ESOP essentials for AEC leaders

ESOP success in AEC firms depends on financial discipline, clear governance, and treating employee ownership as a lasting cultural investment.

I recently had the opportunity to spend three insightful days at the Employee Owned 2025 conference, hosted by The ESOP Association. The event brought together hundreds of professionals passionate about employee ownership, including many from the architecture, engineering, and construction industries.

It was encouraging to see interest in ESOPs continue to grow as firms explore options for ownership transitions and long-term employee engagement. At the same time, I noticed that some of the same questions, challenges, and misconceptions continue to surface, often from firms at very different stages in their ESOP journey.

While each firm’s experience is unique, three themes consistently emerged in my conversations regarding implementing and operating an ESOP. I’m sharing them here because they are universally applicable to both firms that are thinking about becoming an ESOP and firms that have had an ESOP for years.

1. Financial discipline is non-negotiable. The initial and annual valuations of the ESOP firm depend heavily on consistent, professional practices that produce timely and accurate financial reports. Firms that lack standardized financial processes or rely on inconsistent reporting introduce risk into the valuation process, and greater risk leads to lower valuations.
   All ESOP participants want higher valuations; the culture depends on it. And if the firm is successful and grows, the challenge of evolving financial management practices to match the complexity of a larger firm continues to grow. Whether you are a firm of 50 people or 1,500, this is a common struggle associated with becoming an ESOP and/or thriving as one.
2. Clarifying ESOP governance and roles. Most ESOPs in the AEC industry started as closely held firms with blurred lines among shareholders, the board of directors, and the C-suite. While old habits are hard to break, in an ESOP, it’s critical to eliminate overlapping roles in favor of governance with clearly defined roles.
   In an ESOP, the trustee must speak for the shareholders and protect their interests. The board of directors selects the trustee, but the shareholders (represented by the trustee) elect the board members. Often, those board members are also part of the C-suite.
   This governance can be complicated and is often the main hesitation for smaller firms that haven’t thought about the separation of authority until they consider becoming an ESOP. Even larger ESOP firms struggle with governance as they introduce outside members (usually required) into their board structure.
3. ESOPs: Employee benefit first, exit strategy second. Among AEC firm leaders who expressed some dissatisfaction with their ESOPs, this issue was at the root of their frustration.
   When firms use ESOPs as a last-minute exit strategy – something that happens frequently – the results fall short. On the other hand, firms that treat their ESOP as part of a broader culture of ownership tend to see stronger engagement, higher productivity, and ultimately, more value for both employees and founders.
   The success of any strategy depends on the strength of the decision that came before it, and the ESOP is no exception. In the AEC industry, ESOPs are gaining popularity for a variety of reasons, some more strategic than others. Yet, even when initial motivations are imperfect, many firms find that the ESOP structure itself helps refocus attention on what truly drives values: strong financial performance, employee engagement, and a shared sense of ownership.
   When employees understand and appreciate the benefits of the ESOP, their behaviors naturally align with higher productivity and profitability, creating a positive cycle that benefits everyone – from founders to new employee-owners.

Laying the foundation for accelerated success.

While ESOPs can be complex, the rewards are significant. The success stories shared at the conference were a powerful reminder that, when done right, ESOPs can transform both company culture and employee futures. The key is to approach the process with eyes wide open, understanding the structure, discipline, and commitment it takes to make employee ownership truly work.

For AEC firms, that means thinking beyond ownership transition and focusing on building the right financial, cultural, and governance foundations today. When those are in place, an ESOP can be one of the most rewarding paths an organization can take for owners and employees alike.

If your firm is considering employee ownership, join me and Becky Carlson for our webinar, “Is an ESOP Right for You?” During the session, we’ll be honest: ESOP isn’t the best choice for every firm. We’ll share direct industry lessons on how to determine if it’s the right path for your firm and the steps needed to become ESOP-compatible. 

Brad Wilson, CMA, MBA, is director of Strategic Growth Advisory at Stambaugh Ness. Connect with him on LinkedIn.