Statement of Cecil Ursprung, Chief Executive Officer,
Reflexite Corporation, Avon, Connecticut
Testimony Before the Subcommittee on Oversight
of the House Committee on Ways and Means
Hearing on Employee and Employer Views on Retirement Security
March 5, 2002
Mr. Chairman, Members of the Committee, my name is Cecil Ursprung. I am CEO of Reflexite Corporation in Avon CT. I have been employed by the Company for 18 years.
Reflexite is an employee-owned company with its most important facilities located in Central Connecticut and Rochester, New York. In Connecticut, our Congressional Representative is Congresswoman Nancy Johnson who serves both our New Britain and Avon locations. We have a long-standing positive relationship with Congresswoman Johnson and we are aware of the fact that she is a past Chair of the Oversight Committee. Aside from our locations in the United States, we also have manufacturing facilities in Ireland, Germany and Peoples Republic of China. In addition, we have sales offices in both Europe and Asia. Reflexite employs approximately 390 people and we are a manufacturer and marketer of optical films and components. Much of our films business is devoted to Reflective Products which are used in work zones, personal safety applications and marine applications to enhance visibility and safety. Our optical components are used mostly in displays such as personal computers and LDC projectors. We generate approx $65,000,000 in sales and our largest shareholder is our Employee Stock Ownership Plan which owns 38% of the company. In addition, employees own another 25% of the company outside the ESOP so that the destiny of our company is clearly in the hands of people who are employee-owners. The history of our company is a story of typical American entrepreneurship. Two Connecticut brothers, Yale educated engineers, founded Reflexite in 1970. It was #19 in a series of companies founded by Hugh and Bill Rowland beginning in 1947. All these companies were based on innovations in plastics.
I became President of the company when I joined in 1983 as the successor manager for the Rowland brothers. At that time, they were in their 60’s and it became evident that there was going to be a transition in ownership as well as management. As is typical of other entrepreneurs, the Rowlands had three choices regarding the future ownership of Reflexite Corporation.
In the case of the Rowland’s, there were no family members interested and eligible to take on the responsibilities. At $3,000,000 in sales Reflexite was too small to become a public company and the Rowlands were not ready for retirement. Even in their mid 60’s they were both actively engaged in the business. Fortunately for us, in 1976 Congress created a fourth alternative for the Rowlands called an Employee Stock Ownership Plan. After a thorough investigation of ESOPs, we terminated a defined benefit pension plan, paid all of the benefits owed to the participants, and established an ESOP with the $150,000 left as excess assets. Through additional allocations and the appreciation in the valuation of our company that $150,000 has grown to over $30,000,000 owned by the ESOP participants. For those interested in such things that‘s a compound annual growth rate over the 16-year period in excess of 20% per year. At Reflexite we are very active in promoting ownership as part of our culture rather than just pension plan. I believe that world class technology combined with employee ownership are the two reasons our company has been successful over such a long period of time. Our pathway has not always been straight up. During the last 16 years, we have had two periods of business decline and we are in the second one at the current time. I believe that being employee owned has served us better during periods of decline than in even expansionary times.
I present myself to you as a hardheaded businessman with an MBA and an eye on the bottom line. I am an enthusiastic supporter and participant in employee ownership not out of altruism but because I believe it is a superior way to manage a company. Just as Henry Ford’s approach was right for his time with task simplification, division of labor on the assembly line, etc. employee ownership is right for our post industrial economy where employees are often as educated as their managers.
During my tenure at Reflexite, I have traveled outside the US extensively as we have sought to build a global presence for our company. On the basis of my travel in about 30 countries, I would like to suggest to you that there are two overriding reasons for America’s economic superiority in today’s global economy. First, we educate our young people better than other counties. Second there is a spirit of entrepreneurship and ownership in this country that is unmatched elsewhere in the world. American entrepreneurship is legendary and Americans own more stock in their companies and more stock in other companies than citizens anywhere else in the world. This is a significant factor in our economic success. Ownership is a national treasure which must be not only protected but nurtured. Perhaps this is why I feel that the ESOP legislation passed by this Congress is some of the most enlightened legislation ever passed. In their full potential ESOPs are a win for employees, a win for shareholders who are transferring stock to employees and a win for the companies. This win-win-win translates to a fourth win and that is a win for the United States of America in a global economy.
During the evolution of our ESOP we have made three significant adjustments which I think will be of interest to you.
In my written testimony I have included a number of comments from employee-owners in Reflexite regarding their attitudes and feelings on our ESOP and employee ownership in general. Having given you this background, let me now turn my attention to a few comments on the Enron situation and what I believe Congress should be doing to protect the interests of employees and the national interest in entrepreneurship and ownership. In my opinion, the Enron disaster was caused by a combination of three factors:
First, an explosion of greed in people both inside the company and outside. This includes employees, auditors, investors and stock analysts.
