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Denis St. Peter is CEO of Haley Ward Inc., a Bangor firm that became an ESOP in 2020.
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Employee owned and operated: How an ESOP works and what’s in it for the employees
PROVIDED PHOTO / COURTESY OF PENOBSCOT GENERAL CONTRACTORS
Clay Maker and Jon DiCentes, co-presidents of Penobscot General Contractors, the latest Maine company to convert to ESOP ownership.
Maine’s business community is well-acquainted with the concept of employee-owned businesses, with the first one recorded more than four decades ago.
The concept of the Employee Stock Ownership Plan has been around longer than that.
The first one was established by a San Francisco lawyer, Lewis Kelso, in 1956 as a way for a newspaper group in the Bay Area to transition ownership from the two principals to managers and employees of the company, according to the Rutgers University Institute for the Study of Employee Ownership and Profit Sharing.
The first ESOP established in Maine was that of Pittsfield-based Cianbro, Maine’s largest construction firm. Cianbro, founded by four Cianchette brothers in 1949, by the early 1960s the company had an established policy of sharing profits with employees in the form of a Christmas bonus.
“By the mid-1970s, they felt something more formal was needed in which the employees would have ownership,” Lynn Cianchette said in a Cianbro history published by the Maine State Chamber of Commerce. “So Ken [Cianchette] went to D.C. to learn about ESOPs.”
At the time, ESOPs were still uncommon in the construction industry, but the firm went ahead with setting up an ESOP, in 1979. By 2004, the ESOP was 100% employee-owned.
“Personally, I think it’s the biggest legacy they left behind because it does two things: the employees that have ownership of the company tend to have more responsibility for what they do because they know, ‘This is my company and the decisions I make are going to impact me and everybody else,’” Lynn Cianchette said in the history. “And during profitable years they financially benefit from that … I think it’s been many years since Cianbro has not had a profitable year. So it’s a great program.”
If you take a look at the list of Maine’s largest ESOPs, in the back of this publication, you’ll see that, while Cianbro indicated it was unusual for a construction company to have an ESOP in the 1970s, it’s quite common now. At least a third of the ESOPs on the Mainebiz list are construction-related.
The largest on the list has 900 Maine employees and the fewest has eight employees.
A recent convert
While Cianbro is Maine’s long-standing ESOP, the most recent to convert is Penobscot General Contractors, which just made its shift to an ESOP structure in July.
Penobscot General Contractors has its roots in the Rockport-based Penobscot Co., which was founded in 1970 by Dave Mazaroff.
The firm was acquired by Clay Maker and Jon DiCentes in the summer of 2021. Today, they serve as co-presidents.
In the past four years, the company has grown rapidly. At the time the firm was acquired, sales revenue was in the range of $5 million to $8 million, Maker told Mainebiz. In 2023, revenue hit $70 million and the firm is on track to record $90 million in sales this year.
Over that time, the workforce has grown from five employees to 31, Maker told Mainebiz at the time of the announcement.
Penobscot General Contractors’ notable projects include the Armature at Hanover Works, a Reveler development in Portland’s West Bayside neighborhood with 171 apartments. The firm developed the “twin towers” in Falmouth, commercial buildings that bookend the Falmouth Shopping Center. Further north on U.S. Route 1, the company is finishing the Shops at Falmouth and, behind it, the Wyeth, which will have 43 condos.
Maker said the firm has eight active projects and 500 housing units under construction.
For the conversion to an ESOP, Penobscot General Contractors worked with a Maine firm, Bellview Associates, which is led by CEO Susan Scherbel. (Bellview itself is employee-owned.)
The ESOP structure allows employees to become owners, offering a direct stake in Penobscot General Contractors’ future growth and success. The firm said the shift reinforces “PGC’s mission to create a supportive and collaborative environment, where every team member is empowered to contribute to the company’s continued achievements.”
“The decision to become an ESOP company reflects our belief that the strength of Penobscot General Contractors lies in the dedication and expertise of our employees,” Maker said when the firm announced the change.
“By giving our team the opportunity to share in the company’s success, we are fostering a culture of ownership, accountability, and shared responsibility that will drive us forward into the future,” he added.
A challenge worth tackling
Another construction-related firm that made the shift to an ESOP structure is Haley Ward Inc., a Bangor-based engineering and consulting firm.
The firm, which was founded in 1978 and adopted an ESOP structure in 2020, faced a number of obstacles in making the shift.
“From our perspective, there are several perceived and real challenges to converting companies to a 100% ESOP structure,” said CEO Denis St. Peter.
He cites several factors to be mindful about:
- The significant cost of the conversion and planning for the ongoing compliance processes;
- The time commitment from the initial evaluation of conceptual ideas, performing due diligence stage, preparing the ESOP documentation, closing, implementation and on-going compliance and employee owner communication;
- Assembling an ESOP-experienced team of advisors, including consultants, attorneys, accountants, bank, third-party administrator, independent valuation expertise, external ESOP trustee for transaction and so on;
- Financing the purchase of shares;
- The financial modeling of the conversion and the ongoing business operations;
- New business, compliance, legal, and accounting complexities.
“For us,” St. Peter continues, “the biggest challenge but also the most rewarding is the continuous learning and strategizing around the ESOP model. The concepts associated with ESOPs can be very different from typical business operations. Prior to our ESOP conversion, we worked diligently to establish a successful business operation, strategic plan, team of advisors, and overall business rhythm. The pre- and post-ESOP conversion timeframes introduced tremendous changes in our business operations. We are five years from the initial conceptual discussions and four years from the closing, and we are still learning and integrating this knowledge into our business, strategic and compliance planning.”
St. Peter says it was “an initial steep climb in knowledge”
Haley Ward has made a number of acquisitions in the past few years, including the addition of out-of-state firms. So it needed a structure that could easily adjust as the firm grew.
“Developing effective ESOP knowledge for leaders and all employee owners has provided the biggest challenge for us as we continue to provide exceptional technical consulting services to our clients, provide a best place to work for our employee-owners and expand into new regions to meet our growth goals,” St. Peter says.
“While an ESOP conversion will not be the best fit for all companies, it has and will continue to play a significant role in our business success which directly rewards our employee-owners for the business success.”
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