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his is a tale of Ohio employees' struggle to keep their jobs when shutdowns threaten. It is a story of two different worlds:

This article looks at four recent or ongoing cases of employee buyout efforts to avert shutdowns in Ohio. Two are plants that belong to Fortune 500 companies: the Amana kitchen range plant in Delaware, Ohio, which was shut by Raytheon and the Brainard Rivet plant in Girard, Ohio, which was shut by Textron. Both Raytheon and Textron are profitable and major defense contractors that receive billions of dollars in contracts from American taxpayers every year. Both refused to consider employee efforts to buy their plants as on-going businesses, even though they were exiting the business partly or wholly. Only political pressure forced them to discuss sale of the shuttered plants to the employee buyout groups.

The other two companies were or are locally owned: Yorde Machine in Nelsonville (formally Anglo Compression) and the Am Air flight school in Youngstown. Despite being financially strapped, these companies made every effort to keep the business going while the employees put the deal together.

It is a story of fundamentally different concepts of responsibility to employees and to the community.

Last May there were signs that the Amana kitchen range plant in Delaware, Ohio, was going to close. In spite of major capital investments made in the plant within the last three years, the work force, which once numbered close to 1,000, had dropped to 670, then to 250, then to 180. Inventory was down. Don Mann, a trustee of Teamsters Local 284, which represented the workers at the plant, called the Ohio Employee Ownership Center to see if his members should consider trying to buy the plant.

Employee ownership was of interest to the union leadership at the plant, but they weren’t yet sure whether their instincts about the danger of plant closure were right. But as people were laid off in small groups throughout the summer, they became convinced the plant would be closed. The last straw was when rumors that management was putting their homes on the market circulated through the work force. The union took matters into its own hands. A statement of concern about plant closure was drawn up by the union, was signed by each member in the plant and submitted to the Rapid Response unit of the Ohio Bureau of Employment Services. That forced the hand of the parent corporate hierarchy, which confirmed within days that they indeed planned on closing the facility. The final day of production would be October 25.

A buyout meeting for all employees of the plant was held at 9:00 a.m. on August 23 in the parking lot of the Delaware Township Meeting Hall. Under a beating August sun, surrounded by fields of corn and soybeans, over two hundred employees and family members stood and listened to explanations about employee ownership by Don Mann, Teamsters Local 284 President Harold Powell, staff of the OEOC, and the Teamsters International Union ESOP expert Greg LeRoy. Representative Joan Lawrence, whose assistance would be critical in the weeks and months that followed, spoke to the crowd and pledged her support. The employees decided to take the plunge. One hundred and ninety-four employees voted to form a buyout association. They named it the "Delaware Appliance Buyout Association," and elected a committee composed of the union leadership. Don Mann was elected chair of the buyout committee; Kim Talman was appointed secretary; and Debbie Alshire agreed to serve as treasurer.

In the fast-moving weeks that followed, the Buyout Association applied for and received a $25,000 grant from the Ohio Bureau of Employment Services to study the feasibility of employee ownership. The city and county matched the state funds, and the buyout committee itself quickly raised $15,000 from members, contributions and fund raisers. American Capital Strategies (ACS) was hired to conduct the feasibility study and to move directly into raising capital for the project if it were found to be feasible.

The feasibility work quickly revealed opportunities and challenges. The opportunities included a stable market for the product (non-self cleaning ranges, the low end of the range industry) with little current foreign competition; a dedicated and highly skilled work force; equipment that could be quickly transformed back to cell production so as to maximize efficiency short runs of the various plant product lines; and a few key, talented managers willing to stay on. The biggest challenges included a highly competitive market with dangerously thin margins and a reluctant seller.

Although the plant was owned by Amana, the parent company of Amana was Raytheon, a defense contractor. Raytheon, convinced by a McKinsey Company study that the plant could not be made profitable, did not want to talk to employees about a buyout, citing concern about employees’ investment. However, the ACS feasibility study indicated that at an annual production level well within capacity, with concessions (sweat equity) by the work force, and with a firm market for those units, the plant could survive and prosper in the long run. The key element to the deal: a distributor entered into enthusiastic discussions with the buyout group about taking all of the product (with ten day payment terms) and putting equity in the transaction. All players were eager. But the Raytheon negotiators, far from the enthusiasm of Delaware, were not convinced the deal was solid.

