Employee ownership can drive growth without leaving behind workers rights.
At the Wales Co-operative Centre we have been proposing that engaging employees in ownership schemes could help secure the long term success of businesses in Wales. Employee ownership approaches engage workers and encourage them to take a positive and proactive role in helping their companies grow. Evidence shows that employee ownership is proven to support strategies for business growth as well as importantly laying the foundations for successful business succession for owners across the UK. Employee ownership is a growing economic force across the UK and it is very encouraging to see it on the agenda and stimulating so much debate.
The Wales Co-operative Centre has a dedicated project aimed at promoting the benefits of various forms of employee ownership at governmental level and throughout different business and industrial sectors.
Last week the Chancellor, George Osborne, announced that he intends to set up a new owner-employee contract which will be introduced in April 2013. The contract, which allows owners to award tax free shares worth of between £2000 and £50,000 to their staff, in exchange for staff giving up workplace rights around unfair dismissal, training and redundancy amongst others has added a new twist to the discussion. Many commentators have questioned the link between employee ownership and the requirement to sacrifice worker rights.
Employee ownership can be an opportunity for businesses to re-engage with their employees, reinvigorating the nature of the relationship between the employee and the company. However, this process must be managed to ensure the optimum benefits for everyone involved and should involve wide engagement with employees so they understand what ownership means, how it relates to their position as an employee and how they can enact their rights as owners. Where employee ownership approaches have failed they have generally been where the process is considered purely as a financial transaction with no consideration given to the needs of the various stakeholders involved.
The Chancellor’s approach raises a number of practical questions.
How are shares valued and managed? How will employees be able to make a judgement on the value of their shares against the value of their employee rights? Share values fluctuate according to the performance of the company so there is no way of guaranteeing a value to the shares. It is worth remembering that redundancy options are often presented when a company is not performing well and share values are likely to be lower. Also, how would dividend distribution be agreed and managed?
What voting rights are attached to the shares? What power within the company will a shareholding give the employees? Assuming voting rights will be proportional to shareholding the employees will be minority shareholders so could have little power attached to their shareholding.
So if an employee takes up this approach, or, is forced into a situation where they have to accept it as part of a contract when starting a new job, what, if any, safeguards are there for them?
The Wales Co-operative Centre always makes it very clear when working with employee groups that they are employees first and shareholders second. Ultimately their shareholding isn’t worth anything if they don’t fulfil their roles and responsibilities as employees. With this approach the employee ownership is both the carrot and the stick – a company that performs well is able to offer bonuses or dividends, a company that underperforms will not. It is intrinsically in the employee’s interests to work towards making the company a success. The Chancellor’s new policy announcement could put employees in a position where they have to choose between being an employee with employment rights and being a shareholder with rights to a share of any profits created. The roles of employee and shareholder in an employee owned organisation should compliment each other for the long term benefit of the business.
As an organisation we look forward to examining the finer details of the Chancellor’s proposal when they emerge.
In the meantime, owners will still be able to choose to implement employee ownership and offer its benefits without insisting on the withdrawal of the rights of its workers. This has the potential to create a whole sector of partially employee owned businesses whose employees are engaged, innovative and committed to developing their businesses and helping them grow
Rhian Edwards is manager of the Business Succession project at the Wales Co-operative Centre. Her team works with micro-businesses and SME’s across Wales to develop employee ownership approaches and employee ownership based succession planning.
This article first appeared in the Western Mail on Wednesday 17th October 2012.