Client Profile: The Accounting Group

Choosing Employee Ownership as the Way Forward for a Successful Young Company

Rob Scherer

By Emily Meyertholen

By choosing to become employee-owned, a company announces the underlying goals and motives of the organization. It represents shared responsibility, shared rewards and a collective commitment to success not often found in traditionally structured companies.

A shift toward employee ownership can happen for different reasons and at different critical turning points in a company’s development. In many cases, a company will see employee ownership as an excellent tool for recruiting and retaining the talent that is critical to the success of a startup. It’s also often discovered as an excellent vehicle for transferring ownership and ensuring a company’s continued success when it’s time for the founder to plan for his or her succession. And sometimes, as in the case of TAG of San Diego, it happens after a young company becomes established, enjoys success and realizes the power that shared ownership can have not only in boosting the company toward its next stage of growth, but in maintaining a team of motivated long-term employees with a real commitment to the company’s clients.

In 1996, Robert J. Scherer founded TAG as two separate companies: The Accounting Group and Next Stage Software. He saw a need for outsourced accounting, financial and software services for the large number of small- and mid-sized businesses which were growing rapidly without scaling up or maintaining their accounting functions. He developed a new outsourcing model: applying a big-company approach to accounting and finance to small businesses. As the approach proved successful and the firm grew, he began recruiting practitioners to fit into his model of customized financial counsel and services.

Today, TAG has 35 employees and over 300 clients spread across its three primary practice areas: outsourced accounting, accounting software and high-net-worth family accounting. The company has grown by an average of 50 percent over the past two years and has acquired two other companies: Contractor Software Corporation (CSC), a San Diego-based firm providing job cost accounting software to the construction industry; and McKean Financial, a La Jolla-based firm providing comprehensive personal financial services.

After hearing about the concept of employee ownership from peers, Scherer began researching the topic and came across Dr. J. Robert Beyster’s book “The SAIC Solution", which tells SAIC’s ownership-led entrepreneurial success story. The book inspired Scherer and TAG vice-president Steve Bond to restructure the company’s business model and transform TAG into an entrepreneurial company whose success is driven by the commitment and longevity of its employees.

“TAG’s mission is to contribute to the long-term success of every client we serve,” says Scherer. “In our experience, relationships become more effective and innovative over time. Employee ownership allows us to solidify our commitment to our employees and, in turn, our clients.”

The decision was not made in haste. On the contrary, Scherer and his management team consulted other business leaders and sought advice on the concept before deciding to proceed.

“In total, it took us almost 18 months to fully implement our employee ownership program,” says Scherer. “Initially, we defined our objectives and then used various counsel to design a comprehensive plan to meet our goals. We also consulted with companies that have been through the process, and we also pulled a lot from SAIC. In general, all of our business partners thought it would be a positive step forward for our company, but we were also advised of the potential downside risk of implementing employee ownership. After extensive consultation with a Beyster Institute consultant, we concluded that the benefits provided by employee ownership significantly outweigh the risks.”

TAG established an employee stock ownership plan (ESOP) and also awards stock options to employees. The ESOP provides significant tax advantages for the company and serves as a long-term retirement plan for employees, while the stock options can be allocated at the company’s discretion and can be cashed out more easily by employee-owners.

“The one constant of our plan is that it is fluid,” says Scherer. “What we have in place today could be completely different a few years from now as our business continues to grow. A unique aspect of our model is that we wanted our employees to have stock both inside and outside of the ESOP – this allows our employees to have shares in hand to turn into cash as well as shares within a qualified retirement plan. Finally, we have stock that is distributed to employees from a discretionary pool based on performance and entrepreneurial excellence.”

All of TAG’s 35 employees share ownership in the company, and over the next seven to 10 years Scherer wants to see 40 to 50 percent of the company in employee hands.

“As TAG continues expand through strategic acquisitions designed to enhance our company’s scope of services, we designed our employee ownership plan to be flexible enough to evolve as our company evolves,” he says.

TAG’s employee-owned status is important not only in developing an entrepreneurial spirit among employees, but also in confirming its commitment to existing and prospective clients.

“We learned very early on that the value of employee ownership fades if it is not consistently communicated as part of the brand – both internal and external,” says TAG executive vice president Steve Bond. "To our employees, the ubiquitous ‘employee-owner’ terminology sustains what we attempt to inspire in them during our quarterly meetings. To our clients, the ‘employee-owned’ brand serves to differentiate us from competition while projecting commitment and entrepreneurship. In our industry, we are competing with temporary staffing firms and independent consultants. Our employee-owned status shows our commitment to the clients we serve because our employees have a long-term vested interest in client satisfaction and growth.”

TAG also ensures that employee-owners are consistently involved in and informed of the company’s progress, which is key to making the employee ownership strategy work. TAG holds quarterly shareholder meetings to discuss the financial standing of the company so employees can see where they are and where they need to go.

“This level of financial and operational transparency allows our employees to understand how they contribute to our key performance metrics, which impact share price and ultimately affect their personal wealth,” says Scherer. “We want our employees to realize that everything they do on a day-to-day basis affects the bottom line of the company. We continue to find ways to extend the ownership mentality through the organization.”

“Since implementing our employee ownership plan, we have noticed a renewed commitment to the well-being of the company,” says Bond. “The ESOP has ignited an entrepreneurial spirit in our employees and has created a new level of accountability among peers. It has given our employees a better vision of where we want our company to be in ten years and the specific steps they can take to help TAG achieve its goals. It has been a very positive change in our culture and has reaffirmed our commitment to the enrichment of all of our key stakeholders, both clients and employees.”

We look forward to watching this team of owners continue to develop their company and its culture of ownership.