Federal and state legislators supported the Delaware Appliance Buyout Association with heroic efforts matched only by the back-breaking work of the buyout committee and its advisors. Senators John Glenn and Mike DeWine sent letters and made calls. Representative John Kasich worked hand in glove with the group, even making a conference call to Raytheon officials from his home, where he and the buyout committee sat together and tried to convince Raytheon’s corporate officials the entrepreneurial spirit of Delaware, Ohio, was a spirit to be taken seriously.

By the end of December, Raytheon finally agreed to work with the buyout group, granting them a period of exclusivity for 30 days during which they could conduct their due diligence and obtain financing. Thirty days rolled to 60 as negotiations continued. The financing was to come from a consortium of three local banks (in the form of loans guaranteed by the Federal Home Administration), a significant commitment by state and local government, and equity from ACS and the distributor. A labor contract was hammered out. Final negotiations about the environmental impact statement were being worked out - but when the bell rang on 90 days, Raytheon pulled the plug.

The buyout group, ACS, and other technical advisors scrambled to hold the deal together. Liquidators were identified to bid on the assets of the plant and then lease or sell them to the employee group. A local equity investor and possible CEO was enticed to seriously consider the transaction. To date, nothing has come to fruition. It is widely felt in Ohio that the seller’s lack of belief in the transaction, and their failure to treat the buyout group as a serious contender, ultimately defeated the buyout effort.

But the story is not yet finished. Interested corporate players are considering the plant. However, the buyout committee has shut the doors to their office and moved on to other jobs. The Central Ohio economy, with an unemployment rate of 2.9%, offers lots of employment opportunities. The bitter truth that this masks, however, is that this regional economy is built on low wage jobs. Columbus, Ohio, with a poverty rate of 18%, is third highest among comparable cities in the nation in terms of poverty, yet has one of the lowest unemployment rates.

So Don Mann, with many years seniority at the Amana facility, has moved on to work a weekend shift on the weekends at a local trucking firm. Ed Congrove, another buyout committee member, runs his own yard service and hopes he can cover the bills of his wife’s serious illness. Employee ownership, a tool that could have saved this 20 year old facility and the livelihoods of its employees, simply did not have one critical element for success: a willing seller.

When Charlie Myers, President of United Autoworkers (UAW) Local Union 1713 at Anglo Compression’s manufacturing plant in Nelsonville, Ohio heard that the owner was retiring and that his son was coming in to take the plant over, he was not sure what to think. However, two years later, he knew his mind. His union was not willing to make the kind of concessions the new owner demanded without an equity stake. That’s what he asked for - and he and his 15 colleagues ended up owning the company.

In July 1996, Ohio Employee Ownership Center (OEOC) staff met with Charlie Myers and the union leadership of the plant. Employees considered and voted to explore a buyout later that evening. With a $2,500 grant from the Ohio Bureau of Employment Services, the buyout committee hired Tim Jochim, a Columbus ESOP lawyer, to study the feasibility of an employee buyout.

The feasibility study showed far more opportunities than barriers. Local banks were very interested in participating. The market for machined products was good and the seller was willing to continue on as a major customer. Most of the work force would stay. The biggest challenge seemed to be getting the accounting straightened out and hiring a plant manager for start-up.

"It was incredibly time consuming," said Roger Davis, buyout committee chair. "I talked to so many people and received so much information. I kept track of every telephone call in a book, and I had notebook after notebook of all of the materials we had to read and consider. We did everything by committee and we made all of our decisions together. It took a long time - but it was worth it in the end. Every one knew what was going on, and we’d made the decisions together. We are stronger for that."

