president and CEO
(614) 210-9000 | www.safelite.com
A window into giving
How Safelite AutoGlass helps shield Columbus’ needy
Safelite AutoGlass has been involved in giving back to the Central Ohio community for more than two decades since the company’s corporate headquarters moved to Columbus in 1990. Safelite AutoGlass’s charitable outreach includes both financial and volunteer support.
Directed by CEO Tom Feeney, Safelite gives all its associates two paid days off to volunteer — one at an organization of their choice and one as a team or department.
The Safelite Charitable Foundation has donated almost $4 million since its inception to support organizations that support human services. The foundation was created in 2005 as the 501(c)(3) giving arm of the company, aimed at supporting organizations that promote the health and well-being of families through monetary and in-kind contributions and volunteer hours.
Among the numerous organizations that have benefited from Safelite’s generosity through the years are the American Red Cross of Greater Columbus, the Boys & Girls Clubs of Columbus and the Mid-Ohio Foodbank. Safelite also participates in National Giving Week and presents an annual charity golf tournament.
“We are thankful for the continued support of Safelite’s leadership and employees,” says Michael Carroll, who retired in 2012 after a long term as CEO of the American Red Cross of Greater Columbus. “Their continued commitment to our communities — as demonstrated by their support of so many of our programs, including providing leadership at the board of directors level — is a great benefit to us and the people living in Central Ohio.”
Pillar Award Finalist
president and CEO
(614) 246-2400 | www.rockbridgecapital.com
RockBridge has a long history of commitment to serving its community and helping those in need. The hotel investment firm’s philosophy is that the strength and success of the community in which its employees live and work is highly dependent on the support of local businesses. As such, RockBridge prides itself on the level of involvement in and commitment to a variety of charitable causes in Central Ohio.
Through volunteer activities, financial and in-kind contributions, and board involvement, RockBridge and its employees are dedicated to helping ensure that the Central Ohio community is a place of continued prosperity and growth.
Headed by CEO James T. Merkel, RockBridge and its employees have been recognized for many contributions to the community, including Big Brothers Big Sisters of Central Ohio’s 2010 Milton Lewin Legacy Award, Big Brothers Big Sisters of Central Ohio Corporate Partner of the Year Award, 2006, Salesian Boys & Girls Club Board Member of the Year, Ken Krebs 2005-2006, Boys & Girls Club of America Jeremiah Milbank Society, Business First Columbus Corporate Caring Award, 2004, and Business First Columbus finalist for the Corporate Caring Award, 2005 and 2006.
A good example of RockBridge’s community service is the involvement of the company and its employees in Pelotonia and the fight against cancer. In 2011, RockBridge recruited 14 riders who raised a total of $32,000 to support this cause. For 2012, with donations still coming in, RockBridge’s 68 riders have raised $130,000, making RockBridge, which has fewer than 50 employees, one of the organization’s top 12 fundraisers.
Pillar Award finalist
president and CEO
www.fahlgrenmortine.com | (614) 383-1500
It takes a lot of strength and conditioning to be able to ride a bike 180 miles. When you add the responsibility of raising $1,800 as you physically prepare for such an endeavor, it can become quite a challenge.
Fahlgren Mortine wanted to do its part to reduce the stress for these athletes who committed to taking part in Pelotonia, a Central Ohio bike tour that raises money for cancer research at The Ohio State University Wexner Medical Center.
Under the leadership of President and CEO Neil Mortine, the marketing agency pledged to contribute about one-third of each rider’s goal. Participants start at a minimum of $1,200 for 25 miles and go up to $1,800 for 180 miles.
In addition, Fahlgren Mortine donated office space, billable time and supplies to fundraisers held throughout the months leading up to the ride. At the end of the event, total funds raised through company contributions, the efforts of individual associates and companywide fundraisers totaled more than $15,000.
When Pelotonia founder and CEO Tom Lennox spoke at the agency’s quarterly all-associate meeting last fall, the agency stepped up again and handed him a check for $1,000. They also made a commitment to bring even more riders and support in 2013.
It’s just one example of the commitment to community that exists at Fahlgren Mortine, where the passion runs deep in every employee for the countless projects the agency supports.
