[House Hearing, 116 Congress] [From the U.S. Government Publishing Office] CHALLENGES AND BENEFITS OF EMPLOYEE- OWNED SMALL BUSINESSES ======================================================================= HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTEENTH CONGRESS SECOND SESSION __________ HEARING HELD FEBRUARY 12, 2020 __________ [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 116-072 Available via the GPO Website: www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 39-620 WASHINGTON : 2021 -------------------------------------------------------------------------------------- HOUSE COMMITTEE ON SMALL BUSINESS NYDIA VELAZQUEZ, New York, Chairwoman ABBY FINKENAUER, Iowa JARED GOLDEN, Maine ANDY KIM, New Jersey JASON CROW, Colorado SHARICE DAVIDS, Kansas JUDY CHU, California MARC VEASEY, Texas DWIGHT EVANS, Pennsylvania BRAD SCHNEIDER, Illinois ADRIANO ESPAILLAT, New York ANTONIO DELGADO, New York CHRISSY HOULAHAN, Pennsylvania ANGIE CRAIG, Minnesota STEVE CHABOT, Ohio, Ranking Member AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member TROY BALDERSON, Ohio KEVIN HERN, Oklahoma JIM HAGEDORN, Minnesota PETE STAUBER, Minnesota TIM BURCHETT, Tennessee ROSS SPANO, Florida JOHN JOYCE, Pennsylvania DAN BISHOP, North Carolina Melissa Jung, Majority Staff Director Justin Pelletier, Majority Deputy Staff Director Kevin Fitzpatrick, Staff Director C O N T E N T S OPENING STATEMENTS Page Hon. Nydia Velazquez............................................. 1 Hon. Steve Chabot................................................ 2 WITNESSES Mr. Daniel Goldstein, President and CEO, Folience, Cedar Rapids, IA............................................................. 5 Mr. R.L. Condra, Vice President of Advocacy and Government Programs, National Cooperative Bank, Arlington, VA............. 7 Mr. John Abrams, CEO and Co-Owner, South Mountain Company, West Tisbury, MA.................................................... 9 Mr. Mark Gillming, Senior Vice President, Messer Construction Co., Cincinnati, OH............................................ 10 APPENDIX Prepared Statements: Mr. Daniel Goldstein, President and CEO, Folience, Cedar Rapids, IA................................................. 27 Mr. R.L. Condra, Vice President of Advocacy and Government Programs, National Cooperative Bank, Arlington, VA......... 35 Mr. John Abrams, CEO and Co-Owner, South Mountain Company, West Tisbury, MA........................................... 38 Mr. Mark Gillming, Senior Vice President, Messer Construction Co., Cincinnati, OH........................................ 40 Questions for the Record: None. Answers for the Record: None. Additional Material for the Record: American Sustainable Business Council........................ 49 Capital Impact Partners...................................... 51 National Center for Employee Ownership....................... 53 National Cooperative Business Association CLUSA.............. 64 Capital for Communities...................................... 68 Cooperative Fund of New England.............................. 71 Cooperation Works............................................ 73 ECR.......................................................... 76 LEAF......................................................... 81 NRS.......................................................... 85 Sustainable Economics Law Center............................. 89 US Federation of Worker Cooperatives......................... 91 CHALLENGES AND BENEFITS OF EMPLOYEE-OWNED SMALL BUSINESSES ---------- WEDNESDAY, FEBRUARY 12, 2020 House of Representatives, Committee on Small Business, Washington, DC. The committee met, pursuant to call, at 11:30 a.m., in Room 2360, Rayburn House Office Building. Hon. Nydia Velazquez [chairwoman of the Committee] presiding. Present: Representatives Velazquez, Finkenauer, Golden, Kim, Davids, Delgado, Craig, Chabot, Balderson, Hern, Hagedorn, Stauber, Burchett, Spano, Joyce, and Bishop. Chairwoman VELAZQUEZ. Good morning. The Committee will come to order. I thank everyone for joining us this morning, and I want to especially thank the witnesses for being with us today. Our Committee has a longstanding tradition of working in a bipartisan manner on behalf of America's 30 million small businesses. We work together to make the programs at SBA more effective and seek ways to encourage entrepreneurship and job growth on Main Street. And because small businesses are such an important part of our economy, what we do here impacts the lives of nearly every American. At a time when income and wealth inequality are at record levels, real wages for middle class workers are nearly stagnant, retirement security is no longer guaranteed, one way to combat these problems is through the employee-owned business model. Employee-owned companies can take on many forms, but the central premise is that interests of the employees and owners are aligned. As a business generates more revenue and profits, a direct connection is drawn between an employees' work and how much he or she is compensated, thereby creating a culture of ownership. This business model helps workers and communities raise their standard of living and quite literally feel more invested in the success of the enterprise. The best-known kinds of employee ownership are the Employee Stock Ownership Plan, also known as an ``ESOP'', and cooperatives. There are many benefits to employee ownership that can address some of the economic issues facing workers today. ESOPs report higher wages, better employee benefits, and stronger job security, especially during periods of economic distress. In addition to better wages and benefits, worker-owned firms are also known for reinvesting more in their local community than conventional businesses, and for democratizing management and decision making. Because the workers themselves make the company's strategic decisions, there is little danger of a worker-cooperative unexpectedly leaving town or being sold to outside investors. This ensures the economic vitality of local communities. In recent years, the option of converting a business to an employee-owned model has grown in popularity, though there are challenges in financing and completing such a conversion. For example, businesses seeking to transition to an employee-owned model frequently face difficulty in obtaining adequate capital to cover the costs, which are often prohibitive. That is why last Congress, I led and helped pass the Main Street Employee Ownership Act, which sought to minimize those capital access barriers and encourage more SBA-backed lending to cooperatives and ESOPs. By easing some burdensome guarantee restrictions, it was my hope that we could continue to make the employee-owned model more affordable for local businesses, creating opportunities for more entrepreneurs, while financially empowering employees with a stake in their workplace. The legislation was also intended to help millions of baby boomers who own private businesses and plan to retire create a succession plan that helps them ``cash out'' while keeping jobs and investment in the local community. However, we have heard from numerous employee-owned businesses and lenders that accessing the SBA lending programs has been nearly impossible because of current SBA policy. At today's hearing, we will hear about the good work that employee-owned businesses, like the cooperatives who are booming in popularity all over my district in Brooklyn, are doing for their employee-owners and local communities. We will also explore the negative impact of SBA's failure to follow Congressional intent when implementing the Main Street Employee Ownership Act. We know there are still many challenges ahead as we seek to encourage greater employee ownership of business, challenges that are often unique to either cooperatives or ESOPs. And as we continue our work here in the Small Business Committee, we need to hear about those challenges, too. So, I look forward to hearing from our distinguished panel of witnesses today about the benefits of employee ownership of business, but also the challenges these unique businesses face in starting up and expanding. Again, I want to thank the witnesses for being here today, and I now yield to the Ranking Member, Mr. Chabot, for his opening statement. Mr. CHABOT. Thank you, Madam Chairwoman. In the lifecycle of a business, many important and crucial decisions are made. Some of these decisions lead to brilliant success; others could mean failure. One of the most significant decisions a business must make is how to structure its organization. From sole proprietorship to C corporations, there are a multitude of options available that could benefit both the company and the company's employees. Today, we will explore one structure that has assisted thousands of companies all across the country. The employee- ownership model provides employees with an opportunity to own a stake in the company that they work for. One form of employee ownership is the employee stock ownership plan, or ESOP as the Chairwoman mentioned for short. A company that is organized as an ESOP provides its employees with the opportunity to obtain ownership shares through a qualified defined contribution plan. Research shows that ESOPs provide important retirement options for employees seeking to save for their retirement. This Committee has a long history of examining employee ownership to determine both benefits and also some of the shortfalls. For example, Chairwoman Velazquez authored the Main Street Employee Ownership Act of 2018, which was designed to enhance the ability of the SBA, the Small Business Administration, to work with businesses interested in employee ownership. Ultimately, that legislation was favorably reported out of this Committee and was signed into law as a part of the National Defense Authorization Act for