The Power of Employee Ownership in Construction

Bill Duguay spent years inside a heavy civil contractor that sold itself to its own people, and he does not pretend the deal was simple. In this first episode of the Construction ESOP Podcast, the former President and CEO of J.D. Abrams walks through what an ESOP transaction actually demands of an employee-owned contractor: the surety negotiation nobody warns you about, the debt maturation curve that reshapes the balance sheet, and the long grind of making ownership feel real to people in the field. He is now a Certified EOS Implementer, which gives him an unusual double view of the transaction and the decade that follows it.

About J.D. Abrams

J.D. Abrams is a heavy civil contractor headquartered in Austin, Texas, building highway and infrastructure work across Texas and into the Gulf South. A second-generation family business running well over $100 million a year with several hundred people in the field, it turned down approaches from multinationals and strategic buyers and converted to 100 percent employee ownership instead. Bill Duguay joined as an area manager, moved up through vice president to President and CEO, and was inside the business for six or seven years before the conversion.

What we covered

Why the surety conversation has to start in lockstep with the ESOP advisors rather than after the fact
Primacy of debt service, and why the trust sits last in line behind vendors, subcontractors and bond holders
The eighteen-month run-up to the transaction, and what still caught an experienced operator off guard
Assembling the advisory team: attorney, trustee, TPA, valuation, seller-side tax planning
The advisor nobody hires, the one who prepares the seller for life after the liquidity event
What the field actually felt in the first two years, when the account balance still looks like funny money
Professionalizing the board before the transaction instead of after it
How board skill requirements change through debt paydown, diversification and repurchase obligations
Safety as a human systems problem rather than an academic one
Where EOS fits for contractors who already think in schedules, budgets and sequences

Key takeaways

Start the surety conversation at the same time as the ESOP conversation. What matters is usually one or two lines about who has primacy of debt service, and the surety is protecting the project owner's interest, not the trust.
Build the board before the transaction, not after it. An informal advisory board of bankers, lawyers and golf buddies will not give a CEO the challenge the next chapter requires, and it will not look good to the DOL.
Adult learners need to hear something roughly seven times before it registers. Leaders get tired of repeating the ownership message long before the field has actually absorbed it.
The first two years feel like funny money. Ownership becomes real when someone leaves with a check or a statement balance starts moving without them doing anything but showing up.
Safety is a human systems problem, not an academic one. Put it on the leaderboard and it becomes who you are rather than something you track.
The best thing a founder can leave behind is a business that runs without them. An ESOP will not fix a company that was only ever held together by one person's network and instincts.

Full transcript

Bill Duguay: Why? Do they value the leadership team? They want to reward the people that actually built the business. And I'm going to also throw this out there: have they built a business that can run without them? This is one of the things that is under-recognized in what I do with EOS and the board work. Many businesses rely on the founder, their ego, their emotions, their knowledge, their network, their resources, their entry into different rooms that might not exist in the leadership team. How do we undo those things so that the business, the ultimate gift, not just the ESOP, is that the ESOP can thrive without them?

Chuck Mazzanti: Welcome to the Construction ESOP Collective. I'm Chuck Mazzanti, Senior Vice President at Christensen Group Insurance, and this is the show where we explore the wins, challenges and real-world lessons of employee ownership in construction. Each episode brings insights from CFOs, former owners and employee owners who are building something bigger together. Today's episode features Bill Duguay, former CEO of J.D. Abrams and now an EOS Implementer. He's lived the transition from leading a construction company through an ESOP to helping other companies build the operating discipline to sustain it. We dig into what actually changes once employees become owners, from board leadership and safety culture to the communication habits that make or break the whole thing. If you're a contractor thinking about succession, or wondering what life looks like on the other side of an ESOP transition, Bill's been through it and he doesn't sugarcoat it. Bill, welcome to the Construction ESOP Collective. I'm thrilled to have you on.

Bill Duguay: Chuck, I really appreciate you offering to spend some time with me today and having me join you in a conversation. Thank you.

Chuck Mazzanti: Our relationship is a short one thus far. I think we've known each other for maybe the better part of a month and a half via LinkedIn. You're a prime example of the power of what LinkedIn can be for relationship building.

