Bob’s Red Mill Uses an Employee Stock Ownership Plan to Put People Before Profit

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"People Before Profit" by Ken Koopman is the true story of Bob Moore's gift of Bob's Red Mill Natural Foods Company to his employees through an Employee Stock Ownership Plan. Now, because of his generosity, Bob's Red Mill employees are in charge of the company's fate as they move forward and grow.
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Bob Moore says about his decision, "Most business people I have known over the years have had one goal, and that is to get out of the business they are in. My advice to them is, ‘For Heaven’s sake, do not let go of your job! Keep it.’ That’s what I have done. I have worked to keep the business I love.”

People Before Profit: The Inspiring Story of the Founder of Bob’s Red Mill(Inkwater Press, 2012) by Ken Koopman may sound like a modern fairytale, but it actually is the true account of a successful businessman who gave his business to his employees — not for some tax advantage or a public-relations ploy, but because he felt it was the right thing to do.

Though Bob Moore, owner of Bob’s Red Mill Natural Foods, made the remarkable presentation via an Employee Stock Ownership Plan on the occasion of his 81st birthday, he didn’t do it as a means to step away from the company he had created so he could ease into a comfortable retirement. He’s still at work, as of the book’s release in spring 2012, still providing day-to-day leadership of the company.

This book is written by Moore’s “P.R. guy,” but it doesn’t read like an extended press release. As the daily news becomes an apparently endless parade of corporate greed and avaricious CEOs, Bob Moore’s story opens a window into practically a parallel universe of business practices: putting people before profit, and giving due appreciation to the people who’ve made your company strong. The sad thing about the book is that Moore shouldn’t be such a rare bird: He should have a lot more company. But it is to be hoped that his example will inspire in others some of his unselfishness and sense of connection with the people who make it possible for businessmen to be in business. This excerpt is taken from Chapter 28, “An Employee-Owned Company.”

Bob Moore runs a business, but treats everybody like family. People like Wes Tarr and his three partners are his brothers. His kids are Dave Geiter and Dean Hauck — and a handful of others like Bo Thomas, Micky Torgerson, Dianna Kelley, and Lori Sobelson, who have been with him almost since the beginning. And then he has a wealth of grandkids — the 250 employees he values so much. Even his relationships outside the walls of the world headquarters are familial, closer than some cousins. There’s Don Ossey, his real estate expert; John McCormick, his attorney; and Ken, Craig, and Ted, his PR and advertising guys.

And, he knew in his heart — probably around the time of the fire — his people were so important to him he would never jeopardize their future by “selling out,” or alter his relationship with them by letting someone other than himself have the majority interest in Bob’s Red Mill. That heart-felt feeling, that emotional commitment, manifested itself in the rejection of hundreds of offers over the years to buy his company. He could have retired a very rich man if he had entertained any of those propositions. But all that the wooing, cajoling, and flattering accomplished over the years was a steeling of his resolve. Whereas before, maybe up until the time he reached “retirement age,” he had a strong feeling about what he ultimately wanted to do with the company, at some point he crossed a line of no return in his mind, and decided, with clarity and purpose, that his employees would have the company. At first, when he and Charlee jointly made the decision, he didn’t know how that would happen. He just knew it would happen. As he was later quoted as saying, “Truly, this was the only business decision I could personally make.”

An Employee Stock Ownership Plan

Planning for that eventuality began in his late 70s, shortly after he had secured his employees’ job futures with the long-term lease on the new manufacturing facility. Next, he wanted to secure their financial futures. The first step was to approach his partners — Dennis Gilliam, John Wagner, and Robert Agnew — and discuss with them his goal to have the employees own the company. The succession plan sounded good to Gilliam, 65; Wagner, 67; and Agnew, 46, at the time. So, with the help of their attorney, John McCormick, of the Portland law firm, Sussman Shank LLP, the group began exploring their options. They learned employee ownership could be accomplished in a number of ways: Employees can receive stock options or buy stock directly; they can be given stock as a bonus; they can obtain stock through a profit-sharing plan; they can even become owners through worker cooperatives, where everyone has an equal vote. But, after months of research, they found the most attractive option for the company, its owners, and employees, was an Employee Stock Ownership Plan (ESOP).