Within six months, the buyout was within striking distance of closing - and closing finally occurred on February 28, 1997 eight months after the formation of the buyout association. The new company, renamed Yorde Machine, Inc., honoring the former owner, opened for business on March 3. It opened with a big contract from Rick Yorde, the former owner’s son. At the buyout committee’s presentation on a panel at the OEOC’s annual conference in April, Roger Davis said to Rick Yorde: "It makes all the difference in the world to have a willing seller, and a good company to work with as a customer in the future. We look forward to our new business relationship!"

In Yorde’s opinion, the manufacturing costs were too high to attract outside customers. At the same time, it appeared difficult for the employees to see why they should reduce costs for someone else’s benefit. Employee ownership provided an alternative which allowed Yorde to get the cash he needed to satisfy the bank and allowed the Nelsonville manufacturing employees the chance to do the things they needed to become competitive in the market. But the story does not end here.

Yorde doesn’t intend to dedicate the rest of his life to managing Anglo Compression design division. Here too an ESOP may make sense. Selling to employees gives him a way to move his capital into a business he really does want to run.

Ownership and management transition, however, are two separate issues. ACI was successful for many years under the paternalistic leadership of Yorde’s father. Without this centralized control, Rick felt that the design employees needed to learn to work together as a successful team. Since April, all 16 ACI employees have been attending weekly workshops to improve their meeting skills, their communication skills and their ability to solve problems as a group. While some were uncertain of the benefit of moving to a team process at first, all of the employees have taken the training very seriously. Rick’s wife Debbie observed, "There has been a noticeable change here in the last several weeks. This week people were interviewing each other about the root causes of the problems their teams are working on."

When Yorde finally succeeds at working himself out of a job at ACI, will ESOPs be a thing of the past for him? Not likely. Rick has discovered that he likes being an entrepreneur with the opportunity to invest in and grow a business for four or five years, and then leave that company in the capable hands of its employees while he moves on to the next adventure. ESOPs provide a great mechanism for this adventurous capitalist to continually roll over his equity into new opportunities, while leaving successful employee owners behind to keep doing what they do best, operate their companies.

Furthermore, after four years of doing business in Ohio, Rick plans to stay around. He finds Ohio to be a very supportive environment for business development — especially employee-owned. After hearing a speech by Donald Jakeway, Director of Ohio’s Department of Development, Rick says, "The interest that the State of Ohio has shown in supporting my business is quite unlike any other state where I have worked. Frankly, I can’t see operating a business in any other state. They’ll have to drag me out of Knox County."

It's déjà vu all over again," complained one OEOC staffer when we got the call on Brainard Rivet's impending shutdown in Girard, Ohio, in March. "It's another out-of-state defense company that's just too big to deal with an employee buyout."

Brainard Rivet is part of the Camcar fastener division of Textron. Textron is a Fortune 500 company based in Providence, Rhode Island. It's a conglomerate with an aerospace division (including Bell Helicopter and Cessna), an automotive division, a systems division which specializes in defense work, a finance division (AVCO), and a diverse industrial products division which includes Camcar. Textron does about $9.5 billion in sales annually, including more than $1 billion in defense contracts.

Brainard Rivet is one of those small manufacturing plants with a skilled, high wage, high seniority workforce that are a key part of the economic foundation of our region. Founded in 1917 to produce rivets for barrel straps, Brainard changed its product with the times, and specializes today in customized, solid-body rivets. It moved to its current location in Girard in 1950. Average hourly pay was $15 per hour; average seniority was 17.5 years.

Brainard Rivet was a good business for Textron. The plant has been consistently profitable. Brainard's profit on sales exceeds the Camcar average, and average return on assets is believed to beat Textron's best year corporate wide. Preliminary analysis suggests that Brainard's 45 hourly and 20 salaried workers generated earnings of at least $2.1 million for Textron's shareholders in 1996, or about $32,000 per employee.

Why shut a plant like this?