Second, I believe there was a total breakdown in the usual internal controls that exist within in a company and its Board and between a company and its auditors. This breakdown was caused at least in part in my opinion by severe conflicts of interest that existed at several places in both Enron and Arthur Andersen.
Third, I believe that Congress will find that the Enron situation was acerbated by fraudulent activities by a number of people and I would not be surprised to find that other criminal activity other than fraud has occurred. I make these three points first because I believe they are true and secondly because I believe it would be a mistake to target legislation based solely on what happened at Enron. As far as I am concerned Enron is an unusual occurrence in our economic system. And, if we are going to legislate and regulate further regarding retirement plans we need to take a better perspective than just an explosion of greed, a breakdown in internal controls and fraud. My opinion is helping insure our prosperity in a global economy. Ladies and Gentlemen this is not a partisan issue. This is a national issue which affects the economic strength of our entire country. Perhaps it would be well for you to take a sentence from the Hippocratic oath, “First do no harm”.
Once reason prevails again, I would suggest four areas that Congress concentrate on for a fruitful venture into legislation and regulation:
Mr. Chairman and Members of the Committee, I thank you for the opportunity to speak with you today and thank you for the encouragement you have given to stock ownership in this country since 1976. I am confident you will continue your good works.
REFLEXITE CORPORATION
EMPLOYEE-OWNER TESTIMONY
I am David Correa and I am a Materials Manager at Reflexite Corporation.
The meaning of employee ownership has changed for me over the past 12 plus years of employment with Reflexite. At first it only meant that I would be eligible for a monthly owners’ bonus check and a yearly owners’ vacation day after completing one year of employment. I did also understand that shares of stock would be set aside as part of my retirement or pension plan, but it took a while longer for me to really develop my feeling of employee ownership.
My pride, passion, enthusiasm, interest, and concern about what I could do from my position in the company to help it continue to grow began to multiply. I began to look for ways that I could help outside of my area. Employee ownership keeps me looking for ways to help my fellow employee owners find improvements wherever possible.
Few things can give me the same personal satisfaction that comes with knowing that my actions have a direct effect on the company for which I have partial ownership. It is being rewarded for your dedication and commitment beyond a paycheck. I can compare it to the gratification that you get when you go from paying rent to buying your first home.
My name is David Korncavage I have been at employed at Reflexite for 12 years. My position is Team Leader of our Logistics Department. Before working for Reflexite, I had several jobs from working at union shops to working for myself in the construction industry.
The first experience I had at Reflexite as an employee-owner was two months after I started, I was issued my first stock allocation. I was so happy to have 11 shares of stock. It made me feel like I owned a piece of the pie. I started to wonder what things I could do to raise the stock value.. I was given the opportunity to act like an owner instead of coming to work and just punching the time clock and leaving my brain at the door. I was challenged to use my skills and to feel and act like an owner. Little did I know what an impact on my life this would have.
I started to working in the Shipping Department and had the opportunity to negotiate shipping rates and purchasing production supplies with the confidence that all my work would affect the company’s stock value. I was given the chance to be a member of our ESOP Education Committee. This was a turning point with my understanding of how ESOPs work. I was able to attend the National ESOP Convention and speak about my experience of ESOPs and Reflexite. I was so proud to be representing my company at a national level. Now it is twelve years later and I was able to send my daughter to college and buy a house. My total experience at Reflexite has given me the means to guide my own destiny and have a full feeling of what it is to be a true owner of a company.
I, Dorothy Waszczuk, a Manufacturing Team Leader II, have been employed by Reflexite for 12 years.
Working for an ESOP company has been and still is a great learning experience for me. I am so much more informed about things that are happening within the company. As an ESOP employee I am privileged to have access to more business information. I am more motivated to work harder because I have the feeling I am working for myself.
As an ESOP employee I have a certain say in the way things are manufactured. Because there is an open door policy, I feel free to express my suggestions. I am motivated to work harder because if the company does well, I will also benefit in the future.
Because everyone is an owner there is a great deal of respect for co-workers. I would find it difficult to work in another company where I could not express my concerns and offer ideas to improve company performance.
I, Kevin Hudson, a Material Flow Supervisor, have been employed at Reflexite for more than 12 years.
Working for an employee-owned company gives you a sense of ownership. Knowing that once you have completed a project, and everyone has done his or her job, there is a tremendous sense of accomplishment.
We all have one common goal, which is to improve the stock price. To help us affect the stock price, we are provided with training in finance, which includes understanding costs, revenues and operating profit. There is openness with the financial information and employee-owners are encouraged to question business decisions. People feel comfortable suggesting ideas for improvement.
