A new white paper published today by the Wales Co-operative Centre has outlined five recommended steps for the next Welsh government to help double the number of employee-owned businesses in Wales.
The Ownership Effect Inquiry argues that co-owned companies tend to be more successful, competitive, profitable, and sustainable when compared to SMEs. It says there is strong evidence that transitioning to employee ownership can be “hugely beneficial to business owners and the wider economy”.
More than 50 Welsh companies have received advice about ownership transition from the Wales Co-operative Centre, which completed its first assignment in 1994 with the £9m purchase of Tower Colliery by its employees. Since then it has helped many businesses transition to employee ownership including engineering companies, health firms, retail businesses, film and TV companies, architecture firms, IT organisations and print companies.
Chief executive Derek Walker said: “The Covid-19 crisis has made the benefits of employee ownership to workers, businesses, and our communities even clearer. There is evidence over many years that employee-owned businesses are more resilient, rooted and productive – qualities that will be more important than ever as we recover and rebuild from the difficulties of this year. There are also financial incentives for businesses, with significant tax breaks that benefit both seller and employees.
“That’s why we’re calling on the Welsh government and all political parties to commit to aiming to double the number of employee-owned businesses in Wales over the next five years. This is ambitious, but the potential impact is huge. We already have skilled and experienced business support available to anyone in Wales who wants to find out more about employee ownership, and so our priority is to promote this model to the business community.”
The white paper looks at best practice from other parts of the world, including Scotland which has the second-highest proportion of employee-owned businesses of all the nations and regions of the UK, behind only London.
In 2018, the Scottish government announced an ambitious target of raising the number of employee-owned businesses in Scotland from around 100 to 500 by 2030. Accompanying this target was the establishment of ‘Scotland for EO’, an industry leadership Group backed with £75k of Scottish Government funding. There are now around 120 employee-owned companies operating in Scotland, with approximately 7,500 employee-owners generating a combined turnover of £950 million.
Clare Alexander, head of Co-operative Development Scotland, said: “We have seen a fivefold increase in employee ownership since we started promoting the model and the pace of take-up is accelerating.
“There are a number of reasons behind Scotland’s success in this area. We’ve had exemplary support from the Scottish government and an encouraging amount of cross party backing has also led to increased dialogue around the ownership model. The ability to access free advice and support from CDS for businesses to explore their options, as well as our campaigns to raise awareness among key advisors such as accountants and lawyers, also play a significant part in the sector’s growth.”
As well as the crisis brought on by Covid-19, the more long-term and persistent problem of business succession in Wales is also a crucial consideration. SMEs account for 99% of the business count and 62% of private sector employment in Wales, with family ownership common. 43% of these businesses do not have a succession plan in place, with only 12% of family firms making it to the third generation. One in five SMEs face planning closure or succession in the next 5 years, and 29% of businesses have been under the same ownership for the past 21 years, meaning 15,000 business owners could be looking to leave their businesses.
One high profile firm which has bucked the succession trend is Tregroes Waffles, a small family run bakery in the Teifi Valley in South-West Wales. The owner, Kees Huysmans, began to explore the concept of employee ownership about five years before the transition started.
In 2016, Kees sold 10% of his shares to the Trust using company profits to pay for them. As part of the agreement, the owner will sell a further 10% to the Trust each year provided the company is able to pay for them.
According to Kees Huysmans, the employee ownership model has enabled Tregroes Waffles to build upon its success in the area and be more resilient during times of crisis.
“I am taking more of a backseat and it’s down to the next generation, the people who work here, what the direction of the company is and that has resulted in us expanding quite dramatically,” he said. “That would never have happened without employee ownership.
“I’m still being rewarded for all the efforts I’ve put into building up this company, but I can control more or less that it will stay here and maintain its function in the locality, and that gives me great pleasure.”