Could Employee Ownership help your business grow?
The Western Mail printed an article on the benefits of employee ownership in business growth today. The article was written by Rhian Edwards, Project Manager of the business Succession and Consortia Project at the Wales Co-operative Centre.
Could employee ownership help your business grow?
Rhian Edwards, project manager of the business succession project at the Wales Co-operative Centre, ponders the benefits of employee ownership for business growth beyond its use as a tool for business succession.
When the Wales Co-operative Centre published its report on employee ownership and business succession earlier this year, the focus was largely on the perceived gap between business owners who have an established and safe exit strategy secured, and business owners who are reliant on a trade sale as their means of retirement. The report ‘Employee Ownership: Defusing the business succession time-bomb in Wales’ suggested that Employee Ownership should be considered as a means of ensuring that perfectly viable businesses in Wales aren’t lost purely down to poor succession planning and lack of suitable buyers. Employee ownership offers an alternative approach that all business owners should at least consider as part of their succession planning.
The report alluded to another benefit of employee ownership – the fact that employee ownership and improved levels of employee engagement could help business owners grow their businesses – well before they started thinking of retiring!
A report published by the Cass Business School earlier this year suggested that employee owned businesses have a longer term focus and favour activities that have a long term payback horizon. It also suggests that significant employee representation at board level can have a significant impact on performance and that employee commitment can support the strategic imperatives of the business.
There is a substantial body of evidence that suggests that employee ownership can lead to greater productivity, reduced absenteeism and more involvement in driving innovation.
In his influential paper, ‘All of Our Business – Why Britain needs more private sector employee ownership’ published by the Employee Ownership Association, William Davies argues that employee ownership can be seen as a ‘commitment device’. In an employee owned organisation the primary focus of management becomes engagement with staff and stakeholders, and with more enduring relationships then more tacit knowledge and intangible business knowledge can be shared. More ownership and more engagement can equal more growth.
‘All of Our Business’ uses Gripple and its founder Hugh Facey as example of a business owner who has used employee ownership as a means of ensuring the company flourishes after he has left. Facey believed that employees should purchase shares in the company ‘so as to be engaged in decision-making and fully alert to risks and uncertainties that are part of any business environment’. Gripple is an innovative company developed on the design, production and marketing of a wire joining and tensioning device. Nearly 80% of its 220 employees own equity in the firm. Employees are required to buy-into the company after a 12 month qualifying period with loans available to enable purchase where necessary.
There are examples of this sort of approach working in Wales too. Alan Meek of SCS Group in Caerphilly started to consider his long term succession strategy but was concerned at the lack of long term sustainability offered by a trade sale. He believes that “employee engagement is a major source of competitive advantage for us. It is one of the tools we have used to engage our team and encourage them to go the extra mile for customers and that makes a real difference in our performance and makes us stand out against the competition”
In Mid Wales, both Aber Instruments and Skye Instruments have embarked on long term employee ownership transitions. Both sets of owners wished to see the high value jobs their companies had created secured in their localities and both have benefited from increased employee engagement and involvement in development of the businesses. In Aber Instruments’ case the process has continued to the point where the employees have almost completely taken over the business as each of the business founders have moved towards retirement.
There is no doubt that employee ownership can be a useful tool for business growth. But, there are several factors to consider to make it successful. What is the motivation for doing it and what are the long term aims? Is the process about exit strategy or employee empowerment? Both are equally valid. Employee engagement in either process should be strong and managed well. Change can be upsetting for any employees and the transition from employee to employee-owner requires very careful handling to ensure it has meaning and value within the business setting.
Ownership means little without engagement. The research shows that the real benefits of employee ownership come when it is intrinsically attached to real engagement and real opportunities for involvement at every level. To gain the true benefits of employee ownership both owners and employees have to build a different sort of relationship and learn to trust the approach – and each other.
The Wales Co-operative Centre has been working with businesses and employee groups for over 30 years developing employee ownership and supporting co-operative approaches. The Centre manages a Welsh Government and European Funded project supporting businesses looking to move into different forms of employee ownership. The Centre is offering a number of free, no obligation drop in sessions to interested business owners this Autumn.
This article first appeared in the Western Mail on Tuesday 25th September 2012.