ESOP Case Study: Thoits Insurance
Thoits Insurance in Mountain View, CA embodies what many employee ownership advocates hope to see in ESOP companies. It’s entirely owned by its ESOP, employees basically manage their own jobs through a series of self-managing teams, there are ample opportunities for employee training in business and ESOP matters, and financial information is shared in detail.
In short, Thoits has all the elements that research has defined as contributing to a successful ownership culture. And successful it has been. Since starting its ESOP in 1975 with just four employees (as small an ESOP as we know), it has grown to 85 today. The company has contributed 10% of pay or more (often much more) to the plan for most of its history, and its stock has grown at well over 10% per year over the last ten years, including over the last five years when markets in general were flat or down. Turnover is only about 11% per year, very low for its industry, and long-term employees have account balances into the mid-six figures. And like an increasing number of 100% S ESOP companies, it has been spreading its employee ownership by acquiring other companies and including these companies’ employees into their plan.
Plan Essentials
Established in 1891, Thoits is one of the oldest surviving insurance agencies in California. Its main lines of service are property and casualty insurance. That has not been an easy business in Silicon Valley in the past several years, with many notable clients simply closing their doors. Nonetheless, Thoits has managed to weather the tough times.
The ESOP was set up in 1975 when Don Way and three other employees used the plan to buy 70% of the stock from the Thoits family. The ESOP subsequently acquired the remaining shares. Consistent with its philosophy that employee ownership should be part of the company’s fabric, Thoits has long passed through full voting rights to employees. Two members of the board are required to be outsiders, but employees can vote for anyone else who runs—and lots of employees do run. Annual elections are frequently contested. While management serves on the board, it has to be voted in to do so.
An ESOP Committee (“Team Thoits”) serves in a non-fiduciary capacity to oversee the annual “ESOP Statement Day,” develop events for Employee Ownership Month, hold celebrations, and set up semi-annual meetings for new employees to learn how the ESOP works.
The company’s CEO, Don Way, acts as the trustee, as he has for 30 years. A Plan Committee consisting of Way and two other officers handles all the plan’s administrative tasks and makes fiduciary decisions, relying heavily on advice from outside professionals.
Ownership Culture
Thoits has had an ownership culture long before anyone defined just what ownership culture was. In fact, Thoits was one of the companies the NCEO studied in-depth in the early 1980s to learn just what worked and what didn’t work in creating effective employee ownership companies.
They key word to understand management at Thoits is “flat.” There is no traditional middle management. Until 1994, employee involvement was largely informal. From early on, however, the company held monthly leadership meetings where department representatives and management answered questions and discussed general business issues. Representatives would ask employees for ideas to bring back to the forum, leading to such things as an informal dress code and flexible scheduling (Thoits has no time clocks).
Thoits’ then small size made this informal approach practical, but as the company grew, so did the need for something more formal. Today, employees are divided into a number of self-managing teams, typically with around 10 people. Some teams focus on specific functions, such as corporate services, technology, safety, consumer insurance services, and business insurance services. Cross-functional teams bring together people from different areas to focus on broader business and marketing issues. The teams meet every few weeks, depending on needs, and handle most of the issues in their areas, including work flow, hiring new staff, training, work procedures, etc. Management is available for input into these issues. Human Resources, for instance, may consult a team during the hiring process. When issues cut across teams, ad hoc groups, including management, can be brought in. Today as Thoits prepares to grow to the “next level,” they are working to re-institute some management structure while working hard to retain the ownership culture they have worked so hard to create.
Team members receive training, formally and informally, in how to actually function as a team member. The company sends employees to local and national ESOP meetings and other business meetings to give staff opportunities to learn more about their business. To teach the ESOP internally, the company uses lots of games, such as “ESOP Squares,” “ESOP Bingo,” “Jeopardy,” and others.
A key to making this all work is sharing financial information. Although “open-book management” is now common in ESOPs, it was very rare in 1975 when Thoits started sharing financials with all employees. Today, open-book management at Thoits includes distribution of the board minutes, monthly reports from the Chairman commenting on financials and board activities, and quarterly Q&A sessions to share information.
Reprinted with permission of National Employee Ownership Association.