the list was 
actual layoffs. We never got there, fortunately. But I will 
never forget when we did get to the point where we decided that 
we would have a 20 percent across the board reduction in pay, 
and at the end of that company meeting a number of people came 
up to me and thanked me. And I said, ``Wait a sec. Your pay 
just got reduced by 20 percent.'' And they said, ``So did 
yours, and you lost more than I did.'' And they were just in it 
together. So that is a pretty tough business decision to make. 
And everybody was on board.
    Mr. SPANO. Would anybody else like to offer an answer to 
that question?
    Mr. GOLDSTEIN. I cannot speak to the start of our business 
because that was in 1884; however, I can tell you that in 2016 
when I was brought in, it was with the realization that while 
we had a 130-year-old profitable newspaper that was still 
independent, if we are going to be around for the next 130 
years we had better diversify our revenue base. And that is why 
we went through building an employee-owned platform that brings 
transition of other private companies into our company. And 
today, we are 570 employees, two-thirds in manufacturing and 
one-third in media. And there are plenty of difficult decisions 
and allocation of resources, capital, staffing that go along 
the way in building that.
    Mr. CONDRA. I would say on the worker co-op front, we have 
seen this since the Great Recession, is that young people are 
wanting to start their own businesses. Some do not want to work 
for a corporation. They want to own their own business and they 
are happy to share that. Especially with conversions, you know, 
the worker co-op model is not for everyone. Some people want to 
go to work, work 8 hours and go home. They do not want the 
responsibility of making the decisions or they stress on the 
pressure. But some people, it is natural for them and those are 
the ones that prosper.
    Mr. GILLMING. The only thing I would add is, you know, when 
the recession hit, obviously, it hit construction really hard. 
We did the same thing. We all came together and we knew we were 
in it together. But the other thing within our company is the 
realization that good ideas come from people. They do not come 
from titles. So a lot of what we do and continue to advance 
ways to build buildings for our owners and deliver them, 
quality projects at quicker schedules come from the ideas. And 
it may be somebody that just started with us last year.
    Mr. SPANO. Thank you.
    I yield back, Madam Chair.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    And now we recognize the gentleman from Tennessee, Mr. 
Burchett, for 5 minutes.
    Mr. BURCHETT. Chairlady, I hope I did not cut in front of 
one of the other members down there. Did I do that? Now we are 
good? Okay, great. I do not want that to be reflected in 
anything I do in this bipartisan that might hurt me in the re-
election bid. So I just want to clear the air with that.
    Thank you all for being here. And thank you, Madam Chair, 
for always being courteous to me.
    Mr. Gillming, is that how you say your name?
    Mr. GILLMING. Yes.
    Mr. BURCHETT. Messer Construction, of course, has a big 
operation there in Knoxville in my area and they do quality 
work. And thank you for being here, brother.
    As an employee-owned company, what do you think the biggest 
challenge is that faces Messer Construction?
    Mr. GILLMING. The biggest challenge that we face is that 
Congress will change the laws that they created in 1998 that 
allowed for S ESOPs, because that allows us to continue to 
build towards our retirement and all of us working together and 
knowing that when we get up every morning and go to work, we 
are working for ourselves and we are building for the future 
for not only us but for our families.
    Mr. BURCHETT. Yes. I am kind of a gearhead and I visited a 
place called Jasper Motors and they have a little operation in 
Knoxville. I was at a radio station and I said, I am going to 
go down there and check those boys out. And sure enough, they 
were one of you all, an ESOP. How do you say it, ESOP, ESOP?
    Mr. GILLMING. ESOP.
    Mr. BURCHETT. Anyway, they educated me pretty quick on 
that. It is always good to talk to folks that actually work for 
a living. Not that we up here do not do any work but the 
reality is we do not.
    You said Messer's supply chain of local contractors 
earlier, you said that they were facing some numerous 
challenges. Do you think that the subcontractors and 
subcontractors across the country could benefit from an 
employee-ownership model? And what do you think that would look 
like?
    Mr. GILLMING. Well, I absolutely do. And we are seeing that 
happening. There is a firm in Cincinnati, a long-time HVAC 
mechanical contracting firm that has just gone through the 
transition at Peck, Hannaford and Briggs and it is time for the 
third generation now to move out. But what happens then to the 
employees? So they had the foresight to say there is a 
structure here and our retired CEO helped consult with them 
about some of the ways to help do that. And the options that 
are there. But it allowed that company now to continue on and 
for all of their employees to still have employment.
    Mr. BURCHETT. Very good. And I will give the rest of you 
all some face time because I realize your wives and/or sons and 
daughters are watching you all right now.
    So, what do you see Congress can do to further help support 
employee ownership?
    We can just go down the line. And I have got 2 minutes and 
23 seconds, so you all divide it up amongst yourselves.
    Mr. GOLDSTEIN. I will be quick. Thank you first of all for 
pointing out that this is bipartisan, and so hopefully these 
changes can be made.
    I will go back to if this Committee could bring up the 
issue of adequate consideration. The greatest challenge facing 
the formation of new ESOPs and acquisition of private companies 
to transition them to employee ownership, which is what 
Folience is doing, is this issue of not having a clear 
definition of adequate consideration. So if you could bring 
that to the Department of Labor, please.