Bill Duguay: It truly is amazing. Just a minute ago we were talking about COVID and how COVID changed relationships and our willingness to be more virtual, realizing that we could be anywhere. There are wonderful people we might not have crossed paths with in the past, and LinkedIn and moving more virtual certainly opened my eyes, and a lot of other folks' eyes, that it's a wonderful community to be part of. LinkedIn is helping open more doors and have even deeper conversations like ours. I appreciate that.

Chuck Mazzanti: Likewise. I'd like to give our audience a ten-thousand-foot view of who Bill is, your path through construction, and where you're at today.

Bill Duguay: My first entry to construction was working for my dad, who was a town employee. As soon as he got off work and I got out of school, we were doing home remodels, in the wintertime fitting out basements and converting garages, and in the summertime doing all kinds of landscaping work. My first exposure was sweeping, picking up and straightening nails, back in the day when sixteen-penny duplex nails were expensive and you actually reused them. Toting cement, mixing mortar, all that kind of stuff. That work ethic at an early age set me on a career through engineering school, which I was fortunate to pay for myself without any debt. Pretty unusual today. My first job was actually with the Connecticut DOT. A terrible thing happened in Connecticut back then. States weren't investing in infrastructure, and the Mianus River Bridge fell down on I-95 and multiple folks lost their lives driving off of it. That brought focus to infrastructure. So my first job out of college was working for the Connecticut DOT as an entry-level engineer. From there I worked my way up, from smaller family-owned businesses and set-aside minority-owned businesses to pretty large family-owned businesses, and found myself working for a large civil contractor in Texas, J.D. Abrams. I started as an area manager handling the Southeast and into Louisiana, and continued to gain exposure in the organization through vice president and ultimately president and CEO. I got to work on a lot of cool jobs in a lot of different states. A willingness to move can open up so many opportunities, and I'm blessed with my wife that she loves adventure. We've been able to move multiple times over the course of my career, see wonderful things, different cultures, different people, and build a bunch of really cool stuff.

Chuck Mazzanti: Of all of that, what would you say is one of the top jobs you were a part of?

Bill Duguay: That's like picking your favorite child. As you get farther away from the job itself and the grind of pouring concrete, the memories tend to shift to the people, the relationships, the challenges you went through as a team. In the traveling years, many of the other folks on the jobs traveled as well. Out of those, it's the relationships. There's plenty of cool jobs. You might have seen my post last week about working on the Big Dig and rollerblading in the Ted Williams Tunnel with my then girlfriend, now wife. The technical challenges, the people relationships, the environmental challenges. I don't know if I have a favorite. They were all what I needed, and even more.

Chuck Mazzanti: All pieces to the overall puzzle. I'd like to focus some time on the heavy civil contractor you were a part of. It's my understanding you were there prior to them going ESOP, and then they went through the ESOP transition. Is that correct?

Bill Duguay: It is, yes. You're talking about Abrams in Austin. Second-generation family-owned business, and the second generation had always had a vested interest in the people that helped them build the business. They had started being approached by multinationals who were looking to invest in the states, and larger firms or even smaller firms looking to buy. To the testament of their values and their belief in the team, they said, no, we're going to convert to an ESOP. I think I was there six or seven years before they decided to convert to a hundred percent ESOP. It probably took a year and a half of a lot of behind-the-scenes work, some of which I was part of, some of which I wasn't. It was an amazing experience. One, the faith of the sellers and the family and the leadership team. And the mechanics of the transaction, the liquidity event, which is pretty complicated. The first time going through it I was a little overwhelmed, quite frankly. Even many years later with a lot more experience in it, it's still a complicated deal. For any seller or founder to approach that and stick with it is a testament to their belief in the people who helped them build the organization.

Chuck Mazzanti: What was the biggest surprise to you personally? Most people I talk to, even my own experience being part of an ESOP-owned company before joining, I knew of it but I didn't really know much.

Bill Duguay: My goodness, there's probably a bunch. I had a concept in my mind of what it was and how it operated, but really had no insight into the mechanics or the complexity of how an ESOP operates, what goes into a transaction, the life cycle of an ESOP as it grows and matures, and the employee owner's role in the ESOP. I might have thought we're going to have a say in the company, or we're going to be more involved in strategy. Some of that is true in concept, but not true in operations. Just the mechanics of how an ESOP works. I didn't really have an understanding of how the debt cycle works, the debt load the company's taking on and what that might look like. It's a complicated deal, and until you're really into it I'm not sure how well you can understand it reading about it or going to conferences about it. That first-hand lived experience is like, my goodness, there's a lot going on.

