A Culture of Stewardship at Hallam-ICS

Employee Stock Ownership Plans are qualified retirement plans that give employee owners a substantial financial stake in their workplace. They are an excellent means for sharing a company’s wealth among all of its employees but do not in themselves offer a model for shared decision making. This profile of Hallam-ICS serves as one example of how ESOP companies can create a culture of shared ownership beyond the financial benefit of the ESOP.

Hallam-ICS was founded in 1981 as Hallam Associates, PC by self-described “ski bum” Dave Hallam, a graduate of Norwich University. Besides ski bumming, Hallam spent the decade after graduation working a number of jobs, each of them leaving him eager for new challenges and opportunities. His career up to that point had certainly taught him some things about engineering but had also given him first-hand knowledge of how a company should not be run and some experience in being overworked and underpaid. He realized that in order to have a fulfilling career as part of a company that shared his values, he would need to start that company himself.

“I … did not feel that I had a voice in the direction of the companies where I worked,” Hallam shared last year in a blog post explaining why he started Hallam-ICS. “One frustrating part of these experiences was the complete lack of communication regarding the health of the businesses. There was no input from employees about any aspect of the business. Keep your head down, don’t ask questions and keep producing. Some years we would receive a bonus, other years none, no explanation, just frustration.”

Fast forward several years: Dave Hallam is running an increasingly successful engineering company, and one of the company’s employees, a 23-year-old employee named Keith, is pursuing an MBA taking evening classes at the University of Vermont. When Keith casually brings up an accounting project he’s working on in a conversation, Dave doesn’t hesitate before offering him access to Hallam’s financials to use for the class project.

“I’m kind of blown away,” recalls Keith Flaherty, now President and CEO of Hallam-ICS. “I’m a 23-year-old kid, and this owner of a company is offering to share his financials with me so that I can do my project? Is this normal?”

The commitment to trust and transparency that Dave demonstrated to Keith all those years ago remains at the heart of the company’s self-identity today. That commitment is reflected in the company’s ownership structure as well as its governance. At the root, however, is the philosophy of stewardship instilled in the company culture by its founder. In Dave’s own words: “Stewardship means that we each understand that this company is not ‘mine’, but that we are each entrusted, for a time, with the responsibility and benefits of this renewable resource.” In sharing company financials with Keith as a young employee, Dave was demonstrating and inviting Keith into such a culture of stewardship.

Staying Committed to Transparency

Dave stepped down from leadership in 2001, passing the reins to Keith just after he began transferring company ownership to the employees. Today, Hallam-ICS is a company of around 140 employee-owners headquartered in South Burlington, along with five additional offices nationwide. Each employee belongs to a company office and one of Hallam’s four service lines (engineering, controls and automation, commissioning and validation, and electrical safety services). Hallam has evolved but remains dedicated to the culture of shared stewardship and transparency established from its start.

Aside from being owned by its employees, Hallam-ICS isn’t structured much differently from other companies of its size. Governance reflects a common pattern with a board of directors at the top overseeing the CEO, who in turn manages a leadership team. Within that structure, however, the company has found ways to build out robust communication channels between management and employees even across service lines and vast geographical gaps.

“We like to think of ourselves as one office with long hallways,” Keith says. That means, among other things, regular virtual meetings with regional managers in other states. In the South Burlington office, the company’s largest, Keith practices an “open-cube” policy allowing employees to hear and see for themselves how the company is being led day to day.

“People hear me talking about any topic,” Keith says. ”I may be on with a senior manager, and we’re talking about the struggles that they’re having in terms of their profitability or their sales. These are discussions that people can overhear if they want to.”

In addition to open-cube, Hallam-ICS is also open-book, sharing the company’s financial information with employees. Both practices are motivated by the idea that in a company where decision-making is decentralized, it’s important that those decision-makers have a deep understanding of the business from both a financial and operational perspective.

Hallamizing Governance

On the day Hallam became employee-owned, the company added a seat to its board of directors for an employee representative. The Employee Stock Ownership Plan (ESOP) Representative is a two-year term for employees ready to learn more about the business, have a say in decisions, and get the valuable career experience of serving on a corporate board.

“It provides a channel for new ideas, from a completely different perspective that regularly exists on the board,” wrote former Hallam employee Chris Font while serving as the board’s ESOP Rep. “It allows individuals of various experience levels to “peek behind the curtain”, and experience how our organization operates. It ensures new issues, or issues that might not be experienced by the regular members of the Board are able to be addressed.”

