Carole Leslie

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  1. Employee ownership – no longer a secret?

    April 26, 2013

    The case for employee ownership is closed. Research demonstrates that when a business is owned by its employees, it is more profitable and productive, with happier staff and customers, and more likely to be innovative than conventionally structured businesses. A further report published last year by the Employment Research Institute at Napier University found that working in an employee-owned firm had a positive impact on employee well-being. And this begs the question – if employee ownership is so good, why is there not more of it?

    The biggest obstacle to wider adoption of`employee owned business models is purely and simply lack of awareness. Just not enough business owners know the option exists. Furthermore, the Nuttall report identified that lawyers and accountants were not sufficiently acquainted with the model which means that if a business owner does decide on this route, then they may find it a challenge getting the right advice.

    For the past year I’ve been working on a project with Co-operative Development Scotland which aims to raise the levels of awareness and knowledge of employee owned business models within the Scottish professional adviser community. This includes lawyers, accountants, bankers, investors and membership institutes and organisations.

    So far, almost 70 firms have engaged in the process, many holding internal training or external client events. Interest has been encouragingly high, and more than that, most firms will have had some exposure to an employee owned business. Several advisers have since identified clients who they think might consider adopting the model, usually as an exit strategy.

    We are now continuing this work and introducing employee ownership as a topic into CPD and training programmes via the Institutes: The Law Society of Scotland, the Institute of Chartered Accountants of Scotland and The Chartered Institute of Bankers in Scotland.

    Employee ownership is no longer a secret. Now word is out, we can look forward to more companies joining what is a successful and dynamic community, strengthening the economy by finding a better way to do business.

    Posted in: General

  2. 6 Pitfalls Employee Councils Fall Into

    March 10, 2013

    Properly constituted Employee Councils are good for employee owned businesses. The collective voice of employees can be more representative, and louder, than having one or two elected positions within the company’s governance structure. However, in my 13 years in the sector, I’ve seen some common pitfalls that Employee Councils should strive to avoid..

    1. Expected to solve issues over which they have no control The council is sometimes seen as the place to go to when an employee has some kind of work issue, for example, a problem with their workload. However, a voluntary elected council rarely has the ability to resolve that kind of issue. In an employee owned company, any employee should feel able to address any concern they have directly with the individual who can give the answer to that concern. It may not be the desired answer, but it is much better to have a direct answer.

    2. Given the tasks no-one else wants to do There are few things more disheartening than working with a council which then receives an approach from the management team that it’s been decided that it’s the council’s role to organise the Christmas party, or some other task that usually falls to one or two beleaguered individuals. Resist! Does that fit with the constitution? Does the council have the will and the resources for event management?

    3. Absolve management of the responsibility of communication Employee owned businesses thrive on communication. As long as it’s all correct then the more the merrier. I’ve seen some companies where managers have thought it the job of the council to communicate changes in policy (especially unpopular changes!). Good and bad news is always more effectively communicated if employees work together to determine the best way to get information out to all the employee owners.

    4. Not given the proper authority to be taken seriously in the business Employee Councils work best where senior management recognise the value and purpose of the council, and are seen as actively supporting it. In companies where the council is not respected as the voice of employees, for example where managers make it difficult for employees to attend council meetings, then the council, and therefore employee ownership, is not likely to be successful.

    5. Become a talking shop Council meetings are like any other business meeting; there has to be an agenda and someone has to take on the responsibility of ensuring that the agenda is followed, no one member dominates the meeting, and that the meeting achieves its objectives. Some councils find it more effective to have a permanent Chair, some find that rotating the chair keeps people involved and the meetings fresh.

    6. Apathy! This is the most dangerous pitfall of all. If employees aren’t enthused enough to stand for election or to vote, and council members “forget” to turn up, then it’s likely time to rethink the purpose and start again.