Pillar Award Finalist
president and general manager
Crew Soccer Foundation
www.thecrew.com | (614) 447-2739
Beyond wins, losses and entertainment, the Columbus Crew maintains a commitment to making a difference in its community. Combining the efforts of the Major League Soccer team’s charitable arm, the Crew Soccer Foundation, with those of its players, coaches and front office staff, the organization works diligently to help make Central Ohio a better place.
As in years past, Mark McCullers, president and general manager of the Columbus Crew, has helped Crew staff and players donate more than 250 hours and $347,000 to numerous community needs. The Crew and its Soccer Foundation utilize soccer as a vehicle to serve at-risk youth through education, field development and healthy lifestyles.
The team’s areas of philanthropic focus are education, soccer field creation, refurbishment and programming in underserved communities, and health awareness. From volunteering their time and money at local area hospitals or helping kids learn to read or play sports, Columbus Crew members are involved in the community year-round.
Last March, the team opened its new Crew Soccer Foundation Field, a project three years in the making that transformed the area north of the Stadium Club at Crew Stadium into a beautiful synthetic mini-pitch. Since its completion, the foundation has created two field programs: the Heroes League and a monthly clinic series for area at-risk youth.
The club has also begun construction to build a soccer field and refurbish three others at the Columbus Recreation and Parks Department’s Innis Park complex. This initiative will develop soccer programming, including leagues and clinics to serve at-risk youth, starting in the spring.
Pillar Awards Nonprofit Board Executive of the Year Finalist
immediate past chairman
Columbus College of Art & Design
www.ccad.edu | (614) 224-9101
Michael Fiorile is a big thinker and persuaded the Columbus College of Art & Design’s entire board and senior leadership to think big, too. He is a man who is not satisfied by doing just “good enough.” He leads to achieve more and exceed past expectations.
Fiorile has devoted almost nine years of service to the CCAD board of trustees. He was elected to the board in November 2003. He served as board vice chair from
2008 to 2010 and as board chair from 2010 to 2012. He served on the board’s executive and governance committees from 2008 to 2012 and served on the executive committee until this year.
His most recent appointment expired in June 2012, but he agreed to serve one additional year as an ex officio member.
Throughout Fiorile’s board service, he has been tremendously generous himself, as well as assisting with corporate gifts and opening doors to additional private donors. The personal philanthropy of Fiorile and his wife, Karen, has placed them in the top tier of CCAD donors, and his advocacy on the college’s behalf has played an important role in securing leadership gifts.
In his final year as board chair, he was instrumental in increasing participation in board giving from 74 to 100 percent and increasing the average board gift by more than 200 percent.
In addition, the board and senior leadership alike appreciated how Fiorile kept the board conversation at the strategic level — avoiding micromanagement while keeping everyone’s eyes on collective goals.
Pillar Award Finalist
president and CEO
Atlas Butler Heating & Cooling
(614) 294-8600 | www.atlasbutler.com
The staff at Atlas Butler Heating & Cooling, led by President and CEO Mark Swepston, participates throughout the year in many different efforts that serve the needy or disadvantaged in the Columbus community. One of the company’s longest-standing community partnerships is with the Salvation Army.
Each year, company associates volunteer as bell ringers at Salvation Army donation kettles throughout the Columbus area. Some 30 percent of Atlas Butler associates give of their time in three-hour shifts for the donation effort.
In addition, associates have participated in the Salvation Army’s “Christmas Cheer” program for the needy. As one of the largest holiday gift-distribution efforts in Ohio, Atlas Butler volunteers help the Salvation Army distribute toys, food and household items to more than 7,000 families over a two-day period.
Atlas Butler’s community involvement doesn’t end once the holidays are over. For the past four years, company associates have participated in local 5K runs that benefit various charitable efforts, including the American Cancer Society, the Mid-Ohio Food Bank and the Komen Race for the Cure to fund breast cancer research. Atlas Butler associates will often show up between 35 and 60 strong to run in charity races.
In addition, each summer Atlas Butler spearheads a local “fan drive” in which the company, along with individual associates, donate new electric box fans. The fans are distributed to Franklin County residents age 65 and over who suffer from health problems and do not have central air conditioning in their homes.
