Blueprint for successful transition 

By giving employees the opportunity to own company stock, you can develop a culture in which employees have a greater stake in the company and more opportunities to reap the rewards of capital ownership. Financially successful employee-owned AEC firms – especially small- and mid-size firms – have been a mainstay of the consulting industry for many years. I have been fortunate enough to work for three employee-owned firms and have experienced personal financial growth from each one. The firm I worked for after college and the two firms I have founded or co-founded were 100 percent employee owned. Each of us in this industry can earn a decent wage through salary and bonus, but to acquire more significant wealth, personal financial success, and a return on our investment of blood, sweat, tears, and billable hours, equity ownership is essential. Blackstone Environmental, Inc. is a small, growing firm headquartered in Overland Park, Kansas, with offices in Iowa, Illinois, and Missouri, that provides environmental engineering and consulting services. In this article, I’ll provide an overview of Blackstone’s philosophy and some creative ways we support employees in becoming owners. One of Blackstone’s core values is employee ownership. By giving employees the opportunity to own company stock, we develop a culture in which employees feel ownership and empowerment. As employee owners, we have a greater stake in the company and more opportunities to reap the rewards of capital ownership. As an employee-owned firm, we set our own course, gain employee commitment, and directly benefit from our financial success. Employee owners exhibit pride of ownership reflected in several ways, including strong work habits, efficiency, and conservation. These attributes help ensure quality work and provide a significant advantage in promoting company growth and productivity. As owners, we all benefit from each other’s efforts. Benefits of employee ownership program. Internal ownership transition is the practice of transitioning ownership from one group of employee-owners to another. There are different ways to accomplish this; Blackstone is completing internal ownership transition over time. It works like this: From the company’s perspective, stock is offered to satisfy the following essential needs:

• Raise capital to maintain our financial strength and support growth;
• Provide employees the opportunity to benefit from our financial success;
• Replace lost capital due to normal retirement redemptions and termination of employee shareholders; and
• Develop a culture in which employees feel and act like owners.

From the employee’s perspective, the purchase of Blackstone stock offers these key benefits:

• Achieve a high level of commitment and satisfaction from functioning as an employee and owner and participating in the financial benefits of our hard work and success; and
• Serve as an attractive investment and provide employees a means of accumulating significant equity holdings over the years (although there is no guarantee of performance).

Of common interest to Blackstone and employees, is the desire to set our own course and maintain internal control of the company. Developing an employee ownership program. Blackstone was incorporated in 2010 (celebrating a decade this October!). In 2013, with the help of the Salontai Consulting Group, attorneys, accountants, and others, we offered our first shares of stock to employees. Our stock program attributes include:

• Open-book financials supplied to all employees;
• Unique quarterly bonus program, based on profit, to get cash in employees’ hands more frequently;
• Annual stock sale to select employees;
• Shares valued annually through a modified version of the Zweig Z-2 formula;
• Investment/redemption account where the company deposits all stock sale proceeds, as well as contributes a monthly cash contribution (this helps cash flow future redemptions);
• Direct-share purchase financing program with the company acting as a bank; and
• S-Corporation designation with employee owners benefitting from both stock price appreciation and quarterly dividends to shareholders.

Planning next steps. To enhance our existing program and further pursue success of our planned ownership transition from the founding owners to the next generation, we are planning these additional amendments in 2020:

• Contract with a business planning and valuation firm to review and critique our program;
• Perform the first outside valuation and business appraisal of Blackstone, which will provide a new valuation formula specific to Blackstone; and
• Initiate paying a small portion of bonuses in company stock versus cash.

Through theses strategies, and other business practices, such as prioritizing long-term objectives, recognizing opportunities, retaining top talent/future owners, and mentoring the next generation on successful business operation and succession planning, we are well on our way to achieving an orderly and successful internal ownership transition of the firm. With more than 35 years in the environmental engineering field, Mike Kukuk is president, CEO, and principal at Blackstone Environmental and has overall responsibility for the company. He founded Blackstone in 2010 after retiring from a firm he co-founded in 2002. He has been called a “serial entrepreneur” for starting two separate companies from scratch. Contact him at mkukuk@blackstone-env.com. Click here to read the full issue of The Zweig Letter.