fiscal year 2010. Today, we add another chapter to this Committee's long history of discussing employee ownership. In particular, I am interested in hearing about what is working and what is not working as businesses move through the employee ownership conversion process. Additionally, I would like to hear about the economic benefits of employee ownership. My hope is that this hearing will shed more light on this very important business structure. And I want to thank all the witnesses for being here and participating this morning. I look forward to all your testimonies. And Madam Chairman, I yield back. Chairwoman VELAZQUEZ. Thank you, Mr. Chabot. The gentleman yields back. And if Committee members have an opening statement, we would ask that they be submitted for the record. I would like to explain the timing rules. The witness gets 5 minutes to testify and members get 5 minutes for questioning. There is a lighting system to assist you. The green light comes on when you begin, and the yellow light means there is 1 minute remaining. The red light comes on when you are out of time, and we ask that you stay within that timeframe to the best of your ability. I would now like to introduce our witnesses today. Our first witness is Mr. Daniel Goldstein. Mr. Goldstein is the CEO and president of Folience, a company that for over 130 years was primarily a family-owned print and broadcast media company. Their ESOP was started in 1986 and became 100 percent ESOP-owned in 2012. Today, 570 employee-owners work in Folience media business, ambulance manufacturer, and high-end horse and livestock trailer manufacturer. We welcome Mr. Goldstein. And Ms. Finkenauer, would you like to add anything to my introduction of Mr. Goldstein? I yield to the congresswoman. Ms. FINKENAUER. Thank you. Thank you, Madam Chairwoman, and thank you for holding this hearing today. We are so excited to have you all here, and thank you for taking time out of your busy schedules. Now, we obviously know employee ownership is good for business, it is good for people, and it is good for communities like the one I represent in Northeast Iowa. When employees have a stake in the company, these businesses have deep roots in the area where they are located. These businesses are more likely to stay local and invest in their communities. Employees are literally bought into the business, often increasing overall productivity and success. Employee-owned businesses can also offer strong wages and retirement security to people who work there. I am lucky to have some excellent employee-owned businesses in my own district. VGM Group, a member service organization for post-acute care headquartered in Waterloo was named Iowa's 2019 Best Large Employer by the Des Moines Register. Timberline, an electrical contract manufacturer in Marion, has brought innovation and growth to the area. Folience, in Cedar Rapids, once a family-owned print and broadcast media company, has become an employee-owned company of 570 workers. Today, I am pleased to introduce my constituent, Daniel Goldstein, president and CEO of Folience, who helped transform the company. Since Daniel joined Folience in 2016, he has helped diversify its revenue base through acquisitions. Today, Folience owns media businesses, an ambulance manufacturer, a high-end horse and livestock trailer manufacturer, and more. Daniel brings 20 years of executive leadership to his current position. He is a passionate advocate for employee ownership, and is on the Board of Governors of the ESOP Association, the Board of Trustees of the Employer Ownership Foundation, and the Board of the Employee Ownership Expansion Network. You are a very busy guy, Daniel, and it means a lot to me that you took all this time to come here to D.C. We look forward to hearing your insights today. Welcome to D.C., and thank you again for your leadership. With that, Madam Chairwoman, I yield back. Chairwoman VELAZQUEZ. The gentlelady yields back. Our second witness is Mr. R.L. Condra. Mr. Condra is the vice president of Advocacy and Government Programs for the National Cooperative Bank, a national financial institution dedicated to providing banking solutions for co-ops and their members. Mr. Condra also serves on the board for Cooperation Works, a national network of organizations focused on co-op development. Prior to joining the private sector, Mr. Condra served as professional staff on the Senate Committee on Agriculture, Forestry, and Nutrition for Chairwoman Blanche Lincoln. Welcome, Mr. Condra. Our third witness is Mr. John Abrams. Mr. Abrams is the founder, president, and CEO of South Mountain Company, a 45- year-old integrated architecture, engineering, building, and renewable energy company committed to triple bottom-line businesses practices. Located on Martha's Vineyard, South Mountain has been a worker cooperative for 32 years, was one of the first beneficial cooperatives in Massachusetts, and is currently in transition to second generation leadership. Mr. Abrams is also the author of the book, Companies We Keep: Employee Ownership and the Business of Community and Place, which was published in 2008. Welcome, Mr. Abrams. I would now like to yield to our Ranking Member, Mr. Chabot, to introduce our final witness. Mr. CHABOT. Thank you, Madam Chair. Our final witness will be Mark Gillming, who is the senior vice president and secretary of Messer Construction Company, which is headquartered in America's greatest city, Cincinnati, Ohio. Messer has multiple locations around the country, including in several members' districts or close to them on this Committee, Mr. Burchett's in Tennessee, and Mr. Bishop's district in North Carolina. Messer Construction went through an ESOP conversion back in 1990 and is still prospering today. Mr. Gillming is a long-time employee of Messer Construction, having started his career there in 1985, 35 years ago. Coincidentally, the same year that I was first elected to Cincinnati City Council. He currently runs all of Messer Construction's professional development operations and has multiple degrees from the University of Cincinnati, including not one, but two, distinguished alumni awards. Mr. Gillming, we very much appreciate you being here today and all the other witnesses as well. I yield back. Chairwoman VELAZQUEZ. Thank you very much. Mr. Goldstein, you are now recognized for 5 minutes. STATEMENTS OF DANIEL GOLDSTEIN, PRESIDENT AND CEO, FOLIENCE; R.L. CONDRA, VICE PRESIDENT OF ADVOCACY AND GOVERNMENT PROGRAMS, NATIONAL COOPERATIVE BANK; JOHN ABRAMS, CEO AND CO- OWNER, SOUTH MOUNTAIN COMPANY; MARK GILLMING, SENIOR VICE PRESIDENT, MESSER CONSTRUCTION CO. STATEMENT OF DANIEL GOLDSTEIN Mr. GOLDSTEIN. Thank you, Chairwoman Velazquez, Ranking Member Chabot, and members of the Committee. I am Daniel Goldstein, CEO of Folience, a Cedar Rapids- based company in business since 1884, and 100 percent owned by our employees since 2012. I also represent the ESOP Association, a non-profit whose purpose is to protect and grow employee stock ownership plans, or ESOPs. 6.6 percent of the U.S. workforce has ownership in an ESOP. That is more than 10.6 million employees. ESOP employees outnumber the workforce of the entire U.S. auto industry by more than half a million. We outnumber the combined workforce of the Federal and state government by 3 million. ESOPs contribute substantially to our economy, and we believe they hold a solution for many of the intractable issues facing our economy. As you know, one of the biggest challenges ahead is the looming retirement in the next 10 years of baby boomers who own 2.5 million small businesses. Known as the ``Silver Tsunami,'' it will be the largest transfer of business ownership in the shortest period of time in our Nation's history. The businesses, and their employees face difficult futures if supportive policies are not adopted. I have seen what can happen if a succession plan is not made and the role employee ownership can play in preventing catastrophe. Let me tell the story of a typical small town. Sumner, Iowa, population 2,000, has one major private employer. Life Line Emergency Vehicles designs and builds ambulances that provides 180 good-paying jobs. Ten years ago, the founder passed away leaving control of Life Line to his 69-year-old widow. When I met her, she was 75 and had no heirs prepared to take over the business. Most in this situation face three choices: sell to private equity, to a competitor, or close and sell off the parts. Folience gave them another option--sell to their employees through an ESOP. Folience's ESOP purchased Life Line, and those 180 employees became owners of Life Line and every other business in the Folience portfolio. Despite the many well-known benefits of employee owned businesses--benefits, those seeking to launch ESOPs face multiple, unnecessary obstacles, and I would like to focus on three. The first is an absence of clear Federal regulatory guidance, particularly on business valuations. Second, a shortage of lending capital for ESOP formation or acquisitions. And, third, education. There is low public and professional awareness about ESOPs. Today, I ask Congress to task Federal agencies with solutions to all three. First, I submit that the biggest obstacle to forming and expanding ESOPs is the chilling effect of the U.S. Department of Labor. DOL has perpetuated an absence of formal regulatory guidance, while simultaneously pursuing a litigious approach to oversight. The effect has been a deep chill on the market. Every year, hundreds of business owners attend educational events the ESOP Association hosts to learn about ESOPs. And once exposed to the lack of clear guidance, many turn away out of fear that some unknowable misstep will invite never-ending DOL scrutiny. Forty-five years after ESOPs were established with the passage of ERISA, the Department of Labor has