Chuck Mazzanti: A hundred percent. Were you privy to the conversations with the surety? Being a heavy civil contractor, I'd have to assume a lot if not all your work was bonded. That's one of the biggest risks and biggest concerns of going ESOP. It flips the balance sheet, and there's so much minutia there that if the agent doesn't understand it, if the surety doesn't understand it and it's not communicated correctly and early, it could really be disruptive to contractors that are dependent on the surety.

Bill Duguay: You're absolutely right. The surety agreement can be a stickler. For anybody who's doing bonded work and having payment and performance bonds or bid bonds, start those conversations pretty much lockstep with any of the other conversations you might be having with your ESOP professionals, to understand their take on the risk and the pro forma agreements. Many times it comes down to one or two lines of who has primacy of debt service. Is it vendors, subcontractors, whoever the bond holder is, or is it the trust? They want to make sure that the other things have primacy of payout and that the trust is last. You just have to work through that language with them to understand primacy of payment, because they're there to protect the owner's interest, whoever the buyer of your services is, and not the trust, in their perspective. Today there are more and more sureties who have ESOP clients and are more familiar with the risk profile and what that means. Always in the background there's, well, how leveraged is the ESOP? At what point of maturity is it? How are they handling repurchase obligations? And just running a great business, which in the end lowers risk to the surety, which is really what they're trying to get a profile of. If you're highly indebted and leveraged, they might have a different view that you're more at risk.

Chuck Mazzanti: There are at least half a dozen advisors on these ESOP transactions. Are you going internal or external on the trustee, who's your attorney, and you have this new fiduciary risk. Sometimes you can get inundated with these people and it's just another friction point, because you're still running a hundred-plus-million-dollar civil contractor. That doesn't stop. The backlog's still there, you've got your WIP going. Was there one that stuck out where you thought, that ESOP lawyer was a lifesaver? Or was it all in concert together?

Bill Duguay: This is a great question. You're absolutely right, there are a lot of fingers in this pie of the transaction. You've got the lawyer, the trustee, whoever that might be, finding a TPA, somebody that set up the plan, the valuation folks, all the tax planners on the seller side who want to manage and predict the tax liability from the sell side, negotiating the terms and the lengths and all that. Every one of them is important, and pick your team well. You're going to the Super Bowl of transactions, so really pick your team well, and it's okay to interview several to get the team right. One thing that was missing, and maybe still is today, is who's the whisperer in the CEO or seller or leadership team's ear, not giving insight into the transaction itself or the valuation process, but helping them start to normalize what they're getting into. Truly understanding the debt service. Truly understanding that the seller technically doesn't own the company anymore, and what that's going to look like. Helping them round out the story that it's not just a legal transaction or a finance transaction. I get it, it is. But they're going to have to operationalize and execute post the liquidity event, and helping them prepare for that.

Chuck Mazzanti: On the employee side, all of a sudden you flip and you go from, I don't know how many you had in the field, five, seven hundred guys and gals, and now it's hey, you guys are employee owners. What was the feedback from the field, and how long did it take to see the buy-in?

Bill Duguay: The first is excitement. Ooh, we're employee owners, because it's bright and shiny and we don't really understand what it is, but it sounds bright and shiny. It's got to be good because we didn't have that before. The hard part comes in how do we communicate it. It's a complicated deal, and most folks and most organizations are not finance people. Hitting them with facts and figures and finances is just talking a different language. So you've got to break it down in a way that people can understand and buy into. Because the first couple of years, before you get a statement, it's like funny money. I don't know what's in it for me. I don't see anything different. I don't feel anything different. Nothing showed up in my paycheck different. So we're trying to bring tangible value to something that feels intangible. Here's something from the work I do with clients today: adult learners need to be told at least seven times before they hear it for the first time. If you're a leader, by time two or three you're probably worn out telling people and you're thinking, why do I have to tell a grown person this seven times? Well, that's reality, go do it, and everybody will be better for it. So it's consistent messaging. What it means, how it affects them, their role in influencing it, engaging them in daily behaviors and outcomes that at some point are going to create amazing wealth for them. That's the hard part the first couple of years, before somebody gets paid out a de minimis payment. They left the organization and they got a check for five or ten grand, whatever it is, and they're like, yeah, there's real money here. Or after a couple of years they see, well, I started off with a hundred bucks in my account and all of a sudden it's a thousand, and I didn't have to do anything but show up and do what was asked of me. It starts to become real and tangible. There are resources out there now that help them project, hey, if you stay here for twenty years, here's what could potentially be your cut of this pie. It can be transformative wealth for many people in construction and the trades, to just show up, contribute, be part of it, help the company thrive, and you'll thrive as well. The big part is getting in front of your people from the leadership team, and a functioning ESOP committee, which means different things for every organization, to make sure people throughout the organization have a voice and get different insight into what's going on and how it operates. In many ways be that bridge between leadership and the front line, through those respected leaders that every organization has.

