On Thursday, June 13, the employee-owners of Sun Light & Power hosted the Berkeley Business Success Forum presented by Project Equity in collaboration with the City of Berkeley. Project Equity seeks to preserve and strengthen communities by helping mature local businesses transition to employee ownership. Project Equity's Business Development Manager Donna Sky was the moderator for an insightful panel discussion featuring Gary Gerber (Sun Light & Power B-Corporation – ESOP Founder and CEO) and Carolyn G Berke (Niles Pie Cooperative Founder and working owner-manager).
Carolyn Berke and Gary Gerber
Project Equity Co-Founder Hilary Abell said that over the next five years (as baby boomer business owners continue to retire in record numbers) 33% plan to simply close their doors and walk away, while only 15% have a succession plan. This "Silver Tsunami" will greatly affect the employees of privately owned for-profit local businesses, many of whom (like their employers) are under pressure from rising rents. However, Project Equity has also learned that employee-owners enjoy higher median wages (33%), longer median job tenure (53%), and a much higher net household worth (92%).
Both Carolyn and Gary have only recently converted their businesses. After many years in the industry, Carolyn formed Niles Pie Co-Op in Union City in 2017 after consultation with Project Equity. Gary was inspired by the ESOP model in 2003 by Bob Gerner, Founder of The Natural Grocery Company in Berkeley. However, Gary was certain the time was not right and feared that SLP's dual mission to provide clean renewable power and protect the employees who had committed themselves to it – were in serious danger. In the interim, he considered a merger with two other companies and multiple potential buyers. Ultimately, Gary converted the S Corp. to a Certified B Corp., and in August 2018 the Sun Light & Power ESOP was finalized. Shortly thereafter, Gary and his wife Barbara were joined on the board of directors by three additional member-elected directors.
Carolyn believed the employee-owners at Niles Pie needed "some skin in the game" to appreciate their new status. However, she was also keenly aware that a traditional buy-in was not feasible. By becoming a Co-Op, Carolyn was eligible to refinance with a Small Business Association through the Northern California Community Loan Fund (NCCLF). She took on more personal debt, but was able to cut the mandatory employee owner contribution in half to only $2,500. Under the new Co-Op, each employee-owner enjoys an equal vote in all business decisions, is eligible for-profit sharing based on their total hours worked rather than experience or length of tenure and has access to all operational information in real time. Carolyn formed the Co-Op to ensure that it would flourish and grow.
After 42 years at the helm of Sun Light & Power, Gary found himself in a similar situation to Carolyn's and ultimately, he and Barbara financed the transition to ESOP. The structure is similar to a Co-Op but it does not require a mandatory employee owner contribution. Gary's exit strategy has helped Sun Light & Power retain valuable employees and provided a hiring advantage. SLP will continue to invest in the future, having secured the capital flexibility to survive the ongoing political "solar coaster" that has been the industry's nemesis for over 40 years.
Conversion to ESOP or Co-Op preserves a business' cumulative experience, technical expertise, client base, and personal relationships, and allows the former owners the option to stay on as paid members of the team. This can prevent a profitable business from closing after an owner retires by providing the new employee-owners with the opportunity to build on their successes and grow without the disruptions of merger or acquisition. Retaining and nurturing established small business helps the entire community.
Berkeley is home to 1,200 businesses that are over twenty years old. They alone employ over 13,000 people and account for 60% of Berkeley's small business revenue. City of Berkeley Economic Development Manager Jordan Klein said that four of these businesses have already expressed interest in a transition plan. Jordan said Mayor Jesse Arreguin's budget would likely be increased to help more Berkeley businesses adopt a sustainable exit strategy. This approach promises to benefit the entire community.
For more information about Sun Light & Power, visit www.sunlightandpower.com.
For information on Project Equity and Employee Ownership, go to https://www.project-equity.org/
Seamas Brennan is a Blog Contributor, Researcher, and Engineering Admin. Assistant at Sun Light & Power