Archives For Employee Ownership

 

By Iain Hasdell, chief executive of the Employee Ownership Association

IASB

The current level of UK fascination with, and enthusiasm for, employee ownership is unprecedented.

It is now the most prominent alternative to conventional forms of business ownership in the UK. Interest in it within business communities is increasing daily. The number of employee-owned businesses is currently growing at an annual rate of 10 per cent. And there is a growing realisation that employee ownership in its many forms drives economic growth, innovation and quality whilst spreading wealth and optimising the fulfilment of employees. It already contributes, according to figures from the Employee Ownership Association (EOA), more than £30 billion each year to UK GDP.

The fact that it is a growing economic force in the UK is partly a reaction to our economic context. This context has called into question the short-termism of conventional forms of business ownership and the consequences of that on the economy and our communities. But the emerging popularity of employee ownership is also a response to the compelling evidence of its economic benefits, particularly the high levels of productivity and innovation it delivers. The Deputy Prime Minister will be discussing this when he launches a key EOA report on the economic business case for more employee ownership at the inaugural Oakeshott lecture on 27 March. The Coalition has confirmed a capital gains tax break for employers who sell their company to their employees in the Budget.

Despite the current momentum there remains much to do to create the kind of future for employee ownership that the EOA, with our members and a range of partners, have consistently sought. A future in which there is far greater awareness of employee ownership, its benefits and implementation options; there is a simplification of those options; and there is better access to finance and advice for organisations that want to create and/or fund employee ownership.

Work on all of those strands continues apace, mainly under the auspices of the Government sponsored Employee Ownership Implementation Group Chaired by Jo Swinson, the Minister with responsibility for employee ownership. After the Budget the Group will start to execute a significant awareness programme that will include a specific focus on accountants and financial advisors.

The majority of accountants and financial advisors, with some brilliant exceptions, do not yet fully understand employee ownership, the various models that are available, how to finance transitions to employee ownership and how corporate financial governance needs to work in businesses that are owned by their employees. Consequently they do not introduce the option of an employee buy out often enough and are sometimes found wanting when it comes to serving the needs of clients who are pursuing employee ownership. The awareness programme will really help to overcome this issue. There are encouraging signs that the accountancy profession is picking up the gauntlet of employee ownership in a very positive way. As the profession does this it will be making a vital contribution to the future growth of employee ownership in the UK.

The Implementation Group will also soon be launching a series of standard legal documents that will make it far easier to implement employee ownership. This is the simplification agenda in action.  And the Group is making progress on the development of an asset class of patient capital and social investment that aligns with the financial requirements of employee ownership.

So employee ownership continues to blaze a trail. We really are in the decade of employee ownership. It is now becoming a core component of the UK’s economic growth agenda. It is a successful business model in every sector of the economy that constantly challenges the conventional wisdom of those who suggest business ownership always needs external investors. And a range of measures are being put in place for the longer term to support the current growth in the number of employee-owned businesses in the UK.

Businesses, professional bodies and a host of others need to put their shoulders to the wheel to keep up this momentum – indeed to increase it. I am sure they will.

Let us all grab this great opportunity whilst we have it!

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Iain Hasdell is the Chief Executive of the Employee Ownership Association the voice of employee owned businesses in the UK

The report of the independent Nuttall Review into barriers to employee ownership in the UK has just been released at a Summit on employee ownership chaired by the Deputy Prime Minister. This marks another important step along the way towards employee ownership becoming a central part of industrial policy. And, critically, it will feed directly and very strongly into the separate review of employee ownership taxation that was announced recently by the Chancellor.

The Employee Ownership Association, the voice of employee owned businesses in the UK, very much welcomes the key recommendations in the Nuttall Review, having pushed hard for the Review to take place and having been closely involved in its work. Businesses that are owned by their employees contribute over £30 billion to the UK economy each year. And employee owned business tend overall to have higher productivity, greater levels of innovation, better resilience to economic turbulence and more engaged, fulfilled workers who are less stressed than colleagues in conventionally owned organisations. Even a cursory look at the compelling success stories of employee owned businesses such as Gripple, Clansman, Childbase,Unipart, and Sutcliffe Play demonstrates the very special value of employee ownership.

Chapter 2 of the Nuttall Report summarises the empirical evidence on the unique performance of employee owned businesses. The EOA is massively enthusiastic about the content of the Nuttall Report. The diagnostic sections go to the heart of the main challenges to be overcome in growing the number of employee owned businesses. And the prescriptions are compelling.

Nuttall recommends a major campaign to raise awareness of employee ownership options. He calls for much more progress at a faster pace on creating better access to finance for businesses that want to implement employee ownership. He points to the need for a more modern approach to some elements of the taxation system that affects employee owners. He recommends the simplification of employee ownership models through the development of simple toolkits and ‘off the shelf’ templates to cover tax, legal and other regulatory considerations – what the Deputy Prime Minister is calling ‘employee ownership in a box’. And Nuttall urges business and government to work together to remove the key barriers to employee ownership.

That brings me to one of those barriers – the role of financial advisors – which the report discusses in several places. Put simply the majority, with some brilliant exceptions, of accountants do not yet understand employee ownership, the various models that are available, how to finance transitions to employee ownership and how corporate financial governance needs to work in businesses that are owned by their employees. Consequently they are frequently found wanting when it comes to serving the needs of clients who are pursuing employee ownership.

Too often, either as auditors, or commercial advisors, accountants default to the PLC world in which they are regularly most comfortable. This militates against employee ownership in favour of sales of companies to competitors and/or management buy outs. This is nobody’s fault – this is not about ascribing culpability. But it is a significant challenge that the profession has to overcome.It has to start at the grass roots – with employee ownership becoming a much bigger and integral part of the learning and qualification process for those in the accountancy profession. And be reinforced within professional service Firms through the creation of many more teams who achieve genuine expertise in employee ownership matters. This is perfectly plausible.The ordinary disciplines of market demand and supply will lubricate progress as the number of employee owned clients grows. It is now too big a business opportunity to be ignored.

The Nuttall Report sets out an array of work for the EOA to take forward, including collaboration with the Employee Engagement Taskforce and also building on the Breedon Review on access to finance. As part of that agenda of practical next steps we are looking forward with confidence to helping the accountancy profession pick up the gauntlet of employee ownership in a very positive way. When the profession does this it will be a vital contribution to the future growth of employee ownership in the UK.