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Blue Ridge Paper Products Inc.
A Democratic ESOP


Blue Ridge Paper Products Inc., A Democratic ESOP

© 2001 GEO, P.O. Box 115, Riverdale, MD 20738-0115

GEO Editor Bill Caspary visited Frank Adams in July and returned with this story.

A democratic E.S.O.P. (Employee Stock Ownership Plan) is characterized by: 1) workers owning a major percentage of shares, 2) having representation on the Board of Directors, and 3) having a voice in major policy decisions on a one-person, one-vote basis.

In October, 1997, Champion International Corp, of Stamford, CT, then an independent multinational paper maker, announced that its DairyPak Division with two sprawling paper mills in western North Carolina and finishing plants in five other states, was for sale.

At the time, Champion was the largest employer in western North Carolina with 2,100 employees at its Canton and Waynesville manufacturing plants, and an $82 million annual payroll. Earlier this year (2000), Champion's long-time rival, International Paper, bought and merged Champion's other assets into its corporate operations. As the news of the sale broke, workers and their communities faced a possible shutdown, with disastrous economic consequences, or a new absentee owner.


Shortly before that time, Frank Adams, long an organizer of worker ownership and self-management projects, had settled nearby in Asheville. Frank, with several colleagues, opened SACCO, the Southern Appalachian Center for Cooperative Ownership, a consulting firm to provide for and support democratic firms, either as workers' cooperatives, or through employee stock ownership plans. Frank contacted leaders of Smoky Mountain Local 507 of the International Paperworkers Union—since reorganized and renamed PACE, the Paper, Allied-Industrial, Chemical Energy Workers International Union. He learned that the workers already had discussed buying the plant and running it democratically, but they had no idea how to undertake such an effort. The union, after checking Frank's credentials with other unions with whom he had worked, welcomed Frank's expertise. A productive relationship was quickly established. The buyout involved serious risks, including obsolete and dangerous equipment, uncertain markets, and Champion's long history of difficulties meeting environmental impact standards. Nonetheless, on balance saving the plant for its workers seemed a worthwhile commitment.


The local's executive committee consisting of six veteran contract negotiators with experience in conflict-resolution and mediation formed the ESOP Research Committee. Their first challenge was to convince their employer that they were serious bidders. At the same time, they had to master the complexities of how ESOPs can be used to buy workers a stake in the firm. This group reported faithfully to the union executive committee, and to meetings of rank and file members, within constraints placed on them by a strict confidentiality agreement that Champion officials insisted upon.

Frank's policy was never to act or to speak for the ESOP Research Committee, or any workers, but to provide the committee the expertise and the contacts that they needed to represent themselves. The ESOP Research Committee members read and debated a booklet Frank co-authored with Gary B. Hansen, ESOPs, Unions & The Rank and File, a summary of the essential legal characteristics of ESOPs. The union people were eager to acquire needed information and quick to learn it. It was union members who made presentations to investment bankers and eventually joined the bankers to negotiate terms of the sale with company officials. Finding the investment an attractive one, the venture capital providers undertook their own detailed feasibility studies. To acquire capital and negotiate terms with the company required overcoming obstacles and getting through bottlenecks. Nonetheless, through a combination of effort and skill, the entire process was completed in two years.

Workers named their new business Blue Ridge Paper Products, Inc., with headquarters in Asheville. Employee owners own 40% of the stock, senior managers own 10%, and investment bankers own the remainder. The ESOP Research Committee won three seats on the nine-person board of directors for union members, and insisted that non-union employees hold one seat.

The union committee negotiated a contract providing all owners a vote on any significant, extensive policy decision. Further, the union has a succession clause in its contract for the first time in its history. Should for any reason Blue Ridge Paper Products be sold, any new owner must recognize PACE as the collective bargaining agent for all currently enrolled union members. The contract also calls for a profit sharing plan to help offset pay reductions taken to buy shares through the ESOP. Finally, the contract establishes a joint labor-management committee to search for cost reductions company-wide but without cutting employment.


In the first fiscal year, Blue Ridge Papers bought added another finishing plant, buying an operation in Richmond, VA, and still paid down 27% of their debt. Worker earnings, including wages, benefits and profit shares, minus the contribution to the ESOP, nearly equal yearly wages before the buyout. Frank counseled the union for two years, until PACE members throughout the DairyPak Division voted to approve the contract, as required by law before the buyout was legal. Frank was proud to say as the final votes were tallied, "My job is finished."


A novel and exciting feature of this case was a worker-environmentalist coalition. For years, environmentalists had been protesting the air and water pollution due to the plant's paper production technology. The plant used 5 million gallons of water a day from the Pigeon River, which flows into eastern Tennessee, dumping toxin-laden water back into it. The Canton mill used several hundred tons of wood chips daily for its products, high-grade liquid packaging cartons and quality envelope papers. The long, contentious fight between Champion International, the environmentalists, and the E. P. A. would have made bankers and venture capitalists very leery of investing in the worker buyout. To meet this potential challenge head-on, the ESOP Research Committee invited regional and national environmentalists to explore their common interests. In addition to having a financial incentive for reducing pollution, the workers, like most of the environmentalists, were local residents with an obvious stake in clean air and water. Besides, the workers had intimate knowledge of the production process and could identify the most efficient clean-up methods. The environmentalists agreed to suspend their protests and to support the worker-buyout. The workers, in exchange, promised, as profits allowed, to undertake pollution mitigation strategies if they succeeded in buying the DairyPak Division.

These days, worker-owners and regional environmentalists meet regularly to tackle water and air quality issues. Financing water treatment processes to reduce or eliminate the chlorine used to bleach paper or to cut particulate emissions requires careful planning. A state agency has been invited in to certify the laboratory techniques for evaluating the water and air samples.


SACCO is another notable feature of this case. The private consulting firm is a workers' cooperative. After years of experience with non-profit worker democracy support organizations, including the ICA Group, and knowing their ceaseless struggles for funding, Frank experimented with a for-profit model. For the buyout, Frank negotiated an hourly fee for services, with a fractional percentage of the loans acquired to be paid to SACCO upon signing of a buy-sell agreement. This arrangement was acceptable to the union, and eventually, the lenders. This approach endows SACCO and its four owners with considerable financial flexibility. Since forming, SACCO owners have established a worker-owned house cleaning firm within a mental health agency, converted a restaurant and bakery from sole proprietorship to worker-ownership, and are currently helping to convert a custom design woolen rug manufacturer to a workers' cooperative.


The six union leaders who spearheaded the paper company buyout were named North Carolina's Volunteers of the Year by the State Department of Commerce, and honored by Gov. James B. Hunt. Their company remains a significant stimulus to a healthy economy in western North Carolina. What could have been an economic disaster for the workers and their communities has been transformed into a victory for community development and democracy.

SACCO: 12 1/2 Wall St., Suite 3, Asheville, NC 28801; 828-232-0632.

Blue Ridge Paper, Inc.:www.blueridgepaper.com

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©2001 GEO, P.O. Box 115, Riverdale, MD 20738-0115