Chuck Mazzanti: If you could teleport back to that first year or two into the ESOP, is there one thing you would have done differently to help communicate the importance of these employees now being employee owners, and the true wealth it can give them and their families if they stick with it? It's not a get-rich-quick scheme, it's longevity, it's a retirement benefit.

Bill Duguay: I'm speaking in generalities here. There are different kinds of businesses that transition to ESOP. Some of them I'm going to call lifestyle businesses, where they might have been closely held in the family and they're doing okay, bumping along, and all of a sudden, hey, what am I going to do next? Or there's some kind of life event coming up or succession planning, and, well, let's do the ESOP thing, and nothing really changes. Well, there wasn't really a plan before, because it was a lifestyle business. What I'm calling a lifestyle business is low effort, but it's generating returns and driving cash flow, and we're just showing up doing our job every day and it seems like it works out. There are a lot of businesses like that, and they're successful, and good for them. There are other businesses that have clear defined plans, what they want to achieve near term, mid term and longer term, and they align decisions, resources and people around achieving those goals. What I've seen is if you're the first one to have the control in place to really buy into a plan, a future when there hasn't been one before, that might be kind of tough. Because, well, it was the seller's deal and we just showed up and he was happy with us and we made money and everything was good. That's not how ESOPs work. I guess they can, but they won't truly drive generational wealth for employee owners, because people are just showing up doing their thing. If I was able to teleport back, or if anybody's thinking about the future, build some kind of structure in place so that there are organizational goals communicated throughout the organization that people can get aligned behind, to the point where they know their role, they know why it matters, they know how they can contribute. When those things are in place, everything falls into place. It's a whole lot easier and off you go. It's amazing.

Chuck Mazzanti: There are companies like Bob Whalen with HB Global, these crazy stories. When they were trucking along it was a great business in its own right, maybe 10, 20, 30 million bucks in revenue and a hundred people in the field, and then they go ESOP and this is another initially perceived headache to manage. Then you look 10, 12, 15 years later and in their case I think they're up to 1,700 employees and 20 acquisitions. It's interesting to see people take the power of the ESOP to help them scale their business to the next level, and in doing so the benefit that brings to the employee owners can truly be life changing.

Bill Duguay: It is life changing, not just for the employee owners but potentially for the communities the organizations operate in, because the wealth stayed there and multiplied in the community instead of living with a handful of people. We need entrepreneurs to start businesses and get them off the ground and thrive, and at some point converting to employee ownership makes sense for the founder sellers. Get focused, have a plan, be intentional with it, and look what they did. It's amazing. And not only that, I think it's repeatable.

Chuck Mazzanti: Success leaves clues, and that's the point of this podcast. Having people like you who have seen it from not being an ESOP to the transition and the planning of getting ready, because you don't just flip a switch. It's a lot of planning, meeting with bankers, getting everything situated, making sure the founding sellers get taken care of.

Bill Duguay: There you go.

Chuck Mazzanti: It's their right to get the liquidity event to set their families up. You can't expect it to be a charity case. It's got to measure up close to what private equity is going to offer, or a strategic buyer, or a publicly traded firm.

Bill Duguay: Absolutely. The transaction has to be for a reasonable market price. No fingers on the scale.

Chuck Mazzanti: One of the challenges I see, especially with privately held construction firms, is usually the grandfather started it and now it's second generation, or it's first generation and they've been going along for twenty years, and the true top decision makers are a small pool. Now they go with the ESOP transaction and there's all this nuance. You've been on the board, you help manage boards now, you sit on other boards. I'd love for you to talk about the importance and the thought behind choosing the board members for a newly transacted ESOP, because that could either be the rocket fuel for them or the unintended drag if you don't take it seriously.