An ESOP is a tax-qualified benefit plan created by a corporation for the benefit of its employees. It is similar in some ways to a profit-sharing plan (the difference is you get cash on annual basis from profit sharing, and shares of stock in an ESOP until you retire or leave the company, at which time the stock value is traded for cash). In an ESOP, the company sets up a trust fund, into which it contributes new shares of its own cash or stock to buy existing owner shares. Companies can borrow money from a bank to fund the ESOP, or the business can bankroll it itself (as the Bob’s Red Mill partners planned to do). Shares in the trust are generally allocated to individual employee accounts based on their W-2 earnings. As employees accumulate seniority with the company, they acquire an increasing right to the shares in their account, a process called vesting. When they leave the company, they receive their stock, which the company must buy back from them at its fair market value. That value is determined annually by an independent appraiser.

Once they had determined to move forward with an ESOP as a way to transfer ownership to the employees of Bob’s Red Mill, the group hired third-party administrator Pension Plan Specialists PC, of Vancouver, Washington to set it up. Through the lengthy and costly process, President Joe Burt spent a lot of time with Bob, which meant showing up at Bob’s office at his favorite meeting time — six a.m.

“When we first sat down, what he wanted to make very, very clear to me was this plan would be put in place for his employees, so some big corporation, like Kellogg’s or General Mills or whomever, wouldn’t come in and take over the company,” Joe said. “He wanted me to thoroughly understand the ESOP was being done to create tremendous stability and job security for his employees, not to build wealth for any of the partners.”

Joe described as “very generous” the stipulations Bob wanted as part of the plan. That included a three-year vesting term, instead of the more typical six years. But, even more, Bob wanted all of his employees who had already been with him three years to automatically be fully vested as soon as the ESOP was executed. The “prior years of service” credit immediately vested more than one hundred employees. Joe added, “It was also exactly in line with his character” to ensure if someone was permanently disabled, died, or retired anytime in a plan year, they would receive their full benefit for that calendar year (most plans require the person to be employed on the last day of the plan year to earn a contribution for that year).

“As you could imagine, Bob was very paternal about what he wanted for his people through an ESOP,” Joe explained. “He really wanted this to be a retirement plan, an opportunity to create long-term prosperity for each one of them.”

To be eligible to participate in the plan that was ultimately developed, an employee had to be at least twenty-one, employed for a year, and have accumulated at least one thousand hours of service. Anyone who had previously met those requirements was immediately eligible to participate. When all had signed off on the plan, the Bob’s Red Mill group got together with their Koopman Ostbo PR team to strategize how best to roll it out to their employees, customers, and end consumers, as well as the media. Yes, it was a positive move, but some companies that implement an ESOP do so in an environment of immediate changes in management. Bob was adamant there would be no changes in the day-to-day operations of the company, and he certainly had no intention of retiring. The strategy team developed specific messaging points for each of the company’s target audiences, and then hit on somewhat of a theatric idea. The company was ready to announce the ESOP in early February, 2010. Bob’s birthday was on the fifteenth. Why not combine the two events, and announce on Bob’s 81st birthday he was giving the gift of his company to the employees?

People Before Profit

It was a brilliant strategy. On that Monday, the two hundred employees of Bob’s Red Mill gathered during the lunch breaks of their respective shifts to ostensibly honor Bob with a cake and a serenade. Instead, they got pizza, and the surprise of their lives. What they heard would alter their lives forever. Effective that day — Bob’s February 15th birthday — their status as employees changed to owners. The company, which most of them knew could sell at three to four times its earnings, was theirs. And, as it began to sink in, they would not have to pay anything for it. It was solely funded by the employer. It was being given to them. Truly, a gift.