There are many pressures on organizations to make the most out of every customer interaction and maximize the return on investment on marketing and sales spend. However, businesses often don’t have the work force necessary to handle these functions as timely and effectively as they would like or the tools and processes in place to measure and track success. Companies that are able to track interaction, engagement, investments and customer patterns and behaviors often enlist the help of a customer relationship management (CRM) tool.
“A CRM tool helps businesses manage sales, marketing and customer service operations without significantly expanding their work force,” says Gina Rosen, a consultant at Columbus. “CRM, in the past, may have been nice to have — a luxury technology, but in today’s marketplace, it’s a must have to stay competitive.”
Smart Business spoke with Rosen about CRM, its applications and how it has helped businesses improve processes to better engage customers, target sales and gauge marketing effectiveness.
What are the typical features offered by a CRM system?
The features offered by CRM are very diverse. It’s primary applications are contact management; marketing automation; sales force automation; sales and lead management; reporting and analytics; call center and case management, particularly with respect to customer inquiries or complaints; workflow automation, or automating manual processes; and social media integrations. Businesses have the option for on-premise solutions where the software is hosted at the business on its servers, or they can utilize a Web-based or cloud option, which involves less initial financial investment. The software can also be customized to meet the particular needs of a business.
Is CRM cost prohibitive for businesses?
No it is not, however, had this question been asked six or seven years ago the answer would have been yes. Previously, enterprise-ready CRM software required significant funds to get the software and hardware in place. But with the advent of cloud-based solutions, even businesses run by a sole proprietor can afford CRM and leverage its applications to optimize processes. The cloud-based model allows business owners to pay through subscriptions that charge per user. The pay per user cloud-based model offers a low-cost opportunity to implement CRM, experience the value and see the return on investment (ROI).
What are the most compelling reasons an organization would implement CRM technology?
A recent survey of 200 top-performing small and medium-sized businesses showed that the number one reason businesses implement CRM software is to establish data-based metrics for sales and marketing. It also provides the ability to show ROI and quantitative key marketing metrics that mean a lot to businesses.
The second reason CRM is implemented is to proactively communicate with customers. Customers expect a lot these days, and one of those expectations is that businesses, whether small or large, interact with them. To stay in front of your customers and offer personal interaction is critical.
Within that same vein, the third reason companies take advantage of this software is for custom-targeted sales and marketing. With CRM you can customize that end user experience, which makes your sales force more effective. Customers can interact directly with your CRM custom solution through your existing website and experience a tailored visit based on previous interactions, or your sales force can utilize the standard feature when interacting with customers and have all of a customer’s history available in one spot.
What are the most important value drivers for CRM?
The top value for a business is the software’s ability to help manage marketing and sales campaigns. CRM can help businesses test marketing and distribution strategies and gauge customer reactions. This information can be applied to future marketing efforts.
Another important value driver is that the software serves as a customer data repository, allowing you to consolidate customer knowledge within the organization in CRM. This includes far more than just contact details, but also customer behaviors and attitudes and price sensitivity. This, combined with personal data, can allow businesses to build more effective and predictive sales models and marketing campaigns that result in higher sales.
Further, CRM systems can help demonstrate ROI. With CRM you can quantitatively show increases in sales, customer referrals and participation in promotions.
What is the most common challenge a business faces when implementing CRM?
Typically the challenge is user adoption — getting your sales force and front line users to embrace CRM. They often see populating the fields as double entry, an extra step, or another way for management to check in on them. But once the sales force sees that using the software results in more sales, they can easily overcome that hurdle.
What are the most common performance metrics?
The top one, hands down, is revenue growth. The faster you can show ROI the better.
Second is growth in a business’s customer base, which means adding new customers or converting leads into paying customers.
The third most common performance metric is aggregating customer data. Many companies have customer data spread out over disparate systems. CRM gives businesses a one-stop shop for their records.
Can you give us some examples of companies that have benefited from implementing CRM?
The Toledo Mud Hens baseball team, which works within the media and entertainment industry, had ticket sales go up 88 percent in one year and their internal operations couldn’t keep up with demand. Adopting CRM allowed them to automate and streamline inefficient processes, which translated into more ticket sales. A customer testimonial is available with more information.
Another example is the human resources consulting firm Findley Davies. Implementing CRM in their call center has given them the ability to manage daily responsibilities and track productivity. It has dramatically changed and improved day-to-day operations within their Benefits Administration department.
