Hall of Fame - Rob Edwards
How did you get involved in ESOPS?
After graduating from Michigan Law School in 1971, I took a position with a mid-sized law firm in Providence, Rhode Island. When ERISA was enacted in 1974, it fell to me to become the resident ERISA expert. In that capacity, I worked on a number of ESOP transactions as part of a broader ERISA practice. In the mid-1990’s, I joined the Providence office of a regional law firm, and in 1998 I made a decision to concentrate my practice on ESOPs and ESOP transactions. By 2002, after a merger of law firms, I had a successful practice as an M&A partner of a national law firm. But in 2003 when Jim Steiker approached me to open the Providence office of an ESOP boutique I jumped at the chance. I wanted to limit my practice to exclusively ESOP matters and to work collegially with a small group of mission-driven lawyers. For the next twelve years until my retirement at the end of December 2015, I was a principal of both Steiker, Fischer, Edwards & Greenapple and its ESOP-owned affiliate, SES Advisors, which provided ESOP-related administrative and financial advisory services.
We’d like to recognize people who helped you along the way. Can you name one or two?
Initially John Carlson, an advisor to architectural and engineering companies, was a big help to me by bringing me into a number of his client engagements where ESOP expertise was required. John became a friend as well as a business associate until his premature death. John Murphy, Sr., the founder of Atlantic Management, an ESOP valuation firm, was very helpful and supportive as my ESOP interest grew, and there were many other supportive voices in the ESOP community.
Who influenced your thinking regarding ESOPS?
Charles Edmunson, an ESOP visionary and co-author (with Dick Duffy) of the mission statement for The ESOP Association. Charles was a caring and compassionate human being with a presence that commanded your attention. I remember an encounter we had at one of The ESOP Association’s Annual Meetings. Charles had been a runner until he was afflicted by a neuromuscular disease similar to Lou Gehrig’s Disease, which by then had progressed to the point that he couldn’t walk without assistance. But he didn’t give up and substituted walking for running as his daily challenge. I volunteered to help Charles make a couple of walking circuits around the ground floor of the conference hotel. I’m not exactly sure how to explain it, but the experience of helping Charles was transformative for me; I got much more out of that session than Charles did I’m sure. Charles’ had a big heart, an unbounded desire to make a positive difference in people’s lives, and an unshakeable conviction that ESOPs were a good way to improve American capitalism.
Others are Freda Takaki, past president of both The ESOP Association and the Employee Ownership Foundation and Dick Duffy, who co-authored The ESOP Association’s vision statement. Both Frieda and Dick are tireless ESOP supporters and good friends.
And reaching way back, there was a member of Reflexite’s “ESOP Visioneers” administrative committee (I can’t remember his name) who early on made me realize that there is something special about ESOP companies. After a New England Chapter meeting, a group of us were talking over drinks, and the Visioneer began to talk about how he had cut the scrap rate on the machine he ran by more than half and, in turn, how that savings affected the company’s ESOP stock valuation. This is hardly what you would expect to hear from a non-ESOP employee and has stayed with me ever since as a testimonial to the power of stock ownership to motivate performance.
What makes a successful ESOP?
I think that a successful ESOP is composed of several elements. First, the company considering the ESOP has to be a growing company – dying industries don’t work well for ESOPS, and stable growth, for financial reasons, works better than explosive growth. Second, there has to be a culture, or at the very least a commitment to work toward a culture of employee involvement and engagement. Third, the company should be large enough that it can absorb the costs of implementing an ESOP.
Can you share a story of when you helped a client achieve an “Aha!” moment of understanding what an ESOP can do for them?
The owner of a small firm wanted to exit in a way that would benefit his employees but was unsure how to transition ownership. He wanted to maintain the company’s separate identity but was concerned that successor management would not be as attuned to maintaining the company’s history of strong profitability. By the time we finished our third conversation, the lightbulb went off in his head, and he realized that a phased ESOP transition was perfect for him and his employees.
Another family owned company wanted to do an ESOP but wanted to ensure that the values that had built the company up over the years wouldn’t be lost. Here again, after several meetings with the highly-skeptical lawyer for the family, recognition dawned, and now, 20 years and three tranches later, the company is 100% ESOP owned and prospering.
