Carole Leslie

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  1. Ownership is power

    November 15, 2015

    The Meaning Conference Panel

    I was beyond chuffed to be invited to speak at the 2015 Meaning Conference. The topic was Where Does Power Belong Within the Organisation of the Future. I was to give a summary of my position and then take my place on a panel discussion.

    I’m clear on this.  Power is inextricably linked with ownership and control.  Much of the inequality in our society can be traced to the imbalance of ownership.  Power is increasingly concentrated in the hands of the few, to the detriment of the many. This is particularly pertinent in business.  Employee rights are increasingly eroded,  we de-skill and outsource until we are left with little of value and the multinationals play the tax system of the countries.  Power sits with ownership – whoever owns the business has all the power.

    It was a lively debate.  The first speaker, Jack Hubbard, is CEO of award-winning marketing agency Propellernet. He kicked off his slot with a description of a fab company where ideas and energy abound and the culture is one of love and freedom and fun. Kevin McCoy, co-founder of Next Jump, employee incentive and engagement experts, talked of power as embedded in the company’s ecosystem. Their proposition was similar; ownership doesn’t matter, it’s culture that’s important. The fourth panellist, Dave Boyle of Community Shares , was closer to my view; we need more ownership in the hands of the people.  I feel we got into a bit of Entrepreneuralism vs Employee Ownership spat, when in fact our economy needs both.

    Jack Hubbard of PropellerNet

    A company doesn’t have to be owned by its employees to be a good company – of course not.  There are superb companies out there who provide great employment, cherish their people, love their customers.  Employees are “empowered” to deliver great customer service, invent innovative products and manage their day.  But empowerment is not power. In these high performing companies, employees are “allowed” to act within certain parameters.  A great boss hires good people and lets them get on with the job.  But let’s not pretend we are giving people real power.

    The focus on culture is a red herring. Of course, a key component of a successful business is a high performing, inclusive, innovative culture. But that’s not an indicator of power. The power remains with the owner.  And that’s not always wrong – we need plurality of business models (although fewer offshored PLCs might be better for the economy!). Family businesses, entrepreneurial-led companies, values driven corporations, cooperatives, university spin outs, social enterprises; they all have a rightful place in our commercial landscape.

    I’d go further and say we need more entrepreneurs – we need brilliant people who take an idea, turn it into a business, and create something magical that adds value to people’s lives.  Not everyone is willing to take the risks that entrepreneurs take. We need these entrepreneurs who value people’s contributions, offer fulfilling work, provide a place for people to display their talents. But – what happens when the owner wants to exit?  Where’s the “power” of the “empowered” employees then?  These cherished and empowered individuals are commodities to be sold with the business.

    And that’s where the employee buyout comes in. Mainly employee ownership is a succession option for entrepreneurs and family businesses who recognise that the people who helped them create the company are the ones to take it into the future.  By selling to the employees, the vendor has a buyer who will use their ownership power to preserve the legacy, protect the culture and work hard to ensure this is a successful and sustainable business.

    Entrepreneurs create and nurture the magic; employee owners have the real power to make the magic last.

     

  2. 6 Steps to a successful employee buyout

    August 4, 2014

    1. Be clear about your own needs and intentions
    As an exit route, the sale to employees is the option that gives the vendor the greatest control over the process. You can set the timescales, choose the structure, decide on how much you want and even influence how the company will look once you have said goodbye.
    It can be very worthwhile to talk through your ideas with someone who understands the process. Talk to former owners and companies who have already taken this route. The more research in the beginning, the smoother the transition later.

    2. Choose the right adviser
    Although research proves that employee ownership is a very successful business model, it is not yet a mainstream ownership structure. It’s therefore important that you select an adviser who understands what you want to achieve, and knows how to help you get there. You don’t want to be paying for someone learning how to do it, or someone who doesn’t know how to get the best possible outcome

    3. Select the structure that’s right for you
    There is no “one size fits all” employee ownership structure, and the best one for your company is one that fits with your organisation, your people and your culture. For example, in the UK’s largest employee owned company, John Lewis Partnership, employees do not have an individual shareholding. The shares are held in trust on behalf of the employees. This is a popular model. In other companies, employees can buy and sell shares and build up value in the company in which they work. There are tax effective ways to facilitate employee share ownership.
    It may be that a family business may want to retain a small shareholding for future generations or the company may want to make a small number of shares available for external investors. It’s important to invest time in considering all options, and the potential consequences of these options. Consider this early in the process in order that you reach the best ownership model for you.

    4. Design the appropriate funding package
    The owner who has created and built a successful business should be able to benefit from a fair price when it comes time to sell that business. The funding of the employee buy-out must be structured in order to achieve the fair price, yet not place an undue burden of debt on the company and its employees. It might be that a “package of funding” is the best solution; using company cash reserves, employee investment and external and vendor financing. If possible, it makes sense to do this in the most tax effective way.