Gina Rosen is a consultant at Columbus. Contact her at (248) 850-2195 or email@example.com.
With more than 20 years in the market and 6,000 successful business implementations, Columbus is a preferred Microsoft Dynamics business partner for ambitious companies. Columbus’ key deliverables include flexible and future-safe ERP, CRM, BI and related business applications that deliver competitive advantage and immediate impact.
The Smart Leaders Awards Luncheon is a recognition event honoring the brightest and most innovative corporate leaders in the local business community while bringing to light the strategies they used to attain their level of success.
The keynote speaker on July 19th will be Michael Dalby, the president and CEO of the Columbus Chamber of Commerce. As growth in technology, health care, finance and retail sectors continues region-wide, Dalby will discuss how the Chamber helps organizations forge ahead.
Nancy Kramer, Founder, Resource Interactive
Ralph Sanese Jr. was pondering what to do with a substantial drop in revenue for his food service, vending machine and in-house cafeteria business that was started in 1946 by his father, Ralph Sanese Sr., and his uncle, Al Sanese. The drop had been a one-two punch: after Sept. 11, revenue was slipping, and then when the 2008-09 recession hit, the national vending industry dropped almost 30 percent in revenue.
The founders had accomplished a rags-to-riches dream, starting from scratch and taking the company above the $50 million mark in 50 years and — Sanese wasn’t about to give up.
“We were fortunate, our revenue only dropped about 20 percent, but still you have to manage a declining number, and it’s very difficult when you are a paternalistic organization — you’re trying to take care of people, and you have less revenue coming,” says Sanese, president of the 750-employee Sanese Services Inc.
“It was one of the toughest times, the declining revenue and all your people looking at you saying, ‘Ralph, what are you going to do about it? What do we do? What do we do?’”
Over the years, Sanese had sought help from several consultants. The results were mixed, and in one case, detrimental.
“I’ve been that route with the wrong consultants and sometimes we went the wrong way, and it cost us the worst financials that we ever had,” Sanese says. “They didn’t understand the business and what it took to really make it work, and even though we weren’t doing everything right, we were doing some things right.”
But as time went on, he was as determined as ever to get his company on the right track. He would try another set of consultants, but this time, the experience was unlike any Sanese Services had ever been through.
Here’s how Sanese vetted his next set of consultants, took the suggestions they made and parlayed the proposals into profitable results each month.
Lay the groundwork first
If a company that is several decades old doesn’t adapt to meet changes in customer tastes and preferences, it could very well suffer a decline in business or eventually go out of business, regardless of the economic climate. This time around, Sanese knew that he had to bring in an outside company to help him reconstruct and find a way to run a business model that definitely needed to be updated since its 1946 inception.
“That was difficult because we felt we knew everything about this industry,” Sanese says.
“If you need some outside help, that’s the first thing. Do you need outside help or can you internally make some changes work? A lot of times, the old rule of thumb is consultants are people that you bring in to say something to your folks, something you know you should do but what you can’t say. It has to be done. It’s the truth. Get somebody else to say It. For us that’s how that worked for some matters.
“The one thing that I did learn is that before, in my younger years, I would have said, ‘This is what we’re doing, guys, and that’s it.’ What I did this time, I brought this company in, I interviewed them and I felt good about them.”
Sanese attended a presentation a firm gave at the Conway Center for Family Business in Columbus.
“I liked what they had to say, and I got references from customers” he says.
But once bitten and twice shy, Sanese decided he would visit companies where the consultants were on the job. That way, he figured, he could see them in action and decide if the firm was a good fit and could deliver for Sanese Services.
“We actually went to this facility, and we went right into the shop floor where they were helping this company with its manufacturing processes — and I walked the floor with the owner of the company,” Sanese says. “He told me quite frankly at first he didn’t believe the consultants. But he said, ‘I am going to tell you, here’s what they did,’ and I walked the plant without the consultants, with the owner and he showed me how it was working.”
Sanese also visited a couple of other companies to make sure that the consultants had a vested interest in what that company needed — and not what they wanted to bring to it.
“I would definitely check their references, that helped us, and I would check those references to the nth degree,” he says. “That’s what we did.”
