Foldcraft Co.: Transformational Journey

Steve Sheppard

Chair and CEO, Foldcraft Co. (Retired)

CEO, Winds of Peace Foundation (Current)

IntroductionIntroduction

Incorporated 1948Incorporated 1948

100% Employee-Owned S Corp100% Employee-Owned S Corp 350 Members350 Members 4 Wholly-Owned Subsidiaries4 Wholly-Owned Subsidiaries

2006: $50MM Consolidated Sales2006: $50MM Consolidated Sales

Companies, Products, ServicesCompanies, Products, Services

TransformationalTransformational

Values-BasedValues-Based

Foldcraft Business ObjectivesFoldcraft Business Objectives

Grow Equity By 12% Per YearGrow Equity By 12% Per Year

Diversify Our BusinessDiversify Our Business

Manifest Employee OwnershipManifest Employee Ownership

Improve Competitively and GloballyImprove Competitively and Globally

Simple….But How?Simple….But How?

I. Welcome to the Reality of I. Welcome to the Reality of Employee OwnershipEmployee Ownership

What if…?What if…?

We could substantially increase the involvement and satisfaction We could substantially increase the involvement and satisfaction of our employees, and in the process afford better benefits, twice of our employees, and in the process afford better benefits, twice the retirement income of comparable companies and higher the retirement income of comparable companies and higher wages?wages?We could increase productivity at our company by an average of We could increase productivity at our company by an average of 5.3% annually?5.3% annually?There is a “magic pill” that could boost our investment rate of There is a “magic pill” that could boost our investment rate of return by 2.7% every year?return by 2.7% every year?There is an initiative that can increase sales, employment and There is an initiative that can increase sales, employment and sales/employee by 2.4%?sales/employee by 2.4%?We could increase the likelihood of the longevity of our firm by We could increase the likelihood of the longevity of our firm by 15.2%?15.2%?There could be a strategy that would better assure our firm would There could be a strategy that would better assure our firm would continue operating independently?continue operating independently?We could eliminate corporate income taxes?We could eliminate corporate income taxes?

What if…?What if…?

We were working for the benefit of ourselves We were working for the benefit of ourselves and our co-workers, not some absentee and our co-workers, not some absentee owners?owners?We had the opportunity to create real wealth We had the opportunity to create real wealth through owning equity?through owning equity?We could buy into owning a company without We could buy into owning a company without investing any of our own money?investing any of our own money?We woke up one day and realized that we really We woke up one day and realized that we really will become old and retire some day?will become old and retire some day?We had the opportunity to create twice as many We had the opportunity to create twice as many retirement bucks as the average worker?retirement bucks as the average worker?

What’s Different in an ESOP? What’s Different in an ESOP?

ExpectationsExpectations

Opportunity for Wealth-BuildingOpportunity for Wealth-Building

Covenant With Each OtherCovenant With Each Other

Corporate Culture IntrospectionCorporate Culture Introspection

Wider Focus on EmployeesWider Focus on Employees

Engaging, Teaching, Communicating, Engaging, Teaching, Communicating, Understanding the ESOPUnderstanding the ESOP

Ownership “Magic” Ownership “Magic”

Opportunity for Culture ShiftOpportunity for Culture Shift

Holistic DevelopmentHolistic Development

ParticipationParticipation

OwnershipOwnership

StewardshipStewardship

Membership in an organization means that we Membership in an organization means that we have have chosenchosen and accepted this playing field. This and accepted this playing field. This choice and acceptance becomes our contract. choice and acceptance becomes our contract. Our desires for compensation, self-expression, Our desires for compensation, self-expression, participation…whatever we want from a place…participation…whatever we want from a place…are viable only so long as we can commit to the are viable only so long as we can commit to the mission, results, constraints, principles, difficulties mission, results, constraints, principles, difficulties of the larger institution. If we cannot support of the larger institution. If we cannot support these requirements and boundaries, then we these requirements and boundaries, then we should leave. Stewardship offers more choice should leave. Stewardship offers more choice and control in exchange for a promise…. and control in exchange for a promise….

