New Belgium Brewery sold to Japanese Multinational
Employee Stock Option Plans
Beer enthusiasts are bemoaning the sale of the fourth largest US craft brewery, New Belgium Brewery based in Ft. Collins, Colorado, to Japanese conglomerate Kirin. They fear that the quality of the beer may suffer. Others have decried association with Kirin because of its poor business practices. Kirin, Amnesty International maintains, authorized its Myanmar subsidiary to make donations to Myanmar’s military at a time when those very forces were carrying out ethnic cleansing of the Rohingya population in northern Rakhine State. Amnesty International produced a video clip of a televised ceremony showing the Commander-in-Chief of Myanmar’s armed forces gratefully receiving the funds as proof of its charge.
The sale however raises significant issues related to the way New Belgium has been promoted as a pioneer company practicing a brand of “ethical” capitalism. Decades ago it established an Employee Stock Option Plan (ESOP) that provided for employees to acquire shares in the company. The company modeled itself as a socially responsible business and led many other craft breweries to adopt a similar plan or a more radical option of cooperative incorporation.
ESOPs were initiated by Washington in the mid-1970s to provide a way for ownership in a company to be shared with employees. The system was established as a retirement plan with trustees overseeing the plan to assure fiduciary standards. The trustees are the final authority on company practices. Each plan however could be customized to permit limited ownership rights exclusively to the corporate officers and managers, or extensive ones. New Belgium’s plan was the most permissive in terms of ownership rights and therefore a minority plan amongst ESOP companies in that it provided for all vested employees to accrue stock. New Belgium publicized themselves on all their beer labels as 100% employee-owned. At the time of the sale though this meant that only 300 of the 700 employees actually had stock in the company. Newer employees had not reached their vesting period or opted out of the program.
Most ESOP companies that allow employee ownership beyond the usual limited plans publicize themselves as 100% employee owned. It is a known marketing advantage within several retail sectors, just as being local serves this purpose. New Belgium promoted their ethical credentials by signaling that they shared profits with the employees.
New Belgium went a step further, beyond the standard ESOP company, by actively seeking employee participation in management. ESOPs don’t require any employee input since the plan only serves as a retirement fund, though many companies promote “ownership” to increase company loyalty (and productivity) and offer some modicum of participation. With its practice of open book management, which allowed employees to see the earnings sheets at company-wide meetings and have a voice about future plans, New Belgium became a prime example of progressive business practices. A popular documentary called We, the Owners featured the company’s liberal approach to management.
There has been a decline in ESOP companies over the last few decades from a high of 11,000 at the end of the 20th century to 6,600 as the most recent tally. However, the number of employees covered remains constant at more than 14 million. For years New Belgium starred as both a successful business and one that practiced the most righteous management. It was exemplary of a business that did good and profited doing so.
The explosive growth of craft breweries over the past few decades saw this sector account for a large number of worker cooperatives. Unlike ESOPs, worker cooperative membership consists of one share, a voting share, that doesn’t increase in value over the years. Some cooperatives place a fixed value on the share for new members, which can be returned upon leaving. Compensation for membership over years is determined by various means within cooperatives beyond a wage. A yearly sharing of revenues beyond expenses can be simply paid out or converted into a pension plan of some sort. Each cooperative determines the best allocation of funds without the individual shares increasing in value so that new members can afford to join the cooperative.
The new worker cooperatives, seeing how the much more visible ESOP companies were touting employee ownership, began to use the term worker ownership to help clarify for the public their organization. Unfortunately, the use of “ownership” only confused the situation. Neither the ESOPs nor the worker cooperatives used the term as most people did. Ownership implies some degree of control and liquidity. That is it is generally understood that the owner of an enterprise controlled the enterprise and could sell it whenever a buyer appeared. The individual “owner” of ESOP stock or a co-op share could not do that.
Compounding this confusion, ESOPs that were 100% employee owned got mistaken for worker cooperatives by the public. And to make matters worse, economic developers began offering both organizational structures to company owners seeking a non-traditional management option, like selling their company to the employees. The usual practice by development agencies seeking to expand economic ownership as a way to promote local economic sustainability was to suggest worker cooperatives to small enterprises and start-ups and for larger companies, ESOPs. The cost of creating an ESOP and its annual expenses to maintain it is prohibited for small outfits, whereas forming a cooperative is cheap in comparison.