Decide on the core issues
When considering a company makeover, turnaround or whatever you want to call it, it’s best to focus on a minimum of key issues. Trying to solve too many problems the wrong way could lead to a letdown.
One of the approaches was to appoint a team of trusted employees to work with the consultants. The team members will be the go-betweens and should be able to vigorously defend their positions if they feel strongly about a particular matter.
“I brought in a team that was going to help me make it happen, and I let them go through their motions with the consultants,” Sanese says. “I brought in our people because we had been through consultants before, trying to find that silver bullet. I brought in the right people to help me execute a well laid-out plan to improve our core business.
“And once you decide that this is the right thing to do, make sure that the team embraces it and that they are going to be a part of this process and not buck the movement.”
The two teams hammered out a two-pronged approach: reducing product costs and getting delivery routes and labor costs more in line.
“Those were the key things, so you start out with a couple of key fundamentals that you want to get a handle on,” Sanese says. “We showed them what we had and they wanted to expand upon those tools with an improvement in software and managing.”
The company put together a dashboard website that provided current financial information on the company’s revenue and expenses. It was a way for employees
to get right into their own financials and understand their business division.
“They would be able to understand the key components and the key indicators of what each business division works off and how they could help to manage and navigate their own business division to make better and quicker decisions,” Sanese says.
The introduction of new technology to manage financials may come with some bumps along the road, however. There may be issues with employees not wanting to accept change and with others nervous about the openness of financial information.
“We’ve gotten better using some of the technology,” Sanese says. “Some folks had to change — they didn’t want to use technology. Some of these guys have been around for a lot of years and they didn’t want change. So you have got to go through some of those things with them. We have had to make several changes with people that had been with us for a while.
“Then you have to share the financials with every employee. We share everything so that they know how we are doing. We’re very transparent. I don’t hide anything. I just think it pays you dividends in the long run. I don’t think showing too much is a big mistake.”
Sanese found that sometimes, financial officers were not always comfortable about sharing information.
“You never want to be vulnerable to one person anymore,” he says. “What I wanted to do was to have our folks, including me, be stronger at our home company financials to understand where they can make responsibilities and make changes and make them quickly.
“Transparency is what employees want nowadays,” Sanese says. “They want to be a part of something. They want to see if they can make improvements to the organization. They want to be measured on that.”
This contrasts with some older or more conservative attitudes that in previous times, you didn’t want to share too much. You were afraid the wrong eyes would see the data.
“That’s what they did back in those days,” Sanese says. “Close to the vest. Don’t tell them everything. Don’t ask how we are doing. Your business heads had to wait for your financial people to tell them how they did.”
Build enthusiasm with successes
Many business experience seasonal problems with cash flow problems, Sanese Services included. But the company put itself on the road to a better performance by using its new dashboard reports — and other plans to increase business.
“We’ve done an analysis on each business division every week for the last 2.5 years and before, we would always lose money in January, June, July and August,” Sanese says. “Always. Not anymore. Now we consistently earn a profit, not a lot during those months, but turning a profit versus a loss is a great swing.
“So that’s what you need to do when it comes to improve each of the businesses and then your business heads don’t wait for your financial people to tell them how they did ? they already know it. They are measuring it with metrics.
“You know the old saying, ‘Measure twice, cut once’?” Sanese asks. “Well, now we are measuring a whole lot more than just twice, I can tell you that. And it’s working.”
It helped the company with everything from keeping track of product transfers from a tractor-trailer, to products being processed, ordered and shipped to the actual location and how it’s tracked.
“Our own folks got enthusiastic because they could see the differences that they were making, and they could see if their costs were shrinking, let’s pick an average of 52 percent product cost, and our goal was set at 42.5 percent — they wanted to see how they were doing toward that goal,” he says. “Then we rewarded them, and did other things for them. To this day, we have a managed cost per route and that’s how we operate this business today.”
To help keep costs down, the up-to-date financials gave a picture of what was given away or wasted.
“We have to give away a lot of product in the food service industry,” Sanese says. “But we never did know how many cases of napkins or forks, knives and spoons went out; or a gallon of gas or diesel fuel that went in the truck; or waste of product, if you are loading too much on a truck.
“So we employed the consultants’ recommendations to help us control our waste on these routes, and that was a big and important part.”