Bill Duguay: This is a key point, and I would ask you to reconsider part of what you said. What I heard you say was post-transaction, be thinking about the board. My suggestion would be, if you're thinking about a transaction, be thinking about your board. What I've seen time and time again, what you described, second generation, third generation family ownership. Who's on the board? Many times it's leaders of management, might be your banker, might be your lawyer, your golf buddy. It might not be formalized yet, might still be kind of an advisory board where we run through it and then it's, hey, we've got a steak dinner planned for twelve o'clock, so we've got to wrap this thing up. They don't have structure, they're not challenging the CEO, and it's kind of a check the box. If that works, whatever works for you, I'm not a lawyer, do what works for you. What I'm asking is that if you're going to have this kind of liquidity event coming up, which is a big deal and is overseen by the DOL, who can be very friendly or can be not very friendly depending on how well you execute this, be thinking about the board at the same time. Who should be on our board? How do we professionalize it, get the skills we need on the board to help us through this? Maybe they lived it, maybe they operated it, maybe they're in that ecosphere of this kind of deal making, even if they're not working for us. Start thinking about how do we professionalize the board, skill sets, doing skill matrices. Having that as another resource for the CEO, founder, seller and the leadership team through a pretty, I don't want to say tumultuous, process. It bumps along and it's done, and those folks leave, and now you're like, now what? To be that bridge between the before, the day of, and starting to move to the execution phase and operationalizing an ESOP, and then to continue to develop the board skills and competencies as the business needs them.

Chuck Mazzanti: There are so many life cycles to an ESOP. You get a new one, the balance sheet's flipped, you're trying to pay the debt down as quickly as possible. Depending on the structure, partial ESOP, 100 percent, S corp, there are some real tax savings, so now you want to deploy that. But then the repurchase obligations start to mount as you become a mature ESOP, and that could be a real liability if it's not managed correctly, especially in a cyclical business like construction. If the repurchase obligations come up right when there's a downturn, that could put a serious strain on the business. What's your professional opinion on stress testing the board members through that journey? Maybe we want to go on an M&A spree with this tax-free cash. Maybe we have to add another board seat with expertise in the M&A space, or maybe we have to trim somebody off the board.

Bill Duguay: There's no one size fits all here, and here's why. My professional opinion, not a legal opinion, is that every ESOP regardless of size is going to go through a kind of predictable maturation stage. First off, we're an ESOP, nothing's really different, but at the end of the month, by the way, we've got a debt service. Then we start thinking about warrants or SARs, if those were part of the transaction, and the primary debt. Many of those deals are constructed so they're non-performing debt, where just interest is paid for some period of time, and then they're fully performing where principal starts to get paid. They give you a ramp of debt service. Everyone's different, and they all have different tails on debt service. As warrants come off, SARs start to grow, debt starts to go down, true value starts to be built into the ESOP, and we're getting rid of the de minimis stuff. Once it's ten years old and people can start to diversify, now there's a demand on cash potentially. At that point the repurchase obligation study should be happening, predicting what the impact on cash and liquidity is and seeing that out. Then when you layer on strategy, use of equity, use of capital, whether it's M&A or managing the debt service differently, that's a different skill set. So the board should reflect what the business and the CEO and leadership need for their next chapter. If it's paying down debt service and moving toward that maturation curve, fine. If they're at the point where they're thinking of M&A of some sort, which is real popular today in ESOPs and probably going to continue to pick up steam, then be thinking about culture fit, operational fit, how we look at debt, how we look at risk, and how we leverage all the things that are going well with the parent company as we start to think about bolting on other operational entities, so that it doesn't get diluted, it gets promoted. At the same time we've got to be thinking about something that's new for many leadership teams, just about all of them: how do we understand the valuation process, what goes into it, how do we operationalize it and make decisions every day on how we use equity or debt or other resources to continue to grow and protect the valuation? That becomes a pretty important nuance in that early maturation stage if the company's doing well and generating free cash flow where we have options to spend it. I'm not a fan of just having it sitting in the bank and having our current ratio be like three or four to one. I don't think that's necessarily good for a lot of companies, to just have it parked and not deployed somehow.