Have any of your ESOPS been unique or different?
Every ESOP is different and has unique challenges. Most of the ESOPS I worked with were on the smaller side, typically valued somewhere in the 5-50 million dollar range, so their financial structures were fairly straightforward. Probably the most complex were the ESOPS related to government contractors.
Have you done any lobbying for ESOP legislation?
I was on the Regulatory and Legal Affairs Committee of The ESOP Association for years. This Committee served as the vehicle for the Association’s interactions with the ESOP regulators. As a Committee member, I helped to draft position papers on behalf of the Association. I also met regularly with various New England Congressional delegations in Washington to lobby for passage of legislation favorable to ESOPs during the ESOP Association’s Annual meetings in May.
Do you have any thoughts you’d like to share as to how the ESOP world has changed over the years?
Well, in the 1970’s and1980’s ESOPS were less well-understood. Some practitioners viewed them as something of a fad. But over time they have come into their own. ESOP advisors today have, of necessity, become separated into specialized fields such as legal, administration, repurchase liability, feasibility assessments, and so on. The industry has become more sophisticated and mature over the years. On the legislative side, IRS guidance through the regulatory process has narrowed the areas of uncertainty, and on the Department of Labor side, there has been a strong push to increase the pressure on ESOP fiduciaries to adhere to a formalized process-driven analysis of transactions. Smaller companies that may have once been candidates for ESOPS aren’t anymore because of high compliance costs, but that’s not altogether bad.
What is your proudest moment in doing ESOPS?
I got a call one day out of the blue from Shawn Moody, the owner of a small auto repair company in Maine. Shawn wanted advice on how to set up an ESOP for his very small one location company. I advised him that his company was too small to justify the installation and ongoing administrative costs of an ESOP. But Shawn (who like Charles Edmunson is a powerful personality) wouldn’t give up. He insisted on a meeting and, when we met, insisted on adopting an ESOP. I relented and designed the simplest kind of nonleveraged ESOP for his company. Today, Moody’s Collision Centers operates from eleven locations and has become a leading company in the ESOP movement with a participative culture that is second to none. Helping Shawn and others like him have given rise to my proudest moments.
What awards/honors have you received as a result of your work in ESOPS?
Answer: No question about what stands out here. Receiving a Lifetime Achievement Award from The ESOP Association was a surprise and a high honor. The people I’ve worked with in the Association over the years mean a great deal to me and their recognition of my work was the highlight of my career. The firm I retired from (now renamed Steicker, Greenapple & Fusco), has historically been a supporter of ESOP education and has funded a Kelso Fellowship at Rutgers in my name for the past two years. Kelso fellowships finance research scholars whose articles and publications strengthen support for employee ownership as good national policy.
What advice do you have for new people coming into working on ESOPS?
First, get into the field because you believe in the power of employee ownership, not just to make a living. Second, you need to understand the complex legal and regulatory framework-ESOP practice is no place for a dilettante. And remember, it’s about making participating employees’ lives better through the ESOP. If you don’t have that as a focus, you’re only pushing paper.
What are your thoughts concerning the future of ESOPS?
Answer: Well, I’m very happy with the educational progress that has been made over the last few years that has led to a growing recognition of the advantages that ESOP offer in relation to job stability and job creation as well as enhanced profitability. With continued research funding from the Employee Ownership Foundation, among other sources, I believe this progress will continue.
Any other ESOP war stories for us?
In the early 1980’s I represented an individual ESOP Trustee who wanted to sell a small company that made railroad brakes in Cleveland. The problem the company faced was that it couldn’t raise the capital it needed to upgrade its antiquated technology. The business had about 100 employees, and most of them had no more than a high school education. But because they were an ESOP company, the average participant received more than half a million dollars as his share of the sale proceeds-and their jobs weren’t eliminated either. For these employees, the ESOP meant independence and financial security that would not have been possible outside an ESOP framework.
What were your feelings about moving from a larger firm to a more boutique practice?
I absolutely loved it. Great decision. ESOP clients are the best you can have.