|Title||The South Bend Lathe Story: What Can We Learn from an ESOP "Failure?"|
|Year of Publication||1996|
South Bend Lathe, the bête noire of the ESOP movement, may forever hold the dubious distinction as the company where "owners went on strike against themselves." While this popular characterization has long diverted attention from the hidden issues involved, the South Bend Lathe experience offers a useful cautionary tale for companies seeking to build a lasting ownership culture.
Ironically, in terms of saving jobs and demonstrating the power of leveraged ESOP financing, the story of South Bend Lathe remains a landmark. South Bend Lathe was the world's first 100% employee-owned company that was purchased by 100% of its employees on a 100% capital credit, no-down-payment loan. It showed how a dying company could be transformed into a dynamic success. The company was profitable for most of the years following its employee buyout in 1975 when its 500 workers adopted their ESOP and saved their jobs. Arguably, without South Bend Lathe we may never have seen the successful ESOP buyouts at Weirton Steel, Avis Rent-A-Car, and United Airlines.
This model, however, also shows what can go wrong as long as management, unions, and workers cling to "wage-system" thinking. In August 1980, the world was shocked to hear that employee owners had gone on strike against top management who controlled the voting power of the company. The strike finally ended ten weeks later, even though many issues remained unresolved. Twelve years following the strike-after repeated downsizing, the shifting of operations overseas, and several changes in leadership-South Bend Lathe terminated its ESOP and was sold to a Los Angeles corporation.