Chuck Mazzanti: Safety in construction is huge. I was listening to a couple of different podcasts you were on, and unless I heard it incorrectly, I think you had a serious scare, a life-changing event with your dad on a job site. He got electrocuted due to maybe improper lockout tagout. I'm biased because I'm so passionate about ESOPs in the construction space, but I'd be willing to put my money on ESOP-owned contractors outperforming their peers in almost every metric when all the things are going well. I think safety needs to be one of the top, if not the top, KPI for a construction firm, because if you do safety correctly that's the pace car for everything else to fall in line. Did you see a material difference in the field once employee owners started to buy in?

Bill Duguay: I believe there is, and here's a caveat. Sometimes with safety we think about safety performance. We have the finance side of our brains thinking EMR and loss runs and that kind of stuff. Then we have the human side thinking, are people truly going home safe and sound to their families and loved ones each and every day? Are we doing those things that can control external risk to the organization, from a GL or auto perspective? If we have the finance side coming into it, we can almost dehumanize our efforts to support our people to go home, and create systems and processes. I'm a huge fan of HOP today, human and organizational performance, on how we truly support our folks to go home safe and sound. We can understand as leaders there are financial implications to that, but how do we humanize it? If we go with the finance side and try to apply an academic approach to safety, it's going to fail or it's going to struggle, because it's not an academic problem. It's a human problem. It's a human systems problem. So absolutely yes. The more engaged people are in an ESOP around their outcomes, and feel in control of their outcomes and aligned toward organizational goals, absolutely that should be showing up in safety, it should be showing up in quality, it should be showing up in waste, it should be showing up in however you measure excellence. And I'm going to push back, Chuck. What I heard you say was, should KPIs around safety be showing up? They absolutely should. They should be on the leaderboard. Why do I say that? When it shows up on the leaderboard, it is who we are and what we do, and not just something we track.

Chuck Mazzanti: A hundred percent. I don't know if I misspoke, but I a hundred percent believe that as a KPI it should be the top. Without safety you don't have a company.

Bill Duguay: It'd be interesting to see the metric you're talking about, whether ESOPs outperform the general population from a safety perspective or a loss run perspective. I don't know how you'd normalize that against industries or size or maturity. But we're both fans of captives. How would you layer a captive on top of that? ESOPs and a captive. I've got to think they're probably top of class.

Chuck Mazzanti: These are conversations I'm having currently, and I don't want to make this too much about insurance, but it is a big line item, especially for bigger, heavier hazard contractors. It goes back to what I said earlier: most people in business have heard of ESOPs and employee ownership, but aside from that there are so many misconceptions. So I'm fighting with underwriters constantly saying, hey, if you're underwriting an ESOP-owned contractor, whether it's in a group captive, setting up a single parent captive, doing a large deductible or a retro program or guaranteed cost, if the ESOP is doing all the right things and turnover is lower and the employees understand that. If there's a drag on the P&L because insurance costs are higher than the competition, that's eroding margin at the bid level, because your costs are higher. If you're doing all the right things, that only helps the insurance carrier get more comfortable. Turnover is less. They're not going to put in the fraudulent Monday morning claim from playing football with the boys on Sunday, because they know that hurts the share price. They're only shooting themselves in the foot. And then yes, go into what I would call the Super Bowl of insurance, going into a sophisticated group captive or single parent. The purpose of that is it unplugs you out of the general population. Even if you have no losses, insurance is just pooling premium to pay for other people's losses. One of the benefits of the captive is you're being underwritten on your own merit from an actuarial standpoint. To give the numbers people more security with the underpinnings of just how the company is run makes them get a little bit more aggressive, and then the numbers bear out. You get return and dividends and investment income. I would love to come up with a master study, and maybe ten years from now I'll have it, but it's a bit of a horse to aggregate all that data.

Bill Duguay: We didn't hit on the deductible, the retained layers getting up there, three or four hundred grand. That's a lot of expense to measure. You have half a dozen incidents a year to hit that number, and it's really showing up in your balance sheet. The big part of that is when you go through those types of programs, it truly gives you ownership of your results. So when you go back to how do we operationalize, how do we communicate, whether it's safety, quality, poor performance, the ESOP, there's more intent to the why. Those shared risk pools are big motivators to get your house in order.

Chuck Mazzanti: It's a different feeling when you're sitting at a board meeting in a captive and you're the one driving the losses and causing shifting and sharing, versus being able to hide in a general guaranteed cost program. There's a peer group element. You were part of what I would say is the pinnacle of all group captives for contractors, ACIG.

