Employee-owned businesses – or the ‘John Lewis model’ – offer part-ownership of the company, a share of annual profits, and a say in how companies are run.
Traditionalists might argue the model only offers a kinder form of capitalism – not the collective principles on which the co-operative movement was founded. But the fact remains that in recent times the number of EOBs in the UK has been growing by over 10% every year.
Thanks to tax incentives and simpler ways of transferring shares – brought in under legislation championed in 2014 by the coalition government – the ‘John Lewis economy’ currently accounts for a combined turnover of over £30bn: 4% of the national GDP.
Most businesses adopting this model are Employee Ownership Trusts, with the majority of shares owned collectively by and for the benefit of employees. A new business can be started or an existing company can convert by setting a trust up as part of a business owner’s exit or succession planning, or simply to take advantage of incentives offered by the coalition’s Finance Act.
Deb Oxley is CEO of the Employee Ownership Association, which has grown in membership from just 200 in 2015 to over 500 in 2020. Last year, to mark its 40th anniversary, the EOA set a target of over 3 million employee-owned businesses by 2030.
“We have seen real growth; much of that is down to legislation but there are other reasons why the model is particularly attractive to family-owned businesses,” she says. “When it comes to succession planning, families can keep a stake and offer employees a stake, as well as deciding how much equity they give to employees”.
“When you create a Trust there is guidance on governance. It is about employees not just having a meaningful stake but also a meaningful voice, with different ways of employee representation including employee directors on boards or an employee council.”
Ms Oxley agrees that fundamental differences remain between employee-owned businesses and traditional worker co-operatives. “There are a lot of similarities but they are not one member, one vote; and the majority
are still SMEs doing it for succession reasons,” she says. “However, both models can learn from each other.
“There are three very important ingredients which are a learning point for any business: good communications and engagement; good governance; and good leadership. It builds trust in businesses, makes them a lot easier to adapt and offers a different type of leadership where someone on the shop floor can challenge a decision.”
With the pandemic still raging and Brexit looming, what lessons can be learned?
“The pandemic has revealed a lot of unfairness in our economy,” says Ms Oxley, “and we have got to make sure we become the organisation that can represent them, building services and support to enable that.
“Post Brexit and Covid, we will go forward and rally because we will not have any other choice. We think the number of employee-owned businesses will increase; people will be thinking about the future and we will be building our services to be the best we can be.”
In Scotland, there are now around 120 employee-owned companies, with approximately 7,500 employee-owners generating a combined turnover of around £950m.
One of the latest is Aberdeen-based IT provider ITWORX, which has just announced its transition to employee ownership, with 17 staff given a stake in the business. Last year, the firm turned over £2.6m.
Clare Alexander, head of Co-operative Development Scotland, says: “The Employee Ownership Trust (EOT) model offers long-term stability for a business and can help to ensure its values and principles are upheld and enhanced now and in the future. The stable ownership foundation and co-operative governance principles combined with commercial focus makes the EOT a highly effective model when it comes to enhancing productivity, profitability, innovation and staff wellbeing.”
Other high-profile examples include Devon-based Riverford Organics, where founder Guy Singh Watson handed over 74% of the business after building a £45m turnover; Sheffield-based civil engineering giant Gripple, which has been 100% employee-owned since 2011; and home entertainment retailer Richer Sounds, where founder Julian Richer handed over 60% of his shares in 2019 and operates a Living Wage policy in 52 branches across England.
Andrew Harrison, partner at Newcastle-based Co-ownership Solutions, advises both traditional worker co-operatives and employee-owned business start-ups.
“Whilst an EOT is not technically a co-op, there is no reason why they can’t operate with, and be drafted to include, some degree of co-operative principles,” he says. “However, the stark reality is that EOTs are now far more likely to be adopted by existing business owners as a succession route than a co-op because they offer a series of attractive tax benefits to the outgoing owners and the employee owners.”
But the traditional worker co-operatives are still fighting their corner. In 2019, they had a turnover of £11bn, up £600m in four years.
And for co-operators like Siôn Whellens, of graphic design and print business Calverts, they will always be the optimum choice. “Employee-owned businesses generally come out of philanthropic action by former owners,” he says, “who want – for whatever reason – to pass on ownership and reward employee loyalty, usually with minority stake shares based on motivation in terms of tax efficiency. Most maintain a very traditional culture; the owner will often stay as essentially the boss.
“They look the same in some ways and there is a ‘cousinly’ overlap but the character is quite different.
“I do not particularly see it as a conflict as they come from very different places – but there is an issue if people think they are the same thing because they are not.”
Mr Whellens recently launched an online solidarity fund raising money for worker co-ops – which has so far brought in more than £160,000. He is currently helping a group of cleaners in London form a co-operative and is also involved in a new visual effects venture by members of BECTU, working in the film and TV industry.
“Money isn’t the only motivating factor for workers,” he says. “Successful worker co-operatives embody lifelong learning and personal development, a culture of equality and decent work, and the opportunity for workers to collectively self-manage their lives.
“The Employee Owner Association and organisations like Co-operatives UK are closer now but there is still a future for the traditional co-op sector.”