On 81st birthday, Oregon man gives company to employees (2010) | Hacker News Reader

On 81st birthday, Oregon man gives company to employees (2010)

seattletimes.com

265 pointscfontes57 comments

This reminds me of a similar story told by E.F. Schumacher in his 1979 book "Good Work." Quoting from the chapter "A viable future visible in the present":

  The second link of my little chain is this company called Scott Bader,
  a plastics company founded by Ernest Bader, a Swiss Quaker immigrant to
  England before the First World War.  He's now about eighty-five.  Ernest
  Bader was penniless when he started in England.  He said, All my life I
  will have to work for others.  What a dreadful system.  Well, it didn't
  work out like that.  He was an entrepreneur and he had a business and in
  1951 he suddenly woke up and said, I am now doing to all these people what
  I suffered from when it was done to me.  I am not going to go out of this
  life with this feeling.  No, I must do something.  So he got in touch with
  various people, including myself, and said, I want to put this on a basis
  that I as a Quaker and a pacifist believe in.  I don't believe in what I
  am doing.  And so we worked very hard and hammered out a constitution for
  this firm.  Ernest Bader said, No, I don't want to have ownership of this
  company, and so all the capital, except 10 percent, was vested in the
  commonwealth, which was set up for this purpose as a limited company.  The
  equity doesn't lie anymore with Ernest Bader, it lies with that
  commonwealth, and everybody who works for a certain length of time becomes
  a member of the commonwealth.  Legally speaking, the commonwealth is the
  owner of the operating company.  At first the family retained 10 percent
  founder's share, so arranged that they had a majority, not with the
  intention of using it but as a last resort.  Because it is jolly difficult
  to build something up but it is very easy to ruin it.

  [...]

  It was not until 1963, that is, twelve years later, that we felt it worked.
  The founder's shares were also put into the general pocket of the
  commonwealth, so it is the administration of the commonwealth that owns
  the thing.

Schumacher goes on to describe how this created a radical realignment of incentives for the company and to list some of the effects created by this realignment. For example, they put a cap on the maximum spread between the highest paid and lowest paid employees, committed to staying small (spinning off new companies when they needed to grow), and required that a significant portion of all profits be invested in the local community.

Scott Bader still exists and is still owned and run by the employees:

http://www.scottbader.com/governance.html

And there are significantly larger examples too:

http://en.wikipedia.org/wiki/John_Lewis_Partnership

A related cool example - worker owned from the start, 90k employees: http://en.wikipedia.org/wiki/Mondragon_Corporation

But mondragon worked so well for situational and cultural reasons Basque culture is very cooperative.

and Baxi was also gifted to its employees though they now only exists as a non profit that works on employee/mutual share ownership.

http://www.baxipartnership.co.uk/

Also for a more engineering example Arup http://en.wikipedia.org/wiki/Arup

yaikes

"The company is owned by a trust on behalf of all its employees — known as partners - who have a say in the running of the business and receive a share of annual profits"

i hope every business decision does not need to be put to a vote by entire staff.

They use a system of representative democracy to keep it from being too unwieldy: http://www.johnlewispartnership.co.uk/about/the-partnership/...

Not that much different from how things work in public corporations. Every shareholder has a say in the running of a business, but AMD does not check with me for every single decision they make, even though I own a share of the company. Except in this case, the shareholders and the employees are identical sets.

That's the way most coops work coop by ownership not coop by management except for major decisions where everyone one get their say.

I once chaired a share holders meeting of a coop and had to ask the founder to stop speaking as he had all ready spoken on the substantive motion and other junior members wanted to speak. Thank goodness for Citrine (The Uk equivalent to Roberts Rules of Debate)

I have actually recently been doing a lot of research on ESOPS. Back in the 90's congress passed a law that makes it possible for a company that is 100% owned by an ESOP to pay ZERO corporate income tax!

If you have a startup that is cashflow positive and generating taxable income you should look into this. I am still leraning a lot about it myself. This link was useful (I have no affiliation with the law firm, just thought they did a good job describing the details)...

http://www.seethebenefits.com/showarticle.aspx?Show=687

Not to sound like a cynic here, but: http://www2.gtlaw.com/pub/alerts/2003/kahnj_03.asp

What Are the Tax Advantages of an ESOP to the Shareholder?