yet to finish its rulemaking process. They started. They nearly finished in 1988. But they never issued regulations. But here is the travesty. It is impossible to prove how many American workers have lost the opportunity to become employee-owners as a result of this chilling effect. The solution can start very simply. Congress should require DOL to define one thing: what constitutes adequate consideration when an ESOP trustees values the price to be paid for a company. This one simple piece of guidance could be a gamechanger for employee ownership. Second, to start addressing lending shortages, the SBA must streamline lending for the ESOPs, as outlined in the Main Street Employee Ownership Act. Unfortunately, in implementing the legislation, the SBA excluded ESOP loans from the Preferred Lending Program, instead continuing to require headquarters approval for all ESOP loans. We ask that the SBA be unambiguously directed to include ESOP loans in the Preferred Lending Program. Third, the Main Street Act tasked the SBA with promoting awareness of ESOPs and employee ownership. The ESOP Association knows that some in the agency already take this task seriously, but they are too few and they lack adequate support, structure, and resourcing. Business owners must know the ESOP option exists and be able to obtain useful, unbiased information. To that end, we ask that the SBA be directed to resource a specific office, such as the Office of Small Business Development Centers, with active public education and information efforts. These three actions will provide a clearer path to launching and expanding ESOPs. Thank you for the privilege of sharing the testimony. Chairwoman VELAZQUEZ. Thank you, Mr. Goldstein. Mr. Condra, you are now recognized for 5 minutes. STATEMENT OF R.I. CONDRA Mr. CONDRA. Thank you. Good morning, Chairwoman Velazquez, Ranking Member Chabot, and members of the Committee. I am honored to discuss the benefits and challenges of employee- owned businesses. Thank you for bringing this topic out to the light and providing a forum for discussion it so richly deserves. Today, I will discuss how a prohibitive policy requirement by the Small Business Administration is hindering the growth of the cooperative business sector. If this issue is resolved, lending institutions like the one I work for will be able to make loans that will help to grow small businesses, create quality jobs at increased wages, and provide healthy food and grocery options for communities throughout the country. My employer, the National Cooperative Bank is a national commercial bank headquartered in Arlington, Virginia. With $2.8 billion in total assets, NCB delivers banking and financial services throughout the Nation to cooperative organizations complemented by a focus on economic development in low-income communities. A cooperative is a business that is organized, owned and governed by the people who use its products or services. Those people are called member-owners, and they own the business. They have a voice in its operations through a board of directors that members elect, and the profits from the cooperative flow back to the member-owners. Employee-owned cooperatives, also known as worker cooperatives, give employees an ownership stake in the company in which they work. Cooperatives have evolved since the 1960's when the SBA recognized them as buying clubs. There are now over 40,000 cooperatives in the U.S., and the top 100 generated $222 billion in annual revenue in 2018. Some notable cooperatives include REI, ACE Hardware, Ocean Spray, Land O'Lakes, and Congressional Federal Credit Union. Since the Great Recession, worker cooperative numbers have doubled, and have become a business option for young people, women and minorities. According to the 2019 Worker Cooperative Economic Census, 50 percent of owners in worker co-ops are Latino and African American, and 62 percent of women make up the majority of the workforce. Municipalities have also recognized that co-ops are a viable business option and have taken steps to promote the growth and development of worker cooperatives in cities such as New York, Philadelphia, Madison, Minneapolis and Austin. Over the past 40 years, my bank, NCB has provided loans of more than $2 billion to cooperative businesses and independent retailers including over $77 million to consumer-owned food co- ops. Per our loan policies and guidelines, NCB does not require a personal guarantee for consumer and worker-owned co-op loans due to the unique structure of our cooperative borrowers. In contrast, the SBA requires a personal guarantee from anyone who owns 20 percent or more of a business and will not guarantee a loan under the program if there is no such individual. This agency requirement makes it impossible for cooperative businesses to access the agency's lending programs. For decades, the co-op sector has asked the SBA to level the playing field for cooperatives to no avail from the agency. In 2018, Congress passed the Main Street Employee Ownership Act that directed the SBA to recommend and implement practical alternatives for cooperatives that will satisfy the agency's loan guarantee requirements. We were greatly disappointed to learn the SBA did not provide practical alternatives as the law required. Instead, the agency relied on its existing requirements that continue to block cooperative businesses from much needed access to capital. Further, SBA's recommendation regarding an existing business to be sold and converted to an employee-owned cooperative would create new barriers. The agency recommends that a selling business owner provide a full, unlimited personal guarantee for the life of the loan. Imagine a small business owner selling their business to a buyer, but also having to put up their home as a guarantee for the buyer's own loan until it is paid off. The SBA's guarantee requirement is also contrary to industry practice for cooperatives. As mentioned, my bank does not require a personal guarantee, and CDFIs that specialize in co-op lending do not require one. The Department of Agriculture's Business and Industry loan program does not require a personal guarantee for loans to cooperatives. In addition, the SBA has shown flexibility with respect to the guarantee in similar situations in the past. Thus, the SBA does not require a personal guarantee when a loan is made to an ESOP business. The SBA has stated that cooperatives can satisfy the requirement by providing an ``entity guarantee'' to be the guarantor of the loan. We were recently approved by SBA using an ``entity guarantee'' for a food cooperative loan in Fredericksburg, Virginia. To my knowledge, this will be the first food cooperative loan in the history of the agency. While we are excited that SBA approved this loan, we have strong concerns that the ``entity guarantee'' is not a long term solution for cooperative businesses for the following reasons: SBA is not prepared for an ``entity guarantee'' submission with its application process; the borrower adds more debt to the loan than is needed; the lender adds more risk to the loan than is needed; and only wealthy communities with the ability to raise cash will be able to use this process. I am here today to discuss how the SBA's taxpayer-funded loan programs should be fair and available to everyone, including cooperative businesses. I look forward to answering your questions. Thank you. Chairwoman VELAZQUEZ. Thank you. Mr. Abrams, you are now recognized. STATEMENT OF JOHN ABRAMS Mr. ABRAMS. Ms. Velazquez, Mr. Chabot, members, thank you so much for having us. It is an honor. South Mountain, the company I founded nearly a half century ago, is an integrated architecture, engineering, building, and solar company. We do all the parts, from beginning to end. For 33 years it has been a worker co-op. Nearly 2/3 of the 37 employees share ownership today. We balance the triple bottom line of people, planet, and profit--quality, performance, and mission are all more important to us than growth. The company is built on humble beginnings. I had an older friend and mentor who followed our work in the early days. One day we were showing him a house in progress, and he said, ``It is beautiful work. It is artful.'' And then he said, ``Are you making any money?'' ``No,'' I chuckled. ``We seem to lose money on every project we do.'' And he said, ``Well, Abrams, you've got a unique idea here. Subsidized housing for the rich.'' And that bombshell inspired me to learn about business-- what it is, the impact it can have, and how to make fair profits--and that pursuit has become a passion. Now we make subsidized housing for those who need it. We devote ourselves to service to each other, to the communities we work in, to strengthening our local economy. In 1987, two long-time employees told me they preferred to spend their careers at SMC rather than going off on their own, but they needed more of a stake than an hourly wage. Not long after, I agreed to restructure as a worker co-op, to make a system that would welcome them, and other committed employees over time, to ownership. To be honest, at the time I thought this was more symbolic than substantive. Nothing could have been further from the truth. Worker ownership has been more far meaningful and valuable than I ever imagined. There is no question in my mind that it has been a critical factor in our modest long-term success. I believe that owning our work is as essential to a good life as is owning our homes. Former Treasury Secretary Laurence Summers once remarked, ``In the history of the world, no one has ever washed a rented car.'' Ownership is powerful. When employee-owners are making the decisions, it is more likely that companies will stay rooted in place and be positive forces in the community. Economist Richard Wolff says, ``If our workplaces had been democratized