PREACHING THE BENEFITS OF ESOPS

Q. What is the ESOP Association?

A. The ESOP Association is a national, nonprofit association of companies with employee stock ownership plans that are called ESOPs. It services providers with professional commitment to employee ownership. Not only does it support the companies with ownership plans, but it's made up of professionals as well. The association is one of the leading voices in America for employee ownership. The reason you have an association is you need a voice and the ESOP Association is the prime source of, not only education materials for our companies, but it also is the voice. We have a lobbyist in Washington, D.C. There are a lot of tax and other legislative issues that policymakers will make and they could be against ESOPs, so the reason for an association and a strong voice is to have adequate representation.

Q. What are some of the issues?

A. There are some issues pertaining to S-Corp ESOPs. It's a tax issue and we need to lobby to ensure that they don't reduce the tax benefit for ESOP plans. We never know how the government needs to balance the budget so they're going to try to take away taxes or revenues from certain plans. An S-Corp ESOP at present pays no income tax and that's a huge benefit for ESOPs. If the policymakers are looking at where they can take back, they could certainly be focusing on areas that could negatively affect us.

Q. How did you get involved with the association?

A. I got involved when I bought CHART as an ESOP six years ago. I realized there wasn't enough representation in Hawai'i to support the ESOPs and educate our members. I started getting involved and you know what they say, once you get involved and if you've got the kind of commitment and I have such a passion for it, sooner or later you become a committee member and a board of governor and board of director and this year I became chair of the national association.

Q. Was there a local organization back then?

A. A very small group. At the time I joined there might have been 11 members. Today we have about 30 members from Hawai'i. We are considered a small group. However, when you think about the size of Hawai'i and the fact that there are about 75 to 85 ESOP companies in Hawai'i, our membership is a pretty nice size. It could be bigger. There are about 10,000 ESOPs in the U.S. and I believe 2,500 are members of the association.

Q. Are you working to increase membership?

A. My platform as chair of the association is to grow membership because I believe when members realize the importance of supporting the association or making our voice heard, I'm a strong believer that there is strength in numbers. In order for ESOP companies to join the association, they've got to find value. As chapter president I bring value to the local community by bringing in speakers and educational information, etc.

Q. What are the benefits of creating an ESOP?

A. The benefit to being an ESOP is it's shared-wealth, broad-based ownership. ESOPs make employees beneficial owners of stock in their company. By doing so, ESOPs improve the productivity and profitability. ESOPs provide considerable wealth to their participants when they retire or leave the firm. Many account balances are in the six-figure range. ESOP is a great exit strategy for privately held companies where owners' decide to retire. It also is a means to keep the business alive and in Hawai'i.

Q. Do you encourage people to form ESOPs?

A. Yes we do. The question really is where would ESOPs be beneficial to other companies? ESOPs are exit strategies of succession planning. You know how some of the old-time companies or businesses that have gone out of business because there's no one to take over? ESOP could have been the vehicle by which they could have preserved a lot of the kama'aina companies. One of the key reasons I chose to use ESOP as a vehicle is the former owners were wanting to retire and sell our rehab company to a large Mainland entity, a hospital chain. Not to be real negative, but you then lose a lot of the local flavor once you become a big Mainland chain.

Q. Did you know much about ESOPs at that time?

A. No. The minute I closed the deal I thought, "What did I do? What do I know about it?" It's been a tough learning process, but it's been one of the best moves I've made. The employees' mindset becomes so transformed into ownership and if you can create that understanding or education with the employees, they take care of the company. You take care of the employees, they'll take care of their company.

Q. You also run a company. Does wearing two hats pose any challenges?

A. Fortunately for me, having put the ESOP in place, once you become an ESOP your employees learn to think like owners and as they develop that ownership culture, they just run the business. What I've done is created a company that understands the culture, they know the benefits, they know the value they'll reap as you become productive and efficient and the company becomes successful. I've been with the company 26 years now and they understand that it's my time to give back to the community and they love ESOP and for me to share what ESOP is all about to other companies seems to be a real plus for them and they support it 100 percent.

Reach Curtis Lum at culum@honoluluadvertiser.com.