Bill Duguay: Just an amazing experience working with the folks at ACIG and the other member contractors. Every time I was in that room I just felt stretched. What I thought I knew, getting out of there there's more to learn. It was a community of like-minded folks, just an incredible experience.

Chuck Mazzanti: I'd like to transition now. We have a pretty good understanding of Bill within the construction industry, but now you've been out of it for a bit and you're leading EOS, which I've seen in construction, both ESOPs and otherwise, is the premier training. I'd love to hear about what you're doing with EOS, and whether there's any intersection where it makes a lot of sense for ESOP-owned contractors, because maybe they're a little more used to being structured, and so bringing an additional layer of structure and measurement makes a lot of sense.

Bill Duguay: What got me interested in EOS is that I was making a transition from running work, even big work, to a leadership position, now focusing on running a business. I'm an engineer, licensed in multiple states, with baskets full of certifications, but none of that really got me ready to run a business. I was living in Austin, taking classes at the McCombs School of Business at their executive education center, and heard about EOS. It resonated with me. I guess I'm a road hand at heart. I needed systems and process that were simple and clear, that I could go start doing tomorrow. Started right before COVID, needed to come back to Massachusetts for family, and leaned into it full time. Where I see EOS working, EOS is the Entrepreneurial Operating System. I have ESOPs, non-ESOPs, construction, non-construction on both sides. I'm going to tell you my version of it. One, how do we make the business easier to run and to manage? That applies regardless of ESOP, non-ESOP, construction, non-construction. Two, how do we make it a better experience for the people actually doing the work and for our customers and clients? Three, which for me is key and why it resonates with contractors, how do we execute with predictability and repeatability in a way that grows enterprise value? That's my goal for my EOS clients, to help them do those three things. In EOS language we call it vision, traction, healthy. Why does it resonate with contractors? Contractors are used to having a plan, having a schedule, meeting schedules, meeting budgets. They're already in this framework of a system. What we're trying to do is systemize the business, similarly to how we might systemize a job. Clear and grub, staking, grade, subgrade, road base, whatever that is. We can lay that out for jobs or vertical stuff pretty easily because we're hardwired to do that. We're not as hardwired to do it for our business. That's where I come in, to help them get a grip on the business, build out that plan, where are we going, how are we going to get there, and operationalize it with a functional, healthy team.

Chuck Mazzanti: What does the process look like? I'm assuming there's quite a bit of fact finding, then an implementation plan, then you have to execute and reconcile, see what's going well and what has room for improvement. Can you walk us through the life cycle?

Bill Duguay: I use implementation more than training, but in the end that's what I'm there to do, teach them and train them to use a system. It goes quicker than you might think. I'm a contractor, so it's jump in and let's get dirty on day one. No beating around the bush. You're here, you're on the clock, I'm on the clock, let's go. We start with a ninety-minute meeting. I lay out EOS, what the process looks like, ask real questions and see if it's a good fit, because I'm not a good fit for everybody and not everybody's ready to run their business on a system. If they say yes, we get in a room for a full day five or six times a year and dive in. My goal is that in two years or so they're off on their own, flying free. Some clients make it quicker. Some clients I'm still with after years, just because they appreciate having a different voice in the room to drive accountability, manage the energy, hold up a mirror for them and run the meeting.

Chuck Mazzanti: When we first had our call last week, you also mentioned you may be embarking on a training program for boards of directors. I'd love to hear what you're cooking on that side.

Bill Duguay: Just like we were talking about earlier, getting the board in line with what the CEO and leadership needs. I've been on enough boards, or around enough boards, or talked with enough other board members to know that many boards are not operating at the level the CEO and the business need to prepare to write and execute their next chapter. I've been fortunate to be involved with the NCEO, the ESOP Association and other groups where there's a lot of governance material out there. Very similar to EOS: how do we operationalize the board? Do we have agendas? Do we have role clarity? Do we have feedback loops? Does everybody leave with clear commitment and buy-in and clarity around what's next? To bring board performance to a new level that's truly built for the next chapter of the business, and capable of giving the CEO feedback and guidance and accountability in an ESOP that the shareholders need. We've got it just about done. I'll have it running by this summer, to work with boards of ESOPs or non-ESOPs to help them professionalize the operational aspect of the board. I'm not a lawyer, I'm not going to give them that kind of guidance, but they have documents, articles of incorporation, a board charter. This is about how we actually do that work in a way that we own our seat. If we're honored to serve on a board, we're doing the work that needs to be done to own our seat: coming prepared, being a resource, challenging the CEO or the board chair, driving value creation, protecting value creation, and always thinking about writing our next chapter. When you think about who's on boards, there are professional board sitters who might be at a stage in their career where they're on half a dozen or more boards, and there are resume clickers who are on a board to bump their resume. Nothing against those. I'm leaning toward, what does the board truly need to look like, and how does it need to operate to support the next chapter of the business?