    What can be done to a avoid these pitfalls? Being clear from the beginning on the purpose of the council – What’s it for? – is a start. So many companies form a council because “it’s the thing to do”, or it’s “how John Lewis do it”. Communicate this purpose so that everyone in the business understands it, and refer to that purpose often during discussions. Vocal support from the Chief Executive helps focus people’s attention on the value of the council. And of course, if it “does what it says on the tin” then that value will become obvious to all.

    A well functioning council can be the best way to ensure employee owners are truly involved in the business. Invest time in getting it right, and ensuring the Employee Council stays on track.

    Posted in: Employee owned business, General
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  3. The missed opportunity- the Autumn Statement fails to deliver the new economy

    December 5, 2012

    How deflating!  The year started off with a bang with Nick Clegg’s commitment to “drive employee ownership into the bloodstream of the UK economy”. The Nuttall report was launched by no less than three government Ministers and a source close to No 10 promised me that “the landscape for employee ownership will change”.  Has it?  There will be an institute established, and a “task force” to raise the awareness amongst lawyers and accountants.  Hardly “landscape changing” stuff…  When will we see the real policies that will make a difference?

    We got October’s red herring with George Osborne’s proposal for a new form of contract which would allow companies to recruit workers on a weakened employment contract in exchange for shares. Many of us in the employee owned and co-operative sector judged this to be a bizarre move and I wrote about this here  .  It seems I wasn’t alone. BIS published the result of their consultation on the proposal which found that only 3% viewed this positively.  Yet, the government has stated an intention to press ahead.

    So, hopes were pinned on the Autumn Statement.  I suggested this might be the opportunity for the Chancellor to reclaim the government’s position as champions of employee ownership in an article for the New Statesman. The new employee shareholder scheme merited one sentence.  This was followed up by a further statement from the Treasury to say that the April Budget will consider measures to support employee ownership based on the Nuttall review.

    There were some positive measures in the budget for SME businesses – but nothing that will specifically support the growth of the employee owned sector.

    Let’s not get too despondent. There are good things happening.  The Employee Ownership Association has seen membership grow by 10% this year.  Co-operative Development Scotland offers an excellent advisory service for business owners interested in exploring employee owned models. Since the beginning of the year, their programme to engage law firms, accountancy firms and banks has been spreading the message of employee buy outs as a succession option.  Wales Co-ops has seen an increasing interest in employee ownership particularly in rural areas.

    This is a growing sector.  Had the promises of support been delivered today, we could have seen an acceleration in that growth which would have brought benefits to the economy, local communities and employees.  As it is, employee ownership will continue to gather momentum despite the lack of political follow through.

    Posted in: Employee owned business

  4. If employee owned companies do so well, why the need for government support?

    November 30, 2012

    The Westminster politicians have been very vocal on employee ownership over the past two years.  We have seen the Cabinet Office push the idea of employee led mutuals for services spinning out of the public sector, and the Deputy Prime Minister stating his intention to “drive employee ownership into the bloodstream of the UK economy”.  In recent months, the Chancellor has proposed a new employment status of “employee shareholder” and the Government is now reacting to the recommendations of the Nuttall report.  While the politicians deliberate, UK employee ownership, particularly in Scotland, continues to grow. This begs the question, do we need this political intervention?

    The US experience suggests fiscal support does make a difference.  In 1998, the US Government introduced a suite of measures to promote equity ownership by employees.  Due to the federal tax incentives, the most common form of employee ownership is the Employee Stock Ownership Plan (ESOP) model—a regulated employee benefit plan.  In addition to corporate tax concessions depending on the proportion of shares held by the ESOP, business owners selling to an ESOP can defer certain tax liabilities and deduct contributions.   Employees pay no tax on stock allocated to their ESOP accounts until they receive distributions, and then, at potentially favorable rates.  100% ESOPs, registered as S Corporations, pay no federal income tax.  The impact of these policies have been significant. The number of participants in ESOPs doubled from 1999- 2010 and the number of ESOPs is expected to triple from 2012 to 2020.

