The news that long established family firm, Scott & Fyfe, is moving to an employee owned structure has been welcomed. Employee ownership is proving to be a fitting succession option for many business owners, as it allows them the freedom and flexibility to exit on their own terms, whilst achieving an acceptable price for the business. It’s also a good option for the UK economy; employee owned businesses tend to be more productive and profitable, and more likely to remain in their community. Furthermore, research published just last week shows how beneficial employee ownership can be for employees. A four year study by Loughborough University, sponsored by ifsProshare, found that employee shareholders were more committed, motivated and more likely to produce quality work.
However, many observers have expressed astonishment that the employees of Scott & Fyfe were told of the company’s planned restructure after the decision had been made. Surely the new owners, the employees, should have participated in this decision?
Having worked on many employee buy-outs, I can confirm this is not an unusual sequence of events. When there is little or no need or desire to raise cash from the employees to finance the deal, (with the company taking on any debt to pay off the outgoing shareholders), then the transaction can be completed without any involvement of non-Board employees. There are often commercially sensitive reasons for confidentiality. It could be due to a competitive market, interest from other buyers, uncertainty over funding. Sometimes, the company would like to get “the legals” out of the way before they focus on what is often a large culture change programme. I can say it is usually a rather uncomfortable situation.
Initial reactions to the news fall into two categories: relief and suspicion. Employees will often know that something is afoot. Men in suits walking around, key executives away at unexplained meetings? When called into an all company meeting, many employees will fear the worst. “The company’s closing” “I’m going to lose my job”. When that’s not the case, the rest of the message is often lost.
Employee ownership can seem too good to be true. When told that their bosses have sold the business to them, many will look for the hidden agenda. Where’s the catch? In control of our own destiny, no relocation to foreign lands, no major upheaval in ways of working – what is not to like? But there is a catch. The responsibility for making this business prosper lies with the owners, who are now the employees. That’s a weighty responsibility to give anyone, especially as a surprise!
The most successful transactions I’ve been involved in have included employees at an early stage, before the business transfer process begins. Often we would form an EBO (employee buy-out) team who would be involved in meetings with lawyers, input into governance structures, finalising documentation, and communicating to colleagues. This goes a long way to creating the transparent and honest culture which is the foundation for employee owned businesses to thrive. When that is not possible, for whatever reason, the company must work extra hard to ensure that employees understand the rights and responsibilities of owning their business and have real voice in their organisation. Employee ownership does not start and finish as a technical restructure. “The legals” are the sideshow to the main event. When employees think, feel and act like owners – that’s when the business transformation begins.