A gift that didn’t necessarily come with a guarantee, the pension plan expert pointed out. “I did explain to the employees it is not necessarily a guarantee they will have success in retirement. As you can imagine, as the company value goes up, so does their stock price. If the value goes down, so does their stock price. One of the things I really wanted them to understand is they control their own destiny. When you make the mind shift from employee to owner, you start to think of things a little differently. If you are looking for a piece of scratch paper, maybe you grab it out of the recycle bin, as opposed to a brand new piece out of the fax machine. You start to think, ‘What is this going to cost me?’ One of the things we wanted them to understand is, they can, by working hard and working smart, influence the value of their retirement accounts. Bob really wanted me to hammer that home with the employees. Up until then, he controlled everything, he took all the risks, and he earned the rewards. He wanted the employees to understand that is what they had now. From then on, they would have the responsibility and accountability — and the incentive to share in the success, and reap some of the rewards.”

According to Roger Farnen, Quality Assurance Manager, the opportunity is not lost on staff. “I think the employees, no matter what their position, recognize there are tangible incentives. We all realize Bob is basically passing the entrepreneurial torch to us, and, at the same time, instilling in us that hard work provides rewards.”

Bob’s Red Mill employees had always been proud of where they worked, and for whom they worked. But their pride spilled over in the days following the ESOP announcement. The letters that went out to the company’s “Valued Trading Partners” in advance of the public statement extolled their virtues, with comments like, “We believe we have the finest people you will find in the natural foods manufacturing business. By providing our current and future employees an ownership stake in the company, we are confident we will continue to retain and attract the very best.”

And the media attention that resulted from the Koopman Ostbo press release was astounding — nearly one hundred news stories that reached one in three Americans in the days and weeks following the announcement. The coverage started the morning of Tuesday, February 16th with an article in Oregon’s largest daily newspaper, The Oregonian. The headline, “Founder of Bob’s Red Mill Natural Foods Transfers Business to Employees,” was fairly straightforward, but the ripple effects of the front-page story were like a firestorm. At eight a.m. on the seventeenth, the producer of ABC World News with Diane Sawyer was on the phone with the agency’s PR director. They wanted to know if CBS or NBC had run the story, and when they heard “not yet” from the savvy account executive, the producer asked for an exclusive, promising to feature Bob and the ESOP story in prime time on their “American Heart” segment. They dispatched a reporter and cameraman who spent most of the next two days interviewing Bob and touring his facility. In a rare bit of TV news protocol, there was no voiceover from the reporter. Because the story was so powerful, they allowed Bob to tell it himself, a rarity in news reporting.

The nearly three-minute piece ran on Thursday night’s broadcast, with a moving introduction from Diane Sawyer, who said, “And now, from the American Heart, a story we really love; hope you do, too.”The segment featured dozens of Bob’s employees, about whom Bob made this comment, “I don’t think there’s anybody worthy to run this company, but the people who built it.” The camera panned the mill room, packaging lines, warehouse, offices, and Whole Grain Store & Visitors Center, and then focused on the man, himself, to tell why he gave the company he built from scratch to his employees. “It’s the only business decision I could make,” he said, looking into millions of American homes that night. “I could not sell the company; I could not sell the company.” Then, he shared a philosophy about business he has embraced his entire life, his core value that places people before profit: “There’s a lot of negative stuff going into business today; it’s a good ol’ basic Bible lesson, and that is that the love of money is the root of all evil. And, unfortunately, our entire philosophy today is just to get all the money you can in whatever way you can, and it’s caused people to do a lot of things just for money that they feel in their hearts is not the right thing to do. I’ve just truly, truly, truly tried to set some of that aside, and do what I thought was the best thing for the group of people who made this all possible.”