If the corporation is a C corporation and the shareholder sells 30% percent or more of his or her stock, the owner can defer indefinitely the taxation of his or her gains on the sale of the stock. The additional liquidity for the shareholder presents vast investment opportunities and increases his or her estate and charitable planning options.

He's giving away the stock, so the gains are 0. There's no tax to be deferred.

Not correct. Even if you are _giving_ the stock to the employees, there are significant tax advantages.

"Uses for ESOPs:

To buy the shares of a departing owner: Owners of privately held companies can use an ESOP to create a ready market for their shares. Under this approach, the company can make tax-deductible cash contributions to the ESOP to buy out an owner's shares, or it can have the ESOP borrow money to buy the shares (see below)."[1]

[1]https://www.nceo.org/articles/esop-employee-stock-ownership-...

Financial journalism isn't the most impressive thing in the world but one assumes that if he were selling the company rather than giving it away, the article would have mentioned that.

This "maybe I'm just cynical" line of thought reminds me of the comments that some people make about Bill Gates or Warren Buffett giving their inheritances to charity. Think of the tax advantages to the dead for disposing of their wealth this way!

Well, okay... if this is your idea of underhanded, it's hard to know what to say about it...

Isn't that still about buying?

The article is light on details, but one way you can "give" ownership to your employees but still get paid for it is for the company to borrow money to purchase the shares for the employees.

That had the added advantage that both the interest AND the principal on the loan are tax deductible.

The timing of the transaction is also interesting given the impending change in the estate tax laws with the "fiscal cliff". Reminds me of: http://www.nytimes.com/2012/11/20/business/economy/early-div...

Reminds me of Chuck Feeney - who made billions and then gave it all away/set up a foundation, including giving $26 million to long term employees.

Great book on him called `The Billionaire Who Wasn't`

I agree. This was an 'accidental' book for me and whilst I'm sure that the story told was a little biased the ultimate message was very good. Recommend it to anyone who is interested in business. What I like is that this is also a book about building something huge, from an idea. Many times on HN its about someone who's created something that brings in a few hundred or a few thousand dollars a month. Its good to read about people who really build large businesses, employing a lot of people

Had to look it up, found it on Bill Gates' site :)

http://www.thegatesnotes.com/Personal/Chuck-Feeney-The-Billi...

All companies should be employee-owned.

How about: People should be able to trade freely. People should be free to associate. If people want to form cooperatives then they should be free to do so.

Wrong. Anyone forming a business should be free to own it themselves, invite employee ownership, donate the entire thing to their dog, invite the government to nationalise it - in short, anyone who creates a company should be free to dispose and rearrange the ownership as they see fit. Within this spectrum there will be optimal, sub-optimal, and plainly idiotic arrangements. And that's the way things should be.

As soon as you start using language like 'should' or 'must' then you imply regulatory impositions, which will always create a set of winners and losers, but more importantly, erect a wall making it that much more difficult for the losers to get back into the winners column

The difference between "should" and "must" is significant. If I said: "people should not be hypocrites" and "people should be free to say what they want", my statements would not be incompatible or contradictory.

In the same way, simultaneously holding the beliefs "companies should be employee owned" and "anyone forming a business should be free to own it themselves" is possible without cognitive dissonance.

I find your three 'should's less compelling than gnosis'.

How would they gain access to capital? Even though our markets have/had issues, they do enable somewhat ready access to cash - of course, if the company has traction in the market, revenue, etc.

That is the killer Q for coops access to capital with out giving up control and so no being a coop any more.

The article is from 2010...

This is awesome. I buy his grains all the time.

Their steel-cut oats make excellent oatmeal. I'm not surprised they won the competition.

I eat their Scottish oatmeal nearly every morning. I get 12 lbs delivered every 3 months. Love it!

I've used his product which I would rate as phenomenally good. Especially their Guar Gum.

That's a really neat birthday present! Awesome.

How are shares allotted to new employees? Do existing shares get diluted?

