Mark: Welcome to unsuitable on Rea Radio, the award-winning financial services and business advisory show that challenges your old school business practices and the traditional business-suit culture. On this show, you’ll hear from industry professionals who will challenge you to think beyond the suit and tie while offering new, meaningful modern solutions to help you enhance your company’s growth. I’m your host, Mark Van Benschoten.
Today, on unsuitable, we’re going to learn a little more about employee stock ownership plans, ESOPs. Jeff Brindley, President and CEO of Roush Honda in Columbus … Actually, Westerville, is here to share some insight into the benefits and challenges that could accompany an ESOP.
Welcome to unsuitable, Jeff.
Jeff B.: Thank you, Mark.
Mark: Really glad that you’re here. You are a unique guest. You’re the guest that I’ve known the longest. I think we first met in 1994.
Jeff B.: Sounds about right.
Mark: You have that moniker; you always have that moniker because this is the last episode that I’m going to be hosting. You can retire … You can retire the belt. I’m not sure it’s something you want, but you can retire that. We’re going to talk about ESOPs today. Again, you’re in a unique position, because you’re the President and CEO of Roush Honda. You’re in theory in charge of the ESOP, but when the ESOP was first formed, you were not in that position.
Jeff B.: That’s true.
Mark: You were, what was your title then?
Jeff B.: I was the new car sales manager at the time, relative to my position in the ESOP, I was a Board Member, which is truly not an ESOP function either. Just a Board Member.
Mark: When Mr. Roush, Dubbs Roush, said we’re going to do an ESOP, what were your thoughts at that time?
Jeff B.: It was … Of course the concept was relatively unknown to me and to the rest of the staff members. After it was explained, it was obviously very exciting. The concept of everybody feeling they have a little skin in the game was exciting to everybody. It’s very rare in the car business, because every building’s got a family name on it.
Mark: Name on it, right.
Jeff B.: That dictates ownership. Mr. Roush … He saw it as a very adequate exit strategy for himself and for his family. That was one of his reasons for doing it the way he did. The other reason was he truly wanted to provide an opportunity for the people who had actually built the company to continue in that role, and continue to go forward.
Mark: Do you remember what the value of the company was back then?
Jeff B.: $4.1 or $4.2 million I believe was the initial purchase price.
Mark: He did that ESOP in December of 91 if I …
Jeff B.: Yes.
Mark: Yeah. Little bit bigger now.
Jeff B.: Just a little.
Mark: All due to you.
Jeff B.: Of course, great leadership.
Mark: Funny how that works. The … Back then, he announced he was going to do an ESOP, people think they’ve got a skin in a game. Here we are in 2016, and I would say that condition still exists at Roush Honda.
Jeff B.: It does. Very much so.
Mark: How do you maintain that for that long?
Jeff B.: I think part of the natural progression of an ESOP is … People’s attitudes towards that employee/ownership concept is as the account balances begins to grow, as the company value’s gone up, the account balances of course have grown, and people have more at stake. Even after we’ve grown, we have more participants, the account balances are so large that … The buy-in today is easier than it was back in the day.
The issue back in the day was when you explained employee ownership, everyone thought they were going to have a say in all the day-to-day decisions. We all know that you can’t run any business by committee.
Mark: Correct.
Jeff B.: Somebody has to pull the trigger, somebody has to make the decisions, so … Once we got over that initial idea from the employees that they’d all have input on everything we were going to do … Once we got past that, it kind of took off.
Mark: Do you think there’s an education on new people coming in … I agree with you, you can’t run a business by committee, somebody needs to be … I’m the person there, I’m making the final decision. Do you think that’s a concern as new employees come in today, that need to explaining that to them?
Jeff B.: I think … I think we learned our lesson. I think when people come in today, we’re much more adept at explaining how it’s going to work. It was all new to us and … Back in ’91, and getting by, and you had a lot of glassy eyes. People just … They didn’t understand it, and we didn’t understand how to explain it. That was on us, that was on management really at the time. That period of misunderstanding.
Mark: I guess I should have an issue of full disclosure here that the ESOP offers the ability to attract top talent.
Jeff B.: Well, I think it allowed … Well, in some cases yes. It does allow us to attract talent. Maybe more importantly, it allows us to keep talent. We rarely have anyone leave our dealership to go do what they do for us somewhere else. There would be absolutely no reason to do that.
Mark: Because of the ESOP.
Jeff B.: Because of the ESOP.