Every board meeting agenda sets aside a 20-minute block for the ESOP Rep to bring up a topic or a question that is something important they’ve heard about from employees. Then, every company meeting (quarterly, like board meetings) begins with a review of what was discussed at the previous board meeting, including all agenda items and the topic chosen by the ESOP Rep. Additionally, the ESOP Rep hosts a quarterly “ESOP Open Forum” inviting employees to discuss ESOP topics.

“We don’t break into executive sessions,” Keith explains. “It really helps to pull back the curtain on corporate decision-making, because what these people learn when they come on for their two-year assignment is that there really are no secrets here. And when we have hard decisions, we work through them in very collegial discourse. We may not all be in agreement, but we listen to everyone’s opinions and thoughts to try to come to a solution.”

After noticing the profound growth and development of the ESOP Reps upon completing their terms on the board, the company added two more employee seats with the specific objective of building its future leaders from within the company.  Also two-year terms, these leadership development positions offer broad exposure to company operations and decision-making for employees ready to take on greater responsibility and unlock new opportunities for their careers. All three employee board seats carry voting rights for the somewhat rare instances where the 12-member board isn’t able to come to consensus over a decision.

Setting Expectations

Another way Hallam maintains its transparent culture is by clearly communicating non-negotiable company values (sharing of wealth, mutual respect, inclusivity) from the very first interview with potential hires. “It’s all about being open and honest,” says Keith. “If we’re not transparent as an organization, and you’re not transparent as a candidate, there’s bound to be a mismatch of expectations at some point.”

After an employee’s first nine months, Keith then meets with them to check that their initial experience at the company matches what was communicated to them during the hiring process. Keith also holds general company forums for employees to hear updates and discuss concerns in between quarterly board meetings. First created as a way to keep people up to speed during the early stages of the COVID-19 pandemic, the forums remain popular with employees, with meetings often attended by around half of all employees.

“When you have 140 employee-owners in offices that range from Burlington, VT down to Raleigh, NC down to Austin, TX, you’re going to run into different political beliefs,” Keith says. “And that’s okay. We’re not trying to create a group that’s 100% in agreement on all topics.”

When it comes to the core values, however, Keith says employees that aren’t aligned don’t tend to stay with the company for long. “I have a couple of guys in mind who were not into the shared wealth concept, and they opted out. The culture kind of opts them out at some point.”

In addition to aligned values and social mission, Hallam looks for people with an ownership mindset when hiring, expecting that employee owners will be able to carry their own weight and deliver on projects in the absence of micromanagement. The company expects employees to act like owners and wants them to feel like owners as well. “And not because we’re an ESOP,” Keith adds. “We had an ownership mentality from the day I started at Hallam.”

Employee Ownership

While the ESOP itself may not be responsible for the company’s ownership culture, it is a key financial benefit. Over the past two decades, Hallam has contributed around $4 million to employees in ESOP payments while the company’s value has compounded 18% per year over the last 10 years. Employees who stay with the company long enough to become vested owners eventually experience the tremendous impact of the ownership right to profit.

Like most ESOPs, however, Hallam does not offer each employee-owner the right of control. “From a governance standpoint,” Keith explains, “one of the things that was communicated to us when we were transitioning to an ESOP was that the ESOP doesn’t make Hallam a democratic organization in every decision.” Decision-making at Hallam remains decentralized to a degree, as it had been prior to the ESOP. But on the day Hallam became employee-owned, each person still had their same areas of responsibility and authority as the day before.

As we explored in our review of the 1996 book, The Ownership of Enterprise, employee-owned companies with diverse workforces tend to offer employee-owners the right to profits, exposing them to the upside of the company’s success, while holding the right to control at the board level. Diversity in this case refers to groups of employees who have different, possibly competing interests in the company that could emerge as conflict when making collective decisions.

As a company comprising four service lines and six offices spread throughout the northeast, southeast, and southwest, Hallam has opted to use the board’s authority to make decisions in alignment with core company values. But unlike many companies, such as those Dave Hallam worked for in the 1970s, Hallam-ICS rejects secrecy and the one-directional top-down approach. The company has opened up a quarter of its board seats to highly-engaged employees and adopted numerous practices promoting bidirectional communication between employees and company leadership.

More than any such governance structure or participatory program, however, Keith locates the secret to Hallam’s ownership culture at the microscopic level. “It’s more about what is in the DNA of the organization. And how do you create that DNA and how do you proliferate that over time?”