Best Practices: King Arthur Flour, Where Workers Are Owners King Arthur Flour's Workers Own the Company

Posted by Tim Fernholz

Correction appended.

GOOD Company Project finalist King Arthur Flour was founded in 1790 and owned by the same family over the first 200 years and five generations of its existence. In 1996, Frank Sands, the owner and then-CEO, was contemplating succession as retirement loomed and family ownership no longer seemed tenable. Rather than selling the firm to outside investors or another company, he worked with the company’s CFO, Steve Voigt, to transfer ownership of the company to its employees. They started with a 30 percent chunk of the company, then another 40 percent, and by 2004 the company was 100 percent employee-owned through a legal trust called an Employee Stock Ownership Plan (ESOP). 

Through the plan, each of the 250 employees of King Arthur Flour now obtains a share of the company’s equity each year proportional to their salary. While the approach to ownership and retirement isn’t common—only 11,000 companies have adopted it around the country—Voigt, who is now the company’s CEO, says it is key to King Arthur’s success.

ESOPS make it easier to be mission-driven. “The exemplary ESOPs in Vermont, they aren’t the companies that are going to go ship all the jobs over to southeast Asia,” Voigt says. “These are people who creating value and understand you want to do multiple-bottom line and they just run their businesses differently.” The incentives to care about sustainability, maintaining a quality workforce, and social impact grow when the people who run an institution have a larger say in its direction.

ESOPS attract talent—and oversight of compensation. The relationship between equity ownership and salary “gives value with respect to the value of the job, that begs the question, do you have a reasonable salary structure in place?” Voigt says.  “If you make 4 percent of the total payroll, that’s the value that gets put into your account each year, but presumably you’re making bigger decisions that are going to have a greater impact on the company. If you set it up well, you can attract the kind of managers you want there [and] grow the value for everybody.”

Research shows that ESOPs are more productive and grow faster. “Studies for 20 or 30 years showing that these companies perform better than their comparable companies that aren’t owned by an ESOP,” Voigt notes. The largest study completed to date by Rutgers sociologist Joseph Blasi and economist Douglas Kruse found that ESOPs produced 2.4 percent more growth in jobs, sales, and sales-per-employee than comparable firms.

Employee ownership isn’t a silver bullet, but it reinforces best practices. “It’s not super magic, super secret sauce kind of stuff," Voigt says. "It’s the best practices that supports everything else that’s going on. When we have customers call up our catalogue number and ask to speak to an owner, more than a few people at king Arthur say, ‘I’m an owner, how can I help you?’ and we empower them to make some pretty big decisions." He adds, "If you really want the ESOP to live up to its potential, there’s a strong teaching component that you want to invest in somebody else and really help bring them along because it’s good for everybody.”

ESOPS aren’t for every firm. “Big public ESOPs didn’t go so well. It seems to be a mid-size and small-size private company pool,” Voigt says. “A $1 or $2 million sales business probably isn’t a good candidate for ESOP, [since] it’s going to cost you five figures annually to comply with all the rules and regulations."

Would you want to work for a company that's employee-owned?

An earlier version of this article misstated the name of King Arthur Flour's CEO. He is Steve Voigt, not Steve Boyd.

photo (cc) by Flickr user liladobbs