The TV, radio, and print stories, which blanketed the nation that week, not only generated tons of congratulatory messages from existing buyers of Bob’s Red Mill products, but people who had never even heard of Bob Moore were now fans. The company’s customer service department was swamped with emails from around the country:

“I just saw you featured on ABC News. Just want to say I rejoice in your virtue. It is my endeavor in life to be as faithful, hard-working, honest, grateful, intelligent, and generous as you.”  Nancy from Alabama

“Your story warmed my heart and restored my hope for humanity. We are of a different age, when decency and doing the right thing meant something; when a man could accomplish anything with hard work and a good heart.”  Ward from California

“I read the article about you giving your employees your business. I’m not sure if you will ever read this message, but I wanted to say thank you, too. I am shocked to know there are still some KIND people in this world. Everyone is so busy trying to make money to better themselves that they don’t take the time to thank those responsible for their success! I commend your generosity! Your act of kindness should be filling the TV stations. Maybe just one other person could learn from the example you set. The only time I’ve read or saw something this great was when I watched Willy Wonka and the Chocolate Factory. Thank you for letting your employees touch your heart and not your wallet. God has a special place in heaven for you!”  Karen from Illinois

“I want you to know how proud I am of you! Giving your company to the workers was the most generous thing! You are a wonderful Christian and a great American! I applaud you sir and tip my hat in respect to you. I am proud to know you.”  Eddie from North Carolina

“Thank you for being an inspiration to this country that we love. I wish more people were like you and had the best interest of their family of employees at heart. You exemplify the true meaning of leadership. My prayers are with you and your staff for continued greatness.”  Fred from California

“I read about the transfer of the company to the employees and just wanted to tell Mr. Moore that the world would be a much better place if others adopted your philosophy about life.”  Tim from California

“Kudos to you! I have worked in the footwear manufacturing business for over thirty years, and after all this time when push came to shove it was the ‘top dogs’ who received the prize, and we were pushed to the pavement. I applaud you for seeing the importance in the company. The employees make the company! I wish there were more with your vision.”  Julie from Pennsylvania

“I just wanted to say what a generous and loving heart you have. To share with those who loved you and supported you along the way — that is what life is really about.”  Darlene from Texas

While the media coverage was all positive, including a two-page spread in People magazine with the headline, “People Before Profit,” not every writer got the story right. Some assumed an ESOP meant the owner was stepping down from running the business, and they reported Bob was retiring. They were wrong. While an ESOP is part of succession planning, and often involves an exit strategy for owners, Bob had made it very clear he was not retiring. The day after the ESOP was no different for him than the day before. He had always been active in the day-to-day operations, and he would continue to be.

“I’ve gotten to a point in my life where I want to be,” Bob said. “I mean, if the Good Lord came into my office right now, and said, ‘Okay, Bob, what is it you want to do in your next life?’ I would say, ‘Lord, I would like to do just what I am doing right now. I want my same life and my same wife. I couldn’t be happier.’ It’s like that card game where they ask you how many cards you want, and you trade yours in for some others; I would say, ‘Thank you, but I will play the hand I was dealt.’ I love coming to work! And I don’t want to retire. Most business people I have known over the years have had one goal, and that is to get out of the business they are in. My advice to them is, ‘For Heaven’s sake, do not let go of your job! Keep it.’ That’s what I have done. I have worked to keep the business I love.”

Asked if he had to pick just one thing that stands above all others in the business he loves, Bob does not hesitate.

“If I had to pick one thing about my life today, it would be my people. I love them all. I just love them. And, to me, the ESOP is the ultimate way to reward them for their contributions to our ongoing success and growth. Now, they don’t have to worry. They will own the company. Personally, it is a very good feeling. The continuity of this company has been secured.”

This excerpt has been reprinted with permission from People Before Profit: The Inspiring Story of the Founder of Bob’s Red Mill, published by Inkwater Press, 2012.

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