long ago, would the workers have stopped raising their own wages? Hardly. Would they have destroyed their own jobs by moving production overseas? Doubt it. Would they have employed technologies that pollute the local environment? No, they live there. Would they have allowed some to earn astronomical salaries while the rest got no raises? No way. Our economic history over the last thirty years would have been radically improved if we had had a different way of organizing our enterprises, with a more cooperative community-focused method that is democratic at its core.'' Growing the worker cooperative approach has the potential to positively affect the economy, our democracy, the quality of working peoples' lives, and I do not think it is a stretch to say that the benefits of the democratic workplace may even aid and influence the essential repair of our battered civic landscape. It could change, in effect, the chemistry of our culture. If you spend your days working in an environment of collaboration, mutual respect, and shared power, it is bound to spill over into other parts of your life--better parenting, kinder relationships, more civic engagement. Today, we are among the highest scoring of the 3,000+ certified B Corps (among them are socially responsible icons like Patagonia, Ben and Jerry's, Seventh Generation), and we annually make the B-Lab ``Best for the World'' list. During the past 7 years, six first-generation employee-owners have retired who, collectively, represent 180 years of employment. Six people, 180 years. That kind of stability is rare in business today. We are deeply engaged in transitioning to our next iteration. As a new group of owners take the reins, I am grateful that we will only have to change leadership, having dealt with the ownership part many years ago. We often assist companies transitioning to employee ownership. It is not uncomplicated, and all companies making this move need technical and legal assistance. The need is great. The Main Street Employee Ownership Act of 2018 was a big step forward, but there is far more to do. The value and benefits of employee ownership continue to fly under the radar, and you cannot take this important step without knowing the option exists and understanding what it means. So perhaps the greatest need is extensive education and publicity. The stories of employee ownership successes need to be shared and celebrated. Employee ownership ``ambassadors'' should be funded to visit companies considering transitions, to teach, to train, to advise, to inspire. Widespread technical assistance should be made available. Employee ownership should be the number one business succession planning option. But it is not. I hope this Committee will build on the great work that it has done so far, and I am grateful for the opportunity to make this request. I would be happy to answer questions. Thank you. Chairwoman VELAZQUEZ. Thank you, Mr. Abrams. Mr. Gillming, you are now recognized. STATEMENT OF MARK GILLMING Mr. GILLMING. Chairwoman Velazquez, Ranking Member Chabot, and distinguished members of the Committee, thank you for inviting me to testify before you today to share my story of as our retired CEO phrased it, ``inclusive capitalism,'' and the impact it has had upon hundreds of my fellow employees at Messer Construction. Thank you for holding this hearing to learn more about ESOPs and the legislation that can encourage more small businesses to become employee owned. My name is Mark Gillming. When I began working at Messer Construction, it was a Cincinnati-based, medium-size, family- owned construction company with a long history and a good reputation. But, like most companies in construction, it had little in the way of employee benefits. By 1990 company-funded retirement benefits totaled only $1.5 million on behalf of about 99 participants. In 1988, the last son of the company founder died, and we found ourselves with an uncertain future. The grandchildren of the founder wanted access to their wealth, and having no connection with the employees, were not committed to maintaining employment at the company. In 1990, the Messer employees were able to buy their future from the Messer family using the ESOP structure. I was one of the employees that participated in that purchase, and we could not have purchased the company if not for the important tax advantages that the ESOP model afforded us. Our country's investment in ESOPs allowed 99 Messer employees to purchase their future, and the engagement that opportunity created has resulted in growth. Today, operating from 10 regional offices, Messer performs more than a billion dollars in construction annually. And, here is the measure of how that change our ESOP brought to our retirement savings. Messer now provides quality jobs and predictable retirement for over 1,200 individuals and has company-funded retirement assets for those employees totaling more than $400 million. Through our engagement with the Employee-owned S Corporations of America (ESCA), we have come to know of hundreds of companies with stories similar to ours, and the data from ESCA's quality research shows that ESOP companies are more robust, more sustainable, and provide higher levels of diversified retirement benefits than non-ESOP companies. The Messer ESOP is in place and working well for us. However, Messer manages a vendor supply chain of small local subcontractors who are increasingly at risk from forces both external and internal. For that reason, Messer supports ESCA's work to promote bipartisan legislation, H.R. 2258, that would encourage more employee ownership by providing incentives to S Corporation business owners to sell to an ESOP when they are looking to transition out of the business. This will allow more American workers to build meaningful retirement savings that those of us at Messer have realized through employee ownership. It was more than 20 years ago that Congress passed legislation creating S ESOPs, and in addition to what I have shared with you about Messer, data shared by ESCA continues to show that S ESOPs are a remarkable success story from young workers to retirees. Just a few highlights from recent surveys that Committee members will find of interest: Close to 90 percent of ESOP retirees said their savings and ESOP benefits are enough to meet their retirement needs. Less than half of non-ESOP retirees said the same. 56 percent of millennial workers at ESOP companies said they had at least 6 months' salary saved for retirement, while 66 percent of their non-ESOP counterparts said they had no savings at all. The opportunity to become an employee-owner has helped Messer Construction recruit and retain millennial workers in a tight labor market. These individuals share the vision of working as an owner and not just an employee and embrace the challenges and opportunities that come with being an employee owner. Messer is a clear example of the power of inclusive capitalism that results from supporting S ESOPs. I invite you to visit us or an employee-owned company in your district or state so you can see firsthand the pride employee-owners take in their work and the confidence that employee-owners have in their future. Ms. Chairwoman and Committee members, I thank you for this opportunity to address the Committee and share Messer's story, and for your consideration of legislation that will allow more hardworking Americans to share in the American dream at work. Chairwoman VELAZQUEZ. Thank you, Mr. Gillming, and thank you all for the insightful information and stories that you have shared with us. I will now recognize myself for 5 minutes. Mr. Goldstein, the Main Street Employee Ownership Act now allows the 7(a) preferred lenders to process ESOP loans under delegated authority streamlining the process for small firms. Unfortunately, the proposed rule implementing the law says those loan cannot be processed under delegated authority. What is the impact to the ESOP community with SBA taking this position and contradicting the clear language of the statute? Mr. GOLDSTEIN. Thank you. While Folience has not utilized the SBA's 7(a) loans, and I probably would not given the delay in how long it takes to get them approved, I can speak to the importance of timing in completing ESOP deals. There are two principles that I have learned from my experience. The first is that time is the enemy of all deals, and the second is that accessing capital is the greatest bottleneck in timing. So when Folience acquired Cimarron Trailers in 2018, we had a 12-day delay due to a financing issue, and just 12 days called into question changes in inventory, work in progress, working capital, finished goods delivered, and a variety of other criteria that mean that the adequate consideration, the fair price of the deal had to be recalculated. And as you look at moving the local approval of SBA loans to preferred lending providers who have local knowledge of the companies, they will have more direct knowledge to make more timely decisions which will get more funding to create more ESOPs. Chairwoman VELAZQUEZ. Thank you. Mr. Condra, how many businesses that you work with have been good candidates for the 7(a) loan program but could not get one because of the personal guaranty requirement? Mr. CONDRA. Thank you for that question. And some of my answers today will refer to food cooperatives, like Park Slope in your district in Brooklyn. Chairwoman VELAZQUEZ. Yes. Mr. CONDRA. Because the food co-ops and worker co-ops are in the same boat with SBA. And food co-ops are a more mature sector at this point. But we get multiple inquiries every month from cooperatives. There is a nonprofit called the Food Cooperative Initiative that provides technical assistance through startup food coops. There is currently 125 in different phases, and in employee-owned, in the worker co-op sector, 25 new