Employee Ownership is thriving, but raising awareness remains a challenge

Marking the one year anniversary of the Nuttall Review, Business Minister Jo Swinson said the Government managed to make substantial progress promoting the employee ownership model, but more needed to be done to raise awareness of the sector. She encouraged businesses to help the government determine what measures were needed to further reduce the complexities of employee ownership.

On 19 November Minister Jo Swinson re-launched a new FTSE compliant UK Employee Ownership Index aimed at stimulating investment in employee-owned businesses. Apart from showing the strength of the sector, which includes many worker co-operatives, the Index will help investors to identify the 69 UK public companies listed on the London Stock Exchange that have at least three per cent of their issued share capital held by, or for, the benefit of employees other than the main board directors.

“As we build a stronger economy, there has never been a more important time to promote successful ways of running a business. Evidence shows that businesses that adopt the employee ownership model can be more profitable, create more jobs and are more resilient to economic shocks,” said the Minister.

According to Jo Swinson, employee-owned companies, including co-operatives bring many benefits to both employees and the wider economy: “When companies are owned by their employees what they often find is that there are stuff much more engaged and productive. It’s a model that we hope many companies out there will embrace-whether long established or start-ups.”

The new index was announced during a launch event marking the one-year anniversary of the Nuttall Review, which featured a keynote speech by Graeme Nuttall, the author of the report. 

Graeme Nuttall, a partner at Field Fisher Waterhouse, is UK government adviser for employee ownership. Mr Nuttall highlighted the key achievements of 2012, as well as the main challenges facing employee-owned businesses.

“One year on from the government’s response to the Nuttall Review, it is right to say that much has been achieved. However, the bar has now been raised and there is more to do if we are all to succeed in making this the decade of employee ownership.

“It’s not enough for the information to be out there, it has to be received and received well by those who would otherwise not think of employee ownership”.

He described employee ownership as a win-win situation, leading to a better business and happier staff.

“Employee ownership in all its forms works in every size of business in all sectors,” said the author of the Nuttall Review.

As well as setting the agenda for employee ownership, the Nuttall Review aims to keep a record of progress and existing challenges. According to Graeme Nuttall, employee ownership is already reaching a wider audience, with the European Commission adopting a broader definition of it. The most important achievement, he said, was that professional advisers were taking the model into consideration more. However, the implementation of the Nuttall Review is incomplete and more needs to be done, argued Mr Nuttall.

He said he welcomed the decision to apply tax relieves for employee-owned companies as of 6 April 2014, but warned that “if EO is to enter mainstream, it must do so based on its commercial success, not on tax exemptions.” The government will be allocating £50 million annually from 2014/2015 to introduce tax reliefs for businesses adopting the employee ownership model.

The Nuttall Review also focused on the position of employees and the options available when raising the issue of employee ownership. According to Graeme Nuttall, although a voluntary measure would be better than adding to legislation, there is commitment to look again at the idea of introducing a statutory right to request a discussion on employee ownership.

According to Graeme Nuttall, the government is also consulting on removing the perpetuity period for employee trusts. Under English law it is impossible to set up employee trusts that would hold shares for employees forever.

At a time when the UK economy has a 20 per cent productivity deficit compared to its main competitors, employee owned enterprises, many of which are co-operatives co-operatives, could deliver higher productivity and long-termism, said Iain Hasdell, Chief Executive of Employee Ownership Association.

“To employees, it [employee ownership] delivers generally higher profitability, a more equitable share of reward across the work force, less stress and more fulfilment,” he said.

Designed to promote and support employee ownership, the Employee Ownership Association set a target of growing UK employee ownership to 10 per cent of UK GDP by 2020.

Awareness of the model is expanding on a daily basis, according to Mr Hasdell. Speaking of the Employee Ownership Association’s main achievements this year, Iain Hasdell said that over 100 different events across the UK marked Employee Ownership Day on 6 July. 

Even so, the lack of awareness remains a major challenge, he said. “All the evidence is that once people become aware, than implementation is relatively easy compared to some of the more complex mergers, acquisitions and other activities that go on in the market,” said the chief executive of EOA.

He added that worker co-operatives are an important part of the employee owned sector. “There is a fine line between employee owned companies and co-ops, but we’re always found it helpful not to try to contest the definition, but celebrate the diversity,” said Mr Hasdell.

In promoting employee owned companies, EOA works with various partner organisations, including Co-operatives UK and Mutuo. “We’re very interested in working across the sector,” highlighted Iain Hasdell.

Successful case studies

At the launch event, Ms Swinson was also joined by representatives from four new employee owned companies. Paul Dolman-Darroll, Chair of Gamevy, an employee-owned start-up said they chose the employee ownership model to give employees a chance to have a higher chance of the bring ppl with high skills and knowledge and making a success of those skills and knowledge.

“The space is dominated by people who want to make money very fast, competition is tough. We are trying to show them start-ups can have a different model,” he said, describing Gamevy as “a little employee-owned business trying to change the world of gaming”.

In Sussex a charitable social enterprise which leads in planning, promotion and delivery of adult education. Every year they provide learning opportunities to more than 20,000 adults. “I owe it now to this sector to believe in others and empower others through employee ownership”. EO empowers individuals who want to be entrepreneurial,” said chief executive Ros Parker. A staff-run charity, Aspire Sussex enables employees to have a say in how the business is run. “Staff feel empowered to take decisions to move on take business decisions and take us to next stage of development. Employee ownership was a critical part in making the charity successful” said Ms Parker.

Dan Knowles, Managing Director of Mary Knowles Homecare, believes co-operatives, mutual and employee-owned businesses could provide an alternative to public spending cuts. His business, 100 per cent employee owned is based on the John Lewis model. Mr Knowles, who used to work for John Lewis, decided to replicate the ethos of staff reward within a domiciliary care company. “Our people have voice in the way the business is run. The business is more productive and people try harder. They come up with suggestions on how to improve ourselves.”

Employee ownership also proved to be a solution for Isobel Schofield and her husband, who founded Union Industries back in 1972. As they were planning to retire, they thought of choosing the employee ownership model to continue developing the business. They refused to sell the company, although they would have received a substantial amount. “We are fortunate that we are already in our culture like an employee owned company – a big family,” she said. Employees have already received training and by June next year the process will be finalised.