Chuck Mazzanti: There's not a ton of resources out there. There's literature, there are books, and that's fine, but someone with your expertise and life experience sharing that with these boards to help them operate at a higher level is needed. What would you say is the biggest misconception about construction ESOPs, to the general public or to owners out there who are eyeing retirement in the next five or ten years and don't have a succession plan in place? ESOPs aren't for everyone, and I'm not going to say they are, but if you're going to sell your baby of a multi-generation business, and you're only going to do it one time hopefully, I think you should vet every single option out there before you decide.

Bill Duguay: That it'll run by itself. And it doesn't. It's a big lift, and there are a lot of moving parts and pieces. Every founder, seller or potential seller should evaluate their options: managing their tax liability, their debt, future income, all those things for their family. Many of them have trusts set up that might need funding and all kinds of other financial instruments that will be pulled into the liquidity event. But also be thinking about the why. Do they value the leadership team? Do they want to reward the people that actually built the business? And I'm going to throw this out there: have they built a business that can run without them? This is one of the things that's under-recognized in what I do with EOS and the board work. Many businesses rely on the founder, their ego, their emotions, their knowledge, their network, their resources, their entry into different rooms that might not exist in the leadership team. How do we undo those things so that the business, the ultimate gift, not just the ESOP, is that the ESOP can thrive without them?

Chuck Mazzanti: It's a great point. Getting the next generation of leaders to keep carrying the torch forward and keep that ESOP alive for generations to come.

Bill Duguay: That's the nuance. It's a wonderful tool when you do those things. Anybody who's in that position where there isn't another level of family to hand a business down to, or they want to go to another level of sophistication, go have a conversation with an ESOP expert. I don't know that I'm one of those, even though I'm around them every day, but just walk through what would it mean, what does it look like, how do you even start, which can be kind of confusing as well. And how do you build a team once you start getting some comfort that it's a good idea for you and your family and the other shareholders or sellers?

Chuck Mazzanti: I think we can wrap it there. I really appreciate you coming on. How does the audience get a hold of you if they're interested in seeing whether you'd want to serve on their board, or they want their board to get better educated and maybe participate in your training program, or want to engage you on the EOS system?

Bill Duguay: LinkedIn is a great tool. We talked about that earlier. It's opened so many doors. I'm not on there all the time, but I'm hopefully visible enough. Or just drop me a line, you can find me online pretty easily in a search. Just like our conversations, who knows where it's going to go. Let's have a conversation. If I can help, that's wonderful. If I can't, I'm going to point you to somebody who I feel would be a great resource for you.

Chuck Mazzanti: You're a genuine guy. It's seriously a breath of fresh air. When you engage someone on LinkedIn you have these virtual coffees and then it's, what can you do for me, and it's a little disingenuous. You've been the opposite of that. I'm excited to see everything you're going to be doing, and I'm excited to follow your LinkedIn. You're doing the storytelling stuff, which is awesome. If you're not following Bill on LinkedIn, you'd better, because he's going to be educating us all with some cool stories from thirty years in the field.

Bill Duguay: Some of them are even suitable for work.

Chuck Mazzanti: We'll have a LinkedIn during the day and a LinkedIn after hours, so it'll encompass everything. Bill, thank you so much for being on the pod. Hopefully we can get you back, and super excited to see what you've got cooking next.

Bill Duguay: Chuck, I always appreciate our conversations and walk away better for them. I appreciate you.

Chuck Mazzanti: I appreciate you. Thanks for listening to the Construction ESOP Collective. If this was useful, follow the show and share it with a colleague. Join the conversation with me, Chuck Mazzanti, on LinkedIn, and find all episodes at constructionesopcollective.com. Until next time. Keep building ownership, one conversation at a time.

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Questions about how any of this applies to your company? Email Chuck at cmazzanti@constructionesopcollective.com and we can talk it through.