Behind the pompous verbiage of Textron's annual report that "Textron is committed to being a responsible corporate citizen, supporting programs that seek to maximize human potential by building work skills, expanding the capacity of people to learn, building strong communities, and involving our people" (Textron's 1995 Annual Report, p. 20), the simple truth is that shutting Brainard is part of a "low road" corporate strategy. Brainard is the only Camcar plant in the United States which is unionized (employees are represented by Steelworkers local 6109). Camcar was proposing to move some of the production to a non-union facility in Elk Creek, Virginia.

Despite the prompt organization of a buyout committee, a unanimous union vote to pursue the buyout, and much support for the buyout from salaried employees, Camcar turned the employees down flat. Brainard was not for sale.

No one in the Youngstown community thought the shutdown was defensible. Several area union locals, including the UAW local at Lordstown, rallied at the Brainard plant to block moving equipment out of the facility. City officials and Governor Voinovich's economic development representative, Julie Michael, weighed in with assistance for the buyout group. Congressman Jim Traficant and State Senator Bob Hagan played the same role for Brainard as Congressman John Kasich and State Representative Joan Lawrence had done at Amana in generating the political pressure to get the company to come to the table. Senators Glenn and DeWine did their part in these situations as well.

When it comes to saving jobs in Ohio communities, Democrats and Republicans are all on the same side.

Unfortunately, Textron was on the opposite side. It shut the plant down anyway in early June and moved out a considerable amount of equipment. At the same time it abandoned several major customers and referred many of it’s smaller customers to another rivet produces and more than 50 of Brainard's customers to other fastener producers that were Brainard's competitors, principally Securit Metal Products in Michigan. These customers could have served as a base for an employee-owned company. Only after it effectively destroyed Brainard's business, and under heavy political pressure from elected officials has Textron has grudgingly agreed to consider selling the shut plant (believed to have substantial environmental liabilities) and remaining equipment to the employees so they can restart the business.

Meanwhile, a few miles away from Brainard Rivet at the Youngstown-Warren regional airport, an entirely different story was playing out at the Am Air Flight School. Ruth Miele and her husband George Schuster had started Am Air 26 years ago with a Cessna 152 and a lot of enthusiasm. They built the business into a fleet of six planes and a flight training program that employed 12-14 flight instructors, and half a dozen ground personnel in the office and maintenance.

"When George passed away," the Am Air employee buyout group wrote in their application for prefeasibility funds to the Ohio Bureau of Employment Services, "Ruth lost her business partner as well as her husband and the person who helped make the business fun. Her dedication to aviation and the many pilots who graduated from the school she and George built together never faltered. Over the 5 years since George passed away, Ruth has kept the school alive by investing her personal money. She is ready to retire, move to a warmer climate, and would like to see the school prosper."

Unable to sell the school which lost money after George's death, Ruth faced having to liquidate the business to get its value. A more attractive alternative was to sell to the employees and to the pilots. It was a win for her in that the business she and her husband had built would survive, and she could get at least as much out of the business as through liquidation. It was an obvious win for the employees and for the customers -- the pilots. Of course the common denominator for Ruth, the flight instructors (nearly all of whom are part time), and the customers is that they all love to fly.

Will Am Air take off under employee ownership? As we go to press, Ruth and the employee/pilot group are negotiating a deal that will transfer ownership of Am Air's planes and assets to a firm owned by the employees and customers jointly. There are no guarantees of success in the buyout business, but there is a guarantee that seller and buyer will do their best to save a business that otherwise would shut.

There is a difference between family-owned businesses and big corporations.

If Rick Yorde had owned Amana or Ruth Miele had owned Brainard, both plants would be open today.

Now obviously they don’t. But is it asking too much of the Raytheons and Textrons of this world for them to give their employees a chance to buy plants as ongoing businesses that the parent company is otherwise liquidating?

Is it a law of nature that Fortune 500 companies stay in the job liquidation business even when the economy finally booms?

This is not the "invisible hand" of free competition.

Instead it is the highly visible hand of conscious economic choice by managers of very large corporations who have no allegiance to their employees nor to their communities.

But they expect the rest of the community to pick up the costs of their decisions through unemployment compensation and we have to use public sector lending to put the pieces back together again.