While looking at the concepts a modern business model needs to employ as compared to the traditional one if you want to increase revenue, it is valuable to stick to your core business but yet find ways to diversify.
“We knew that we needed to diversify the organization because our business was changing,” Sanese says. “Manufacturing was being hurt in Ohio. I couldn’t keep feeding the manufacturing folks; their numbers were down. I knew I had these kitchens, so I had to find a way to keep our associates working and find other places where we could distribute fresh product.”
To expand your market, finding prospects that are extensions of what you already do can be the answer.
“We got into the school business, and then we got into the senior meal-feeding business,” Sanese says. “We know that’s a growing market because there are a lot of seniors. So that’s how we diversified the business because we had a fleet of refrigerated trucks, we had certified food safety people, and we know food. If we could stick to the core business of what our company is really known for, making fresh food on somebody’s site like a big in-house café operations, then we would be OK.
“It’s a new way to do business and you don’t lose the values of what your company was founded on; it’s just the improvements matching what the industry is being called to do now.”
How to reach: Sanese Services Inc., (614) 436-1234 or www.sanese.com
The Sanese file
Born: Columbus, Ohio
Education: Franklin University. I earned a degree in business. I put myself through school. It was one of the things my father made me do: ‘If you ever want to be an officer in this corporation, you are going to have to go to college, and by the way, I am not paying for it.’
What was your first job?
I had a lawn cutting business and I had all the neighborhood yards, and I did mulching and all that. By the time I was 16, I probably had $5,000 in the bank. That was back in the early ’70s. I bought a Pontiac Firebird with that money, and I drove myself to school.
What is the best business advice you ever received?
I was always taught to hire people that were smarter than you were and that could help you to complement the skills that you did not have. I probably haven’t done a good enough job of that, but I’m still trying. I’m still trying to do that. And ask for advice. Ask for help.
Beyond that, my dad and uncle would tell me some of the greatest things in the world These are some of the principles and fundamentals with which I was raised:
Look a man in the eye and tell him exactly what you’re going to do and live by your word no matter what. You don’t need a piece of paper to tie into it. Shake a man’s hand, that’s what you mean, period. You never you give up on being an ethical, principle-driven person. No matter what, you have to always do the right thing. No matter how tough it is, you have to always do the right thing. You have to work harder than everybody else does. Lead by example — you have to do it. And always protect the entity, because it will protect you. Protect it first. Take care of it first.
Whom do you admire in business?
I loved John McConnell of Worthington Industries. Of course, he’s passed but he would be my all-time choice. Doing the right thing was at the center of everything in his life. I just think the absolute world of the man.
What’s your definition of business success?
The people in your own organization reaching heights they never thought they could obtain. And then having a company resistant to losing business and gaining new business, modest growth every year. I always wanted to be the biggest — but I don’t care about that anymore. I just want to be the very best at what we do and protect that reputation.
Ron Calhoun was planning to discuss plans for his company’s 100th birthday back in 2006 when the discussion with the board of directors took on a more serious note. After the birthday plans were nailed down, it was time to talk about the future ownership of the wholesale distributor of residential building supplies and HVAC equipment.
The second generations of three families owned the company that was founded in 1907, but no third generation descendants had an active role in the business.
“We were looking to dilute the stock down to the third generation,” says Calhoun, president and COO of Palmer-Donavin Manufacturing Co.
That was not the best scenario for continuation of the company — it made it too likely that the company would dissolve.
Palmer-Donavin was doing well enough. Revenue for 2011 was $163 million, down a bit from a high of $174 million previously, and better than 2010’s $147 million. About 230 are employed company-wide.
Calhoun got to thinking and remarked on how much his predecessor, Bob Woodward Sr., put an employee focus on the company during his 60 years with the company.
“The culture of our company is very much an employee-oriented culture that he developed through his policies and compassion for the business and people,” he says.
“We talked about where a company goes. Do you go to a private equity firm? Do you go to a strategic buyer, and then what happens to the company, what happens to the management and the people?
“I think from our ownership and board perspective, they wanted to maintain the integrity of the company and the people, and felt an obligation to management and the people to see that the company could go forward.”
The proposal that was the best fit was an employee stock ownership plan. It would be a way to give back to the people who helped build the company. After talking to a number of people in the industry who had taken their companies in an ESOP direction, it was time to decide.