Mark: Again, full disclosure, I am now the CFO at Roush Honda.
Jeff B.: Yes, you are. Still in your probationary period. Yes, you are technically the CFO.
Mark: Well, you’re doing a great job as CEO and President there, Jeff. I just want to mention that one more time.
Jeff B.: Another paid for compliment, but it’s okay.
Mark: You take them anyway you can get them, right?
Jeff B.: Of course.
Mark: The … I mean … As a participant … Or, not a participant yet. When I get through my probationary period, hopefully we can make it there, that it is something as … Looking, I’m like wow, this is just a great opportunity to work and to have that benefit. I think people probably do make that decision where things are equal to say, oh, an ESOP … An ESOP that is done very well, I’m going to put my hat in that rink.
Jeff B.: It’s the perfect tie-breaker. In the automobile business, we compete for the same group of employees, all the dealerships in town compete for that group. We’ve got something nobody else offers, and that regularly breaks the tie.
Mark: You see that through the culture of the dealership of … We’re all here, we’re all here together, there’s no about anybody. We’re all here to contribute for the same thing, for the continued growth of the dealership.
Jeff B.: I agree with that. The … When we did have, early on when we had a misunderstanding about people thinking that everybody would have a say, we’d sit down and vote on every decision that was going to be made …
Mark: Can Sally have vacation or not?
Jeff B.: It’s very naïve. One of our very first meetings, somebody stood up and asked the question. I think if we’re going to open a satellite used car store, that’s something as employee owners we got to talk about. I said, “Well, if we’re going to talk about every decision, I need all of you here on Saturdays so that when a customer asks for another $200 off on a car, we can all talk about it.”
Mark: You can vote on it. Yeah.
Jeff B.: That got a chuckle, but that was an extreme example, but that was just … If you own stock in Wendy’s, the only thing that you can do to contribute to the upward movement of the value of that stock is to buy Wendy’s food every day. If they change the menu just because you’ve owned stock … They don’t check with you because they’re going to change the menu. That’s the analogy I used to try to get people to understand, but there’s a better opportunity to influence every single day how that stock performs because you are there …
Mark: Making decisions.
Jeff B.: … Pulling, sure.
Mark: Everybody makes decisions.
Jeff B.: Yup.
Mark: Did I really take an hour for lunch, or did I take an hour and fifteen? Did I really get the best price on the purchase, or I got it from my buddy? Everybody and make a … Have an impact on the company.
Jeff B.: That’s right.
Mark: If you think you can’t, then you’re probably … You’re not in the right spot.
Jeff B.: Mm-hmm. When I was in the lobby talking to Jennifer, and she misses you terribly by the way. I don’t understand that, but that’s what she shared. I explained to her that the employees … You have to learn to be accountable to yourself, that helps, but the other part of that is that the other participants have to be willing to hold other people they work with accountable. That’s the key to make the whole thing work.
Mark: Again, you’re in an unique position, because you’re like second generation management of the ESOP. Mr. Roush owned a company, Mr. Genard was the first general manager. Was he CEO and President? I don’t know.
Jeff B.: He was General Manager and Vice President.
Mark: Right. Then he passed away, then you got it. Now you’re in the position since ’94, and I think that succession … I don’t know the statistics on ESOPs going … Continuing on. I think you’re in a … Because you were a participant. Then somebody else was in charge. Now you’re in charge. If you had your own company, would you do an ESOP.
Jeff B.: I would certainly consider that if … For two reasons. First of all, I think the business model is terrific. Second of all, if I was looking for an exit strategy as Mr. Roush was, that would be … That’d probably be the first place I’d lean today.
Mark: Would go to an ESOP?
Jeff B.: Yes.
Mark: What about cost of compliance? Sometimes you hear people bemoaning an ESOP, like oh well, I got to get an attorney, got to get an evaluation, I need this, I need that. Do you think it’s prohibitive?
Jeff B.: I don’t for a business our size. I could see where some businesses it could be cost prohibitive. There’s a lot of compliance that’s required. The … I don’t know exactly what the quote is, but an ESOP can make a good company great, but an ESOP can’t make a bad company good.
Mark: That’s a great …
Jeff B.: We have … There are some compliance issues, but with the right people to handle those, I don’t think it’s an issue. Cost prohibitive, that could be for the wrong company … For the wrong company that could be a challenge.
Mark: Not to ask you a technical question, but I am a CPA, have you seen any increased compliance from the DOL or the IRS? You also hear that sometimes, like IRS is going to be breathing down my neck, or DOL. Have you seen anything that would cause you concern from that standpoint?
