ESOP plus B Corporation
by Sarah Stranahan
Fifty by Fifty recently spoke with Suzanne McDowell, one of a three-person co-CEO team currently leading King Arthur Flour, as part of our research into the relationship between employee ownership and environmental sustainability. We knew King Arthur Flour, under the leadership of then-CEO Steve Voigt, had become a founding B corporation in 2007. We learned the fascinating story of how that choice, combined with the protective legal frame of employee ownership, over time led the company to deepen a commitment to ecological sustainability.
Steve Voigt arrived at King Arthur Flour in 1992, as a wave of open-book management was cresting across the country. When the company introduced these practices — and began to teach employees to act like owners — company sales doubled. At around the same time, the fifth-generation owners of this 200-year-old company, Frank and Brinna Sands, began to consider retirement and what that would mean for the company. According to Voigt, who left the company in 2014, they didn’t want to turn the company over to disinterested family members or to outside buyers who would likely move the company from its home in Norwich, Vermont. Instead, the Sands decided to sell the company to the family of employees whom they trusted to maintain the values and mission that had withstood the centuries.
Protecting the Mission through Employee Ownership
King Arthur Flour’s core values of quality, community, employee ownership, passion, and stewardship are displayed on its website. Founded in 1790 as the first flour company in the U.S., the company today has more than 300 employees and over $100 million in revenue. Its mission, “to inspire connections and community by spreading the joy of baking,” is seen in its practices of teaching baking in schools, sharing recipes, and supporting nonprofits focused on food and hunger. As Voigt puts it, “You don’t bake alone. When you bake, you put yourself and your love into what you do and you share it with others.”
Working with the Sands, Voigt came up with a plan to transfer ownership to the employees through an Employee Stock Ownership Plan (ESOP). The sale began with 30 percent transferred to employees in 1996; the final transaction in 2004 made the company 100 percent employee owned. Today the company continues to practice transparency with open-book management and employees comprise the majority of the ESOP board of trustees.
While ESOPs and B Corps did not exist when the company was founded in 1790, the company always managed for the long term with deep personal ties to its employees, its community and the integrity of its brand and products. When the opportunity presented itself, King Arthur Flour confirmed these commitments by becoming a founding B Corp in 2007. “In many ways, King Arthur Flour’s corporate culture has always been about long-term value and never about the next quarter’s profits,” says Suzanne McDowell.
Caring for the Planet as a B Corporation
B Corp certification requires businesses to balance purpose and profit. B Corps must consider the impact of their decisions on all stakeholders — employees, customers, suppliers, community, and the environment. The B Corp network of firms is a community of leaders, driving a global movement of people using business as a force for good.
The opportunity to become a B Corp was brought forward by a board member, who presented to the board of directors a simple reason for pursuing certification: King Arthur Flour has always believed that “business ought to be conducted as if people and place matter,” as McDowell says. “Being a certified B Corp helps us measure our impact and provides a scorecard to benchmark our progress.” The board enthusiastically embraced the concept and B Corp certification has subsequently motivated the company to embrace environmental sustainability as part of its mission.
King Arthur Flour has always believed that “business ought to be conducted as if people and place matter.”
King Arthur Flour has high B assessment scores in governance (19 out of 20 possible points), employees (59 out of 70 possible points) and greater opportunities with community (20 out of 45 possible points) and environment (19 out of 45 possible points) scores. While they don’t tell the whole story, the scores indicate areas of focus for the company.
For example, the leadership team recently set an ambitious goal to “reduce King Arthur Flour’s overall impact on the planet.” The company had already taken strong steps to improve its environmental practices on its main campus, auditing and reducing waste streams and improving energy efficiencies. And, McDowell explains, “our most significant environmental impact is in the supply chain. If we want to improve the impact that wheat farming has on land, water and biodiversity, we need to understand and encourage best practices with our growers and suppliers.”
King Arthur Flour uses only US-grown wheat, and it took another step toward transparency when it introduced “Identity Preserved Flour,” which is milled from wheat grown by farmers who employ sustainable agricultural practices including no till, cover crops, crop rotation, and reduced irrigation. “Without the B Corp assessment, we might not have chosen to focus on this ambitious goal; the assessment brings focus to our priorities,” McDowell says.
Protecting a Legacy through Becoming a Vermont Benefit Corporation
In 2012, King Arthur Flour took additional steps to protect its mission and legacy: the employee-owners voted to become a Vermont benefit corporation, a form of legal incorporation in state law, which more deeply embeds the same principles as the nonprofit certification process of being a B Corp. Carey Underwood, who manages the B Corp assessment process for King Arthur Flour, says that Voigt and the rest of the board made a concerted effort to educate the employees about the choice they were making.
“Board members explained that they wanted King Arthur Flour to be an ‘evergreen ESOP’ [perpetually employee owned]and to keep its caring culture in perpetuity,” Underwood says. “They explained that benefit status would empower the board in decision making to give weight to multiple factors, including culture and values, rather than solely financials, and to protect the employee ownership structure.”
The vote on incorporating as a benefit corporation “was the first vote passed through to participants since the ESOP began in 1996 — an exciting opportunity for us all and a good exercise of being an owner,” explains Underwood. The result, says Underwood, speaks for itself.
Enterprise Design Lesson
As a Vermont benefit corporation, grounded in employee ownership, the company will be able to continue to carry out its mission — “to inspire connections and community by spreading the joy of baking” — and its values, caring for its people and the planet, for many years to come. Had company control gone to an outside entity rather than to employees, this might not have been the case. Under traditional financially oriented ownership, a relentless and ultimately impersonal drive to continually ratchet up profits tends to become the primary aim.
With King Arthur Flour, by contrast, employee ownership was the protective form of ownership that allowed social mission to flourish. Inside that frame, a living social mission was able to evolve over time, leading to a deepened commitment to ecological sustainability when the company chose to become a B Corp, and when it took other steps toward sustainability. Values that began with the founding family took on new life under the leadership of then CEO and now co-CEOs, and finally through ratification and implementation by employee-owners.
In short, King Arthur Flour — by becoming an employee-owned B Corp — was able to remain a deeply human company, designed for the kind of moral decision-making required for true sustainability.
Sarah Stranahan is senior editorial associate at The Democracy Collaborative and a leading member of its Fifty by Fifty employee ownership team.
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