Dennis Quaintance’s ESOP fable
By Chris Burritt, Business North Carolina
Photos by Stacey Van Berkel
ESOP Fable
Edgar Lujan, right, has worked for three Quaintance-Weaver properties since 1998. He now is a server at Print Works Bistro
Back in 1978, Sister Sledge’s “We Are Family’’ reverberated through Dennis Quaintance’s first restaurant in Greensboro. Franklin’s Off Friendly had just opened, and the disco music was intended to pump up the waitstaff.
A year ago, Quaintance dusted off the ’70s hit for an even bigger employee gathering. He and his partners had decided to sell their company, Quaintance-Weaver Restaurants & Hotels, operator of some of Greensboro’s best-known upscale establishments. The O.Henry Hotel is attached to the Green Valley Grill, while Print Works Bistro adjoins another boutique hotel, the Proximity. Lucky 32 Southern Kitchen operates two restaurants, one in Greensboro and the other in Cary, after closing eateries in Winston-Salem and Raleigh about nine years ago.
Quaintance, 60, was planning for the future — and not just his own. Rebuffing queries from larger hospitality companies wanting to buy the businesses — if they had followed that course, the partners could have pocketed a higher valuation, he says — Quaintance and his partners had something different in mind.
One morning last November, after the Sister Sledge tune had revved up the standing-room-only crowd of employees, Quaintance said they were now the owners of the company he and his wife, Nancy, had started 28 years earlier with Greensboro real-estate developer and business investor Mike Weaver. The three had sold the business to an employee stock ownership plan, with the trust borrowing 100% of the transaction’s value. The owners collected no money at closing, while no bank financing was involved.
Authorized by Congress in 1974, ESOPs enable employees to own the companies where they work. The upside for workers is that company profits are plowed into employee retirement plans, while avoiding conventional corporate income tax.
“Every time we do something to make the company worth $1 more, we all share in it,’’ says Quaintance, who heads operations, while Nancy is part of the marketing, sales, operations and culinary teams. “Every time the value of the company goes down, we all share in that. Our interests are 100% aligned.’’
ESOPs remain rarities in a business world dominated by closely held, family-owned companies. Only one of the 100 largest ESOPs in the U.S. is based in North Carolina: hardwood-veneer and plywood maker Columbia Forest Products Inc., of Greensboro, according to the nonprofit National Center for Employee Ownership. Many public companies encourage workers to hold shares. But the center defines ESOPs as businesses in which at least half of all employees are eligible to participate in plans — and those employees collectively hold at least 50% ownership.
To take part, workers must be 18 years or older, have worked for the company for more than a year and gotten paid for at least 1,000 hours yearly. Vesting occurs after three years. (Weaver can’t participate in the ESOP because he’s not an employee.) How quickly retirement benefits accumulate for Quaintance-Weaver’s 620 employees — from managers to porters, cooks to housekeepers — depends upon the company’s profitability. The more money generated by operations, the quicker the debt shrinks, leaving more money for employees’ golden years.
Among the first people Dennis Quaintance, right, met after moving to Greensboro in 1978 were Mike Weaver, a civic-minded real-estate developer and investor, and Nancy King, who later became his wife. Weaver backed Quaintance as he built a hospitality company that includes the Proximity Hotel, which opened in 2007.
Seller financing of ESOPs is a rarity among business owners, who typically prefer selling to the highest bidder rather than risking their own retirement savings on an employee plan, says Dale Gillmore, principal of Make An Impact Consulting Inc. in Cornelius. Much of the net worth of most owners of privately held companies is tied up in their businesses, and their ownership stakes typically represent most of a company’s value.
Owners typically don’t want to wager that a company’s value can be sustained or increase, says Gillmore, who wasn’t involved in the Greensboro deal. Weaver and the Quaintance family “are betting on themselves and the employees to maintain and improve the company’s culture. It’s a gamble they’re willing to take. They are not getting rich with an ESOP.’’
Selling the business to an independent party “would have broken my heart,” Quaintance says. The couple’s 19-year-old twins, Dennis and Kathleen, are not interested in working for the company. “We sold the business, but we did not sell the culture. In fact, we enhanced the culture.’’
To be sure, the trust bought the restaurant and hotel operating company, not the real estate. The couple, Weaver and three other partners own both hotel properties and lease them to the operating company. They are valued at more than $32 million, county records show. Separately, Quaintance and Weaver own the real estate for Green Valley Grill, Print Works Bistro and the Lucky 32 locations.