You get recognition for a job well done. Employee-owners often celebrate when we exceed our financial targets or when we beat the competition – and we know our competition.
All employee-owners are given opportunities to grow and opportunities to shine. I felt a great deal of pride when the company asked me to represent Reflexite by speaking on ownership at the Annual ESOP Conference in Washington, D.C.
Because I have such a strong sense of ownership, I have often gone above and beyond the call of duty. It is not unusual to see employee-owners working extra hours or going the extra mile to get the job done.
I, Cynthia Mahlstedt, a Public Relations Specialist, have been an employee-owner with Reflexite for nearly four years. The corporate culture at an ESOP company is like no other. Other companies pontificate about open-door policies, levels of trust, respecting the general work force, encouraging idea-sharing, continuous improvement, internal communication, mutual respect, teamwork, empowerment, and all of the other “buzzwords” that would make Jack Welch proud.
This is the only company I’ve ever encountered that walks their talk and talks their walk. You can’t wake up one morning and expect your workforce to be dedicated, and willing to go the extra mile for the sake of the company. It’s not a mission statement on the wall, it’s not a training session, team-building session or a suggestion box that makes it work. It’s a long-term dedication to the principles and it’s employee-ownership that makes the difference; employees need to have a real stake and a genuine say in the day-to-day operations of the company.
As an employee-owner, I am motivated to excel and motivated to achieve results, because I understand how my contribution affects the company’s bottom line, and my own financial success is a direct result of my successes here at work. I don’t have to be an accountant, or even a college graduate, because my fellow employee-owners and members of senior management understand how important it is that I understand where we are where we’re going and what we need to do to get there.
There is a level of understanding – knowing how and why decisions are made. Sharing information and empowering employees to affect the company’s success seems to avoid the all too common “rumor mill” that leads to dysfunctional employee-employer relationships and mistrust that is prevalent at so many other corporations.
Working in advertising agencies for several years prior to joining Reflexite, I’ve been exposed to and have worked with dozens of companies including some well-known Fortune 500 companies. Not one of them enjoys the level of dedication and open communication that is vital to our company’s success.
Sharing financial information, explaining strategic business decisions and committing to regular face-time between senior level management and every other employee-owner builds a level of trust, dedication and a commitment to excellence.
My name is John Gagas. I have been employed by Reflexite Corporation for over 11 years and I currently occupy the position of Operations Controller for the Reflexite Films Division. I have been asked to express my feelings on ESOP’s and employee-ownership.
I worked for two Fortune 500 companies prior to joining Reflexite Corporation. My experience working for these highly regarded and profitable companies was good but something was missing for me. The part that was missing was real ownership and the ability to have input in helping to create wealth for a company and, in the end, myself. This is the major reason that attracted me to Reflexite Corporation. This motivation was not only the ability to share in the rewards through an equity stake, but also to have a small role in helping to make “the pie” larger. This is the type of entrepreneurial culture that employee-owned companies build.
Reflexite Corporation is not a company for individuals who do accept risks. We live with the risk of the Employee Stock Ownership Plan significantly decreasing if the appraised value of the shares drops in value. This risk is one that is well communicated to every potential new employee-owner prior to being hired. Also, understanding that this potential risk exists is very important. Over my last eleven years, Reflexite has not only recognized this risk but has put many programs in place to mitigate it. Reflexite has created a 401(k) matching program that gives every employee-owner a 25% contribution match on the first $1,000 contributed by the employee. This was done to create an incentive for every employee-owner to participate in the 401(k) plan, which does not have stock of Reflexite Corporation as an investment option. Also, Reflexite Corporation has started the Safe Harbor contribution, whereby Reflexite Corporation contributes 3% of every employee-owner’s gross wages to the employee-owner’s 401(k) account. This contribution becomes immediately vested to the employee-owner. The 3% Safe Harbor contribution is subtracted from the annual ESOP distribution for every employee-owner. Another method of promoting diversification is the Annual ESOP Diversification program that allows employee-owners to move funds from their ESOP account to their 401(k) account.
Empowered employee-owners understand the potential risks of working for an ESOP company. We accept these risks because we choose to work for a company that has a common focus to grow the long-term value of the company for the benefit of all employee-owners. This entrepreneurial spirit is at the heart of true employee-ownership.
My name is Sandy Black, I have been employed at Reflexite for almost 24 years. I am the Manufacturing Scheduler and Customer Service Representative.
During my years of service, I have witnessed a lot of changes. One in particular was when Cecil Ursprung and Hugh Rowland introduced the ESOP to the company. Mostly everyone panicked, Cecil was fairly new and we all had trusted in Hugh. We listened carefully. There was a lot of apprehension, so the company agreed to keep a floor plan as a safety net until we were all confident in the ESOP.