worker co-ops are created every year. And all that being said, we do not know what the need is, the total need out there is because it is common knowledge among the industry that you cannot access the SBA programs. And also, additionally, a letter was sent to you in December from the Village of Williamsburg outside of Buffalo, New York. They were counting on SBA for this alternate requirement for the guarantee and they sent you a letter saying that now they are hindered from moving forward because there is not an option for them. Chairwoman VELAZQUEZ. So I know that in the USDA Business and Industry loan program they offer a waiver from the personal guarantee requirement for co-ops, and that is a $25 million max loan program. So do you think a waiver provision like the one the USDA has would work at the SBA? Mr. CONDRA. I think it is a good option. I need to get more knowledge about that waiver process to learn more but that is just another example of thinking outside the box of how SBA could do this along with the other alternatives that the sectors recommended. And they said no to all of that. And I just want to remind you as well that SBA met with their counterparts at USDA to talk about alternatives and USDA recommended a number of those and the agency said no to those as well. Chairwoman VELAZQUEZ. Okay. Thank you. Mr. CONDRA. Yes. Chairwoman VELAZQUEZ. Mr. Abrams, well, the new administrator that was recently confirmed is coming before this Committee at the end of February. Rest assured that we are going to ask the question about this. Mr. CONDRA. Thank you. Chairwoman VELAZQUEZ. Mr. Abrams, I know that in a co-op, employee-owners have a seat at the table when important business decisions are being made. Can you tell us how this process enhances employee morale and drives strong wages and benefits for employee-owners? Mr. ABRAMS. I think it is at the heart of---- Chairwoman VELAZQUEZ. Do you have your mic on? Is it on? Mr. ABRAMS. I believe so. Chairwoman VELAZQUEZ. Okay. Mr. ABRAMS. Can you hear me? Chairwoman VELAZQUEZ. Yes. Mr. ABRAMS. Okay. I really think it is at the heart of what makes these businesses successful, that the employees know that they have a seat at the table, that they know that their voice is heard loud and clear, and that in the end they are going to make the decisions about policy. And I think when the people who are making the decisions bear the burden of the consequences of those decisions but also benefit from the rewards of those decisions, we just get better decisions. Chairwoman VELAZQUEZ. Thank you. My time is up. So now I recognize the Ranking Member, Mr. Chabot. Mr. CHABOT. Thank you, Madam Chair. Mr. Gillming, I will go with you first. Your company was being sold or transitioning from the family that owned it and 99 employees purchased it. And obviously it has gone very well. What are a couple advantages, benefits would you say versus any downsides? Mr. GILLMING. I do not see any downsides. Mr. CHABOT. The mic. Mr. GILLMING. I do not see any downsides. It has been a great experience for us. But what it has meant is we became employee owners and there were 99 of us when we started out. We were all in this---- Mr. CHABOT. Was there any magic in that number at the time or anything? Mr. GILLMING. No, it just---- Mr. CHABOT. It just seems like such an interesting number, 99. Not 100, not 98, but 99. Mr. GILLMING. It is just where we were. But what it has meant is that it changed some, you know, we had a great culture to begin with but it made it even better because I no longer was worried about, well, I want to succeed so I want to see one of my coworkers not do so well. I am interested in seeing them succeed because a rising tide raises all boats. And the culture just got better. And it becomes cohesive. And when you are an employee-owner and making decisions as an employee-owner, you know, those small decisions become big decisions and you are making them. How we treat our owners, how we treat our subcontractors is so important. Mr. CHABOT. I remember at a previous hearing we had one of the witnesses that talked about that they had gone to an ESOP, and it may have even been Messer, I am not sure, but they talked about things like some employees in the past may have walked off with tools or office supplies or things like that. Other employees, hey, that is my stuff you are doing. And they would amongst themselves stop bad things from happening. Is that accurate? Mr. GILLMING. Good observation. We had two mid-year career hires that came in, and about 6 months after they had been there they were talking. They said, do you know what is different? They turn the lights out when they leave the conference room. Mr. CHABOT. Excellent. Excellent. Mr. Abrams, I will go to you next. In your testimony you mentioned that your decision to restructure as a worker cooperative was really critical in South Mountain Company's success. How did it contribute to the success of your company in particular? Mr. ABRAMS. Well, for one thing, I think the origin---- Mr. CHABOT. I am not sure if the mic is on. Mr. ABRAMS. Sorry about that. Mr. CHABOT. That is all right. Mr. ABRAMS. The origin of that decision was inspired by employees coming and saying this is where we want to be. But, the usual path is to achieve some level of competence and then go out and start businesses in your own. The fact that they wanted to be there meant that we needed to have a structure that would keep them there. And that was repeated time after time. So first of all, I see a level of dedication that I do not see in other businesses, and this fact that people want to make their careers there and stay till the end, till retirement. Mr. CHABOT. Thank you very much. Mr. Condra, could you walk us through with what a small business would experience if they approached your office to inquire about becoming an employee-owned ESOP? Mr. CONDRA. Let's give an example, a landscaping worker co- op. If it was in a certain state, we would immediately direct them to cooperative development center, and that center would provide the technical assistance and the needs for how they do that. That co-op would then, if they were moving forward, create a planning committee. They would create a business plan. They would form a board. And they would go through the steps just like any other business would. And then at the end of the day they would provide an application to our bank. One thing to note on that is USDA provides technical assistance grants to these development centers in rural areas. So if you are in rural Ohio, you can go to a development center and get some assistance. If you are in Cincinnati wanting to form a worker co-op, there is not any Federal technical assistance to provide that. Mr. CHABOT. Thank you very much. Mr. Goldstein, before I run out of time here, in your written testimony you had described a chilling effect caused by ``policy of regulation by litigation by the Department of Labor.'' Could you tell us in a little more detail what small businesses are going through with the Department of Labor with respect to what you were talking about? Mr. GOLDSTEIN. Yes, absolutely. The most important element in an ESOP formation or acquisition is price. And adequate consideration is the process by which the trustee determines the fair price to be paid for that transaction. The trustee is representing the buyers; the buyers being the employees. For over 45 years, the DOL has refused to define what this process is and over the last 10 years there has been aggressive litigation which has scrutinized and challenged ESOP valuations. The chilling effect is that because there is no clear guideline on this and there is the fear of litigation that there are a lot of transactions that otherwise would not happen. There is evidence that you can see with the SEC of issuing robust guidelines for public companies that are being bought by other public companies or by private companies and the process is evaluated by the SEC. A letter of no action is given if that process is determined to have been followed. So all we are asking is that the DOL issue guidelines that adequately define this process, the adequate consideration. Mr. CHABOT. Thank you very much. I appreciate all the witnesses, and my time is expired, Madam Chair. Chairwoman VELAZQUEZ. The gentleman's time has expired. And now we recognize the Chairman of the Subcommittee on Contracting and Infrastructure, from Maine, Mr. Golden. Mr. GOLDEN. Thank you, Madam Chair. Mr. Goldstein, I think following up on that a little bit, could you try and walk the Committee through how an ESOP trustee might currently determine the value of ESOP stock? Mr. GOLDSTEIN. Sure. Absolutely. The ESOP trustee uses a valuation firm. They may look at other comparables with small private companies. There is not a good amount of information so they may have to extrapolate the information from public companies. They may have to look at what is the best next comparable that is available from transactions that are known but that is not from all transactions. There is no checklist of items to examine. There is no suggested metrics to use. There is no system of comparison. The DOL has used litigation which some say has set precedent but that precedent can be very individual to the actual transactions. So the metrics used for acquiring a manufacturing company will be very different than those used acquiring a technology or service company. Mr. GOLDEN. Thank you. Do you have a preference or some input about how you think the Department of Labor should define the term ``adequate consideration'' in this context? Mr. GOLDSTEIN. Yes. Again, if they were to give clear guidelines that unequivocally can be followed by a trustee to ensure that a process is going to be followed, it eliminates that fear that once a transaction has been done it will be under scrutiny