    5. Manage the change
    Despite what some lawyers might like you to believe, a business transfer is not just a legal process. Yes, it is of critical importance to take appropriate advice and to have the correct documentation in place but as an organisational change this requires a broader approach. The employees of the company will become the owners, and to fulfil this role they must have a proper understanding of the rights and responsibilities involved in ownership. Pulling together the different strands; funding, structuring, share transfer, communication, stakeholder management as well as keeping the day job going is a tall order.

    6. Communicate, communicate, communicate!
    Communication is the lynchpin of the process. The key to success in employee owned companies is when the employees think, feel and act like owners. By involving your employees in shaping the company for the future, gaining a real understanding of the rights and responsibilities of ownership, you can ensure that the employees will be as committed to business success as true owners.
    Customers are positive about dealing with employee owned businesses and companies owned by their employees fnd it easier to recruit and retain high calibre staff. Leverage your employee ownership to raise awareness outside of the company
    The move to employee ownership presents a tremendous PR opportunity. Make sure your PR people understand what it means,

    Of course, communication never stops within the employee-owned business. Many companies describe employee ownership as a journey. You will find the employee ownership community to be one where people share knowledge and experience generously. There is a genuine commitment to ethical working and best practice; driving successful, sustainable business which benefits the individual, the company, the community and the economy.

  3. Employee ownership – what’ s in it for the vendor?

    July 12, 2014

    Speaking recently with a business owner currently exploring exit options reminded me of how important, and how difficult, that decision can be. It’s a small business, but a significant employer in its local town. Many of the staff had been with the family business for many years. There had been several approaches to buy but all would mean the business would relocate and local employment would end. “I live in that town. How can I look people in the eyes if I’ve put them out of work?” he said. It’s a common dilemma – succession doesn’t just affect the owner, the decision can be far-reaching.

    For some business owners, it is about getting the best price and that’s fine. Many entrepreneurs put their all into a business, creating jobs and opportunities and sell. They then start something else and the cycle starts again. For many owners, the value of the business isn’t just financial. You want more from a sale than cash in the bank.

    As a business owner, you want to know that the business you created will be cherished, that the relationships you have built over the years maintained, and that the company will grow increasingly stronger to meet the challenges ahead. Who better to do that than the people who know the business best; the employees?

    Selling to employees is becoming an increasingly popular succession option for business owners looking for an exit route. Research proves that employee owned businesses produce more sustainable performance, demonstrate more innovation and have happier employees and customers than traditionally structured businesses.

    Entrepreneurs and leaders in family businesses often find the thought of a trade sale to the competitor unpalatable for a number of reasons: perhaps the business practices don’t meet their high standards, or there is concern that the incoming owner might not treat the customers and employees well. It may be that the the owner wants to keep the business rooted in the local community. Often a trade sale leads to asset stripping and/or relocation. It might just be a desire to retain the “name over the door” recognising the individual/family’s contribution to creating that successful firm.
    A management buy-out can put undue pressure on a management team, financially as well as in terms of stress, and of course, each manager will be looking for an exit themselves at some point. Indeed, the MBO can be seen as delaying the succession issue rather than solving it.

    The beauty of an employee buy-out is that the seller can dictate the pace of change, and manage their own exit at a pace and level that suits them. Many remain involved in an executive or non executive role, guiding the company into a new future.

    Employee ownership helps ensure that the end product meets not only the needs of the vendor in terms of the realisation of value, but also the needs of the business to enjoy a successful, sustainable future and the needs of the employees in sustaining the skills and wealth in the local community.

  4. It’s not all about the numbers!

    June 10, 2014

    “Exit is rarely a purely economic decision for a business.” – Michael Kelly, Senior Associate, Macroberts

    I was invited to attend “The Deal”; a workshop looking at business transfer, facilitated by leading law firm Macroberts. Having worked on many transactions, all of them employee buy-outs, I was intrigued to find out how more conventional exits differ. Attendees were a mix of owners of owner managed firms, and business advisers. We were split into two groups and given a transaction to work on. One group was to look at this from the perspective of vendor, and my group was to take the role of purchaser. David Wylie, Corporate Partner, led the workshop by setting the scene. We were given some outline facts, but not much in the way of financial information. This made the accountants in my team a tad nervous: “We need to see the numbers”! Michael Kelly, Senior Associate, who facilitated our group, was clear. “You have to use the information you have. Exit is rarely a purely economic decision for a business”.

    It was a family business. Sound, profitable, good prospects. One of my group identified a winning tactic. “Let’s buy out their major supplier – that gives us some leverage.” This move almost broke the deal. The vendor team perceived this to be an underhand manoeuvre that would lead to breakdown in trust. Indeed, one of their number wanted to walk away then.

    Some of those present felt this was taking “role play” too far, but in my experience, this can be exactly what happens. The vendor has to feel comfortable with the sale. This is particularly salient in a privately held business, where often a chunk of life and legacy is being sold, not just what appears on the balance sheet.