The leadership settled on the ESOP as a succession plan for Palmer-Donavin. The company was sold in 2007 to the ESOP and went from being 100 percent shareholder-owned to 100 percent ESOP-owned private company.
“It’s been interesting along the way, and because of our past, I think we transitioned into it very well, and we got everyone’s goals aligned,” Calhoun says. “We have been very successful since.”
But just because the papers had been signed doesn’t mean the work is over. Here’s how Calhoun faced the challenges ahead of him.
Make the ESOP fit
From the perspective of a company’s vendors and customers, the transition to an ESOP is virtually invisible. But from the board of directors and managerial areas, it is quite a bit different.
ESOPs are rarely used to rescue a company in financial trouble but are most often used to provide a market for the shares of departing owners of companies, to reward and motivate employees or to take advantage of loan incentives to acquire new assets in pretax dollars. ESOPs, in nearly every case, are a contribution to the employee, not an employee purchase.
In preparation for the transition, company owners usually will need to hire an attorney and an investment banker to appraise the company, set a value on its shares, put together a share allocation schedule and arrange financing if needed.
Once the Palmer-Donavin board of directors voted to go the ESOP route, one of the next steps was to hire a trustee who would represent the employee-owners when voting.
“She represents the ESOP employee owners,” Calhoun says. “She votes their stock and is completely independent of the board, so she provides a true independence in the association of the employee owners of the company.”
When selecting a trustee, it is a matter of hiring a pro. Through the process of interviewing, you should be able to find a professional trustee to meet your needs. Then take him or her through a meet-and-greet process.
“You should go around with your trustee and your chairman of the board to employee meetings to tell them about the changes that are coming — and that the decision was made to sell the company,” Calhoun says.
An administrative committee should be formed that is responsible for the management of the ESOP and the shares. They will work closely with the trustee and keep the trustee informed of business concerns. They work together as far as share redemptions and things of that nature and any reporting that is necessary.
Most important of all, the trustee votes for the shareholders and attends the annual meeting of the board of trustees. This is one of the major points employees will need to know.
“The trustee votes on matters on behalf of the employees; for instance, the trustee would vote for the election of directors representing the employees,” Calhoun says. “The trustee votes if there is a decision to sell a majority of the assets of the company or a major event.”
The Department of Labor and the Internal Revenue Service require an annual valuation of the shares and the trustee hires a third-party evaluation team to perform this duty.
The most common method to allocate the shares to employees is in proportion to their compensation, although different formulas may be used, such as years of service or a combination of the two.
Another question to be answered is when the employee becomes vested in his or her shares.
“What we did — that the trustee and our attorney said we should not do but we felt that going through this transition we should — is that we gave pre-ESOP vesting to all employees so the vesting period on the ESOP is six years,” Calhoun says. “They recommended that we take that and have every employee start over at the time we implemented the ESOP, and we just didn’t feel good about that, and we allowed them their previous time with company to vest. So if they were with us six or more years, their ESOP shares vested at 100 percent when they received them.”
The company leadership wanted to continue the tradition of being an employee-friendly organization.
“The culture of our company has been an employee-oriented one,” he says. “Bob Woodard had what we called an appreciation plan. If the company was profitable, all of a sudden all of the employees would get an extra week’s pay or a bonus would show up in their paycheck, and they didn’t know when it was coming. It was just kind of random.
“Now with the ESOP contribution, shares get distributed every year. It is really kind of based on the same thing — shared distribution is based on each individual’s income level but done on a regular basis.”
Educate the employees
One of the largest benefits of an ESOP is the ownership culture and the pride that the employees take in being employee-owners. While some employees will feel the honor right away or early in the transition process, others may be doubtful of the benefits and will need time and attention to work it all out.
“The challenge for the company is how you educate the employees to understand what the ESOP is,” Calhoun says. “It is a very difficult concept for everyone to grasp, so we spent a lot of time on it.”
One useful tool is a communications committee that will take on the assignment to tell employees on a regular basis what is happening with the company and the ESOP.
“We publish what we call The Owners’ Manual every quarter,” Calhoun says. “It talks about the different aspects of the business and different educational pieces that we put in there to help the employees understand better what’s going on with the company, what’s going on with their investment in the ESOP and the business strategy.”
