Share model that makes per­fect sense

In the lat­est in our se­ries of spe­cial fea­tures, we ex­am­ine the in­di­vid­ual and wider ben­e­fits of em­ployee own­er­ship – a win-win com­pany struc­ture

The Herald Business - - Knowledge For Growth -

CRE­AT­ING a busi­ness en­vi­ron­ment where ev­ery­one shares not just fi­nan­cial in­vest­ment but emo­tional in­volve­ment might seem im­plau­si­bly am­bi­tious. With em­ployee own­er­ship, how­ever, all par­ties have a gen­uine say in how a busi­ness is op­er­ated, giv­ing ev­ery­one a mean­ing­ful stake in their or­gan­i­sa­tion. With this model, de­liv­er­ing eco­nomic well­be­ing takes on a whole new level of com­mit­ment.

And for those seek­ing to move to the model, help is at hand to make the process a straight­for­ward and re­ward­ing ex­pe­ri­ence. Co-op­er­a­tive De­vel­op­ment Scot­land (CDS), is the arm of Scot­tish En­ter­prise work­ing in part­ner­ship with High­lands and Is­lands En­ter­prise that sup­ports com­pany growth through col­lab­o­ra­tive and em­ployee own­er­ship busi­ness mod­els.

While its Ad­vi­sory Board of­fers ex­pert guid­ance and sup­port on the de­vel­op­ment and ef­fec­tive de­liv­ery of the or­gan­i­sa­tion’s func­tions, its 11 Em­ployee Own­er­ship Am­bas­sadors from lead­ing Scot­tish com­pa­nies are there to pro­vide prac­ti­cal ad­vice to in­di­vid­u­als con­sid­er­ing a co-own­er­ship struc­ture for their busi­ness.

As the chief ex­ec­u­tive of CDS, Sarah Deas’ pri­mary am­bi­tion is to in­crease the con­tri­bu­tion that em­ployee own­er­ship mod­els play in the Scot­tish econ­omy. She says: “Our as­pi­ra­tion is to achieve a 10-fold in­crease in the num­ber of head­quar­tered em­ployee-owned busi­nesses in Scot­land.”

Sig­nif­i­cant progress has al­ready been made. Since 2009, when CDS be­gan ac­tively pro­mot­ing em­ployee own­er­ship, the num­ber of em­ploy­ee­owned busi­nesses based in Scot­land has dou­bled.

So how can a com­bi­na­tion of shared own­er­ship and em­ployee par­tic­i­pa­tion ac­tu­ally de­liver su­pe­rior per­for­mance and sus­tain­abil­ity for a busi­ness?

“Our def­i­ni­tion of an em­ployee-owned busi­ness is one in which the em­ploy­ees hold the ma­jor­ity of the shares, ei­ther di­rectly or through an em­ployee ben­e­fit trust,” says Deas.

“Em­ployee own­er­ship gives em­ploy­ees a mean­ing­ful stake in their or­gan­i­sa­tion to­gether with a gen­uine say in how it is run.

“Ev­i­dence shows that em­ployee-owned busi­nesses are typ­i­cally five per cent more pro­duc­tive than tra­di­tional ones.”

Deas cites the case of Clans­man Dy­nam­ics, an East Kil­bride-based man­u­fac­turer of ro­botic foundry han­dling equip­ment.

“Since their con­ver­sion to em­ployee own­er­ship in 2009, sales have in­creased by 65 per cent and prof­its have more than dou­bled,” says Deas.

This is not an iso­lated suc­cess story, how­ever, as Deas is keen to high­light: “A study by the Cass Busi­ness School showed that em­ployee-owned com­pa­nies were more prof­itable, added more staff and were more re­silient dur­ing the 2008-2009 eco­nomic down­turn.

“Since 1992, the Em­ployee Own­er­ship In­dex (EOI) has out­per­formed the FTSE All-Share by an av­er­age of 10 per cent per an­num, ac­cord­ing to Field Fisher Water­house.”

CDS works in part­ner­ship with High­lands and Is­lands En­ter­prise, yet rather than find­ing the pre­dom­i­nantly ru­ral, of­ten re­mote, ge­og­ra­phy pre­sent­ing unique chal­lenges, it re­ports that em­ployee own­er­ship works re­mark­ably well in the re­gion.

“Em­ployee own­er­ship is a good fit for busi­nesses of all sizes, sec­tors and ge­o­graphic lo­ca­tions,” Deas points out. “It works es­pe­cially well in more re­mote ar­eas like the High­lands and Is­lands, where em­ployee own­er­ship pre­serves a legacy for the ex­it­ing owner and pro­tects jobs for the em­ploy­ees. Re­tain­ing key em­ploy­ers in frag­ile com­mu­ni­ties is es­sen­tial for eco­nomic well­be­ing and pros­per­ity.”

The im­por­tance of em­ployee own­er­ship was backed up by the re­cent Nuttall Re­view, which at­tracted po­lit­i­cal sup­port, with the Govern­ment com­mit­ted to re­move ob­sta­cles. How­ever, lack of aware­ness from busi­ness own­ers and pro­fes­sional ad­vis­ers was iden­ti­fied as one of the bar­ri­ers to fur­ther up­take.

Deas says: “We have been work­ing with the pro­fes­sional ad­viser com­mu­nity in Scot­land, so hope­fully em­ployee own­er­ship will be put for­ward as an op­tion to busi­ness own­ers as part of their suc­ces­sion plan­ning.”

As well as fu­ture chal­lenges, Deas also fore­sees fu­ture op­por­tu­ni­ties.

“Em­ployee-owned busi­nesses make a sig­nif­i­cant con­tri­bu­tion to the com­mu­ni­ties in which they op­er­ate and to the wider econ­omy,” she says. “John Lewis Part­ner­ship, t he UK’s l argest em­ployee-owned com­pany has achieved phe­nom­e­nal growth; from 500 to 85,000 part­ners since 1929.

“A re­cent ex­am­ple is Ac­cord En­ergy So­lu­tions, an Aberdeen-based hy­dro­car­bon ac­count­ing busi­ness that be­came em­ployee-owned from start up in 2010 to at­tract, en­gage and re­tain staff. Since then staff num­bers have grown to 28 and turnover has reached £4.3m.

“If only more busi­nesses were aware of the ben­e­fits that shared own­er­ship and em­ployee par­tic­i­pa­tion can de­liver.”

With those ben­e­fits in mind, the UK Em­ployee Own­er­ship As­so­ci­a­tion and its mem­bers are look­ing to in­crease the con­tri­bu­tion of em­ployee own­er­ship to 10 per cent of UK GDP by 2020 – and Deas’ as­pi­ra­tion is to achieve that 10 fold in­crease in head­quar­tered em­ployee-owned com­pa­nies in Scot­land.

“The re­cent Au­tumn State­ment an­nounced a £75million fund­ing pack­age to en­cour­age the growth of the em­ployee own­er­ship sec­tor – hope­fully this will help,” she says. “In terms of suc­ces­sion plan­ning, our suc­cess would be for an EBO (em­ployee buy­out) to be con­sid­ered along­side an MBO (man­age­ment buy­out) or a trade sale.” For Deas and CDS, the real value of em­ployee-owned busi­ness is im­mea­sur­able. She says: “Sell­ing to em­ploy­ees al­lows own­ers to man­age their exit and achieve fair value, while safe­guard­ing the long term fu­ture of the com­pany. “It roots busi­ness in Scot­land, drives per­for­mance and de­liv­ers eco­nomic well­be­ing.”

Sarah Deas is the chief ex­ec­u­tive of Co-op­er­a­tive De­vel­op­ment Scot­land

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