    Mr. BURCHETT. I believe you just did, but we will. Thank 
you.
    Mr. CONDRA. Congressman, my answer, and it will be to this 
Committee, is access to capital. If a group wants to start a 
worker co-op in rural Tennessee, they go to their local bank. 
The bank sends it to USDA and gets a loan guarantee and they 
are off to the races. If that same group wants to start a 
worker co-op in Knoxville, they go to their local bank, same 
thing, everything, SBA denies that application due to the 
personal guarantee requirement. So it is access to capital at 
this point.
    Mr. BURCHETT. All right.
    Mr. ABRAMS. My answer would be that very few business 
owners know that a worker co-op is a viable entity of choice. 
More people need to know.
    Mr. BURCHETT. Let me go back real quick. Guy in the middle 
right here, I am sorry, I am not looking at the names, here.
    Do you think the banks want to do that business or do you 
think they are coming up here and doing the old side step and 
saying, oh, you know, do not allow them to do that, brother? 
Oh, we cannot do it. It is those bureaucrats in Washington.
    Mr. CONDRA. No. There is not a process at SBA to provide a 
cooperative loan. The banks want to do this. I mean, this is 
what we specialize in. And it is just not us. It is other 
national interests.
    Mr. BURCHETT. Thank you all so much.
    Chairlady, as always, this is a very bipartisan Committee, 
and actually, it is one of the few Committees where I think 
something is actually getting done up here.
    Chairwoman VELAZQUEZ. Thank you.
    Mr. BURCHETT. So thank you, ma'am, for your work. And 
appreciate you all coming out.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    And now we recognize the gentleman from Minnesota, Mr. 
Stauber, Ranking Member of the Subcommittee on Contracting and 
Infrastructure for 5 minutes.
    Mr. STAUBER. I thank you, Madam Chair. And thanks for your 
testimony.
    I, too, am a small business owner with my brothers. This is 
our 30th year. The ups and downs of small business. And for me, 
you know, my colleague just asked, like, what can we do? It is 
critically important that we take care of our small businesses 
in this country. They are the engine of our economy and I say 
you have never been a small business until you have had to 
reach into your back pocket and pay for something unexpected to 
capital or what have you like my brothers and I have. It is not 
fun. It is not easy. So I think the Committee members recognize 
the importance of small business.
    Mr. Abrams, did you talk about adequate consideration? 
Would you define that to me? Or maybe Mr. Goldstein, you said 
that. Okay. Would you define that?
    Mr. GOLDSTEIN. Yes, absolutely.
    Adequate consideration is the process by which a trustee 
determines a fair price in a transaction. So you have a seller 
and a buyer. They have to agree on price. The buyers, the 
employees being represented by the trustee. And the problem is 
that a lot of transactions are not being done because there is 
not a clear definition of that process. And so sellers and 
trustees are too worried to get into that transaction, whether 
it will be tied up in litigation and scrutiny and potentially 
unwound years after.
    Mr. STAUBER. Well, I am going to publicly ask you to help 
not only this Committee but me, personally. I would like to 
connect with you afterward with my staff assistant because I 
want to get down to that because that appears to be a major 
problem concerning in the ability to make the transaction. The 
bottom line is the best legislation comes from you folks, and 
to hear this in the Small Business, and I have only been here 
13 months, but some of the ideas that are coming from our small 
business men and women are unbelievable and they seem to be so 
common sense. And so as I read your notes, each of your notes 
before this, I just want to tell you, number one, thanks for 
coming up and testifying. And we are here, and should be here, 
to make sure that Main Street America, and as I say, Main 
Street Minnesota, succeeds. Because the engine of our economy.
    I really do not have any other questions other than that, 
but thank you for your attendance and your testimony.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    And I am going to recognize myself for 5 myself. If any 
other members to wishes to ask questions you are welcome.
    Mr. Condra, we hear you on the issue of access to capital 
and the problem that we have at this point with SBA's 
interpretation, but we are going to tackle that issue.
    My other question is that part of the Main Street Employee 
Ownership Act directed the SBA to provide outreach and 
educational materials to participating lenders. It also 
directed SBA to establish a Small Business Employee Ownership 
and Cooperative Promotion program. As a lender on the ground, 
can you give us an update on whether you have seen any of these 
provisions being implemented?
    Mr. CONDRA. We have had zero communications on the 
creationist program. We have heard indirectly that SBA just 
started implementing it in October with the 900+ SBDCs that 
they were now required to promote the cooperative model and 
training and everything. It is a little bit frustrating because 
the co-op organizations and development centers throughout the 
country have already done a lot of this work with the 
materials, the resources. They could be advisors on this. And 
for us not to know anything about it, I am afraid the SBDCs are 
going to start recreating the wheel. And also, they will be 
duplicating efforts. And the fact is that there has been a lack 
of communication. So when the administrator comes to see you, 
you might want to suggest that they communicate a little bit 
better with the co-op sector.