Sounds like a great guy and boss! Bravo!

This is amazing

It is a great story but it happened almost 3 years ago.

Beautiful.

This is so unamerican. Giving stuff away for free is really bad. Teach a man to fish instead. Or rather, the man should be trying to learn to fish. It just feels so bad. Like spoiling a child.

If you really want to help somebody you must really make them work for it with blood and sweat. Otherwise they will not appreciate it. And they will teach their children (sub-consciously) to just wait for the next billionaire to give them something.

He's giving it to his employees who presumably have worked for it with "blood and sweat". An alternative would be passing it down through inheritance or selling to a bidder, neither of whom invest blood or sweat. So, to your point, he's doing exactly what you say he should

>>He's giving it to his employees who presumably have worked for it with "blood and sweat"

No they didn't. They were getting paid already for the value they provided to the company. Do not delude yourself, this is nothing more than a handout.

>>An alternative would be passing it down through inheritance or selling to a bidder, neither of whom invest blood or sweat.

So you are OK with some employees receiving a gift and you oppose the heirs receiving that same gift. Of course I'm opposed to just giving stuff away, but if you have to then leaving it to your heirs makes more sense from an evolutionary point of view.

Another option, if you really want to give away your money, is to create jobs for people with nothing to do. This way they will earn that money instead of just receiving a gift. For example, fund public works and pay people who you want to help to do that job. Pay them reasonably even. Maybe even include education benefits. Isn't this a better option than just handing somebody free money?

If those people do not want to do these jobs then they do not deserve the money. I'm really curious why would anybody disagree with me.

Of course, there are always exceptions. There are people in the world that truly need free money. Example orphans, the elderly, disabled people. People who even if they wanted to work they simply can't. My logic is undeniable, how can you oppose anything I say?

At the end of the day though we are all free to do with our money what we want. Still, I cannot help but hurt when I see money just being wasted away by giving it to people who have not earned it (heirs excluded of course).

Edit: Thanks for answering. I really do believe I'm right so it is nice to have somebody explain why that may not be so instead of just getting down voted (which I don't mind). If more people could try explaining why they disagree with me that'd be great. I really want to hear why anybody thinks I'm wrong. Maybe I am wrong. I'm willing to change my mind if there is a good reason.

I don't want to get into this whole discussion about if the employees do or do not deserve the company, but I thought I'd take up a different angle.

>...leaving it to your heirs makes more sense from an evolutionary point of view.

I think you can make a strong argument that giving the company to your heirs whole-hog is a poor idea (unless those heirs are involved in the company personally). They will almost certainly be called upon to make decisions about the company, and without expertise they'll probably do a middling job of it. It seems quite sensible that, especially in your heirs are unfamiliar with the business, that the employees should have their self-interest piqued in some way when you pass it on. After all, if you devote 20% of the company to employee equity, and the company performs 30% better as a result, your heirs will be better off because of it.

It seems like the people who work at the company are most qualified to run it, and that giving them some incentive to run it well is in everyone's interest. So I wouldn't say it's clearly a bad choice, "from an evolutionary point of view," for either the heirs or the company.

Also, this is completely parenthetical, but this sort of thing does not look good (even if you're right): >My logic is undeniable, how can you oppose anything I say?

>>I think you can make a strong argument that giving the company to your heirs whole-hog is a poor idea (unless those heirs are involved in the company personally)

If you leave lots of money to your kids and never taught them from an early age how to handle money then it is your fault. Any reasonable parent would prepare their kids to know how to handle money. Don't be surprised if they turn out bad because you've spoiled them.

And if they are not interested in running that type of company but instead they want to do something else then the solution is simple: sell the business and allow them to run their life as they see fit. If you've done a good job raising them then they should be OK.

"They were getting paid already for the value they provided to the company"

Not to pull the marxist analysis card BUT: bullshit. They were being paid an agreed upon percentage of the value they provided to the company. In this case the owner decided to share the "surplus" value with those who generated it - which for some reason makes you feel uncomfortable.

>>Not to pull the marxist analysis card BUT: bullshit. They were being paid an agreed upon percentage of the value they provided to the company.

