Laying off a company's owners during a downturn

It's probably pretty easy to be an employee-owned company, or ESOP, when times are good, but what happens during a recession, when the people being let go are the company's owners?

Modern Group Ltd., of Bristol, faced that issue. Modern is distributor of warehouse equipment and forklifts, power generators and equipment used by arborists and is 100 percent owned by its employees through an Employee Ownership Stock Plan or ESOP.

Paul Farrell

"We went through a lot during the recession," Modern's chief executive Paul Farrell told me during our Leadership Agenda interview published in Monday's Philadelphia Inquirer. "We had a very large equipment rental business that we sold off. As an ESOP those decisions are rough. When you are laying off people in an ESOP, you are laying off owners."

"A large part of the discussion as we were selling off the business" was whether the prospective owners would continue to employ the 50 people who worked in the division, Farrell said.

The company had to sell off that division, but, Farrell said, the sale price wasn't just about how much money the equipment would command. And, he said, there was little discussion about the value of "good will," -- the less tangible assets that a business has. "The discussion was more around – there are 50 people who come with it and we want to give you to give them a job. The good will was hiring those employees. Hopefully, we’ll never have to go through that again."

Monday's blog post on Paul Farrell.