What I Promise to You:

*Open Book Management *Member Involvement *Stewardship *Servant Leadership *Listening *Vision *100 Best Companies *Change *Opportunity

What You Promise to Me:

*Partnership*Commitment*Participation*Attitude (Courtesy, Respect)*Body, Head, Heart*Change*Self-Management*Peer Pressure*Desire to Be All That You Can Be

ESOP NoteworthyESOP Noteworthy

Outstanding Employee-Owner in America, Outstanding Employee-Owner in America, 19931993

Outstanding Employee-Owner in Outstanding Employee-Owner in Minnesota, 1993, 1994,1996Minnesota, 1993, 1994,1996

Outstanding Employee-Owned Company Outstanding Employee-Owned Company in Minnesota, 1996, 1998in Minnesota, 1996, 1998

Outstanding Employee-Owned Company Outstanding Employee-Owned Company in America, 1998in America, 1998

Foldcraft StatisticsFoldcraft Statistics

47/200 Participants Own 6-Figure Accounts47/200 Participants Own 6-Figure Accounts

The Average of Those 6-Figure Accounts Is The Average of Those 6-Figure Accounts Is More Than $160,000More Than $160,000

30/47 Accounts Are Owned By Non-Managers30/47 Accounts Are Owned By Non-Managers

19 Accounts Are Owned By Factory 19 Accounts Are Owned By Factory Participants, 11 By OfficeParticipants, 11 By Office

Average of ALL 200 Accounts Is More Than Average of ALL 200 Accounts Is More Than $75,000$75,000

CORPORATE WELLNESS:CORPORATE WELLNESS:

I NTELLECTUALS OCIAL

E MOTIONALS PIRITUALO CCUPATIONALP HYSICAL

II. Open Book Management:II. Open Book Management:Chapter and VerseChapter and Verse

Chocolate Chip CookiesChocolate Chip Cookies

The Great Game of BusinessThe Great Game of Business

The School Desk CompanyThe School Desk Company

The ESOP HuddleThe ESOP Huddle

Weekly ClosesWeekly Closes

Individual Profit/Loss StatementsIndividual Profit/Loss Statements

White Boards, Hour-by-Hour ChartsWhite Boards, Hour-by-Hour Charts

III. Foldcraft’s Lean Journey

Pella Visit

5/98

Industry Week

publishes“Kaizen

Blitz”

9/97

Participatein Pella Event

6/98

1st Foldcraft Shopfloor

Event

8/98

Unleashing Ownership PotentialUnleashing Ownership Potential

Kaizen TeamsKaizen Teams

Inside and Outside, All MembersInside and Outside, All Members

Intense, Focused, Accountable (25%-Intense, Focused, Accountable (25%-50%-40%)50%-40%)

Educate, Facilitate, Elucidate, CelebrateEducate, Facilitate, Elucidate, Celebrate

Cara’s StoryCara’s Story

Foldcraft’s Lean Journey

1st Foldcraft Kaizen Event Results:

• Proved to ourselves that it could be done

•50% Floorspace Reduction

•66% WIP Reduction

•25% Productivity Increase

•The Vent!

Foldcraft’s Lean Journey

4/02

Tool & Die

BecomesProcessBuild

FoldcraftAcquires

BakerFurniture

4/02

KaizenComes

ToBaker

5/02

Results Achieved ‘98-Present:Results Achieved ‘98-Present:

• Process Lead-Time 66%• Floorspace 42,000 sq. ft.• Productivity 240% • Claims 48%• On-Time Ship 95.2% 99.3%• Significant product expansion

• Insourcing previously purchased items

Foldcraft’s Lean Journey

Kaizen Continues Every Day, Every Hour!

•Monthly Events•Point Kaizens•HOT Lab Work•Public Events•Hour-by-Hour Charts•White Boards•Etc.

Does It Make A Difference?

•Competition (Falcon)

•Customers (YUM!)

•Acquisitions (Millwork)

•Share Appreciation•Distributions

Cross Boundaries•Transformational•Educational Travel•Third-World Realities•Broadening Member Thinking•Educating Re: Diversities•Global/Cultural Sensitivities

Foldcraft Foundation

•Funded by Foldcraft•10% Pre-Tax Profit•Separate Member Board

•Established 1997

•Global Focus

IV. The Global ContextIV. The Global Context

Winds of Peace FoundationWinds of Peace Foundation

Martha Valle ValleMartha Valle Valle

Honduras ESOPHonduras ESOP

Organizational WorkshopsOrganizational Workshops

Q & AQ & A

Why It’s ImportantWhy It’s Important

Wellness IS ESOPWellness IS ESOP

The Have’s and the Have-Not’sThe Have’s and the Have-Not’s

Equity OwnershipEquity Ownership

Life Is ShortLife Is Short