How to Implement Employee Ownership

From start-ups seeking employee commitment to give the business a great beginning, to long-established businesses of all sizes tackling a succession challenge, to new forms of public service delivery vehicles, employee ownership is a highly successful business structure. The definitive overview of the economic and social benefits of employee ownership can be found in the Employee Ownership Impact Report,that was recently launched by the Deputy Prime Minister.

A business model in which employees totally or significantly own the company, employee ownership typically takes one of three forms: the workforce directly owning a large proportion or all of the share capital of the business; the share capital of the business being held indirectly in trust for the benefit of the employees; or a hybrid of these two approaches.

Increasingly the most prominent alternative to the external ownership of businesses in the UK, employee ownership already contributes more than £30bn each year to UK GDP and attention from politicians and business communities is increasing daily. Growing interest in adopting this form of business structure throughout the private sector and increasingly in public services led to a 10% increase in the number of employee owned companies created in the UK in 2012.

The role employee ownership can play in boosting growth in the UK economy is recognised and agreed across the political spectrum. Employee owned business tend to have higher productivity, greater levels of innovation, better resilience to economic turbulence and more engaged, happy workers who are less stressed than colleagues in externally owned organisations. Economic competitiveness and high performance are a central part of the DNA of employee owned companies. Crucially, over the last 15 years, shares in employee owned businesses have considerably outperformed those in the FTSE All-Share Index.

With the right quality of thought, the implementation of employee ownership can be simple and straightforward. The costs of creating an employee owned business from the outset or achieving an employee (as opposed to management) buy out are very often modest compared with other types of company formations and/or mergers and acquisitions.
Overall, the key to success in forming employee owned organisations is to avoid getting buried in the fine, technical detail of legal and financial implementation. Those wishing to create employee owned companies need to decide which of the different models of employee ownership that are available best fit the specific context of the organisation and people involved.

Building a structure that creates amongst employees a genuine sense of ownership is one of the major considerations when choosing the right model. The united sense of purpose and commitment that employee ownership delivers is what attracts and retains the very best talent to enable businesses to compete successfully in chosen markets. Of course there is a range of additional practical considerations to be addressed as well including how the move to employee ownership will be funded; what long term safeguards for employees will the structure contain?; how will the voice of the employees be protected?; and how will senior managers remain free to commercially drive the business day to day whilst still being properly accountable to the employee owners?

These challenges and others are usually easily surmountable. The increasing number of employee owned businesses in the UK is a testament to that.

Most organisations that become employee owned are guided and assisted in those key next steps through their Membership of the Employee Ownership Association. The EOA helps individuals and organisations to choose the right model and to visit leading employee owned businesses as part of that decision making. It brokers introductions to the EOA’s unique panel of approved specialist employee ownership advisors. It is also the publisher of what is currently the most popular practical guide to setting up employee owned businesses in the UK.

Employee ownership is an achievable and successful business model in every sector of the economy that constantly challenges the conventional wisdom of those who suggest business owners should always share ownership with external investors.

We really are very much in the decade of employee ownership – its time has come.

Iain Hasdell is Chief Executive of the Employee Ownership Association