It may be unfashionable to talk about corporate responsibility to employees and communities in these days of the global economy, but what’s wrong with asking large corporations to act

as decently as family-owned companies do? If they did, the costs to everyone — the employees, the suppliers and customers, the community, and the state of Ohio — would be much less.

The bottom line is that if Raytheon or Textron had offered the plants to employees as ongoing businesses when the employee buyouts started, both plants would be open today. Instead, they shut them down, lost the customers and the business, and only then agreed -- by this time under severe political pressure from angry office holders -- to consider selling the shut facilities to the employees.

Actually, we have made some progress in the last decade.

The WARN act, which went into effect in 1989, provides 60 day notice for shutdowns and mass layoffs in firms which employ more than 100 workers. While 60 days is not long enough to do a buyout, especially when you face an unwilling seller, it's better than no notice at all. You can put together a buyout effort in 60 days.

In Ohio, there’s plenty of public sector help for buyouts. The Ohio Employee Ownership Center is only a phone call away. OBES’s Rapid Response Unit lives up to its name in turning around prefeasibility funding application within a couple of working days. And public sector loans, loan guarantees, and/or interest rate buydowns have been key to the success of more than 20 employee buyouts that averted shutdowns in the state.

But none of this will bring a recalcitrant seller to the table.

On June 17, Congressman Traficant introduced legislation to do just that. Traficant’s bill would amend the WARN Act to require any company closing a plant because it is terminating the business to offer to sell the business to employees at fair market value.

Traficant's move was a direct result of the Brainard Rivet shutdown. "There does not appear to be a justifiable economic rationale behind Textron's decision [to shut Brainard]," Traficant wrote to Textron CEO James F. Hardymon. "These abandoned customers could have been the base for an employee-owned business. Why would Textron oppose an ESOP if it is referring a significant number of Brainard customers to other non-Textron companies?"

Still, trying a buyout after a shutdown has been announced is like barring the barn door after the horses have gotten out.

The best time to bar the door is before the horses leave.

If you are concerned about your plant’s or company’s future, here are some effective steps to put employee ownership on the agenda in a timely fashion:

• Bargain "right of first refusal" in your contract to give employees the right to buy if the plant comes up for sale;

• Let the current owners know that the employees are potentially interested in buying from owners who want to exit from the business;

• Send employee representatives to local ESOP meetings or the annual Ohio conference (the next one: April 3, 1998) so you’ll be armed with the information you need;

• Propose starting a small ESOP to build employee equity in the company; and

• Encourage owners nearing retirement to do business succession planning sooner rather than later.

All of these beat waiting for a WARN notice.

Plabell Rubber Products Corporation, with more than 50 employee owners, is a manufacturer of molded and extruded synthetic rubber component products, rubber-to-metal bonded products, and rubber covered rolls. The company participates in a mature industry characterized by a highly competitive global marketplace. Day-to-day problems should be sufficient to satisfy even the most masochistic business’ thirst for challenge. Yet, Plabell not only survives, but thrives, notwithstanding the additional challenges presented by employee ownership. One of these is balancing the design of democratic ownership with the need for management authority.

The company is now over four years into its grand social experiment. The path has not been easy. Plabell employees found themselves working for a company in bankruptcy several years ago. After scoping the horizon, the only viable alternative to promote the likelihood of future employment was to pursue an acquisition of assets in bankruptcy court. With the assistance of Teamsters Local 20 and the Rapid Response Unit of the Ohio Bureau of Employment Services, funding was provided to secure the services of extraordinarily capable accounting and legal assistance. Feasibility plans were prepared, a corporation was formed, negotiations with trade creditors, taxing authorities, lenders, and public entities were undertaken. Nearly eighteen months later, the interests of these parties coalesced. The Bankruptcy Court approved the acquisition of assets from the then Debtor-In-Possession. Thus, Plabell employees became the proud owners of a 100% leveraged, 100% employee-owned business emerging from bankruptcy.