Like other employees, the Quaintances are entitled to ESOP retirement units, akin to shares in a company. But annual awards of retirement units are capped for highly compensated managers because federal laws — enforced by the Department of Labor and Internal Revenue Service — prohibit the use of ESOPs as tax-avoidance schemes. Plans are intended to favor younger employees who stay with the company for many years.
Quaintance started working in the hospitality business at 15 as a housekeeper’s assistant at a Missoula, Mont., hotel. After high school, he worked at several hotels in the Northwest before moving to Greensboro in 1979. Sipping a sparkling water on the patio of the Proximity Hotel, a cool space shaded by magnolias and tucked between the tall darkened windows and white brick of the hotel and Print Works Bistro, he asks a server to turn up the volume of a Roberta Flack song streaming over the sound system. Walking past a shrub, he plucks a stray dead leaf and tosses it out of sight.
Quaintance’s meticulous style stretches back to his early days in the industry. Just weeks after partnering with Bill Sherrill to open Franklin’s Off Friendly 38 years ago, he spotted a college-age waiter goofing off while emptying ash trays. Quaintance grabbed the waiter — this writer — by the necktie and told him loafing on the job was unacceptable. I worked there in the summer of 1979 and the following Christmas break. Mary Lacklen, also a former server at Franklin’s, is now director of Red Oak Brewery’s beer hall in eastern Guilford County, opening later this year. “He always believed in training his staff and setting them up for success,’’ says Lacklen. “He has a methodical approach to everything he does.’’
During his stint at Franklin’s, Quaintance met Weaver, a regular customer, and his future wife, Nancy King, who worked at the restaurant while on Christmas break from Cornell University. After leaving the restaurant in 1981, Quaintance had stints in business planning, wine importing and managing chain restaurants. Nancy worked for Marriott Corp. in Charlotte.
On a trip to Europe in the mid-’80s they decided it was time to plan their future. Riding a train on the Brenner Pass between Italy and Austria, they settled on three possible choices: “Mr. and Mrs. Hotel and Restaurant” in Greensboro; “barefoot and pregnant” in New Mexico, where Nancy would teach and Dennis would buy, fix and resell airplanes; or move to Europe, with Nancy working for Marriott in London or Amsterdam.
Both wrote “Greensboro” on slips of paper. “It sounded so typical,” Quaintance recalls, “but why should we sacrifice what’s exciting to us?”
Lucky 32 was Quaintance-Weaver’s entry into restaurants in 1989.
Returning to North Carolina, Quaintance joined the Greensboro-based Tripps chain of casual, restaurants. By 28, he was overseeing five sites. He then circled back to Weaver, asking for a $500,000 loan to start his own restaurant. Instead, Weaver proposed a 50-50 partnership, with Quaintance running their first restaurant venture, the Lucky 32 on Westover Terrace in Greensboro. It debuted in 1989.
Almost a decade later, they opened the O.Henry Hotel, named and designed after the first modern Greensboro hotel that was built in 1919 and razed 80 years later. Both were named for native son William Sydney Porter, who in the early 1900s wrote short stories with surprise endings under the pen name O. Henry.
The Proximity Hotel, which opened in 2007, is named after one of Greensboro’s first textile mills. One hundred rooftop solar panels give a nod to a modern-day achievement: It was the nation’s first hotel to receive the highest environmentally friendly honors from the U.S. Green Building Council. To retain its uniqueness, Quaintance has never signed a franchise agreement with a major hotel company. The goal is to provide a memorable stay for travelers while also entertaining neighborhood folks, much like the old hotels that were centers of community life.
On a recent afternoon in June, Quaintance wore khaki shorts, a blue-and-white-striped shirt and sandals. The look is in keeping with his hotels, which are high-brow but comfortable with unexpected touches reflecting the CEO’s personality.
Two bikes propped inside the entrance to the Proximity Hotel are available for guests. An afternoon tea at the O.Henry attracts locals, while refurbished London taxis provide transportation for hotel guests, including complimentary rides to the company’s three restaurants. In Quaintance’s view, the ESOP is like one of those taxis: He figures to keep driving for at least a decade, unless “I notice I’m slipping, or people tell me I’m slipping, or if I lose my mojo,’’ he says. Shared ownership is a fuel additive, boosting morale and productivity that will result in more satisfied patrons.
