Employee ownership embraced by green-energy pioneers Sun Light & Power, SolarCraft, Solar Works
Three pioneers of the solar industry in the Bay Area are in different stages of transferring the businesses they created, but they are all traveling on a similar road. They are all transferring the ownership of their businesses to their employees.
Bill Stewart is the former CEO and co-owner of SolarCraft, a 34-year-old solar company located in Novato. Stewart says that in the early days, almost all of their business was solar water heating, mostly for swimming pools.
Grid-connected solar electric installations didn't really take off until 2001, when new technology allowed for behind-the-meter installations and state rebates combined with net metering made it more cost competitive. The boom accelerated in 2007 when Governor Schwarzenegger ramped up an existing California rebate program into the enormously successful Million Solar Roofs program.
Stewart says he got into solar because it was the “right thing to do,” so it is not surprising that when he decided it was time to transition out of an active role in the business, money was not his primary concern. He looked into an employee stock ownership plan (ESOP), which transfers some or all of the ownership of the company to the employees and has a significant tax advantage for the business going forward.
On Jan. 1, 2015, Stewart and his partner and co-founder, Dennis Nuttman, completed the transaction and SolarCraft is now 100 percent employee owned. While no longer owners, Stewart and Nuttman serve on SolarCraft's board of directors.
Stewart pointed out that they had more lucrative offers to sell to larger companies. Some of his friends who owned solar businesses at that time did sell and later told him it was the worst decision of their life. More often than not, the new owners were just trying to milk the business for a quick profit to pay back their investment and not committed to the original mission.
Putting together an ESOP deal is not a simple undertaking. Stewart said that there were challenges of communicating the benefits of ownership to the employees. In addition, when they went to get an independent valuation of the company by an investment bank, the valuation came in very high. He worried that the debt burden might not have been sustainable.
They opted for another valuation from an independent company with more experience in ESOPs, and that one came in at a figure that both parties agreed was more realistic.
SUN LIGHT & POWER
Gary Gerber, CEO of Sun Light & Power, the oldest solar company in the Bay Area, took the first solar class that University of California, Berkeley, offered in 1973 as a mechanical-engineering class. He decided to take the class after realizing that solar and wind were the way of the future, because they were the only sources of energy that did not have a limited fuel source that could sooner or later be depleted.
Two years later he was going for his master's degree and was the teaching assistant for the same class. At the end of his class after learning that a local architectural firm was designing some early solar homes, but couldn't get anyone to build them, he said that he was starting a solar business and asked for a show of hands for anyone wanted to join him. Two people raised their hands and Sun Light & Power was formed shortly thereafter.
According to Gerber, while they did some passive solar homes in the early days and some custom-designed solar hot water heating, the majority of the work was for swimming pools and servicing systems that were installed by other vendors who did not care as much about quality and maintenance. Over the years, Berkeley-based Sun Light & Power has done every kind of solar installation, but they now focus on multifamily affordable-housing developments, schools, and some commercial buildings.
Gerber said that moving to employee ownership was a personal decision based on how he has been building the company, hiring people of ability who also shared the company's mission of “supporting the human spirit and preserving the planet's resources for future generations.” He wanted a structure that truly engaged the employees' participation and so he chose what he refers to as a “BESOPerative,” a B corporation that is also an ESOP with a cooperative governance structure.
It has not been easy to put together, requiring time, money, and attorneys. The transfer of ownership should take place early next year with a buy-out period of eight years.
John Parry put in his first solar system when he was in college in 1979. In 1985 he started Solar Works, which is headquartered in Sebastopol. A smaller company than either SolarCraft or Sun Light & Power, Solar Works does mostly residential and small commercial installations.
Although he would also like to transfer business ownership to his employees, he sees a few obstacles that need to be overcome first. First, he and his wife Laura Goldman play crucial roles in running the business that no current staff member is ready to fill, so it will take staff development and training to make a smooth transition.
The company has a line of credit that is secured against his house, so that financing will need to be replaced. Also, he feels that the ESOP model is too expensive for a small business like his, but he is working with a B corp consultant to put together an alternative structure to transfer ownership to employees. He thinks it will take another three years to complete the transition.
Parry, Gerber and Stewart all see uncertainty for the solar market in the near term, but they also agree that despite these challenges, there will be a bright future for their employees and local solar.