Shortly after the acquisition was completed, essential pieces of equipment failed, the boiler room began to sink, a rear portion of the building subsided, a neighboring fire destroyed the roof, and a nearby explosion literally rocked the facilities. Through all the tribulations, pride, perseverance -- and most importantly -- the people prevailed.

Plabell is an unusually egalitarian employee-owned corporation. Each individual who was actively employed on the date of acquisition was issued an equal share in the company -- there was no weighting by compensation or seniority. New hires are conditionally vested if certain requirements are satisfied within their first year of employment. After three years, they become completely vested in their stock allocations. In its brief lifetime, the employees have seen the value of company stock grow from one-hundredth of a dollar to over one-hundred dollars per share.

Each year employees are placed in nomination for board candidacy. Individuals can self-nominate or be nominated by fellow employees. Following a run-off election, shareholders annually elect the company’s board of directors. Each individual casts five votes for five different people. Cumulative voting is not permitted. The elections are truly democratic in design and practice.

As president, I happened to sit atop this fascinating organization for four years before embarking on a new career path in the deregulated natural gas industry with Columbia Energy Services. I must admit, as CEO of Plabell there were times I felt like the Saturday morning cartoon character perched on a bomb desperately trying to blow out the fuse. Each day posed interesting and occasionally compelling problems. I must also admit that, despite the loss of sleep and hair, my tenure as president was an invaluable learning experience.

I believe it is absolutely essential to understand not only how an ESOP functions, but why it functions as it does. I have learned that an ESOP is simply a modality of business ownership. The business itself is distinguishable. The operation must be perceived as a business and must function as one. An often used phrase in the ESOP bible, is "employee empowerment." In my opinion, use of this term does nothing other than create an unrealistic expectation on the part of employee owners. In actuality, employee owners are not necessarily empowered to do anything.

I suggest a more useful phrase is "employee enfranchisement." Employee-owners are enfranchised to exercise a degree of self-determination through shareholder voting rights. As shareholders, employee owners cast votes pertaining to general issues of governance, not management. Managerial personnel do what the name implies -- they manage. While the ownership structure of an ESOP may be democratic in design, the business should not and cannot operate as a democracy.

The political philosopher Machiavelli distinguished between the exercise of power and authority. An example of power: I have a gun, you don’t -- you do what I say. An example of authority: I have a gun, you don’t, you’ve given me a badge, you do what I say. The difference, of course, is that authority is the exercise of power which has been legitimized. In granting authority, an individual must relinquish a degree of self-determination, or power. If employees expect "employee empowerment" with an ESOP, then it is understandable that these same employees would be reticent in granting authority. Why would they want to give up something they just got?

Employee expectations play a pivotal role in the ultimate success or failure of an ESOP. If expectations are unrealistic, then frustrations grow and alienation develops. If employee owners truly expect to be "empowered" to exercise traditional management functions, then employee ownership will prove counterproductive to the operations of the business as a business. Without a clear delegation of authority from employee shareholders to management, managing an employee-owned company can be like trying to navigate a cruise ship when each of the tourists wants a turn at the rudder.

The paradox is that employee ownership, by its very nature, tends to diffuse authority. Depending on the extent of that diffusion, employee ownership can be ultimately self-destructive. In serving the best interest of the business, and derivatively the best interest of the employee owners, ESOP participants must clearly define and understand their respective rights, roles, and responsibilities within the organization.

In order to be truly successful, an ESOP must engage in occasional introspection. More succinctly, I call it the "gut test." Employees must ask themselves why they want to be owners. ESOP’s are not panaceas for enhanced productivity and profitability. It is not an inalienable right that employee owners can work less but be paid more. Like any privately held business, owners must think and act like owners. Any business owner will gladly describe the toil it takes to be successful. Short term desires must be sacrificed for long term considerations. Gratification most often is not immediate, but rather deferred.

In an ESOP, the rewards of ownership must include the intangible self-satisfaction derived from meeting the challenges posed by today’s business climate and from navigating through the dynamics of employee ownership itself. An appreciation of these intangible rewards tends to galvanize the ESOP and to mold a strength of business character which breeds further success.