that can be costly and take a lot of time and could be undone years later. And that is really what is causing a lot of these transactions to not happen. The employees of the companies that do not become employee owned are the ones that lose because the business owners will find another buyer. They will find private equity or strategic. It is those employees that are losing because there is not an adequate consideration regulation that is clearly identified. Mr. GOLDEN. So you just want clarity and consistency. Mr. Abrams, because you assist companies that transition to employee ownership, I know you know a lot about some of the technical and legal assistance that is necessary in the process. And I wanted to ask what more might be done to help promote companies transitioning to employee ownership. What kind of assistance to people generally need to pull this off successfully? Mr. ABRAMS. That kind of publicity would be welcome and could be effective. In terms of technical assistance for making the conversion, the most important thing is that people know that there are companies and consultants that are doing this work. There are accountants that are well-versed in co-ops and others, mostly, they are not. So to know who to go to, what attorneys to go to, all of this information is important. But I think even more important, at the beginning, employees often feel like this is an owner leaving and they need to understand that it can be inclusive and the owner can stay and work with them through the transition. Mr. GOLDEN. Thank you. Just going back to Mr. Goldstein, you mentioned in your testimony that you thought small business development centers might be a good place, a focal point for educating people about this particular option and maybe helping people through the transition. I cannot remember if it was you specifically or someone else who also mentioned about small business development centers, that some regions are doing this kind of work, others are not. I was not sure if that was anecdotal or if anyone had any feedback about that. Mr. GOLDSTEIN. Yes. What I have seen is that it is anecdotal. There are different regions of the company that may have a more proactive approach to giving information about employee ownership. And what is most important is that any business owner that is looking at this transition in the ``Silver Tsunami,'' the 2.5 million small businesses that need to change ownership in the next decade or two, that they have access to that information, unbiased, and that they are not going to be misled by professional service providers that are going to steer them away from that. They need to see that that is an option, which is going to keep companies and jobs in communities. Mr. GOLDEN. Thank you very much. Madam Chair, I yield back. Chairwoman VELAZQUEZ. The gentleman yields back. And now we recognize the gentleman from Ohio, Mr. Balderson, Ranking Member of the Subcommittee on Innovation and Workforce Development, for 5 minutes. Mr. BALDERSON. Thank you very much, Madam Chair. And good afternoon, panel. I thank you all very much also for taking the time to be here today. Throughout this hearing we have heard numerous times about the benefits that exist in employee-owned businesses. Some of these benefits include higher wages, better working conditions, and more flexible working hours. However, one aspect that is vital to employees and employers alike is health care. Would you all please elaborate, and you can start with Mr. Goldstein and just go down the line there, on some of the challenges of this healthcare space, and are the associated health plans part of the solution? Mr. GOLDSTEIN. Certainly. ESOPs do address income inequality through competitive pay and benefits, and we offer both to our employees. Certainly, increasing costs can be a challenge to any business. I would like to stress that the other benefit is the retirement accumulation which ESOPs address, which is wealth inequality. And it is important to point out that the difference between income inequality and wealth inequality is that income inequality will get the employee and their family through their next pay period; wealth inequality, if you address that, gets them and their family through a funded retirement. So it is very important that they have the benefits which we offer and also that they are accumulating these retirement benefits. Mr. BALDERSON. Okay. If you all could just be more specific on the healthcare piece of it. I am trying to dial in on the associated healthcare plans and some of the tools that are out there, whether it is the HSAs, the health savings accounts. Mr. GOLDSTEIN. Yes. So we do offer the high-deductible plans with HSA. Of course, it is important to educate an employee so that they are contributing to the HAS as they take those high-deductible plans. We use wellness programming to improve the wellness of the employees so that it is proactive and not just reactive. We do lots of wellness challenges. That is an important part of taking care of our employee population. Mr. CONDRA. So I am discussing worker cooperatives, which are separate from the ESOPs. Examples for worker co-ops in my mind are construction, retail, custodial, daycare, hourly paid wages for the smaller ones. So it would be up to the co-op if they were able to bring in their own insurance or that nature. There are larger worker cooperatives such as Equal Exchange and Home Care Associates that have over 1,700 owners which they would have their own healthcare plans. Mr. BALDERSON. Thank you. Mr. ABRAMS. Our employee-owners feel that health insurance is absolutely essential for them and their families, so we provide 100 percent coverage of everything imaginable, all deductibles paid. It is a high priority. Meanwhile, the Amicus co-op, which is a purchasing co-op of 50 solar companies nationwide, is working to bring insurance to lower those costs because most of their members are worker-owned and they are looking for ways to provide these benefits at lower cost. Mr. BALDERSON. Thank you. Mr. GILLMING. We provide healthcare benefits for our employees as well. The employees pay a portion of it. The company pays a portion of it. But because we are employee- owners, there is realization that this falls right to the bottom line and expenses are important. So we have the benefit programs, you know, the wellness programs trying to reduce it and I am one of the healthcare trustees for our company. So I am aware of what we do every year of going back out to the market to see what we can do to provide the best healthcare for our employee owners that we can at the best pricing. Mr. BALDERSON. Okay. Mr. GILLMING. So going to the high-deductible plan was one of those ways to help provide that as well. Mr. BALDERSON. All right. Thank you all very much. Madam Chair, I will yield back my remaining time. Thank you. Chairwoman VELAZQUEZ. Thank you. The gentleman yields back. And now we recognize the gentleman from North Carolina, Mr. Bishop. Mr. BISHOP. Thank you, Madam Chairman. Thank you, panel. And Mr. Gillming, in particular, I represent Charlotte, part of Charlotte, which is one of Messer's expansion markets. And I am curious whether ESOP ownership impacted your decision- making concerning expanding to markets like Charlotte. Mr. GILLMING. It absolutely has. As we continue to grow, we are not growing because we want to do more work. We are growing to provide additional opportunities for individuals within Messer to continue to grow. It does not have to be a narrow pyramid where I have to retire for someone to take my place. I was asked in 2002 to go move to Louisville to run the Louisville region. When I left the Cincinnati region, someone had to take my place. In 2010, I was promoted again to cover multiple regions. Someone had to take my place, so we do it for the growth of our employees and we look for very active, vibrant communities because our people become part of the community. So that is obviously one of the reasons we are in Charlotte. Mr. BISHOP. I am grateful for that and I congratulate Messer on your success, all your employees. Picking up on Mr. Balderson's point, earlier in this Congress I introduced H.R. 5224, the Increasing Health Coverage through HRAs Act. And that legislation would codify, that is, give permanent effect in statutory law to the new IRS, DOL, HHS rule that allows employees to use health reimbursement arrangements funded by employers to purchase individual market coverage and correspondingly allows employers to fund those accounts and deduct the amounts as pay but it does not increase taxable pay to the employees. And then employees can obtain and maintain their own coverage that way. Early estimates are that this option will increase by 800,000 the number of Americans with health insurance coverage. And so my first question for the entire panel is, do you think the availability of new benefits, flexibility like that, puts smaller companies, especially employee-owned forms of businesses in a better position to compete for top talent? Anybody who wishes to volunteer for that? Mr. GOLDSTEIN. As was previously said, we do go out to the marketplace every year and look at what are the available options, pricing, looking at ensuring that we do not disadvantage any one population as we have different companies that we bring together. And so absolutely increasing the options is always advantages as we look at how to best provide benefits at the most cost-effective method to our employees. Mr. BISHOP. Thank you very much. Madam Chairman, I yield back. Chairwoman VELAZQUEZ. The gentleman yields back. And now we recognize Mr. Spano, from Florida, for 5 minutes. Mr. SPANO. Thank you, Madam Chair. And thank you all for being here today. Thank you for your testimony. Appreciate it very much. As many of my colleagues know, I am personally familiar with