CLEWISTON, Fla. — Thousands of workers
at U.S. Sugar thought they were getting a good deal when the company
shelved their pension plan and gave them stock for their retirement
instead. They had a heady sense of controlling their own destiny as
they became the company’s biggest shareholders, Vic McCorvey, a
former farm manager there, said.
“It was always stressed to me, as
manager of that 20,000-acre farm, that the better you do, the higher
your stock will be and the more retirement you could get,” Mr.
McCorvey said. “That’s why I worked six and seven days a week, 14
hours a day,” slogging through wet and buggy cane fields, doing
whatever it took.
Now that many U.S. Sugar workers are
reaching retirement age, though, the company has been cashing them
out of the retirement plan at a much lower price than they could
have received. Unknown to them, an outside investor was offering to
buy the company — and their shares — for far more. Longtime
employees say they have lost out on tens of thousands of dollars
each and millions of dollars as a group, while insiders of the
company came out ahead.
Some former U.S. Sugar employees have
since filed a lawsuit accusing company insiders of cheating them out
of money that was rightfully theirs. Throughout, the worker-owners
have been shut out of information about the company’s finances and
unable to challenge management’s moves or vote because their shares
were held through a retirement plan, not directly.
What has happened at U.S. Sugar could
happen at many other companies because of a type of retirement plan
that proliferated in the 1980s, after powerful members of Congress
took an interest in “worker ownership” as a way to improve
Thousands of companies, large and
small, embraced the ensuing tax benefits by creating employee stock
ownership plans, known as ESOPs. U.S. Sugar, the largest American
producer of cane sugar, took its stock off the public market in the
transaction that created its ESOP, in 1983.
Nearly 95 percent of the country’s
10,000 ESOPs are now at privately held companies, like U.S. Sugar.
Because their shares are not publicly traded, there is no market
price. So workers cash out shares without knowing what the price
would be on an open market.
The former employees accuse U.S.
Sugar insiders — descendants of the industrialist Charles Stewart
Mott — of scheming to enrich themselves by buying back workers’
shares on the cheap. They say “the principal actor” is William S.
White, the company’s longtime chairman, who is married to Mr. Mott’s
granddaughter. They also say he improperly exerted his influence as
chairman of the Charles Stewart Mott Foundation, whose mission is to
advance human rights and fight poverty and which holds a big stake
in U.S. Sugar.
“They robbed us,” said Loretta Weeks,
who worked in U.S. Sugar’s lab, testing sucrose levels in cane
juice. “It’s like the last 15 years we were working for nothing.”
U.S. Sugar said in a statement that
the lawsuit had no merit and that the company would vigorously
contest it, but it did not respond to any specific accusations.
Through his lawyer, Mr. White denied
that he had improperly exerted control over the U.S. Sugar board, or
that the Mott Foundation had anything to do with the decision not to
sell to the outside investor. The lawyer, H. Douglas Hinson, also
said that Mr. White and the Mott Foundation had no role in deciding
what price employees received for their stock, because the price was
set in an independent appraisal.
Members of Congress tried to prevent
disputes over the fair market value of shares in employee stock
plans by requiring private companies to get independent appraisals
each year. But workers at U.S. Sugar say the chairman and his allies
withheld crucial information from the appraiser and artificially
depressed the share price, something the chairman denies. The
employees do not accuse the appraiser of wrongdoing.
To document their claims, the former
workers cite two offers to buy U.S. Sugar for $293 a share — offers
that came as the workers were being cashed out of their shares by
the company for as little as $194 a share. The worker-owners were
not told about these outside offers and had no chance to tender
their shares. They found out only through word of mouth, after the
board of U.S. Sugar had rejected both offers.
As retiring workers cash out their
shares, the company then retires their stock. That leaves fewer
shares outstanding over time, the lawsuit says, allowing the
insiders’ control of U.S. Sugar to grow, without their having to
spend a penny buying stock. In this way, Mr. White’s immediate
family increased its stake in U.S. Sugar by 19 percent from 2000 to
2005, the lawsuit says.
The Charles Stewart Mott Foundation
issued a statement saying that as a major U.S. Sugar shareholder, it
was confident that U.S. Sugar’s board had “acted responsibly and
within its duties.” It also said the workers’ lawsuit contained
accusations that were inaccurate.
While they wait for their lawsuit to
inch through federal court, U.S. Sugar’s former employees say they
are struggling to get by on fewer retirement dollars than they
should have received. Many are former field workers, machine
operators and mechanics, paid by the hour and living in one of
Florida’s poorest counties. Some said the disputed stock plan was
their sole retirement nest egg.
“I had to go back to work,” said
Randy Smith, who retired last year after 25 years as a welder and
machinist. He was only 55, but said U.S. Sugar had forced him to
retire after declaring him no longer qualified to do his job. The
company has been cutting staff aggressively for several years.
