An Interview With Chad Silverstein

Robust Financial Planning: Careful financial planning is essential, but it’s not just about the transition. It sets the stage for long-term financial health. Companies that implement thorough financial planning often see improved fiscal discipline and more strategic decision-making. This can lead to stronger financial performance and stability in the long run.

The global pandemic has forever altered the landscape of sales, propelling us into the era of remote selling. Today, businesses and sales professionals face the challenge of connecting with clients and closing deals without the traditional in-person interactions. Mastering the art of remote selling has become not just an advantage but a necessity. From leveraging technology and digital tools to building trust and rapport over virtual platforms, the skills required for effective remote selling are evolving. I had the pleasure of interviewing Derek Razo.

Derek Razo, Co-founder and Managing Partner at Common Trust, is a leading expert in steward ownership transitions and has been instrumental in advancing the movement for purpose-driven business structures since 2016. He has co-founded influential organizations like Purpose International and Purpose US, which popularized the use of Perpetual Purpose Trusts for mission protection. He has served as an investor, advisor, and delivery partner for businesses shifting to stakeholder and purpose ownership models. With a computer science and business background from UC Berkeley, Derek’s diverse experience spans from founding cooperative and open source businesses to collaborating on community-led projects in affordable housing and indigenous-led funds.

Thank you so much for joining us in this interview series! Before we dive in, our readers would love to “get to know you” a little bit about you. Can you tell us about your ‘backstory’ and how you got started?

Thank you for having me! My path to employee ownership began at UC Berkeley, where I studied computer science and business. The real catalyst, though, was living and participating in the Berkeley student co-ops. These were democratically managed living spaces, in contrast to traditional student housing centrally run by the university or a property manager, where students collectively made decisions about everything from budgets to house rules. It was an eye-opener that contrasted the traditional business models I was learning about in class.

After graduating, I dove deeper into this world of collaborative decision-making. I worked with the Enspiral Network on projects like Loomio, a platform for group decision-making, and Cobudget, a tool for collaborative funding allocation. These experiences showed me the power of giving people more than a voice but the ability to participate in their organization’s governance.

As I explored alternative business models and worked with social entrepreneurs globally, I became increasingly convinced that employee ownership could be a game-changer for businesses and workers alike. This led me to co-found the Purpose Foundation, where we researched and developed new models of ownership and stewardship. While Purpose primarily focused on stewardship in perpetual purpose trusts, we started to see a growing need from small business owners looking for exit opportunities through employee ownership. It was this need that ultimately led to the formation of Common Trust.

This culminated in creating Common Trust, which I co-founded with Zoe Schlag. We aim to help business owners transition to employee ownership through Employee Ownership Trusts (EOTs). It’s incredibly rewarding work — to date, we’ve helped create over 1,000 employee-owners and facilitated more than $250 million in EOT transitions.

At its core, our work is about reinventing what business ownership should look like. We’re showing that it’s possible to build successful companies that prioritize the well-being of their workers and communities and remain successful by traditional business metrics.

How would you describe the culture at Common Trust, and what has been the biggest contributor to your success in advising companies on EOTs?

At Common Trust, our culture is built on a foundational belief in the power of employee ownership. We’re driven by the idea that when employees have a stake in their company, it creates a more engaged workforce and a more resilient business. This belief shapes everything we do, from our internal operations to how we advise our clients.

Our success in guiding companies through EOT transitions stems from two key factors. First, we take a comprehensive approach. We don’t just focus on the legal and financial aspects of the transition; we help companies navigate the cultural shift that comes with employee ownership. This includes working on communication strategies, governance structures, and employee engagement initiatives.

Second, we’ve made education a cornerstone of our process. EOTs are still a relatively new concept in the US, so we’ve developed extensive resources to help business owners and employees understand how they work and the benefits they can bring. This educational approach has been crucial in building trust with our clients and ensuring smooth transitions to employee ownership.

How would you explain what an EOT is to someone who has never heard of it before?

An EOT is an indirect form of employee ownership. That means employees can benefit from the profits and have a voice in running the company without having to personally invest and take a risk in buying the company. How that works in practice is that the owner sells their shares to a trust. The trust is legally obligated to act in the employee’s best interest. The owner is paid either through financing in a similar manner as a leveraged buyout or can be done internally through seller financing. Both options provide liquidity to the business owner in a tax-optimized method, giving the owner flexibility to retire on their own timeline, either all at once or gradually.

What makes EOTs unique is that they provide collective employee ownership. This differs from more well-known models like Employee Stock Ownership Plans (ESOPs). In an ESOP, employees own individual shares and can often sell them when they leave the company. In an EOT, employees benefit as a group from the company’s success, usually fostering a stronger sense of collaboration and shared purpose.

