Monday, September 04, 2000

Employees saved paper company

10 people took pay cuts to keep their business alive

By John Eckberg
The Cincinnati Enquirer

        When Voith Sulzer Paper Technology announced last year it was going to close after five decades, 10 people at the Monroe company decided it was time, instead, to keep the company alive.

        They took pay cuts of 10 percent to 30 percent, pooled savings and in April reopened as Midwest Service, a company that occupies 25,000 square feet in the former Thermo Black Clawson Co. on Clark street in Middletown.

        The employee-owned company found that it could thrive by rebuilding and repairing rolls used in the paper industry. It also developed a niche by repairing paper mill equipment and offering field repairs to other local mills in the Midwest.

        Since the firm reopened as an employee-owned company, people in the workplace are more committed, said president William Ford.

        “There has been a significant change,” said Mr. Ford, who has 22 years' experience in the paper industry. “The other day a couple of guys were sitting there when we were talking about buying a piece of equipment and they go, "Jeez, look at what this costs!'”

        More and more companies with owners looking to retire or sell are finding out that employee ownership has tax advantages for the seller and operational efficiencies for the buyers. In an era where it is difficult to retain valued workers and woo others who have experience and dedication, the strategy has also led to reduced turnover and increased retention, experts say.

        The decision to keep Midwest Service alive was not a whim. “Most of the people had 25 years in with Voith,' said Mr. Ford. “Some had up to 38 years' experience. Most had savings” they could invest.

        Shortly after the former firm decided to close, former customers continued to call to get their equipment repaired. Without the local company, the clients were faced with the prospect of sending the machines as far away for work as Wisconsin or North Carolina, Mr. Ford said.

        The decision to keep the company alive did not mean a couple of carefree months.

        “Anytime you're trying to deal with 10 owners, you have to be a little careful in how you do things,” he said. “There has to be a democratic decision-making process — especially since you're dealing with other people's money.”

        The firm is on a growth trajectory and expects calendar 2000 revenues to top $2 million with a three-year target of $6 million to $6.5 million. The company has added four new employees and bought two lathes, a planer and a grinder that was so big it took three semi-trailer trucks to haul it to Middletown from Seattle, Wash.

        August is expected to be the first month the firm will make a profit, Mr. Ford said.

        “The closing came pretty much as a shock,” Mr. Ford said. “Our profits are not coming from sales but from the ability of the group to keep the cost down and get the job done,” he said.

        Corey Rosen, executive director of the National Center for Employee Ownership, a non-profit information and research organization based in Oakland, Calif., said employee-ownership may be the future for a growing number of American workers.

        “You see when employees do take over a company that a previous owner thought wouldn't make it that a number of things happen,” Mr. Rosen said. “People are willing to work harder, and they pay more attention to what they're doing.”

        But that feeling of well-being can be short-lived unless companies pay attention to a couple of issues, he said. Mr. Rosen said that firms that are employee-owned must:

        • Share financial ownership on a regular basis. “Let the employees always know what is going on,” he said.

        • Put in place strategies that tend to broaden and bring control of the workplace to rank-and-file employees.

        • Allow ideas to percolate through the ranks of the company to enable employees to work faster at a lower cost with higher quality.

        “The research overwhelmingly shows that giving employees more control over their jobs and sharing financial information will bring a growth rate that is eight to 11 percent faster than otherwise projected, based on a company's past performance,” he said.

        “These companies do a lot better.”

        The best example of employee-ownership in the Tristate is Floturn, Inc., a Cincinnati manufacturer of diamond-turned photoreceptor drums for copiers and laser printers.

        Floturn has benefited from its Employee Stock Ownership Plan and profit-sharing initiatives in a couple of ways, said Michael North, president and chief executive of the company with $50 million in projected revenues in 2000.

        “We've never had to buy any advertising for open positions and have a stack of applications from people who want to work here,” Mr. North said. “We have a strong family of employees who tell friends and family about openings.”

        The firm last month embarked on a diversification plan by buying a precision metalworking company, Magnus Precision Manufacturing Inc., in Shortsville, N.Y., southeast of Rochester. Magnus is a wholly-owned subsidiary of Floturn.

        Workers at Floturn, which employs 170 and has plants in Fairfield and Springdale, have come to expect profit-sharing bonuses of about 85 percent of their annual salary. When they retire, the company buys back shares of stock that have been directed to the employee based on a formula pegged to salary. The profit-sharing occurs quarterly.

        Look for more companies to sell to employees as more and more baby boomers approach retirement age, said lawyer Scott B. Crooks, a partner at Thompson Hine & Flory in Cincinnati.

        “I do not think it's a trend that is going to diminish,” he said. “The attraction that is available to owners comes when they wish to cash out. It is tax-free when you sell to an employee stock ownership plan.”

        The option becomes particularly attractive to owners who do not have family members dedicated to owning and running the company, said Mr. Crooks, who has worked on about 30 such transactions in the past two decades.

        Abstract issues like morale and productivity move Don Bown, 43, Midwest's vice president of finance, but not as much as the prospect of a profit in August. He has $50,000 in savings and $50,000 in salary on the line and knows enough about the paper industry to realize it is cyclical and therefore risky.

        “But the fact is that we've taken a building that was empty and filled it with people and jobs,” he said. “We've taken people who were shelved by a company leaving town and kept them employed.

        “There's one more thing — we are all so much happier than before.”

        @PhCred1:The Cincinnati Enquirer/MICHAEL SNYDER
       @PhCap2:William Ford, president of Midwest Service, (right) steadies a belt roll being turned by machinist Dave Evans in the Middletown plant.


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