Co-operative Congress 2013 – How can employee ownership help business?
This year the UK Government is launching the very first Employee Ownership Day on July 4th. The purpose of the day is to raise awareness of employee ownership as an economically strong and balanced business model. Employee ownership is an effective way of running a business, that can work across sectors as diverse as manufacturing, retail, transport and professional services. Employee ownership means that employees have both a voice in how the business is run, through ongoing employee engagement, and a stake in the success of the business.
The Wales Co-operative Centre has a strong and long standing commitment to supporting employee ownership and increasing employee engagement within the workplace. We have supported employee ownership transitions throughout Wales and were instrumental in developing the deal which led to more than 200 miners buying and running Tower Colliery in Hirwaun, Aberdare. The Wales Co-operative Centre employs a specialist employee buy-out team, which provides advice to businesses across Wales on succession planning and employee ownership. On Friday 28th June our Employee Ownership team will be presenting an update on recent developments in employee ownership, to an audience of business experts, as one of the opening events at this year’s Co-operative Congress in Cardiff.
We asked Sarah Owens from the Centre’s Employee Ownership team why the approach is so relevant at the moment.
Sarah: In an employee owned company, employees will have an ownership stake within the business meaning those employees have a direct relationship with the success or failure of the company. They have a level of engagement that means they actively contribute to the company’s development and financially benefit from its success,
The Employee Ownership Association estimates that the employee ownership sector employed over 150,000 people in the UK in 2011. A comprehensive review of the sector, undertaken by respected employee ownership legal expert Graham Nuttall, showed that employee owned businesses benefit from improved productivity, as employees are committed to making sure the business does well, innovation and reduced absenteeism. Employee owned businesses have proven to be particularly resilient during the downturn as they have a built-in reason to make the company succeed and be highly competitive. For the employees, the benefits are a higher level of involvement in the future of the business, a feeling of ownership and empowerment and of course, a share in any profits.
However, there are barriers to employee ownership and the Nuttall Review highlighted three in particular: real and perceived regulatory barriers; lack of technical and financial support; and lack of awareness. We are hosting a seminar aimed at business advisors next week, to try to clarify some of these issues and raise awareness of the benefits of employee ownership.
How can employee ownership work as an exit strategy?
Sarah: Owners who are looking for an alternative to a trade sale can utilise employee ownership as a planned succession approach. The shareholding of the company can be sold to the employees on a gradual basis using various tax beneficial schemes or the company can set up a trust to hold shares on behalf of the employees (similar to the John Lewis approach). Many strategies use a mix of these approaches.
What are the negative aspects to this sort of approach?
Sarah: Good management and good governance are essential. Most employee owned businesses work to a traditional, professional management structure on a day-to-day basis, with the only difference being that managers are more accountable to their colleagues. Employee ownership generally produces superior performance and productivity only when it is accompanied by real employee engagement and well thought out ways to let staff participate in the business. When moving towards employee ownership, it is essential that employees have involvement with the approach and direction of the business and this is reflected in its governance.
How long does it take for a transition to employee ownership to be implemented?
Sarah: The timescales vary, depending on the complexity of the transaction and the intentions of the owners and the employees. We have seen transitions delivered within a few months, but we also work with business owners to consider this approach as a means of gradually withdrawing from the company over a period of several years. For this approach to work effectively as a long term succession plan, we would always advise a longer transition period if possible as this allows more time for the new management to learn how to run the business.
What advice would you give to owners considering a move to employee ownership?
Sarah: An employee owned business must be sustainable as a business, irrespective of its structure. It needs a good business plan, market research and committed leaders. Then, to ensure that employees are engaged within the process as early as possible and that all employees understand and have the same aspirations for the future of the new business and that the business model chosen reflects this.
There are still a few free places remaining at the seminar “Employee Ownership: Solutions for the Private Sector”. They can be booked online at http://www.walescooperative.org/co-operative-congress-2013-employee-ownership