Selling Quaintance-Weaver to employees addresses one of the biggest headaches for the hospitality industry, which has a high turnover rate: “How do you get people to stay?’’ Greensboro restaurant critic John Batchelor says. “You make it in their interest to stay by making them partners in the enterprise.’’
Given wage rates in hospitality, motivating workers is a constant challenge. Half of Quaintance-Weaver workers leave within a year, typical for the industry. Another four in 10 leave in the first four years. “If their hearts aren’t into it, we’d rather they go off and find their bliss,’’ Quaintance says. “If our dream is a 10, we’re at a six,’’ he said. “We’re still unfolding.’’
The ESOP also helps Quaintance move toward his goal of creating a meritocracy. “We don’t [care] about what your gender is, whether you are skinny or chubby, if you are black or white, gay or straight, Muslim or Christian,’’ he says. “What we care about is how you behave when you’re here. We are professionals. We don’t need to be friends. We want to be colleagues. We wind up with these amazingly rich relationships without the complications.’’
The company has expanded with two hotels in Greensboro’s Friendly Shopping Center area, including the O.Henry, which opened in 1998.
Since announcing the ESOP, Quaintance has coached CEOs of seven companies on the process. “I’m sold on ESOPs,’’ Quaintance says. “I’m big on doing whatever I can to further the notion and reality of economic justice. Don’t hear me being pious. I just think the wealth gap and its growth is not sustainable, and since we don’t seem to have a better idea than free-market democracy, we might as well do all we can to make it work.’’
How much employees will receive in retirement payouts is hard to estimate because so many variables exist, Quaintance says. He offers two scenarios: A 26-year-old employee works for the company from 2016 until retirement at age 65. If her current pay of $25,000 increases by 2.5% a year, she receives about 2.5% of her annual pay in retirement units and the value of the units increases by 2.5% yearly, her account would total about $70,000 at 65. But if the percentages double to 5%, her retirement fund might swell to around $325,000, aided by the power of compound interest.
While employees do not invest their own money into the ESOP, Quaintance-Weaver also offers a 401(k) plan that enables more retirement savings.
“We have no idea what the value of those retirement units will be in the future,’’ Quaintance says. “They could be really low; they could be significant. It all depends on how well we take care of our guests and colleagues and if we are lucky enough to have at least somewhat favorable market conditions.”
Edgar Lujan, a server at Print Works Bistro, is betting on his company’s success. The ESOP is “like a cherry on top of the cake,’’ he says. “We work at a place that enables us to pay our bills, buy a house and take care of our families. It’s hard for me to think about working for another hotel or restaurant.’’
In the 22 years since he moved to the U.S. from Mexico City, Lujan, 45, has worked in restaurants and construction, sometimes two jobs at a time. Moving to Greensboro 20 years ago, he worked initially as a dishwasher at Red Lobster.
He joined the O.Henry Hotel as a porter when it opened, then became a waiter at the adjacent Green Valley Grill. He shifted to the waitstaff of Print Works Bistro in 2007. “There is stability — that is what I love about this place,’’ Lujan says. “If you perform well, you will be successful. Having retirement, that’s awesome.’’
FOOD FOR THOUGHT
Quaintance-Weaver joins other ESOP-owned companies active in North Carolina, including Valdese-based Valdese Weavers LLC, San Francisco-based design firm Gensler; Milwaukee, Wis.-based money manager Robert W. Baird & Co.; and Omaha, Neb.-based engineering and architecture firm HDR Inc. As of 2014, 126 ESOPs were based in North Carolina, according to the Oakland, Calif.-based National Center for Employee Ownership.
The largest U.S. ESOP, Lakeland, Fla.-based Publix Super Markets Inc., entered the state in 2014 and now operates 27 stores that collectively employ more than 3,000 people. More than 80% of company shares are owned by staff, with the balance held by the founder’s family. Shares equal to about 8% of annual pay is distributed to those who have worked for the company for at least one year. Many long-term employees accrue hundreds of thousands of dollars of Publix stock over their careers, perhaps explaining why turnover is a fraction of the retail industry’s average, Fortune noted in a 2016 story. With about 1,150 stores from Florida to Virginia, the company had profit of $2 billion on revenue of $34 billion last year.