    Of course, one effect of this in the US has been a dramatic increase in the number of specialists; lawyers, accountants and consultants who are expert in this area. The Nuttall report identified the complexities of the process and the model, the lack of knowledge  amongst advisers and the low levels of awareness within the business community.  If such an incentive is on offer, advisers would make it their business to sharpen up their knowledge of employee ownership which would better equip them to guide their clients through the transaction, and thus raise the profile. In one fell swoop, these obstacles are removed.

    As we anticipate the Autumn statement, will the Treasury make such a bold move to follow through from the loud words?  The government itself says the case for employee ownership is proven; they have the power to make it happen.

    Posted in: General

  5. You can’t swap rights for shares

    October 10, 2012

    For many of us in the employee owned and coop sector the announcement of the “trade rights for shares” scheme was a blow.  Is this the Government’s big plan to foster more employee ownership?

    We expected better. Following Nick Clegg’s commitment back in January to “drive employee ownership into the bloodstream of the UK economy” and the endorsement by no less than three Government Ministers (Lamb, Clegg & Maude) of the Nuttall report, those of us in the sector thought – at last – they’ve got it! The very idea that employees should have to forgo employment rights to enjoy the rewards they help create is simply ludicrous.  Where did that come from?

    If only George Osborne had attended an excellent, and busy, event in Glasgow this week, he would have heard Sarah Deas of Cooperative Development Scotland say why employee ownership is so important to a healthy economy:

    • Unlike a trade sale where relocation is often inevitable, the model roots the business in the community.
    • The ownership stake engages the hearts and minds of employees and aligns everyone with the business
    • The wealth created is distributed over a broad base of people.

    Employee owned businesses enjoy a dynamic not often found in conventionally structured businesses.  As in every business, the board is accountable to the shareholders.  In the co-owned sector, these shareholders are largely employees.  This breaks down the “them and us”.  The goals of management and workforce are aligned, reinforced by the transparency and accountability that ownership brings.   The Government’s idea that there would be a two tier organization, with managers who hire and fire, and a subservient contractor workforce rails against the very principles employee ownership stands for.  This is a huge step back to the adversarial industrial relations environments of the seventies and eighties.

    At the core of Osborne’s proposition is that share value in these companies will grow and thus compensate employees for the lack of employment security and weakened working conditions. Just about every employee owned business will tell the Chancellor that this is a faulty premise. Financial gain is not unimportant, but is not usually a priority.  The fairness, the transparency, the accountability are the reasons why most employee owners produce the remarkable results that interest the researchers.

    There is no doubt that the model proposed might fit with a very small number of firms who may be looking for that “flexibility”.  Will this really drive the benefits of employee ownership and create a fairer, more solid and beneficial economy?  I think the response so far has been overwhelmingly that it will not.

     

    Posted in: Employee owned business
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  6. Surprise – you own your company!

    September 23, 2012

    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.

    Posted in: Employee owned business
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  7. “By making the change, we preserve the past”

    August 16, 2012

    Change is good – but some things are worth keeping.  Many business owners decide to move their companies into employee ownership because they want some things to stay the same. They may want to ensure the business stays in the same location, providing current and future jobs in the community.  There may be a long-standing, loyal customer base who expect certain standards of service, which competitors may not be in a position to deliver. Some owners recognise the contribution employees have made to the business, and want to secure their future.  And some companies just have a unique way of being successful, and employee ownership provides a means of continuing to operate in that way.

    I had the privilege of spending time yesterday with one such company.  Galloway & MacLeod has manufactured and supplied animal feed to the agricultural sector since 1874.  It’s a prosperous company, and a significant employer in the village of Stonehouse, South Lanarkshire. It is a highly specialised business; the composition of animal feed is painstakingly complex and the tracking process is rigorous. Every employee I met was cheerful, knowledgeable and appeared committed to their company. Yet, when asked about the move to employee ownership, the response was often, “Nothing has really changed.”

