In the latest in our series of special features, we examine the individual and wider benefits of employee ownership – a win-win company structure.
Creating a business environment where everyone shares not just financial investment but emotional involvement might seem implausibly ambitious. With employee ownership, however, all parties have a genuine say in how a business is operated, giving everyone a meaningful stake in their organisation. With this model, delivering economic wellbeing takes on a whole new level of commitment.
And for those seeking to move to the model, help is at hand to make the process a straight forward and rewarding experience. Co-operative Development Scotland (CDS), is the arm of Scottish Enterprise working in partnership with Highlands and Islands Enterprise that supports company growth through collaborative and employee ownership business models.
While its Advisory Board offers expert guidance and support on the development and effective delivery of the organisation’s functions, its 11 Employee Ownership Ambassadors from leading Scottish companies are there to provide practical advice to individuals considering a co-ownership structure for their business.
As the chief executive of CDS, Sarah Deas’ primary ambition is to increase the contribution that employee ownership models play in the Scottish economy. She say: “Our aspiration is to achieve a 10-fold increase in the number of headquartered employee-owned businesses in Scotland.”
Significant progress has already been made. Since 2009, when CDS began actively promoting employee ownership, the number of employee owned businesses based in Scotland has doubled.
So how can a combination of shared ownership and employee participation actually deliver superior performance and sustain ability for a business?
“Our definition of an employee-owned business is one in which the employees hold the majority of the shares, either directly or through an employee benefit trust,” says Deas.
“Employee ownership gives employees a meaningful stake in their organisation together with a genuine say in how it is run.
“Evidence shows that employee-owned businesses are typically five per cent more productive than traditional ones.”
Deas cites the case of Clansman Dynamics, an East Kilbride-based manufacturer of the robotic foundry handling equipment.
“Since their conversion to employee ownership in 2009, sales have increased by 65 per cent and profits have more than doubled,” says Deas.
This is not an isolated success story, however, as Deas is keen to highlight: “A study by the Cass Business School showed that employee-owned companies were more profitable, added more staff and were more resilient during the 2008-2009 economic downturn.
“Since 1992, the Employee Ownership Index (EOI) has outperformed the FTSE All-Share by an average of 10 per cent per annum, according to Field Fisher Waterhouse.”
CDS works in partnership with Highlands and islands Enterprise, yet rather than finding the predominantly rural, often remote, geography presenting unique challenges, it reports that employee ownership works remarkably well in the region.
“Employee ownership is a good fit for businesses of all sizes, sectors and geographic locations,” Deas points out. “It works especially well in more remote areas like the Highlands and Islands, where employee ownership preserves a legacy for the exiting owner and protects jobs for the employees. Retaining key employers in fragile communities is essential for economic wellbeing and prosperity.”
The importance of employee ownership was backed up by the recent Nuttall Review, which attracted political support, with the Government committed to remove obstacles. However, lack of awareness from business owners and professional advisers was identified as one of the barriers to further uptake.
Deas says; “We have been working with the professional advisor community in Scotland, so hopefully employee ownership will be put forward as an option to business owners as part of their succession planning.”
As well as future challenges, Deas also foresees future opportunities.
“Employee-owned businesses make a significant contribution to the communities in which they operate and to the wider economy,” she says. “John Lewis Partnership, the UK’s largest employee-owned company has achieved phenomenal growth; from 500 to 85,000 partners since 1929.
“A recent example is Accord Energy Solutions an Aberdeen-based hydrocarbon accounting business that became employee-owned from start up in 2010 to attract, engage and retain staff. Since then staff numbers have grown to 28 and turnover has reached £4.3m.
“If only more businesses were aware of the benefits that shared ownership and employee participation can deliver.” With those benefits in mind, the UK Employee Ownership Association and its members are looking to increase the contribution to 10 per cent of UK GDP by 2020 – and Deas’ aspiration is to achieve that 10 fold increase in headquartered employee-owned companies in Scotland.
“The recent Autumn Statement announced a £75million funding package to encourage the growth of the employee ownership sector – hopefully this will help,” she says. In terms of succession planning, our success would be for an EBO (employee buyout) to be considered alongside an MBO (management buyout) or a trade sale.”
For Deas and CDS, the real value of employee-owned business is immeasurable. She says: “Selling to employees allows owners to manage their exit and achieve fair value, while safeguarding the long term future of the company.
“It roots business in Scotland, drives performance and delivers economic wellbeing.”
Case study: Accord Energy Solutions
For Accord Energy Solutions, employee ownership (EO) has meant putting people at the heart of things. This doesn’t just mean having a financial stake in the hydrocarbon accounting business through a Share Incentive Plan; it means enabling employee to be actively engaged in Accord’s aspirations.
Alan Spence, who co-founded the business in 2010 with fellow directors James Arthur and Phil Stockton, describes the initial transition to EO as incredibly exciting.
“Myself, James and Phil were working with another company where we had developed a management style that was open and inclusive and brought good results,” he says. “We recognised this was the way we wanted to go: a combination of our management style and the aspiration to be part of a small company, rather than a large multi-national drove our decision.
“We knew that we wanted the concept of employees having a share but were asking ourselves what the best vehicle might be.
“Co-operative Development Scotland (CDS) was very supportive and really keen. They gave us financial support as well as invaluable advice, while Baxi Partnership offered information sharing and workshops.”
The whole concept of the EO started to become very real, as Spence recalls: “Suddenly everything was coming together in the right way. We knew this was what we wanted to do. Everyone felt re-energised about Accord and where we were going. Where once we knew our destination but didn’t know how to get there, we now have a map and compass to show us the way.”
With the Share Incentive Scheme in place for the Aberdeen-based firm, the next step will be for an Employee Benefit Trust to buy the business on behalf of the employees using company profits. This will ultimately hold at least 51 per cent of the shares.
Three years ago Accor set targets to recruit up to 50 new employees and grow turnover to £4-5m in five years. Since then growth has been significantly ahead of plan and the company is now revising these target upwards.
With an unstinting enthusiasm, Spence himself says: “Consultant is a niche area and it’s about finding good people and retaining good people, making them feel part of the business, letting them feel the energy and enthusiasm we feel.” And what would he say to businesses looking to adopt a similar EO model?
“Go for it! EO has been incredibly successful for us, but it is the sense of openness and involvement that it brings that is most important. When efforts equal rewards, everyone wins. It’s a virtuous circle.”