EA Engineering: Aligning Mission and Corporate Structure
How the problems of stock market ownership led this firm to employee ownership
by Marjorie Kelly
EA Engineering, an environmental consulting firm, found its values upended when the company went public. To return to its roots, the original founder bought the company back and then transitioned to an employee stock ownership plan (ESOP) along with a benefit corporation legal framework. As part of our series on the employee ownership and sustainability, we spoke with founder Loren Jensen about how employee ownership served to protect the company’s commitment to the planet.
Taking a company public, with shares trading on a public stock exchange, is in the minds of many entrepreneurs the pinnacle of success, the ultimate dream come true. Loren Jensen, the founder of EA Engineering, Science, and Technology, Inc., PBC (EA), discovered this dream can prove a nightmare. His firm is an environmental consulting firm headquartered in Hunt Valley, Maryland, with 500 employees and $140 million in revenue. After it went public back in 1986, with shares trading on NASDAQ, it found itself quickly cycling through three presidents, seeing morale plummet, and getting in trouble with the Securities and Exchange Commission over accounting misstatements. The pressure for aggressive growth had clashed with the company’s scientific culture, damaging its environmental mission.
Restoring Purpose through Employee Ownership
Jensen led a move to buy the company back in 2001. New president Ian MacFarlane transitioned EA to partial ESOP ownership in 2004, and then to 100 percent ESOP ownership in 2014. The firm also adopted benefit corporation status, a corporate structure that requires the company to measure and report on the company’s environmental, social, and financial performance. The company has been profitable ever since going private, and today remains strong. Its design now protects its environmental mission, keeping it in the hands of genuine stewards, employees, rather than in the hands of absentee owners removed from the organization’s life.
EA Engineering’s story illustrates the fork in the road that ecologically oriented founders like this face: to transition to financially oriented ownership or to mission-oriented ownership. The problem is that most founders don’t realize there is such a choice, so strong are the forces pushing toward a financial sale. In the case of EA, that focus led to the accounting misstatements and SEC woes.
“Nobody buys stock except in the hope of a good return on investment. The problem this poses for a company like EA is you confuse the goals. It was very difficult to manage in that environment.”
— Loren Jensen, Founder of EA Engineering, Science and Technology
“Shareholders are only looking to get rich,” Jensen said. “I don’t mean to disparage capitalism, but the reality is, nobody buys stock except in the hope of a good return on investment. The problem this poses for a company like EA is you confuse the goals. It was very difficult to manage in that environment.”
As he spoke — via a video call — Jensen came across as an orderly, non-dramatic person, someone who was plain-spoken, sincere, with a no-nonsense air about him, like a kind uncle. One of the values Jensen instilled in the company was “prudence,” said current President Ian MacFarlane. “Prudence is decidedly Loren. Who has that in the core values of their company?” he added. “We give money back to our clients if we don’t use it all.” It was that sensibility that clashed with the aggressive culture of being public.
“My sense is the years we spent in the public markets were educational, but only in the sense that a horsewhipping is educational,” Jensen said. “Now we focus on who we are and what we’re doing. We returned immediately to the task of understanding environmental problems and knowing what to do about them.”
Finding the Firm’s True Identity
The company had strayed from its organizational identity, MacFarlane said, and the firm required independence for the real EA to emerge. If being public didn’t fit the soul of the company, employee ownership does. Peter Ney, EA’s treasurer — and Jensen’s son-in-law, who joined the firm in 2001 to help it get back to basics — said that in hindsight, employee ownership played a role in restoring the identity and financial health of the company. “At the time we went to the ESOP, we were already doing things that were ESOP-like, so it was no change at all,” MacFarlane said. “We knew it was compatible with who we already were,” Ney added, “but basically, it was a way for the company to use its financial strength to buy out the founder, rather than some outside party doing it.”
Jensen had many opportunities to sell the company to an outside buyer, rather than to employees. If he had done so, he could have made “millions more,” he said. Does he ever regret the choice? “No,” he replied. “This company is my life. Even when I took it public, I did it to help the company grow.” He did not cash out any of his own stock in that process, unlike most founders.
Public benefit incorporation is “CSR on steroids,” said company president Ian MacFarlane. It’s entirely in keeping with the mission of the firm, which from the very start, was about serving multiple stakeholders.
Being a public benefit corporation — which became the firm’s new incorporation framework — was a catalyst for helping EA sort out its corporate social responsibility (CSR) focus, MacFarlane said. Public benefit incorporation is “CSR on steroids,” he added. It’s entirely in keeping with the mission of the firm, which from the very start, was about serving multiple stakeholders. Rather than serving the single stakeholder of stockholders, EA is in the business of serving clients, many of which are municipalities or other government entities; of creating good work for employees; of creating ecological benefit and thus benefiting the whole earth community. “Ecosystems are very long term and multi-element,” MacFarlane said. “That multi-stakeholder approach is akin to sustainability.”
Enterprise Design Lesson
The company’s ecological mission “couldn’t be cooked into quarterly earnings,” MacFarlane concluded. He says that ecosystems and enterprises should be designed along the same principles. Because ecosystems are inherently long term and multi-stakeholder, enterprise design must be the same.
An employee-owned benefit corporation may be the closest existing design that fits that definition. The Fifty by Fifty initiative has identified 33 companies in this emerging model, including firms like Eileen Fisher, New Belgium Brewing, Gardener’s Supply, South Mountain Company, King Arthur Flour, Namaste Solar, Dansko, and Cooperative Home Care Associates. It is a powerful model of enterprise design for a new era of ecological sustainability and social equity — a corporate design for the 21st century and beyond.
“It’s just a better capitalism than the other neo-liberal forms,” MacFarlane said. “I’ve never been an advocate for anything, because we can’t be advocates here in our consulting world, but I’m an advocate of this.”
Marjorie Kelly is cofounder and chair of Fifty by Fifty, an initiative aiming to help catalyze growth to 50 million employee owners by 2050, and executive vice president at The Democracy Collaborative.
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