    Chairwoman VELAZQUEZ. Sure. And today, I am holding a 
roundtable with the SBDCs Network across the country, so I will 
be raising this issue with them.
    Mr. CONDRA. This program is one of the biggest 
accomplishments of the legislation. Now we have 900 centers 
promoting the cooperative model. I mean, it is a huge thing.
    Chairwoman VELAZQUEZ. It is important that we get it right. 
And it is important for the Small Business Administration to 
understand the role that they could play.
    Mr. CONDRA. Absolutely.
    Chairwoman VELAZQUEZ. So Mr. Goldstein, I understand your 
company began acquiring other companies in the media industry, 
and so my question to you is, how have employees at the 
companies that you acquired reacted to learning that they are 
now employee-owners of the company?
    Mr. GOLDSTEIN. Absolutely. And just a correction. We are 
acquiring companies that are not in media so that we are now in 
manufacturing.
    So two of my favorite days in my career were getting up in 
front of Life Line Emergency Vehicles and Cimarron Trailers and 
letting them know that, yes, their company has been sold, but 
now they become employee-owners. And something that is very 
important is that we give each of our employee-owners a license 
to act. And I can pass these out afterwards. There is literally 
a card that people hold in their pocket. And one example of 
what this means to employees is that when I was showing the 
Cimarron leaders during that due diligence period, so nobody 
knew who they were, around Life Line Emergency Vehicles, one of 
the employees on the floor came up to us and they knew, of 
course, that I am CEO. He pulled his license to act out of his 
card and he said, ``I would like to stop you for a moment to 
talk about an idea.'' So I stopped the group. We talked about 
the idea. I said, ``I need to continue the tour. Jeff, that is 
a great idea. Let's get back on that.'' I did not realize what 
an impact this had on Ben and Tony from Cimarron. They said, 
``That is the kind of culture that we want to join, where each 
employee understands the rights and responsibilities of 
ownership.'' And that is what I think you have been hearing 
from my colleagues.
    Chairwoman VELAZQUEZ. Thank you.
    Mr. Gillming, we know that over the next 10 years, more 
than 2.4 million baby boomers who own private businesses will 
retire. Can you talk about how ESOPs allow for a smooth 
transition for owners looking to retire from a business without 
being forced to sell it or close it down all together?
    Mr. GILLMING. Absolutely, Chairwoman.
    What it allows for, as Mr. Abrams said, that there is a 
transition, because the owner does not have to leave. There can 
be a transition period where the individual or individuals that 
started the company are still there and helping the new owners 
transition in as they take on that responsibility. But I have 
also seen what it means for individuals that were employees 
that are now employee owners and helping. They make the 
decisions. And when you show them, yes, you are a part of this. 
And, then, you know, at the year-end when they see that, hey, 
if the company is profitable it is good for all of us, it is 
just a powerful wheel that continues to roll and build 
momentum.
    Chairwoman VELAZQUEZ. Mr. Abrams, would you like to 
comment?
    Mr. ABRAMS. I certainly agree it is wonderful to see owners 
come to the realization that the people who built the business 
with them for all those years actually can take over and become 
new owners. I think watching transitions from a sole 
proprietorship or a partnership to a worker co-op is so 
heartening because it is big change and it makes a big 
difference and those doors do not close.
    Chairwoman VELAZQUEZ. Any other? Mr. Goldstein?
    Mr. GOLDSTEIN. Yes, absolutely. The employee-owners, I have 
heard things said, for example, in Chickasha, Oklahoma, that 
nobody ever retired from the trailer industry but now we expect 
that people will. We have employees in our commercial printing 
plant that have been employees for 44 years. Employee ownership 
makes a difference. It is addressing wealth inequality. It is 
allowing families to fund their retirement. It is very 
important to this country.
    Chairwoman VELAZQUEZ. And the impact that it has in the 
local economies and also the communities. And it is just an 
unbelievable, empowering feeling to know that they are invested 
in the success of those companies because they are owners.
    Well, thank you so much for your powerful testimonies. And 
we have now heard about many of the benefits of employee 
ownership a business can generate for employee-owners, their 
families, and their local communities. And yet, despite all 
those benefits and despite our work in the 115th Congress to 
address some of the obstacles to employee ownership, it is 
clear we still have more work to do and progress to achieve. 
And I heard you loud and clear on the Department of Labor. We 
will be dealing with that issue, too.
    If we intend to promote a secure retirement for America's 
entrepreneurs, we must continue to find ways to ease their path 
to employee ownership. Time and again, it has proven to be the 
most effective retirement plan for those small business owners 
who want to retain the independence of their business while 
empowering their employees by turning them into employee 
owners.
    As I did last Congress with the Main Street Employee 
Ownership Act, I look forward to working with my colleagues 
from both sides of the aisle to continue minimizing those 
barriers to employee ownership, help preserve the independence 
of thousands of small businesses, and save thousands of more 
jobs.
    I will ask unanimous consent that members have 5 
legislative days to submit statements and supporting materials 
for the record.
    Without objection, so ordered.
    And if there is no further business to come before the 
Committee, we are adjourned. Thank you.
    [Whereupon, at 12:50 p.m., the Committee was adjourned.]
                            
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