    Many organisational development consultants would shake their heads at such a response. Yet to me, this was a ringing endorsement that employee ownership was the right move for this company. It is evident that the company’s commitment to excellence hadn’t changed. Innovation is a priority, as is sustainable development.  Customers are central to the business and employees are actively encouraged to maintain their expertise.  As well as being a traditional, old fashioned business, Galloway & MacLeod is right up there when it comes to progress, technology and continual improvement of their product and service for customers.

    What has changed is that the issue of succession is gone, the threat of a trade sale and potential relocation has been removed, and the employees now have a real stake in their company, with more control over their destiny.

    With all the talk about employee ownership being a complex, convoluted and a lengthy process, it was great to hear the company’s Chairman, Ralph MacLeod, say that it was an easy transition (which was supported by Co-operative Development Scotland).  He doesn’t see any downside.  Perhaps as the seller, he could have got a few more pounds for the business had he sold out to one of the large conglomerates, but as he says “It’s about optimising the value, not maximising the financial value”.

    Employee ownership doesn’t have to be difficult, and is often the best outcome for business owners who want to secure the long term prosperity of their business.

     

    Posted in: Employee owned business
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  8. Employee Ownership – the time has come

    July 4, 2012

    When the EOA first proposed the idea of an employee ownership summit to BIS back in early 2011, we were pleased at the warm reception. We discussed with BIS officials the format, the content and whether there was any possibility of a Government Minister making a key note speech. The objective was to raise the profile of employee ownership as a business model and encourage more business owners to consider this as part of their exit strategy.  How many attendees could we expect?  We guessed 60.  Employee ownership is a topic which elicits positive noises yet not one that’s widely understood or adopted. Yes, it’s a good business model with lots of stellar examples.  But it was still a secret. The challenge was in encouraging business leaders to give up half a day to attend a meeting on something they would be barely aware of. It would be even more difficult to attract advisers e.g. accountants and lawyers to take time off from fee earning to attend..

    July 4th 2012 was the turning point. A summit meeting, held in the City of London, hosted by the Institute for Chartered Accountants of England and Wales launched the Nuttall report on employee ownership. There were more than 200 attendees – from employee owned businesses, from the professions, from financial institutions, from the unions. The event was chaired by BIS Minister, Norman Lamb and attended by the Deputy Prime Minister, Nick Clegg and Cabinet Office Minister, Francis Maude. All three ministers mixed with guests and participated in table discussions. The Department of Business Innovation and Skills did a superb job of organising what was a landmark event. There was media interest across the globe, with column inches in all of the major publications and widespread broadcast reporting.  ”I wish we had a Norman Lamb here” said one of my employee ownership contacts in the States.

    The difference a year makes. In the past year, we have seen a surge of interest in finding new ways of doing business. Tired of the short termism fostered by external shareholders, the unfairness of disproportionate executive pay, the general disenchantment that exists in our traditional commercial world have all created a fertile ground for finding a better way.

    Employee ownership has always had cross party political support but few vocal champions.  Norman Lamb, in his short tenure to date, has made things happen. The Nuttall report will be read with interest, and there is commitment to act upon the recommendations.  The Treasury review into the fiscal landscape surrounding employee ownership is due to report in the Autumn.

    The 4th July Summit is only the start.  The time for employee ownership has come.

     

    Posted in: General
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  9. Keep Britain Trading

    June 17, 2012

    The Forum for Private Business is currently running a laudable campaign Get Britain Trading which aims to create a business environment more conducive to the prosperity of private businesses in the UK. Britain is very much an SME economy, and it’s the success of our small businesses that will hold the key to economic recovery.

