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May 29, 2008
In Stock Plan, Employees See Stacked Deck
By MARY WILLIAMS WALSH
CLEWISTON, Fla. -- Thousands of workers at U.S. Sugar thought they were
getting a good deal when the company shelved their pension plan and gave
them stock for their retirement instead. They had a heady sense of
controlling their own destiny as they became the company’s biggest
shareholders, Vic McCorvey, a former farm manager there, said.
“It was always stressed to me, as manager of that 20,000-acre farm, that
the better you do, the higher your stock will be and the more retirement
you could get,” Mr. McCorvey said. “That’s why I worked six and seven
days a week, 14 hours a day,” slogging through wet and buggy cane
fields, doing whatever it took.
Now that many U.S. Sugar workers are reaching retirement age, though,
the company has been ca****ng them out of the retirement plan at a much
lower price than they could have received. Unknown to them, an outside
investor was offering to buy the company -- and their shares -- for far
more. Longtime employees say they have lost out on tens of thousands of
dollars each and millions of dollars as a group, while insiders of the
company came out ahead.
Some former U.S. Sugar employees have since filed a lawsuit accusing
company insiders of cheating them out of money that was rightfully
theirs. Throughout, the worker-owners have been shut out of information
about the company’s finances and unable to challenge management’s moves
or vote because their shares were held through a retirement plan, not
directly.
What has happened at U.S. Sugar could happen at many other companies
because of a type of retirement plan that proliferated in the 1980s,
after powerful members of Congress took an interest in “worker
owner****p” as a way to improve productivity.
Thousands of companies, large and small, embraced the ensuing tax
benefits by creating employee stock owner****p plans, known as ESOPs.
U.S. Sugar, the largest American producer of cane sugar, took its stock
off the public market in the transaction that created its ESOP, in 1983.
Nearly 95 percent of the country’s 10,000 ESOPs are now at privately
held companies, like U.S. Sugar. Because their shares are not publicly
traded, there is no market price. So workers cash out shares without
knowing what the price would be on an open market.
The former employees accuse U.S. Sugar insiders -- descendants of the
industrialist Charles Stewart Mott -- of scheming to enrich themselves
by buying back workers’ shares on the cheap. They say “the principal
actor” is William S. White, the company’s longtime chairman, who is
married to Mr. Mott’s granddaughter. They also say he improperly exerted
his influence as chairman of the Charles Stewart Mott Foundation, whose
mission is to advance human rights and fight poverty and which holds a
big stake in U.S. Sugar.
“They robbed us,” said Loretta Weeks, who worked in U.S. Sugar’s lab,
testing sucrose levels in cane juice. “It’s like the last 15 years we
were working for nothing.”
U.S. Sugar said in a statement that the lawsuit had no merit and that
the company would vigorously contest it, but it did not respond to any
specific accusations.
Through his lawyer, Mr. White denied that he had improperly exerted
control over the U.S. Sugar board, or that the Mott Foundation had
anything to do with the decision not to sell to the outside investor.
The lawyer, H. Douglas Hinson, also said that Mr. White and the Mott
Foundation had no role in deciding what price employees received for
their stock, because the price was set in an independent appraisal.
Members of Congress tried to prevent disputes over the fair market value
of shares in employee stock plans by requiring private companies to get
independent appraisals each year. But workers at U.S. Sugar say the
chairman and his allies withheld crucial information from the appraiser
and artificially depressed the share price, something the chairman
denies. The employees do not accuse the appraiser of wrongdoing.
Missed Op****tunities
To do***ent their claims, the former workers cite two offers to buy U.S.
Sugar for $293 a share -- offers that came as the workers were being
cashed out of their shares by the company for as little as $194 a share.
The worker-owners were not told about these outside offers and had no
chance to tender their shares. They found out only through word of
mouth, after the board of U.S. Sugar had rejected both offers.
As retiring workers cash out their shares, the company then retires
their stock. That leaves fewer shares outstanding over time, the lawsuit
says, allowing the insiders’ control of U.S. Sugar to grow, without
their having to spend a penny buying stock. In this way, Mr. White’s
immediate family increased its stake in U.S. Sugar by 19 percent from
2000 to 2005, the lawsuit says.
The Charles Stewart Mott Foundation issued a statement saying that as a
major U.S. Sugar shareholder, it was confident that U.S. Sugar’s board
had “acted responsibly and within its duties.” It also said the workers’
lawsuit contained accusations that were inaccurate.
While they wait for their lawsuit to inch through federal court, U.S.
Sugar’s former employees say they are struggling to get by on fewer
retirement dollars than they should have received. Many are former field
workers, machine operators and mechanics, paid by the hour and living in
one of Florida’s poorest counties. Some said the disputed stock plan was
their sole retirement nest egg.
“I had to go back to work,” said Randy Smith, who retired last year
after 25 years as a welder and machinist. He was only 55, but said U.S.
Sugar had forced him to retire after declaring him no longer qualified
to do his job. The company has been cutting staff aggressively for
several years.
Mr. Smith said he cashed out of the retirement plan for about $90,000,
but could have received about $53,000 more, if he had had the chance to
tender his shares and the company had accepted the outside offers. The
extra money would help a lot, he said, because his wife, Sandra, has
rheumatoid arthritis, and after he retired, U.S. Sugar canceled its
retiree health plan.
