Establishing an ESOP

"Championing the creation of OGC's ESOP was probably one of the best business moves I've made in my life."

SES Advisors helped in establishing an ESOP plan for the Organically Grown Company. In the late 1970s, Keith and Ellen Walton invited local farmers and gardeners to join them for potluck dinners at their Eugene, Oregon, home to talk about preserving farmland and supporting farmers. These discussions spurred the formation of Organically Grown as a nonprofit organization to support fledgling organic farmers in the area. It became a farmer-owned cooperative in 1982 and hired its first official employee in 1983. In 1999, the USDA adopted the organic seal and Organically Grown Company converted to a subchapter S corporation owned primarily by growers, with a minority interest held by a small group of employees.

Organically Grown grew to become the largest organic produce distributor in the Pacific Northwest. From warehouses in the Portland area, Eugene and Kent, Washington, it supplies more than 200 natural and fine foods stores and restaurants located throughout western Oregon, Washington and Alaska, as well as retail and wholesale accounts in other western states and Canada.

According to its board, one of the company’s aspirations was to ensure the business is positioned to transition to future generations by cultivating an active and shared ownership.

The board, with the support of the shareholders, concluded that they needed to develop a transition plan that would achieve the following objectives:

1. Maintain the company’s independence
2. Broaden ownership opportunities for employees and growers
3. Create a more liquid market for the company’s shares
4. Create a cost-efficient mechanism for repurchasing shares
5. Add stability and predictability to the ownership structure of the company.

After conducting extensive research, including speaking to CEOs of ESOP companies and gathering information from the National Center for Employee Ownership, the board decided that providing broad-based ownership opportunities to staff was the way to go. Organically Grown’s ESOP was officially adopted in 2008.

Of course, this was right in the middle of the Great Recession. Fortunately, the company did not have to make any cuts to compensation, 401(k) contributions or health benefits. While they did trim some costs in response to the downturn, there was a collective willingness to do what was necessary to maintain the companys financial viability.

Through the end of 2010, Organically Grown’s cumulative turnover rate was 46.5% lower than in 2008. Any organization that can figure out how to harness the ideas and commitment of its whole workforce is going to develop a sustainable competitive advantage.

Organically Grown Company was proud to receive the 2009 Oregon Organic Coalitions Wholesaler of the Year Award, 2009 City of Portland BEST Award in the Sustainable Food Systems category, and the 2010 Oregon Next Generation Company Award, among others.

CEO Josh Hinerfeld is the ESOP’s biggest fan: Championing the creation of OGC’s ESOP was probably one of the best business moves I’ve made in my life.