Employee Ownership

06 March 2018

Most people are aware that there is something rather “different” about the way the John Lewis Partnership is run, but not everyone immediately identifies that this “difference” runs deeper than just the operation of the business. In fact, the entire John Lewis Partnership (home to John Lewis and Waitrose) is owned by its employees, so that very deliberate description of shop-floor employees as “partners” has more than just symbolic significance.

However, the John Lewis Partnership is just the well-known, most visible part of an employee owned (EO) business iceberg. Mott MacDonald, Arup, WL Gore, Remploy, Gripple, Lush, Lindum and Unipart Group are just a smattering of companies that have embraced employee ownership. I can guarantee there will be an employee-owned business not far from you – or at least one of their branches or outlets!

Employee ownership is not new and the Employee Ownership Association (EOA) estimate that over 300 businesses are now part of the sector, with combined annual contributions of over £30bn to the UK economy. So, what is the attraction of employee ownership, and why does it currently appear to be in vogue….?

Businesses that consider the transition to employee ownership may have different reasons for doing so, but here are just a few of the reasons that may have some attraction:

Ownership Conundrum

There are those growing companies, perhaps started by the owner (or owners), which reach the stage where they need to consider ownership succession: perhaps the owner(s) are looking to retire? A trade sale could be an option, but for an owner who has invested their energy into creating and running a business, that is not always such a palatable idea. Owners get a fair market value for the company, without having to sell to a trade competitor or others who are more likely to dispose of the business. From an economic perspective, this may also mean the consolidation of business support services (accounting, legal, etc,), and thus a “net loss” of service business to the UK economy.

Employee Engagement

Do you look after a hire car as well as you look after your own vehicle? A rental bike as well as your own? OK, so it’s perhaps not quite the same, but when you own the business and you know the business, you are more likely to be more committed to the long-term future of the business. Research suggests that employee-owned businesses tend to be better places to work, treating staff well, involving them more, and giving everyone a real stake in the business. Employees who have a meaningful ownership stake in the business are far more likely to “go the extra mile” to ensure business success.

Note however, that this is distinct from the shareholdings many of us may hold in companies such as BP, Rolls Royce or Barclays: in these instances, employee ownership of the business – through market-traded shares – tends to be a very small part of the business ownership. This very rarely provides for much of a ‘voice’ in how the business is run; by contrast, employee-owned businesses always provide some form of democratic voice for the employees.

Taxation

Successive UK governments have recognised the potential added value associated with employee ownership. As a result, there are potentially some favourable tax incentives which can help facilitate the transition of a business into employee ownership and ensure rewards for both the exiting business owners and the incoming employee owners. Such transitions can be phased over time as a company progresses towards employee ownership, and finance for such moves is now much more readily available.

Unleashing Potential

The Government has also recognised the potential that employee ownership can bring to certain public services and has committed resources to the further ‘mutualisation’ agenda. This initiative has seen a number of organisations make the transition from wholly-Government-owned to new ownership structures which recognise and include employee ownership.There are over 100 of these now including healthcare groups in Surrey and in East Yorkshire that have made the transition. They have found these new ownership structures help unlock new and more creative ways of operating, as more engaged and more motivated employee-owners identify more efficient ways of working. With any surplus invested back into the business, these organisations have seen levels of client satisfaction grow, as employee-owners bring their influence to bear.

Conclusion

Employee ownership is not a panacea, nor is it right for every business. However, neither does employee ownership herald some sort of “fluffy” or benign form of business operation, where profits and customer satisfaction do not matter – quite the reverse. Employee-owned businesses very often have their eye on the long game: identifying how they can grow sustainably and profitably for the benefit of their owners, and that still necessitates diligent attention to the bottom line and the deployment of sound leadership and management practices. The key difference is that managers are more accountable to their colleagues and co-owners than they would be in a company owned by external shareholders.

To find out more about employee ownership, visit www.employeeownership.co.uk