We recently saw an article in Inc. Magazine about an ESOP: The Bizarre Case of a Massive Employee-Ownership Flop. https://www.inc.com/christine-lagorio/shutterfly-lifetouch-employee-stock-ownership-esop.html

As ESOP experts, we’re always interested in stories about the successes (and failures) of ESOPs.  There are many reasons why companies fail.  Many times, it’s not necessarily the “accounting” but other factors. In this case, market shifting.  

We thought our perspective would shed light for those who are already ESOPs and other firms that may be considering this as an option.

Lifetouch was at one time the largest photographer of infants and children as well as a powerhouse in school pictures.  For Lifetouch with advancements in photography, the market changed dramatically requiring digital delivery and storage, as well as ordering on demand, all of which were changes from their core business. The Lifetouch board reacted quickly to these changes and found a strategic partner that had the infrastructure to make that happen. Consequently, they sold the business, thereby assuring they would be able to fully fund everyone’s ESOP account, while also preserving the company and their jobs. There will, of course, be critics stating they should have taken a different path or gone down that path sooner, but at the end of the day they took a decisive action and preserved the enterprise based on the best information they had at the time. What the article fails to highlight is the fact that the company sustained and thrived for years after the original founder’s exit. This is not common in most other business structures. And, all their employees, in fact, received true recognized value at no cost.

Being an ESOP does not discount the need for strong management, ongoing response to customer demands and changing market dynamics.  ESOPs may have a different ownership and accountability structure, yet every company, including ESOPs, face the same business challenges.