Marin environmental consultants make key employees owners

MARIN COUNTY -- WRA Environmental Consultants of San Rafael has been working on restoration projects in the North Bay for 30 years.

The business started as a partnership between Michael Josselyn and James Buchholz in 1981. Knowing that eventually they would want to have less of a stake in the company and one day retire, the partners began their succession plan. Unlike selling their business or passing it on to children, they opted to begin an internal transfer by offering employees the opportunity to become shareholders.

Nine years ago, they brought on two new owners, Timothy DeGraffe and Thomas Fraser. Since then there has been an annual valuation that takes place and others in the company are looked at to see if there is interest in them coming on as partners or shareholders.

“We have eight principals and last year we added three senior managers, who are non-voting shareholders,” said Mr. Fraser. “It is a valuable tool. When you have a successful company it is helpful to bring the up and coming promising managers into ownership.”

The company works with Jim Andersen, partner at Burr Pilger Mayer in Santa Rosa. He does an annual valuation and presents the results at a meeting.

“One thing they did well is bring on a shareholder that is a non-engineering and non-environmental professional,” said Mr. Andersen. “Sherry Malone is the chief financial officer and was brought on as a shareholder.”

Her role is the daily operations. She doesn’t have anything to do with the engineering part of the business. They wanted her to be a shareholder in order to have a stronger tie to the business.

Mr. Andersen, in addition to working the valuation, has become something of an advisor to WRA in terms of figuring out who would be a good candidate to become a shareholder.

“I look at each person and interview them,” he said. I ask: Are these really the people? Are they rainmakers?”

The things he looks for in a new shareholder are leadership skills, the ability to attract new business and whether they are strong technically.

“And the important thing,” Mr. Andersen said.  “How would you feel if this person was your competition?”

Once it is determined who would be good, there is the matter of the actual sale of shares.

“This has changed,” said Mr. Fraser. “It used to be that a prospective shareholder would pull equity out of their home or go to their bank and get the funds to make the purchase.”

Now, with the real estate market being tight and banks having stricter lending guidelines, there are fewer possibilities for employees who want to become shareholders.

So the selling partner helps finance the deal.

“There is a post recessionary participation on the part of the sellers,” said Mr. Andersen. “This is positive because they get to get some goodwill out of business and the younger employee gets a chance to own part of the company.”

It is also an advantage to the company because if the seller knows they will be leaving in several years, then being around for the transfer to help guide the new shareholder has value.

This is important for relationships with vendors and customers, so they know the level of service they have come to expect will still be there.

“We came up with this plan that the seller will finance it, but the company will back it as well,” said Mr. Fraser.

Each loan has quarterly payments, so the same time that the shareholder is getting dividends, the payment comes due.

“This gives the seller the comfort level. And the annual valuation places a mechanism where there is a consistent and impartial way to always know what your shares are worth,” said Mr. Fraser.

“Everyone is on the same page and the buy sell agreements are in place. There is tacit acknowledgement every year when Jim gives his presentation.”

He said part of the valuation process is a projection.

“Jim looks at the contract backlog. But it is those more subjective components—the indicators say this, there is more backlog than in the past, where the true work comes in.”

Mr. Fraser said so far the company has had good experiences with bringing on new shareholders and they are excited about the future.

“I have such gratitude that the founders here started this with time to spare so transitions can be done through rational process,” he said.