Well my retirement fund took off! The floor plan was dropped and monies from the account were placed into 401K account for all employees.
Before we were an ESOP company; it was a job!
As we became an ESOP company education about ESOP was very crucial. An ESOP committee was formed and a bulletin board was in place. If anyone had questions, they were written and submitted to the ESOP committee. The question and answer were posted on the board for all employees to read.
Once we were an ESOP, employees began looking at the company as a true owner would. We were all empowered and encouraged to ask questions and make suggestions. We all became more quality critical. We began looking into ways to cut back on spending. We looked for ways to improve processes within our work areas to have things flow smoothly and Management listened. Changes were made. Things began to run smoother and easier. Everyone felt a sense of pride in what we did.
And we got better at what we were doing.
When we hit harder times we became creative on saving money for US. We strive to preserve our stock price.
The way the ESOP was originally structured, we couldn't touch our money unless we were age 55 and 10 years of service. Being that I joined the company when I was 18. I wouldn't have had access to my account for 37 years. We expressed these types of concerns at some meetings and it was changed. Now, yearly we can take a portion of our ESOP account and place it in our 401K accounts. We can take loans against our money or move them into the different funds. I feel better knowing that all my eggs are not in the same basket and that if I needed the money to pay for my daughters' college, I have access to some of the funds. I feel much better knowing I have some type of control over the funds.
I also feel that if the ESOP were not introduced to us, my retirement fund today would be much lower. I feel comfortable knowing when I retire I should be able to have a comfortable life.
Mark Lavoie
Senior Product Development Engineer
Employee / Owner of Reflexite Corporation for 4.3 years
While I have only been a Reflexite employee / owner for just over four years, I have a total of 15 years of experience from three additional companies, which all had very similar manufacturing capabilities. These previous companies were both larger and smaller than Reflexite and were both Union and none union shops. With a degree in chemistry and strong mechanical engineering capabilities, I have held a variety of positions through out my career.
With this experience, I had a good understanding of what the converting industry was all about. So, when it became time to think about a career move I had a good idea of what I could expect and what to look for. During my search for my next career move I interviewed with several companies and had a couple offers on the table. The opportunity at Reflexite became available to me late in the game, but when I heard some of the unique aspects of this company I said hold everything. I had very candid discussions with Reflexite and informed them of my position, but I was also very interested in Reflexite. Reflexite was also very interested in me and mobilized very quickly (within a day I think) to accommodate my situation and get me in and through their extensive interviewing process. This was significant to me for several reasons: I saw that the company could organize and move quickly to accommodate an individual. (I met with approximately ten people ranging from peers to senior managers through presidents and the CEO.) The interviewing process alone was very impressive and I was told that a new hire is a big deal to everyone because everyone has a vested interest in getting the best. I learned a lot about Reflexite during the interview process and saw a company of the likes I had never seen before.
While the salary range was acceptable and the long term stock plan for retirement and the owners bonus plans sounded very attractive, there was still something more. This company put a high value on Engineers and technology and seemed that it would do what needed to be done to be successful. This was what I was looking for. Still there was something more. I could sense a cultural thing that I had not experienced before. There was a feeling that individuals mattered and, maybe even more importantly, the company mattered to all the individuals. I believe this culture is due in large part to the ESOP structure. Everyone has ownership, so you know your extra efforts are worth something. There is also a sort of automatic policing that happens in this environment; I know the guy next to me is an owner, so I know he is not going to be to happy if I goof off and vice versa. This makes the entire organization very strong and by on large everyone performing at top notch.
Now that I have been here a while, is it all true? While it would be nearly impossible, in my opinion, to ever find perfection, I can say that Reflexite is the best company I have had the pleasure to work for and own.
My name is Joe Baron and I joined Reflexite in1978, I am an XP Coordinator.
Twenty-four years ago, I started on second shift with a workforce of 20 people. The company has come a long way.
Years ago there was no 401(k) Plan, no ESOP, just a regular work force. The company has grown into a healthy, educated global company.
I take great pride in our workforce. The company’s training programs have educated our employee-owners in safety, health, 401(k), ESOP to name a few. With even the member
companies on Global ESOP, I was able to buy a house, send my daughter through College. I was able to start a 401(k) Plan and diversify some of my ESOP money and stocks. I really take pride and ownership in this wonderful company. They have treated me and the rest of the people that work here just like a big happy family.
There should be more companies out there just like Reflexite, and many more ESOP companies, that take care of their employees.
It is a pleasure to work at Reflexite and I look forward to many more years.