Jeff B.: I have not. I have not. I haven’t seen any increase. There’s always been things that are asked of us … From a compliance standpoint, but I don’t feel that the heat’s been turned up at all.
Mark: You’re not saying, wow, why are we in this, let’s get out of this, this is not …
Jeff B.: Right.
Mark: … This is not working.
Jeff B.: Thoughts never crossed our mind.
Mark: To put words in your mouth, I would think you would say the ESOP has been successful.
Jeff B.: Incredibly successful. Can’t imagine where this company would be had we not done this.
Mark: That’s kind of an exciting statement to say.
Jeff B.: Well, if Roush Honda in 1991 had been sold via the traditional method, somebody in town who owns four other dealerships would probably own Roush Honda, and the majority of the people who were there then who are still there now would not be there. I don’t think there’s any doubt about that.
Mark: I don’t know the employee roster by heart yet, I will before my probation period’s up. I don’t think there’s anybody named Roush who works at the dealership.
Jeff B.: There’s not.
Mark: It’s family … It’s a family organization.
Jeff B.: That’s one for things that … First of all, I think an ESOP promotes that to some degree, because everybody’s in the same boat. There isn’t anybody who owns any stock that’s outside the plans so there isn’t … Nobody has that going for them or against them.
Mark: Right.
Jeff B.: Which could be in some cases. One of the things we really wanted to hold onto when we became an ESOP and then it was very apparent in the late 90s that we were going to grow at a tremendous pace, that we wanted to keep that atmosphere. That’s what we wanted to feel like when an employee walks in the door every day. It was important to us then, it’s what made us who we were before ’91, and it’s made us even better since ’91.
Mark: You mentioned the employee walk in the door. I would offer up the customer walk in the door feels that.
Jeff B.: As you witnessed in the two months that you’ve been with us …
Mark: Hopefully longer.
Jeff B.: Well, probation. The clock’s ticking. We regularly have customers come because of some of their experiences elsewhere that it feels different. That’s the greatest compliment that we can have, when somebody walks in the door and they bother to tell management, “I like coming here. It just feels different.” That’s what …
Mark: Makes you feel good. They have a lot of choices.
Jeff B.: Yup.
Mark: The ESOP ties into that culture of we’re family owned and have that atmosphere, that culture I think is … I think is important.
Jeff B.: It is.
Mark: For the employees and for the customers.
Jeff B.: Mm-hmm.
Mark: The … Have other people approached you about doing ESOPs and your thoughts?
Jeff B.: They have. Some of our third party providers and people that we gather professional advice from will of course recognize us as being successful. When somebody approaches them about an ESOP, they are regularly referred to Roush Honda, and especially to me for consult. I get excited talking about it.
Mark: I can tell. Rightfully so. What do you see … We’re here today in 2016, ESOP specific challenges that you see for Roush Honda.
Jeff B.: I suppose the challenge is just … You’re aware of some of those because you’re … The inside information that you have, the account balances have gotten to be significant. We’ll lose some really, really good talent. They’ll be able to retire before most people think of typical retirement age. Now, that’s a blessing and a curse. When you start losing really experienced, quality people who are 55 years old because they can afford to retire, that creates a challenge.
Mark: Sure.
Jeff B.: Again, a blessing and a curse. Our repurchase liability is significant.
Mark: Yes, it is.
Jeff B.: Again, a blessing and a curse. We’ve driven the stock price to the point where the account balances have gotten to be something to be concerned about as relative to repurchase of that stock, but that was our goal in the beginning, to make people secure.
Mark: Sure. On a previous episode, we had Angie Isakson, a 401K manager at Rea, talking about the cost … Not the cost. The issue about an employee staying around too long because they can’t afford to retire.
Jeff B.: Uh huh.
Mark: That really just strikes home to me, that … The example I used, I think, if I can remember correctly way back when, is that an 80 year old person running some sort of press, and they probably shouldn’t be because of physical limitations. I say, “Well, we got to make sure that person can retire.” Now, you’re saying it’s going the other way. We have people that can still contribute, because the account balance is … They’re able to retire.
Jeff B.: Those are current day challenges. I think that will go full cycle in another eight or ten years. The people that I’ve referenced that are leaving at a … I’ll call it an early age, 55. Those are people that were there when the ESOP started.
Mark: Mm-hmm.
