The John Lewis employee ownership model is being looked at closely across the board by family business owners, public service providers and professional services firms to create a better way of doing business for the long term.
The “Nuttall Review” of 2012 raised awareness of employee ownership (EO), and led to the introduction, in the Finance Act 2014, of a new Employee Ownership Trust (EOT) which provides tax benefits, including income tax relief on “John Lewis style” bonuses. By June 2016, an estimated 80 companies had become employee-owned through an EOT, reflecting the rapidly growing size of the sector. The Employee Ownership Association’s 2016 survey of the UK’s Top 50 employee-owned businesses estimated three per cent?of GDP is now delivered by employee owned businesses annually.
It’s clear that employee ownership has a role to play in British business. This is especially true following the results of the Brexit vote which has made the current political, economic and social climate precarious. Indeed, the issue has been politicised further, with Theresa May proposing worker representatives on company boards would reinforce curbs on executive pay and benefits, and align the interests of workers and shareholders, and secondly, to encourage public sector mutuals. The Labour Party has also pledged to transform corporate Britain “by giving people a stake” in the companies they work for.
It is therefore easy for those of us who?ve been working in employee ownership for many years to get excited about the role it has to play to “create an economy that works for everyone”.
Many of the advantages of this form of corporate ownership, which offers improved productivity and better levels of employee engagement, retention and recruitment as well as a long-term approach to investment, are well publicised. Considered together with other “alternative” forms of ownership such as co-operatives, mutual and community ownership, there is a rapidly developing enthusiasm for the benefits EO can bring to working life.
Control and confidence
When confidence is low in the market place, EO can offer an alternative to a trade sale or investment. The provisions of the Finance Act 2014 offer arguably the most generous tax efficient vehicle for business owners to transfer a majority of the enterprise to an EOT and ensure that the workforce not only has control of the future of the business, but will also share in the profits. And by aligning the interests of employees and shareholders, EO can also give back control to the workforce. Since most of us are economically dependent on work, this will help reinforce feelings of control over our lives generally, with all the benefits that may bring.
Read on for more EO benefits.
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Fostering openness and clarity
Successful EO companies have a culture of openness and engagement, and typically will develop an inclusive and supportive governance structure. This business model will not only help to rebuild trust in our economy, but can offer a route for workers to sit on company boards and will provide information and training to enable them to carry out their corporate roles with confidence and authority.
With representation on boards, employee owners are able to scrutinise executive pay and benefits in a unique way. Typically, employee owned companies will have more transparent and responsible pay packages, and may include provision for pay ratios, where the salary of the CEO is limited to a ratio of the lowest paid employee
Investing in employee ownership
EO companies can also take a long term approach to investment and resist the urge to cut costs when times are tough. Historically, employees in EO companies have agreed to take a pay freeze or cut, or work part-time, in order to get through a recession or difficult trading period without cutting jobs. Therefore, an EO culture, which inevitably leads to an informed and participative workforce, will help to inspire confidence that workers” rights will be both consulted on and protected.
What is certain is that EO companies are positive and purposeful places to work which offer an alignment of the interests of shareholders and employees, allowing them to share in the success they help to create. EO fosters a working environment and structure where everyone’s contribution is valued.
When combined with successful employee participation, EO can lead to a more engaged and informed workforce, which is proven to become more productive, motivated and innovative. It is a tried and tested model which can offer a much needed long term perspective of productivity and investment in these post-Brexit times of political and economic turmoil.
Ann Tyleris employee ownership consultant at Lewis Silkin.