many of the challenges that small business owners face. Before coming to Congress, I owned my own small business for 13 years. In the entire time that I owned that business I used an employee-owned model. I found that by giving employees stake in the business, it not only allowed them to feel more invested in the business, but it motivated them to succeed. They had skin in the game, so to speak. But it also gave them a taste of what it was like to be entrepeneurs. One of the most daunting aspects of small business ownership is getting started. You see so many businesses fail. And I think entrepeneurs take enormous risk in their business and often with little experience when they first start. So the employee-owned model can correct this problem in my opinion because it allows people to develop the skills of business ownership with substantially less risk essentially than making a go of it on their own. It better equips these folk to start businesses with that knowledge. Some of the most rewarding moments in my experience as a business owner is to see some of the folks that have been owners in my business then step out and start their own business. I have enjoyed that on several occasions. But, so I strongly believe that that employee-centered model can really make for better businesses and more productive employees. One theme that I have been noticing is that because employees are directly involved in ownership decisions of the business, that organizations tend to make decisions that benefit the employees, which makes sense. The question I have, however, does this impair a business potentially from making tough decisions sometimes that may be necessary for the health and growth of the business? For instance, if you have a market that is dynamic and changing rapidly and there need to be quick changes, potentially downsizing and so forth, how do you get to the point where you get employees who are, by nature, self- interested to come together and make a decision? And I will just open the floor to anybody who wants to answer that. Mr. ABRAMS. In 2008, in response to the financial crisis, we set out six layers of actions and the last on the list was actual layoffs. We never got there, fortunately. But I will never forget when we did get to the point where we decided that we would have a 20 percent across the board reduction in pay, and at the end of that company meeting a number of people came up to me and thanked me. And I said, ``Wait a sec. Your pay just got reduced by 20 percent.'' And they said, ``So did yours, and you lost more than I did.'' And they were just in it together. So that is a pretty tough business decision to make. And everybody was on board. Mr. SPANO. Would anybody else like to offer an answer to that question? Mr. GOLDSTEIN. I cannot speak to the start of our business because that was in 1884; however, I can tell you that in 2016 when I was brought in, it was with the realization that while we had a 130-year-old profitable newspaper that was still independent, if we are going to be around for the next 130 years we had better diversify our revenue base. And that is why we went through building an employee-owned platform that brings transition of other private companies into our company. And today, we are 570 employees, two-thirds in manufacturing and one-third in media. And there are plenty of difficult decisions and allocation of resources, capital, staffing that go along the way in building that. Mr. CONDRA. I would say on the worker co-op front, we have seen this since the Great Recession, is that young people are wanting to start their own businesses. Some do not want to work for a corporation. They want to own their own business and they are happy to share that. Especially with conversions, you know, the worker co-op model is not for everyone. Some people want to go to work, work 8 hours and go home. They do not want the responsibility of making the decisions or they stress on the pressure. But some people, it is natural for them and those are the ones that prosper. Mr. GILLMING. The only thing I would add is, you know, when the recession hit, obviously, it hit construction really hard. We did the same thing. We all came together and we knew we were in it together. But the other thing within our company is the realization that good ideas come from people. They do not come from titles. So a lot of what we do and continue to advance ways to build buildings for our owners and deliver them, quality projects at quicker schedules come from the ideas. And it may be somebody that just started with us last year. Mr. SPANO. Thank you. I yield back, Madam Chair. Chairwoman VELAZQUEZ. The gentleman yields back. And now we recognize the gentleman from Tennessee, Mr. Burchett, for 5 minutes. Mr. BURCHETT. Chairlady, I hope I did not cut in front of one of the other members down there. Did I do that? Now we are good? Okay, great. I do not want that to be reflected in anything I do in this bipartisan that might hurt me in the re- election bid. So I just want to clear the air with that. Thank you all for being here. And thank you, Madam Chair, for always being courteous to me. Mr. Gillming, is that how you say your name? Mr. GILLMING. Yes. Mr. BURCHETT. Messer Construction, of course, has a big operation there in Knoxville in my area and they do quality work. And thank you for being here, brother. As an employee-owned company, what do you think the biggest challenge is that faces Messer Construction? Mr. GILLMING. The biggest challenge that we face is that Congress will change the laws that they created in 1998 that allowed for S ESOPs, because that allows us to continue to build towards our retirement and all of us working together and knowing that when we get up every morning and go to work, we are working for ourselves and we are building for the future for not only us but for our families. Mr. BURCHETT. Yes. I am kind of a gearhead and I visited a place called Jasper Motors and they have a little operation in Knoxville. I was at a radio station and I said, I am going to go down there and check those boys out. And sure enough, they were one of you all, an ESOP. How do you say it, ESOP, ESOP? Mr. GILLMING. ESOP. Mr. BURCHETT. Anyway, they educated me pretty quick on that. It is always good to talk to folks that actually work for a living. Not that we up here do not do any work but the reality is we do not. You said Messer's supply chain of local contractors earlier, you said that they were facing some numerous challenges. Do you think that the subcontractors and subcontractors across the country could benefit from an employee-ownership model? And what do you think that would look like? Mr. GILLMING. Well, I absolutely do. And we are seeing that happening. There is a firm in Cincinnati, a long-time HVAC mechanical contracting firm that has just gone through the transition at Peck, Hannaford and Briggs and it is time for the third generation now to move out. But what happens then to the employees? So they had the foresight to say there is a structure here and our retired CEO helped consult with them about some of the ways to help do that. And the options that are there. But it allowed that company now to continue on and for all of their employees to still have employment. Mr. BURCHETT. Very good. And I will give the rest of you all some face time because I realize your wives and/or sons and daughters are watching you all right now. So, what do you see Congress can do to further help support employee ownership? We can just go down the line. And I have got 2 minutes and 23 seconds, so you all divide it up amongst yourselves. Mr. GOLDSTEIN. I will be quick. Thank you first of all for pointing out that this is bipartisan, and so hopefully these changes can be made. I will go back to if this Committee could bring up the issue of adequate consideration. The greatest challenge facing the formation of new ESOPs and acquisition of private companies to transition them to employee ownership, which is what Folience is doing, is this issue of not having a clear definition of adequate consideration. So if you could bring that to the Department of Labor, please. Mr. BURCHETT. I believe you just did, but we will. Thank you. Mr. CONDRA. Congressman, my answer, and it will be to this Committee, is access to capital. If a group wants to start a worker co-op in rural Tennessee, they go to their local bank. The bank sends it to USDA and gets a loan guarantee and they are off to the races. If that same group wants to start a worker co-op in Knoxville, they go to their local bank, same thing, everything, SBA denies that application due to the personal guarantee requirement. So it is access to capital at this point. Mr. BURCHETT. All right. Mr. ABRAMS. My answer would be that very few business owners know that a worker co-op is a viable entity of choice. More people need to know. Mr. BURCHETT. Let me go back real quick. Guy in the middle right here, I am sorry, I am not looking at the names, here. Do you think the banks want to do that business or do you think they are coming up here and doing the old side step and saying, oh, you know, do not allow them to do that, brother? Oh, we cannot do it. It is those bureaucrats in Washington. Mr. CONDRA. No. There is not a process at SBA to provide a cooperative loan. The banks want to do this. I mean, this is what we specialize in. And it is just not us. It is other national interests. Mr. BURCHETT. Thank you all so much. Chairlady, as always, this is a very bipartisan Committee, and actually, it is one of the few Committees where I think something is actually getting done up here. Chairwoman VELAZQUEZ. Thank you. Mr. BURCHETT. So thank you, ma'am, for your work. And appreciate you all coming out. Chairwoman VELAZQUEZ. The gentleman yields back. And now we recognize the gentleman from Minnesota, Mr. Stauber, Ranking