Mr. Smith said he cashed out of the
retirement plan for about $90,000, but could have received about
$53,000 more, if he had had the chance to tender his shares and the
company had accepted the outside offers. The extra money would help
a lot, he said, because his wife, Sandra, has rheumatoid arthritis,
and after he retired, U.S. Sugar canceled its retiree health plan.
Mr. Smith has since found a new job,
with health benefits — but it pays $10 an hour, compared with the
$23 an hour he once earned at U.S. Sugar.
“My wife, she’s having to work two
jobs just to make ends meet,” he said.
Mr. McCorvey said that he and his
wife, Marilyn, also a former employee, have calculated that the
outside offers would have been worth $137,000 more to them. He was
laid off in 2004; an executive assistant, she was laid off in 2002.
Even though they no longer work at
the company, they cannot cash out their stock, because of plan
vesting rules, they said.
Meanwhile, the stock price has been
falling, based on appraisals and cash-out values supplied by the
“I’m scared I’m going to lose it
all,” Mr. McCorvey said.
To make matters worse, U.S. Sugar
announced in April that it was eliminating its dividend. The
McCorveys had been receiving dividends worth about $7,000 a year on
They and other former U.S. Sugar
workers said they had planned to attend the company’s annual meeting
this month, so they could tell management their complaints as
But this year, for the first time,
the company announced that employee-shareholders would not be
allowed to attend the annual meeting. It said that they were not the
shareholders of record, and that as a result they would be
represented by the trustee of their plan, the U.S. Trust Company.
A spokeswoman for
Bank of America, which owns U.S. Trust, said the company
believed it had fulfilled all of its duties as the trustee.
Experts said it was unusual to bar
participants in employee stock plans from shareholders’ meetings.
“It is legal,” said Loren Rodgers,
project director for the National Center for Employee Ownership. But
he cited research indicating that worker-owned companies tended to
have better results when workers had a say in operations.
Mr. Rodgers said that Congress had
decided to limit the workers’ powers as shareholders out of concern
that companies might avoid the structure if workers received full
Many former workers at U.S. Sugar
acknowledged that they had never tried to attend an annual meeting
until now. But that did not quell their anger at discovering they
could not. “It was real nasty, the company to do us like they did
us,” said Tommy Miller, who retired last fall after 32 years as a
supervisor in a locomotive repair shop. He was only 56 but was
caught in a mass layoff.
He said he cashed out his shares and
invested in an individual retirement account, only to learn that a
bidder had been willing to pay him a lot more.
“So you took my job and you took my
stock, too,” Mr. Miller said.
The workers describe a harsh new face
on a company once known as paternalistic. U.S. Sugar was bought out
of bankruptcy during the Great Depression by Mr. Mott, an
entrepreneur who said companies should strengthen the towns where
they did business.
Mr. Mott, who started out making
bicycle wheels and ended up with the largest single block of
General Motors stock, created charities in Flint, Mich., and
also provided Clewiston with swimming pools, libraries and a youth
“When somebody’s child got hurt or
was seriously ill, the company would fly that child to a hospital in
Tampa, or wherever they needed to go,” John Perry, a former mayor of
Clewiston, said. “This was a wonderful, wonderful place to live.”
But that homey culture did not
survive the tide of globalization. The
North American Free Trade Agreement raised the prospect of a
flood of cheap sugar from Mexico and other countries with low wages.
U.S. Sugar scrambled to lower its costs.
Ellen Simms, U.S. Sugar’s former
comptroller, said that when the company had to trim its payroll, it
seemed to choose people with many years at the company.
“It was very obvious, with few
exceptions, that they were targeting the employees who had been
there the most time and who had the most ESOP shares,” she said. She
resigned in protest in 2004.
Meanwhile, the falling stock price
reported in the appraisals was a boon to the company, she said,
because it made it cheaper to buy out the workers.
The reported declines in the stock
price might not have been questioned, had it not been for two offers
to acquire U.S. Sugar, one in the summer of 2005 and the other in
early 2007. Both were made by the Lawrence Group, a large father-son
agribusiness concern in Sikeston, Mo., for $293 a share in cash.
Gaylon Lawrence Jr. confirmed the price but declined to comment
The worker-shareholders were being
paid $205 to $194 a share at the time, based on ESOP appraisals.
But to help vet the Lawrence Group’s
offer, U.S. Sugar hired a second appraisal firm to calculate the
company’s breakup value. This appraiser came up with $2.5 billion,
or about $1,273 a share.
U.S. Sugar then rejected the Lawrence
Group’s offer as inadequate.
Mr. McCorvey said he would have
tendered his shares to the Lawrence Group without a moment’s
hesitation. “But we were never given the opportunity,” he said.
John Logue, an ESOP specialist at
Kent State University, said federal law does not require
worker-owners to vote on acquisition offers. But, he said, “when
you’re in doubt, let the participants vote. We have kind of an
innate sense in the United States that people are entitled to do
what they want with the property they own.”