What is your point? Doesn't seem to contradict what I said.

>>In this case the owner decided to share the "surplus" value with those who generated it - which for some reason makes you feel uncomfortable.

You are assuming that they deserve that surplus, or really, the profits. They already got paid to generate that profit. That is the whole point of a business. What exactly is your point?

I'm not going to repeat myself. I already explained in all my comments the reason of why this makes me feel uncomfortable.

If you are advocating socialism or communism then lets just agree to disagree.

My point is that this notion of "static remuneration" while perfectly legal (and even moral when all parties consent - though the notion of consent when under duress is another issue all together) is not the only form of viable remuneration. I refuse to just accept the dichotomy of "communism" or "free market capitalism". This is hacker news, not the glenn beck comments page.

The simplification of "owner" v.s. "worker" in which either one or the other deserves the surplus entirely is false. Clearly there is labor and sacrifice involved with presenting the initial capital required to start the venture - but could this initial investment not have a half life? Why is it that once the owner has recovered their initial investment that they should then continue to retain the surplus generated by the worker? That is the real crux of the entire debate. Mathematically explain how that works out. How and why is the % of surplus a constant and not actually determined in real time based upon investment. Perhaps the opposite approach would be dynamic capitalism.

> "Why is it that once the owner has recovered their initial investment that they should then continue to retain the surplus generated by the worker?"

The capitalist's claim on the profit comes from the fact that the capitalist put his own capital at risk. It's pure risk premium: he (or she, of course) could've lost it all if things went south. The workers, from the start, had a guaranteed income in exchange for their irreplaceable moments of life on this planet. If the workers want a share of the profits, they are free to raise their own capital and buy shares in the company (or start their own!) just like the capitalist did.

Above all the mechanics of capitalism, however, people are also free to pursue their own self-actualization. For some people that involves helping their community, and for some capitalists that community happens to be the workers who helped create their thriving business. At a certain age, having extra capital to be buried with doesn't make one feel as good as philanthropy does.

So you genuinely feel that this initial risk has a value of infinity? How is that mathematically viable or honest?

How is it mathematically viable or honest to assume that a company will have infinite profits? There's an extremely high probability when you start a business that you will fail and lose everything.

> No they didn't. They were getting paid already for the value they provided to the company.

That's not how capitalism works. If you pay the workers exactly what they're worth, you don't make any profit. You must pay workers less than the value they deliver if you intend to make a profit.

If the employer is doing his job, the whole is greater than the sum of its parts.

In a philosophical sense, sure. But the revenue is exactly the sum of its parts.

You missed my point. The owner of the company is adding a value-add of his own and that is where the profit comes from. Any halfway competent executive or manager will get more out of his employees than those employees would have done on their own.

Why "heirs excluded"?

I don't understand the logic by which it's only ok to give money to your descendants... wouldn't that hurt them just the same in your worldview?

It's almost certainly a troll, just downvote it till it gets hellbanned and move on.

Yea yea, but trying to give the benefit of the doubt... the last statement in their comment did indicate that they were open to changing their mind.

No. It should not. What will hurt them is how you raise them (By heirs I'm talking about children). Give them the best education money can buy and beyond the essentials (food, roof, clothes) make them work for whatever else they want.

Want a car? Get a summer job. Want a new video game console? Do some extra chores. Want extra money for your date? A job in the weekends would not be bad.

Do you get my point?

By the time they inherit money they will learn not to depend on it.

It all depends on how you raise them. If you do a crappy job to begin with then even with no money they will probably be screw. Tell me I'm wrong.

I'm coming to agree with part of your point but just for the sake of constructive criticism your tone is off-putting, and probably the source of most of your downvotes.

Also, I don't agree that distributing equity of the company that employees have worked for is a hand-out; rather, it IS teaching you to fish: you now have ownership of the company, and are more inclined to learn the implications and your interests are more directly aligned with the company. Rather than being incentivized to do the least work possible without getting fired (not saying that that is what most workers do, just that it is what a no-equity position incentivizes at least in the short-medium term), the interests of the employees are now directly aligned with the company. I fail to see how that's a bad thing.

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