The first message to be communicated is that the biggest advantage of an ESOP is that it will offer employees the chance to create the ownership culture of everyone in the organization.
A communication tool that Calhoun found helpful was to set up a company intranet site to encourage questions from employees about the ESOP. These are posted on the site with a response, usually from the human resources department or someone else in the organization that has more expertise in an area.
“I think there were a lot of people who were very nervous about it, that were skeptical. But I think hopefully those concerns have been satisfied over time,” Calhoun says.
“It’s a learning process. As far as each year when we have to go through like the redemption of stocks for people leaving, those types of things get a little cumbersome and you want to make sure that you do that through the right process. It’s very regulated.”
When employees leave the company, they receive their stock, which the company has to buy back from them at its fair market value.
Efforts to spread the word about the ESOP should be frequent and creative.
“You can do different things such as lunch with the CFO, to small individual meetings, to having an ESOP committee, which is made up of employees from all the different areas and sections of the business,” Calhoun says. “They meet at least on a quarterly basis. They are charged with doing some things to bring an awareness, and ownership awareness among the employees. They have come up with some different types of games and things that can be used at company picnics or all-employee meetings that help communicate the message.”
Increase your company value
For a company going through a recession, having an ESOP adds a whole new dimension and a new tool to operate the business.
“Our business went down from a high of $174 million before the downturn to $147 million, and during that time we had 320 employees; we are down today to 233,” Calhoun says. “Many of those changes were just through attrition, but we did have everyone look at their departments and evaluate what are the tasks that we need to do, and what can we do to improve ourselves and where we have redundancies to try to cut out that duplication.
“I think through managing through that type of a downturn in our business — everybody focused extremely well in that and agreed to take on more than their share to keep the ship going forward. It was a pretty seamless transition through that, and we were able to maintain our profitability through those times.”
In the long term, ESOPs provide a convenient way to which bonuses can be tied. A rewards-for-profit plan focused on return on assets encourages employees to meet goals and rewards them when the goal is achieved.
“A rewards-for-profit plan replaces the typical profit-sharing plan,” Calhoun says. “Initially, employees had been able to see the company value grow because of debt repayments. Now it’s just like when you own a house, you build up equity by paying off the mortgage. Well, our mortgage is paid off, so we now have to increase the value of the house. We’ve got to see how we can grow our top line revenue and our bottom line profits in a sustainable way that will increase our value.”
How it works is an ROA or a profit objective is set by the board, based on abilities. It runs on a continuous 12-month basis and is paid quarterly to the employees.
“Then based on a formula, whether you are at 100 percent of the goal or 125 percent of the goal, the employee gets one week’s pay. If you are at 90 percent, it’s 90 percent of one week’s pay. If you are at 150 percent, it’s 150 percent of one week’s pay. It’s been very effective.”
How to reach: Palmer-Donavin Manufacturing Co., (614) 486-9657 or www.palmerdonavin.com
president and COO
Palmer-Donavin Manufacturing Co.
The Calhoun file
Born: West Lafayette, Ohio, just east of Coshocton
Education: Ohio University. I got a bachelor’s degree in business administration from the College of Business.
What was your first job?
For my very first job out of college, I was a bartender at Maumee River Yacht Club. I was able to network that into a sales representative position for the National Gypsum Co., selling drywall in the Columbus market.
What was the most important business advice you ever received?
My mentor and former company president Bob Woodward kept saying it’s the people who make the company and the company is nothing without the people. I think that’s so true. Also, without integrity and honesty, you have nothing. You have to have integrity and character in everything you do.
Who do you admire in business?
Outside of Bob Woodward, I think one person I admire most is probably John McConnell of Worthington Industries. Actually, my father retired from Worthington Industries. He had always been an hourly factory worker all his life and went through working on union organizations and went through strikes and closing of facilities. He got a job later in life with Worthington and retired there. He always respected Mr. McConnell. The policies and programs the company had for all their employees created quite a loyalty among the employees and allowed my father to retire. He is 85 today and is and doing well — I think it’s the culture that is built within an organization. I recently was fortunate enough to talk to one of the board members and get some insight as to how they did some things.
What is your definition of business success?
Business success is creating a vision that people can trust and fulfilling that vision where everyone prospers.