The Drumbeat

Employee-Owned Spotlight: SRC Holdings Corporation

January 31, 2022

Certified EO is excited to spotlight SRC Holdings Corporation, a 100% employee-owned remanufacturing company with 10 subsidiaries and operations based across Missouri, Kentucky, and Illinois. SRC has shared company ownership since its founding in 1983, and in 2011 the company became 100% employee-owned. SRC also works to popularize its open-book management practices, known as The Great Game of Business, which promote transparency, integrity, and business literacy among the company’s 1,800 associates. In the early 1980’s, SRC’s first team of managers, including founder and CEO Jack Stack, were at risk of finding themselves out of work when their original parent company, International Harvester, began laying off employees and selling off company assets. SRC’s management made a last-ditch effort to save the operation by buying out their plant, Springfield ReManufacturing, from International Harvester with a bank loan, a transaction that left them dangerously leveraged and still at risk of closing down. But this also opened the door to revamping the ownership and management structure, including introducing an employee ownership program and open-book management practices that focused on sharing financial information with all staff and training them to understand how to read the company’s books. This pivot helped build the company’s ownership culture and tie the contributions of each employee-owner to the financial success of the plant. The company’s stock price had rebounded from $0.10 in 1983 to $13 only five years later, and by 2017 it had paid over $100 million in distributions to employee-owners retiring or leaving the company. SRC serves clients that produce machinery for agricultural, industrial, construction, truck, marine and automotive markets. The core of SRC’s business—remanufacturing, or “reman”—is an industrial process that involves improving previously used, worn, or non-functional equipment into like-new or better-than-new condition. This helps extend a product’s lifecycle, and it diverts valuable and salvageable materials from landfills. The environmental benefits of remanufacturing versus traditional manufacturing processes are significant. The remanufacturing process uses up to 85% less energy, water, and raw materials compared to traditional manufacturing, resulting in SRC’s companies diverting about 70 million pounds of material from landfills each year. SRC continues to expand its lines of business, and a flatter organizational hierarchy helps maintain an entrepreneurial culture that leads to new ventures and innovations in production each year. In February 2021, the company announced $100 million in planned real estate development over the next 10 years, which is expected to bring its manufacturing and warehousing footprint to over 3.5 million square feet. In October 2021, the National Center for Employee Ownership (NCEO) announced SRC as a member of its Employee Ownership 100, a list of the largest majority employee-owned companies in the country. Learn more about SRC Holdings, a Certified EO member since 2018, on the company’s website.

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10 Reasons Business Owners Have Transitioned to Employee Ownership

January 20, 2022

Since launching Certified Employee-Owned in 2017, I’ve spoken to over 1,000 employee-owned companies. These conversations are the highlight of my day. I love hearing stories about entrepreneurs starting companies and I'm always curious to learn how founders have come across employee ownership. Spending so much time talking to entrepreneurs and leaders in the employee ownership space has shown me a few interesting trends. Most notably, the vast majority of companies I have spoken with did not start out as employee-owned, but transitioned after many years in business. I haven’t kept exact numbers, but I would estimate this is the case with over 95% of the companies I know. While there are as many reasons for conversion as there are founders, there are a few trends that stick out. Here are 10 reasons that stand out as to why business owners have made the transition to employee ownership, along with a paraphrased story for each one that captures the essence of the journey: 1. Keeping it in the family‍“ Starting this company was my dad’s greatest accomplishment and growing the business has been my life’s work. But none of my kids were interested in taking the reins. I know what can happen when a company is taken over by a strategic or private equity and I didn’t have the heart to do that to people I’ve known my entire life. Transitioning to 100% employee-owned was my way of keeping the company in the family.” 2. Giving our owners partial liquidity‍“ To me going 30% employee-owned was a no-brainer. I got some liquidity, and now my people have a direct stake in the action, so the company is doing even better. As a bonus I have a built in succession plan. I don’t have any plans to step back, but you never know what will happen and it’s great to have that option.” 3. Continuity through succession‍“ This company was her baby, she wasn't going to sell it. She really liked the idea of leaving the company in the hands of the employees, because the alternative was going the way of other companies that she had seen bought out and changed completely.” 4. Staying an anchor in our community‍ “Our founder was deeply concerned with what would happen to the local economy. He knew that if he sold to a strategic buyer, they would move the headquarters and maybe even the factory. We’re the biggest employer in the area so that would have devastated the town. By transitioning to EO our founder kept us local and kept the town alive.” 5. Start-up business sharing equity‍ “A lot of start-ups share equity with talented employees in exchange for under-market wages, but my vision for sharing equity in the company was different. I wanted all my dedicated employees to have skin in the game from the beginning. The set formulas for sharing equity with only early employees didn’t work for me.” 6. Aligning employees at a time of growth‍ “After years of start-up hustle, we were finally poised to take our company to the next level, and employees were going to be critical to our growth. We wanted to align the interests of owners and employees by giving employees a stake and a better understanding of what makes our company tick.” 7. Finding alternatives to private equity‍“ Private equity started knocking at our door and it made us think critically about the future of our company. We believe in our mission, our people, and the services we provide and are not willing to compromise those to get the highest dollar. Some of our shareholders were pressuring us for liquidity, and we needed to figure out how to provide that without overburdening the company with debt.” 8. Mission-driven at our core‍ “We have been mission-first since day one. I started the business to help us transition to a sustainable future. Growing the company and making money has always been an outcome of our success, not a goal. I transitioned us to employee-owned to lock that mission-focus into our DNA. I want everyone here to have a stake in our future and to feel as bought-in as I feel as the founder.” 9. Feeling alone at the top‍ “I did not expect to become a solo entrepreneur running a company by myself. I always wanted to do this as a team. I don’t have a co-founder anymore, and I want everyone to be more bought in and engaged as co-owners of this business.” 10. Democracy at work‍“ We wanted to be a worker cooperative from the start. It is the only corporate structure that aligns with our values - that each worker should have equal say in the governance of the company. We are in this together and that should be reflected in every aspect of our structure and culture. ”Are you a business owner looking to learn more about employee ownership? A great place to start is our overview.

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11 of the 100 Largest Private Companies in America are Employee-Owned

April 13, 2021

Forbes curates a number of interesting lists, among them a list of the largest private companies in America [https://www.forbes.com/largest-private-companies/list/]. Today I was looking through this list and thought: how many of these companies are employee-owned? Using our new Directory [https://www.certifiedeo.com/companies], I found that 11 of the 100 largest private companies on the Forbes list are likely to be employee-owned. Two of them are Certified EO Members: * #23 Wawa * #53 WinCo Foods Nine others have a broad-based ownership program that, to the best of our knowledge, owns at least 30% of the company: * #5 Publix Super Markets * #55 Graybar Electric * #73 Sammons Enterprises * #74 Hensel Phelps Construction * #86 Schreiber Foods * #94 McCarthy Holdings * #96 Swinerton * #97 Kehe Distributors The fact that over 10% of the largest private companies in America are employee-owned is a powerful proof point that employee ownership works! The question for those of us that want to see employee ownership grow is: what would it take to get this number from 11 to 50?

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Featured Articles

Capital Accounts and Profit Sharing: The Two Ways Employee-Owners Build Wealth

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The Difference Between “ESOP” and “Employee-Owned”

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How Exits Impact Employee-Owners: an Interview With Michelle Waterhouse of Hopkins Printing

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Defining “Employee-Owned”: How We Set Our Certification Standards

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