While there was some tension between these two major economic alternatives, they pretty much tolerate each other in practice. Certainly, the ESOPs helped to pave the way for the legitimization of worker cooperatives that in the popular mind carried the baggage as non-serious hippy ventures.
The Repercussions of New Belgium Sale
To the casual observer New Belgium’s progressive management style resembled that of a worker cooperative. In fact, recently it seemed the New Belgium was moving closer to a cooperative vision when it adopted B Corporation certification. This is a voluntary process companies undertake to verify their social and environmental performance. Worker cooperatives already have a set of international, socially responsible principles that they abide by that reinforces their democratic management ethic.
The recent sale prompted responses from both ESOP and worker cooperative communities. Promoters of ESOPs were saddened at the loss of a “star” company, but they endorsed the prospect of future growth the sale promised. Management, that is the directors not the employees, laid out the reality of the situation. New Belgium they said had reached a plateau and could not expand further without both an influx of funds and a vast distribution network. Kirin offered both. Kirin also said that they would not disrupt the “culture” of the New Belgium management style. This latter is problematic since all 300 employees who had shares had to sell them to complete the deal. Those holding shares received approximately $100,000 from the buyout. The majority (the actual vote count has not been released) of the company went for the cash out.
This ESOP buyout was not unusual. Periodically, for one reason or another, an ESOP company decides a buyout is the best economic decision, especially if it is in decline. In fact, some proponents of ESOPs thought this was a great outcome. So long as no one is laid off, they said a $100,000 windfall could mean a new home, a college education for the kids, or a sizable retirement contribution.
For the cooperative community the buyout came more as a disappointment. It seemed to many cooperators that the sale was a repudiation of values that they hold dear. Since the beginning of the new phase of cooperative development in the 80s a few cooperatives were sold to capitalist firms—they were de-mutualized. But it is pretty rare. The fear some cooperators expressed with New Belgium sale is that the same temptation to seek funds for growth exists for the poorly financed cooperative sector.
The New Belgium sale however has one good consequence—it has clarified the essential difference between ESOP 100% employee-owned companies and worker cooperatives. ESOPs are capitalist enterprises were individual values dominate, while worker cooperatives are collective ventures struggling to maintain their values in a hostile environment. This may seem an obvious distinction, but the past practices of cooperatives have ignored the implications of this distinction. Maybe we shouldn’t be surprised since the dominant cultural expectations reinforce individualism and simply disregard any activity in the realm of economics outside those expectations. Cooperative activity within traditional business practice is, at best, subsumed as team-work—it serves the interest of generating better individual solutions.
The fatal error of cooperatives decades ago was to emphasize ownership in imitation of the ESOPs. Almost from the inception of cooperatives as collective economic projects in the early 19th century, they were characterized as urban commons, duplicating in those new settings the centuries old practice of rural lands held in common by an exclusive group, like the families of a village or parish. So, the operative term for participants in cooperatives isn’t owner, but member. Retail co-ops serve consumer-members, housing co-ops have members whereas condos have owners, and worker-members manage worker cooperatives.
Cooperative membership provides an egalitarian teaching opportunity. To effectively participate in the daily work of a cooperative presupposes deconditioning the social indoctrination of hierarchical presumptions. Worker cooperatives in a sense practice a subversive use of the language: the individual in a collective is not empowered by competing against the group, but by collaboration with the group. Members of cooperatives learn how to function in a real democracy.
There are probably fewer than 500 worker cooperatives in the country, but each is a crucible of everyday democratic practice. They are unique in this way. And their uniqueness imposes upon them a special mission that is captured in the slogan “Democracy in the Workplace and Responsibility in the Community.” Cooperatives are by definition local, sustainable, and visionary. These three aspects put cooperatives on the other side of the pro-growth mania that plagues businesses like New Belgium, which succumbed to the “grow or die” mantra.
Given the reality of the climate emergency, local and democratic institutions will necessarily lead the way to a saner economy. Those of us in California who continue to suffer under the mismanagement of Pacific Gas and Electric know too well that the only alternative to the massive monopolistic overreach of this corporation is to decentralize it into cooperatives—a local and democratic alternative. Worker cooperatives, in political alliance with other cooperative institutions and grassroots initiatives of all sorts, can provide the model for a smaller economy rooted in serving the real needs of communities.