Jeff B.: When those people cycle through, the other people … As good as the plan is, probably will be challenged to experience the growth rate that we experienced early on.
Mark: Okay. Sure. I think that’s just natural.
Jeff B.: Of course it is.
Mark: It … Somebody should not expect a similar progression. They would be naïve if they did.
Jeff B.: That’s right.
Mark: Through education, they should be able to get there and understand that.
Jeff B.: Mm-hmm.
Mark: Do you … Angie also mentioned that she was a proponent of an annual meeting. Do you have an annual meeting?
Jeff B.: We do. The last Friday of every April. That is our informational meeting as well as our pep rally.
Mark: What types of things you discuss at that?
Jeff B.: Well, we discuss company performance. We’ll have some of our third party providers will be at that meeting to discuss … Tell people how to read their account statement. Cover the mandatory information sharing that’s required, but it is a … The Monday after that meeting is the best day of the year at Roush Honda.
Mark: Everybody’s all excited?
Jeff B.: Everybody’s excited because … In every year, we’ve handed them an account statement that exceeds what their expectations were. Hopefully because we’ve shared information and we’ve had that pep rally and people are … They sit in the room, and hopefully when they read their account statement, they’re responsible for that, but all the people that are sitting around them that night have contributed to that as well.
Mark: That sounds powerful.
Jeff B.: It feels powerful.
Mark: I do believe everyone contributed. If you’re getting a paycheck, you contribute.
Jeff B.: Mm-hmm.
Mark: I don’t care what organization, how big, how small, you contribute and get some sort of acknowledgement, like … Oh I contribute, I think is meaningful. I think that’s what people want in life. I belong, I belong to something, and I contribute. I think that is great.
Jeff B.: I’m sure that the meetings that we have going forward will be even more meaningful because of the enhanced financial information we’ll be able to share, because of our additional …
Mark: You’re setting the bar high.
Jeff B.: I am. It’s pretty high anyway.
Mark: I’ll let you know where you might be able to get that accomplished. As I stated, this is my last episode.
Jeff B.: Congratulations.
Mark: Thank you very much. It was purposeful to have you as a guest with my transition to working with you and Roush Honda. I’m thoroughly happy to be here. I can’t believe I’m not in public accounting. That I’ve left Rea, which is a great organization, treated me so fairly, and that was probably one of the hardest things I’ve had to do, was when I had to communicate to leave that I was leaving to go work with you. I appreciate the opportunity. I appreciate being on board. So thank you.
Jeff B.: Well, Mark, you know … Back, part of your history, we followed Mark from his previous firm to Rea. It was always something that I wanted to have happen, was to bring someone with your background and your passion into our dealership. In just the two months you’ve been there, you’ve made a huge difference already. So thank you for that.
Mark: Oh. Thank you very much. I can go home feeling good about myself. Before we go, we ask every guest one question. If you could have one superpower, what would that be?
Jeff B.: You know, you gave me a head’s up that I was going to be asked this.
Mark: I did.
Jeff B.: I’ve put some thought into it.
Mark: You’re unique. Nobody else I told. We would let people suffer.
Jeff B.: Well, okay. If I wanted to be selfish about it, my answer would be immortality.
Mark: There you go.
Jeff B.: With my tender old age, that would be something to consider.
Mark: What about collecting on golf bets?
Jeff B.: Well, I’ve tried. I just do not know how to get people to pay.
Mark: Yeah. That’s bad when people make a bet and they don’t honor up. Years.
Jeff B.: Who shows up at the golf course without any money?
Mark: I agree.
Jeff B.: Unless they know they can win. Didn’t work out.
Mark: No, it didn’t.
Jeff B.: If I went with the unselfish superpower, the one that wasn’t so self-serving, I would say if somehow I had the ability to heal, that would be …
Mark: That’d be powerful.
Jeff B.: Yeah, it would be.
Mark: That would be yeah. I don’t think at the end … I think it’s about health, not so much about money. I think it’s about health.
Jeff B.: Oh, it always is. The older you get, the more you understand it’s about health.
Mark: Yeah. I do. As my knees will crack when I stand up here. Thanks again for joining us, unsuitable, Jeff. Another big thank you to our listeners tuning in. If you want to learn more about ESOPs, you can obviously call Jeff, or you can check out www.rea.com/podcasts for bonus articles and insight. Don’t forget to check us out on iTunes or on SoundCloud, where you can subscribe and read.
I’m encouraging you to loosen up your tie and think outside the box.
