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Continued: Wieffering: Company prospers, and so do workers

  • Article by: ERIC WIEFFERING , Star Tribune
  • Last update: January 21, 2012 - 7:56 PM

Jim Dow could have taken the money and run.

Plenty of well-meaning people suggested he was crazy not to, including business colleagues and financial advisers.

And nobody, not even his 54 employees -- average tenure, 10-plus years -- would have blamed him for selling Diversified Plastics, the Brooklyn Park manufacturing firm Dow founded 35 years ago, to the highest bidder.

The business was profitable and growing. Sales jumped 24 percent to $8.3 million in 2011, and are forecast to rise to $10 million in 2012. Diversified had even managed to squeak out a profit during the worst of the recession, though it hadn't been easy. The workweek was cut from five days to four, and management took pay cuts. But nobody lost jobs, and business came back strongly.

Which made it the perfect time to sell. Plus, at 75, Dow was at least a decade past the age when most entrepreneurs cash out and savor the fruits of their labors.

While no son, daughter or co-founder was waiting to take the reins, there were plenty of would-be buyers. Their visits to the factory floor had become increasingly routine in recent years, so employees expected the worst when they gathered for what they were told would be an important company meeting.

Dow opened the session by acknowledging that he was "getting on in years," and that it was time to plan for the future. When he turned to a PowerPoint presentation and said, "I'd like to introduce you to your new owners," some employees began to weep.

Capitalism gets a bad rap these days. The starting point for the Occupy Wall Street movement and its offshoot, We are the 99%, is that the "system" is rigged against them. It is a sentiment that has even taken hold in the Republican primaries, where front-runner Mitt Romney finds himself under attack for being a successful businessman.

Think of Dow as a counterweight to that argument, but not the exception to the rule. For every Wall Street banker who took a government bailout or multinational CEO that shifts jobs to China, there are 1,000 Jim Dows starting a business, fighting to keep it alive, or worrying about how to grow it.

They are the backbone of the U.S. economy and the source of its strength. They create jobs that raise standards of living. Just ask Annette Lund, who started at Diversified more than 30 years ago as a part-time receptionist. The company helped pay for her to get a bachelor's degree, and today she's a vice president.

Entrepreneurs like Dow take risks that sometimes pay off in a big way, but often don't.

Dow certainly didn't know what to expect in 1977. He was almost 40 years old and had just been cut loose from the only company he'd ever worked for after college. And he was angry about it.

"I decided that if I was ever going to be unemployed again because of a bad decision by some idiot, then I would be that idiot," he said.

Diversified was undercapitalized and had far too few customers when it began its manufacturing operations in 1978. The early years were touch and go. But for the hard work and incredible sacrifices made by employees in the early years, Dow said Diversified would be out of business today.

That knowledge weighed on Dow as he explored selling the company.

Diversified is a job shop. It has no products of its own. Instead, it makes mostly invisible but indispensable plastic parts on contract for the likes of Boeing and Dow Chemical. Other manufacturers are capable of doing similar work, so any outside buyer would be most interested in Diversified's customer list, some of its machines and few, if any, of its employees.

Dow couldn't get comfortable with that prospect. Employees "deserved something better than being put out of work by the sale of the company to someone bigger."

Dow concluded that the right thing to do was to sell Diversified to those employees through an Employee Stock Ownership Plan (ESOP).

ESOPs are quietly becoming an increasingly popular way for workers to help share in the wealth they help create. At the end of 2008, an estimated 13.5 million Americans were in an ESOP, up from 10.1 million in 2005. One possible reason for that increase is a growing body of research that suggests businesses owned entirely or in part by their employees outperform both privately owned and publicly traded companies.

So, why don't even more private companies use them? For smaller firms, ESOPs can be too expensive to set up and administer. And while ESOPs bring big tax advantages for owners when they sell their stock, there's some risk involved, too. Dow won't get all of his money right away, and he would likely have gotten more if he'd sold to an outside buyer. Roger Vang, Diversified's chief financial officer, estimates that Dow, who has agreed to stay on three years as president, "probably left 20 percent on the table."

Diversified's employees suspected nothing, however, and braced themselves for the worst as Dow clicked on the PowerPoint slide that would reveal the company's new owner.

On the wall flashed a headline that said, "You!"

Beneath it were pictures of all of Diversified's employees.

ericw@startribune.com • 612-673-1736

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