    One of the biggest issues facing SMEs is succession, and this is a dilemma facing more businesses.  The baby boom generation is looking to realise the value in their business and enjoy a well earned retirement, whilst we’ve also seen an increasing number of family firms find the aspirations of the next generations lie in different pursuits.  A management buy-out is sometimes considered and this can work well. However, it does mean that a small group of individuals must raise a significant amount of cash and the consequent burden of debt can have a negative effect on both the individual and the business.  Also, at some point in the future, the management team will look to exit.  The issue of succession rears again.

    Selling to a competitor may attract a good price, as the buyer may pay a premium to acquire key skills, intellectual property or a customer base. However, this route is often not palatable to the business owner, who may have spent a lifetime trying to outdo the competition.  A trade sale will often lead to a different way of doing business, a change in relationships, and frequently results in staff losses and sometimes relocation.  Within the manufacturing sector, this relocation can sometimes mean to the other side of the world. The business goes, the jobs and skills go. Once they have gone, they will rarely return.

    The motivator for many SME business owners to consider employee ownership as an exit route is that they can, as far as is possible, ensure the business remains in it’s geographic location, protecting local employment and retaining the wealth created in the area.  Because many employee owned businesses insist that shares are only traded internally, then the possibility of an international predator acquiring the business is minimised.  The other benefit is that because the company will continue to employ people, the ownership will continue and the need to think about future succession is removed. The business can focus on what it does best whether that’s serving the customers, innovative design, or producing the goods. Employee owned businesses can concentrate on the long term viability of the business, reinvesting profits in the future of the company.

    Many successful innovative firms have chosen this route ; Clansman DynamicsGripple, Sutcliffe Play and Woollard & Henry to name just a few. Yet, awareness of the model is not high, and rarely presented to business owners when they discuss exit with their advisers.

    Ensuring our businesses are able to flourish and succeed is fundamental to a healthy economy.  We must ensure that business owners are provided with all options when it comes to succession. The employee owned model has produced excellent results: for the owner, for employees, for customers and for communities and the economy.  It’s a way to Keep Britain Trading.

     

    Posted in: General
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  10. The myth of shareholder value

    April 15, 2012

    Why do businesses exist?  According to the business schools, the purpose of the business is to maximise shareholder value and I don’t disagree with that. What I do disagree with is that this ‘value” is interpreted purely in financial terms.  What do shareholders value?

    In the world of employee ownership, shareholders value many elements.  it is important that the business runs well; serving customers, engaging employees and making a profit.  Indeed, employee owned businesses tend to excel at this.  Research carried out by Cass Business School in 2010 found that firms owned by their employees tended to be more resilient, more productive and profitable and more innovative than similar businesses with more conventional ownership models.  So yes, to employee owners, the usual business metrics are important.

    Within these conventional businesses, the measure of success tends to be in the share value. And as we all know, what gets measured, gets attention. If the focus is on the quarterly share value, then this drives business decisions.  Will the investment deliver a return?  How quickly will we see that return?  When will we see a financial benefit from that training?  Things are looking tough, what’s our biggest cost? Cut it. Sadly, the response to this last question is often staff losses.

    However, what makes employee owned businesses more successful lies in the value placed on the long term sustainability of the business.   Employees are driven to ensure the business lasts and maintains employment.  Access to information means that employee owners understand the business better, and know what effects the bottom line.  Employee owners know how precious customers are, and why the products and services must be better than the competitors. Leaders of these businesses recognise the importance of the workforce, and strive to ensure a happy, productive working environment .  The robust and transparent governance that is often a feature of employee owned companies means that leaders are sharper, employee relations are healthier, and we don’t see the disproportionate executive pay levels seen in external shareholder business models.

    The value of a business does not merely lie in its balance sheet.  Businesses have a social purpose; providing rewarding employment, contributing to the community, creating long term wealth for society.  The external shareholder model and its focus on short term financial value is not good for the health of our economy. We need to see more plurality of business models, and the ownership dispersed to those who have a real interest in sustainable success of enterprises.

    Posted in: General
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Copyright © 2011 Carole Leslie. All rights reserved.