EOTs offer benefits to everyone involved. For the selling owner, it’s a way to ensure their company’s legacy continues while receiving fair value for their shares. For employees, it provides a stake in the company’s success without requiring personal investment. And for the company itself, it often leads to improved performance and long-term stability.

One of the key advantages of EOTs is their flexibility. They can be tailored to fit each company’s specific needs and culture, making them a versatile tool for business succession and employee empowerment.

Looking back, what was the catalyst that made you start focusing on EOTs as a succession planning strategy for your clients?

The catalyst for focusing on Employee Ownership Trusts (EOTs) came from observing a critical gap in the business succession landscape. Many business owners, particularly from the Baby Boomer generation, were approaching retirement without clear succession plans. These owners had poured their lives into building successful companies and wanted to ensure their legacy would continue, but they struggled to find buyers who would maintain the company’s values and take care of their employees.

Traditional exit routes often led to outcomes that didn’t align with these owners’ goals. We saw companies being sold to larger corporations or private equity firms, resulting in job losses, cultural shifts, and sometimes the complete dismantling of what made these businesses special.

Learning about the success of EOTs in the UK showcased how this model offered a solution to many of the challenges I’d observed: it provided a way for owners to exit their businesses at a fair price while preserving the company’s independence and values. Importantly, it gave employees a stake in the business’s success without requiring them to buy in personally.

Was there ever a point you doubted the EOT route for your clients? What kept you motivated to push through those challenges?

While I’ve always believed in the potential of EOTs, introducing a new concept in the business world is always challenging. The main hurdle we faced was the unfamiliarity of EOTs in the US business landscape. Unlike in the UK, where employee ownership is more common, we often had to start from scratch in educating stakeholders about the benefits and mechanics of EOTs.

Witnessing the transformative impact of EOTs on the companies that embraced them kept us motivated to push through these challenges. Seeing companies double their profits and set out to be 100-year-old companies through employee ownership and even private equity executive Pete Stavros championing the cause has highlighted the potential of EOTs to create enduring value for both businesses and their employees.

EOT companies often have a distinctive culture and operational approach. What makes the companies you’ve advised stand out from others, thanks to the EOT structure?

Companies that have transitioned to an Employee Ownership Trust (EOT) structure often develop a unique culture that sets them apart from traditional businesses. The critical difference lies in the sense of shared ownership and purpose that permeates throughout the organization.

One of the most noticeable changes is in employee engagement. When employees become beneficiaries of the trust, their perspective shifts from just workers to stewards of the business. This often leads to increased innovation and problem-solving at all levels of the organization. For example, employees at Clegg Auto, one of our EOT clients, started proposing cost-saving measures and process improvements that significantly boosted efficiency.

Another distinctive feature is the level of transparency in EOT companies. Because employees are beneficiaries, there’s typically much more open communication about the company’s financial performance and strategic direction. This transparency helps everyone understand how their work contributes to the company’s success and fosters a culture of trust and collaboration.

EOT companies also tend to have more equitable compensation structures. While pay differences based on roles and responsibilities still exist, the gap between the highest and lowest-paid employees is often smaller than in traditional companies. This contributes to a stronger sense of fairness and unity within the organization.

Lastly, EOT companies often demonstrate greater resilience during economic downturns. Because employees have a stake in the company’s long-term success, they’re usually more willing to make short-term sacrifices for the greater good of the business. This was particularly evident during the recent economic challenges, where many of our EOT clients showed remarkable adaptability.

Great. Now, let’s dive into the heart of our interview. The transition to an EOT involves a lot of challenges and opportunities to learn. Could you list the top “Five Things Companies Need to Successfully Leverage the Power of EOTs”?

Transitioning to an EOT is a significant undertaking, but it comes with substantial rewards. Based on our experience guiding companies through this process, here are the top five things companies need to successfully leverage the power of EOTs, along with their benefits:

1. Clear Vision and Committed Leadership: A clear vision of employee ownership, championed by committed leadership, is crucial. This not only drives the transition but also inspires employees. For instance, when Text-Em-All transitioned to an EOT, their leadership team held regular town halls to share their vision. This resulted in increased employee engagement and a stronger sense of purpose throughout the organization.
2. Robust Financial Planning: Careful financial planning is essential, but it’s not just about the transition. It sets the stage for long-term financial health. Companies that implement thorough financial planning often see improved fiscal discipline and more strategic decision-making. This can lead to stronger financial performance and stability in the long run.
3. Strong Governance Framework: An effective governance structure is key to EOT success. While it requires effort to implement, it often results in more balanced decision-making and increased transparency. For example, one of our manufacturing clients created an employee advisory board, which not only fostered a sense of ownership among employees but also brought diverse perspectives to strategic discussions, leading to more innovative solutions.
4. Comprehensive Employee Education Program: Educating employees about the EOT is crucial and yields significant benefits. Clegg Auto implemented workshops and e-learning modules, which not only helped employees understand the EOT but also improved overall financial literacy. This led to more informed decision-making at all levels of the company and increased employee motivation to contribute to the company’s success.
5. Culture of Ownership and Continuous Improvement: Fostering an ownership mentality requires effort but pays off enormously. Companies that successfully cultivate this culture often see increased productivity, innovation, and employee satisfaction. For instance, implementing employee-led innovation programs or profit-sharing schemes tied to company performance can lead to a more engaged workforce and a constant stream of improvement ideas.

Financial literacy is crucial in an EOT for employees to understand the value of their ownership and how their actions impact the company’s success. What initiatives do you recommend to your clients to educate their employees about financial aspects and the workings of the EOT?

We’ve found that the most effective approach to financial literacy in EOTs is to make it relatable and interactive. As I mentioned about Employee Education Programs, one strategy that’s worked well is creating custom financial simulations or games that mirror the company’s operations. This helps employees understand how their day-to-day decisions impact the bottom line.

We also encourage our clients to integrate financial discussions into regular team meetings. This could be as simple as reviewing key performance indicators and discussing how they relate to the company’s overall health. The key is consistency and accessibility — making financial literacy an ongoing conversation rather than a one-time training event. We’ve seen great results when companies provide individualized EOT benefit statements, showing each employee how the company’s performance directly affects their stake in the business.

Employee ownership often changes the dynamics of engagement and participation. How have you seen employee involvement evolve in decision-making and daily operations in companies that have transitioned to an EOT?

The evolution of employee involvement after transitioning to an EOT is remarkable. We’ve seen frontline workers become key contributors to strategic decisions. The key to this evolution is creating channels for employee input and actually using that input. It’s not just about suggestion boxes — it’s about fundamentally changing how decisions are made. This might mean including employee representatives in board meetings or creating cross-functional teams to tackle company-wide challenges.

Company culture and the ability to attract top talent are critical factors for business success. How has adopting an EOT model impacted the company culture and approach to recruiting and retaining employees for your clients? Do you believe the EOT model has given them an advantage in the labor market?

We’ve seen this play out in exciting ways. Our clients see a notable increase in both the quality and quantity of job applicants after transitioning to an EOT and retention. The EOT model often leads to a shift in company culture towards greater collaboration and innovation. When employees know the company’s success directly benefits them, they’re more likely to go the extra mile, share ideas, and work together to solve problems.

In the broader labor market, the EOT model does offer a significant advantage, particularly in attracting purpose-driven talent. As more workers, especially younger generations, seek meaning and impact in their careers, joining an employee-owned company can be very appealing. Moreover, the EOT model stands out as particularly fitting the current ethos and work environment. In today’s job market, where employees tend to change jobs more frequently, they are often less incentivized by the long-term retirement plan payouts offered by traditional ESOPs. Instead, many prefer an EOT’s more immediate profit-sharing capabilities, which aligns well with shorter-term employment trends.

That said, the EOT model is still relatively new in the US, and there’s work to be done to educate employers and potential employees about its benefits. As awareness grows, we’ll see even more companies leveraging EOTs to stand out in a competitive labor market.

How can our readers further follow you or your company online?

Readers can stay updated with Common Trust on our website, an excellent resource for information about Employee Ownership Trusts through our blog, newsletter, and latest events.

You can follow us on LinkedIn at Common Trust for more frequent updates, where we share industry news, success stories, and thought leadership pieces.

We encourage you to reach out directly if you have any questions or want to learn more about how EOTs work. We’re always happy to connect!

This was great. Thank you so much for the time you spent sharing with us.

About the Interviewer: Chad Silverstein, a seasoned entrepreneur with over two decades of experience as the Founder and CEO of multiple companies. He launched Choice Recovery, Inc., a healthcare collection agency, while going to The Ohio State University, His team earned national recognition, twice being ranked as the #1 business to work for in Central Ohio. In 2018, Chad launched [re]start, a career development platform connecting thousands of individuals in collections with meaningful employment opportunities, He sold Choice Recovery on his 25th anniversary and in 2023, sold the majority interest in [re]start so he can focus his transition to Built to Lead as an Executive Leadership Coach. Learn more at www.chadsilverstein.com

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Derek Razo Of Common Trust On Why ESOPs Are the Future of Business Succession was originally published in Authority Magazine on Medium, where people are continuing the conversation by highlighting and responding to this story.