Member of the Subcommittee on Contracting and Infrastructure for 5 minutes. Mr. STAUBER. I thank you, Madam Chair. And thanks for your testimony. I, too, am a small business owner with my brothers. This is our 30th year. The ups and downs of small business. And for me, you know, my colleague just asked, like, what can we do? It is critically important that we take care of our small businesses in this country. They are the engine of our economy and I say you have never been a small business until you have had to reach into your back pocket and pay for something unexpected to capital or what have you like my brothers and I have. It is not fun. It is not easy. So I think the Committee members recognize the importance of small business. Mr. Abrams, did you talk about adequate consideration? Would you define that to me? Or maybe Mr. Goldstein, you said that. Okay. Would you define that? Mr. GOLDSTEIN. Yes, absolutely. Adequate consideration is the process by which a trustee determines a fair price in a transaction. So you have a seller and a buyer. They have to agree on price. The buyers, the employees being represented by the trustee. And the problem is that a lot of transactions are not being done because there is not a clear definition of that process. And so sellers and trustees are too worried to get into that transaction, whether it will be tied up in litigation and scrutiny and potentially unwound years after. Mr. STAUBER. Well, I am going to publicly ask you to help not only this Committee but me, personally. I would like to connect with you afterward with my staff assistant because I want to get down to that because that appears to be a major problem concerning in the ability to make the transaction. The bottom line is the best legislation comes from you folks, and to hear this in the Small Business, and I have only been here 13 months, but some of the ideas that are coming from our small business men and women are unbelievable and they seem to be so common sense. And so as I read your notes, each of your notes before this, I just want to tell you, number one, thanks for coming up and testifying. And we are here, and should be here, to make sure that Main Street America, and as I say, Main Street Minnesota, succeeds. Because the engine of our economy. I really do not have any other questions other than that, but thank you for your attendance and your testimony. Chairwoman VELAZQUEZ. The gentleman yields back. And I am going to recognize myself for 5 myself. If any other members to wishes to ask questions you are welcome. Mr. Condra, we hear you on the issue of access to capital and the problem that we have at this point with SBA's interpretation, but we are going to tackle that issue. My other question is that part of the Main Street Employee Ownership Act directed the SBA to provide outreach and educational materials to participating lenders. It also directed SBA to establish a Small Business Employee Ownership and Cooperative Promotion program. As a lender on the ground, can you give us an update on whether you have seen any of these provisions being implemented? Mr. CONDRA. We have had zero communications on the creationist program. We have heard indirectly that SBA just started implementing it in October with the 900+ SBDCs that they were now required to promote the cooperative model and training and everything. It is a little bit frustrating because the co-op organizations and development centers throughout the country have already done a lot of this work with the materials, the resources. They could be advisors on this. And for us not to know anything about it, I am afraid the SBDCs are going to start recreating the wheel. And also, they will be duplicating efforts. And the fact is that there has been a lack of communication. So when the administrator comes to see you, you might want to suggest that they communicate a little bit better with the co-op sector. Chairwoman VELAZQUEZ. Sure. And today, I am holding a roundtable with the SBDCs Network across the country, so I will be raising this issue with them. Mr. CONDRA. This program is one of the biggest accomplishments of the legislation. Now we have 900 centers promoting the cooperative model. I mean, it is a huge thing. Chairwoman VELAZQUEZ. It is important that we get it right. And it is important for the Small Business Administration to understand the role that they could play. Mr. CONDRA. Absolutely. Chairwoman VELAZQUEZ. So Mr. Goldstein, I understand your company began acquiring other companies in the media industry, and so my question to you is, how have employees at the companies that you acquired reacted to learning that they are now employee-owners of the company? Mr. GOLDSTEIN. Absolutely. And just a correction. We are acquiring companies that are not in media so that we are now in manufacturing. So two of my favorite days in my career were getting up in front of Life Line Emergency Vehicles and Cimarron Trailers and letting them know that, yes, their company has been sold, but now they become employee-owners. And something that is very important is that we give each of our employee-owners a license to act. And I can pass these out afterwards. There is literally a card that people hold in their pocket. And one example of what this means to employees is that when I was showing the Cimarron leaders during that due diligence period, so nobody knew who they were, around Life Line Emergency Vehicles, one of the employees on the floor came up to us and they knew, of course, that I am CEO. He pulled his license to act out of his card and he said, ``I would like to stop you for a moment to talk about an idea.'' So I stopped the group. We talked about the idea. I said, ``I need to continue the tour. Jeff, that is a great idea. Let's get back on that.'' I did not realize what an impact this had on Ben and Tony from Cimarron. They said, ``That is the kind of culture that we want to join, where each employee understands the rights and responsibilities of ownership.'' And that is what I think you have been hearing from my colleagues. Chairwoman VELAZQUEZ. Thank you. Mr. Gillming, we know that over the next 10 years, more than 2.4 million baby boomers who own private businesses will retire. Can you talk about how ESOPs allow for a smooth transition for owners looking to retire from a business without being forced to sell it or close it down all together? Mr. GILLMING. Absolutely, Chairwoman. What it allows for, as Mr. Abrams said, that there is a transition, because the owner does not have to leave. There can be a transition period where the individual or individuals that started the company are still there and helping the new owners transition in as they take on that responsibility. But I have also seen what it means for individuals that were employees that are now employee owners and helping. They make the decisions. And when you show them, yes, you are a part of this. And, then, you know, at the year-end when they see that, hey, if the company is profitable it is good for all of us, it is just a powerful wheel that continues to roll and build momentum. Chairwoman VELAZQUEZ. Mr. Abrams, would you like to comment? Mr. ABRAMS. I certainly agree it is wonderful to see owners come to the realization that the people who built the business with them for all those years actually can take over and become new owners. I think watching transitions from a sole proprietorship or a partnership to a worker co-op is so heartening because it is big change and it makes a big difference and those doors do not close. Chairwoman VELAZQUEZ. Any other? Mr. Goldstein? Mr. GOLDSTEIN. Yes, absolutely. The employee-owners, I have heard things said, for example, in Chickasha, Oklahoma, that nobody ever retired from the trailer industry but now we expect that people will. We have employees in our commercial printing plant that have been employees for 44 years. Employee ownership makes a difference. It is addressing wealth inequality. It is allowing families to fund their retirement. It is very important to this country. Chairwoman VELAZQUEZ. And the impact that it has in the local economies and also the communities. And it is just an unbelievable, empowering feeling to know that they are invested in the success of those companies because they are owners. Well, thank you so much for your powerful testimonies. And we have now heard about many of the benefits of employee ownership a business can generate for employee-owners, their families, and their local communities. And yet, despite all those benefits and despite our work in the 115th Congress to address some of the obstacles to employee ownership, it is clear we still have more work to do and progress to achieve. And I heard you loud and clear on the Department of Labor. We will be dealing with that issue, too. If we intend to promote a secure retirement for America's entrepreneurs, we must continue to find ways to ease their path to employee ownership. Time and again, it has proven to be the most effective retirement plan for those small business owners who want to retain the independence of their business while empowering their employees by turning them into employee owners. As I did last Congress with the Main Street Employee Ownership Act, I look forward to working with my colleagues from both sides of the aisle to continue minimizing those barriers to employee ownership, help preserve the independence of thousands of small businesses, and save thousands of more jobs. I will ask unanimous consent that members have 5 legislative days to submit statements and supporting materials for the record. Without objection, so ordered. And if there is no further business to come before the Committee, we are adjourned. Thank you. [Whereupon, at 12:50 p.m., the Committee was adjourned.] A P P E N D I X [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] [all]