Mr. Smith has since found a new job, with health benefits -- but it pays
$10 an hour, compared with the $23 an hour he once earned at U.S. Sugar.
“My wife, she’s having to work two jobs just to make ends meet,” he said.
Mr. McCorvey said that he and his wife, Marilyn, also a former employee,
have calculated that the outside offers would have been worth $137,000
more to them. He was laid off in 2004; an executive assistant, she was
laid off in 2002.
Even though they no longer work at the company, they cannot cash out
their stock, because of plan vesting rules, they said.
Meanwhile, the stock price has been falling, based on appraisals and
cash-out values supplied by the company.
“I’m scared I’m going to lose it all,” Mr. McCorvey said.
Owners, but Excluded
To make matters worse, U.S. Sugar announced in April that it was
eliminating its dividend. The McCorveys had been receiving dividends
worth about $7,000 a year on their shares.
They and other former U.S. Sugar workers said they had planned to attend
the company’s annual meeting this month, so they could tell management
their complaints as shareholders.
But this year, for the first time, the company announced that
employee-shareholders would not be allowed to attend the annual meeting.
It said that they were not the shareholders of record, and that as a
result they would be represented by the trustee of their plan, the U.S.
Trust Company.
A spokeswoman for Bank of America, which owns U.S. Trust, said the
company believed it had fulfilled all of its duties as the trustee.
Experts said it was unusual to bar participants in employee stock plans
from shareholders’ meetings.
“It is legal,” said Loren Rodgers, project director for the National
Center for Employee Owner****p. But he cited research indicating that
worker-owned companies tended to have better results when workers had a
say in operations.
Mr. Rodgers said that Congress had decided to limit the workers’ powers
as shareholders out of concern that companies might avoid the structure
if workers received full rights.
Many former workers at U.S. Sugar acknowledged that they had never tried
to attend an annual meeting until now. But that did not quell their
anger at discovering they could not. “It was real nasty, the company to
do us like they did us,” said Tommy Miller, who retired last fall after
32 years as a supervisor in a locomotive repair shop. He was only 56 but
was caught in a mass layoff.
He said he cashed out his shares and invested in an individual
retirement account, only to learn that a bidder had been willing to pay
him a lot more.
“So you took my job and you took my stock, too,” Mr. Miller said.
The workers describe a harsh new face on a company once known as
paternalistic. U.S. Sugar was bought out of bankruptcy during the Great
Depression by Mr. Mott, an entrepreneur who said companies should
strengthen the towns where they did business.
Mr. Mott, who started out making bicycle wheels and ended up with the
largest single block of General Motors stock, created charities in
Flint, Mich., and also provided Clewiston with swimming pools, libraries
and a youth center.
“When somebody’s child got hurt or was seriously ill, the company would
fly that child to a hospital in Tampa, or wherever they needed to go,”
John Perry, a former mayor of Clewiston, said. “This was a wonderful,
wonderful place to live.”
But that homey culture did not survive the tide of globalization. The
North American Free Trade Agreement raised the prospect of a flood of
cheap sugar from Mexico and other countries with low wages. U.S. Sugar
scrambled to lower its costs.
Ellen Simms, U.S. Sugar’s former comptroller, said that when the company
had to trim its payroll, it seemed to choose people with many years at
the company.
“It was very obvious, with few exceptions, that they were targeting the
employees who had been there the most time and who had the most ESOP
shares,” she said. She resigned in protest in 2004.
Meanwhile, the falling stock price re****ted in the appraisals was a boon
to the company, she said, because it made it cheaper to buy out the
workers.
Conspicuous Offers
The re****ted declines in the stock price might not have been questioned,
had it not been for two offers to acquire U.S. Sugar, one in the summer
of 2005 and the other in early 2007. Both were made by the Lawrence
Group, a large father-son agribusiness concern in Sikeston, Mo., for
$293 a share in cash. Gaylon Lawrence Jr. confirmed the price but
declined to comment further.
The worker-shareholders were being paid $205 to $194 a share at the
time, based on ESOP appraisals.
But to help vet the Lawrence Group’s offer, U.S. Sugar hired a second
appraisal firm to calculate the company’s breakup value. This appraiser
came up with $2.5 billion, or about $1,273 a share.
U.S. Sugar then rejected the Lawrence Group’s offer as inadequate.
Mr. McCorvey said he would have tendered his shares to the Lawrence
Group without a moment’s hesitation. “But we were never given the
op****tunity,” he said.
John Logue, an ESOP specialist at Kent State University, said federal
law does not require worker-owners to vote on acquisition offers. But,
he said, “when you’re in doubt, let the participants vote. We have kind
of an innate sense in the United States that people are entitled to do
what they want with the property they own.”
--
Dan Clore
My collected fiction: _The Unspeakable and Others_
http://tinyurl.com/2gcoqt
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Skipper: Professor, will you tell these people who is
in charge on this island?
Professor: Why, no one.
Skipper: No one?
Thurston Howell III: No one? Good heavens, this is anarchy!
-- _Gilligan's Island_, episode #6, "President Gilligan"
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