    What did I learn? Lots! I didn’t know that patents were geographic (thanks, Euan Duncan) and was very interested to hear from employment specialist John McMillan how employment issues differ with an asset sale rather than a share sale. Ainsley McLaren, tax specialist, was on hand to guide us through the minefield of taxation issues.

    The most salient learning point from the workshop reinforced what I’d found in deals I’d worked on; the key factor in a business transfer is the people. Yes, price is important. The vendor has to be happy they are getting their earned reward for starting or building up the business. However, there are other factors at play. What are the aspirations of the current management team? What do the shareholders really want to achieve from the deal? Who makes the business successful? What’s the outlook in that sector? What are the real- tangible and intangible – assets in the business? It’s about more than the numbers.

    Macroberts have a winning formula in this workshop. You learn so much from working through the theoretical case study. You get the opportunity to explore issues that might not be immediately obvious, and experts guide you on the potential consequences of any actions and decisions. Selling a business can be a complex transaction whatever the circumstances. The workshops run throughout the year and if any business owner is considering a sale over the next few years, I’d certainly recommend attending. And great to see selling to employees is an option considered!

    For information on Macroberts Deal workshops click here

  5. If you only have one egg…

    March 9, 2014

    When it comes to investment, the advice is always “Don’t put all your eggs in one basket”. Where does that leave employees in employee owned businesses, when it comes time to decide whether or not they want to participate in the company’s share plan? Surely it’s not wise to invest your spare cash in the same vehicle that provides your income?

    I saw this in reality in one company, where, as an Independent Trustee, I participated in the annual discussion about how many shares to make available for employee purchase. Employees are not highly paid, and are not likely to have accrued significant pension pots. Under the HMRC approved Share Incentive Plan, there is scope to make share purchase quite attractive to employees. Shares are offered at the lower of the two share valuations for the year, and are paid for from pre tax salary. The company can offer up to two free shares for every one partnership share purchased. New limits came into force this year which allows the company to offer employees up to £1800 shares (or 10% of salary) for purchase annually. This is quite a lot of money to commit for people on basic hourly rates.

    This is a business where all information is shared. The employees know the company’s performance, the strategic plan, the outlook. They can elect employees to the board, and can challenge the management team via a number of routes. As shareholders, they are a particularly well -informed group.

    The deciding factor was a contribution to our discussion from an older employee. He didn’t see the value in investing in a pension at this stage in his life, where performance was unlikely to be stellar and any payments would be eaten by charges. He would welcome the opportunity to invest in the company he worked in. He had confidence that the share value would grow and he felt able to impact on that share value. To him, paying into an institutional pension fund seemed like giving his hard-earned money away.

    The moral of the story seems to be, if you have several eggs, spread them around several baskets. If you only have one egg, why not invest it in a basket you know well, can influence and have some control over the future?

  6. Carers should not be the ones paying the price of social care- the evil of zero hours

    June 6, 2013

    The Government is reviewing the use of zero hours contracts, which have become increasingly widespread as an employment contract in many industries.

    Workers on zero hours contracts can’t rely on a steady income, and therefore will find it difficult to plan a budget, never mind secure a loan for a car or mortgage for a house. Unfortunately, the zero hour contract is the usual employment contract for non public sector care workers. For carers, often not paid for travelling time between appointments, it seems a doubly evil form of employment . However, when a business is paid only per hour of care delivered, what is the alternative?

    A recent article in The Guardian suggests employee ownership as a model for social care providers. The benefit of being owned by employees is that there are no external shareholders looking to pocket any profit; in employee-owned firms any trading surplus can be reinvested in the business or used to enhance employee conditions.

    Responsibility for the care of our elderly and vulnerable lies largely with our public services. In these times of budget cuts councils and health authorities find the cost of in house care delivery prohibitive. One Scottish local authority costed their in house service at £27.34 per hour. An employee-owned provider received £13.99 per hour of care delivered in that year. It is no surprise we see the smaller, independent firms being squeezed out of the market.

    This is a great pity. I work with two employee-owned care companies. The employees are committed, professional and do a superb job. The businesses invest heavily in training, and standards are high. Staff turnover is negligible and morale is high. Both companies pay as well as they can, but in comparison to other jobs, the Ts & Cs of employment are minimal.

    Focusing on the “Public good, private bad” is not helpful. Employee ownership is a possible solution but we must not expect to get quality care at a bargain basement price. Social care is not an easy job, and with a a rising demographic of elderly people who want to remain in their own homes, the need for properly provided home care will increase. This should not lead to the exploitation of competent and ethical individuals who choose a career in care. Zero hours contracts are not good, but until we wake up and recognize the value of good care, and pay for it appropriately, these contracts will remain a necessary evil.

  7. 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.

  8. 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.

  9. 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.

  10. 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.

     

Copyright © 2011 Carole Leslie. All rights reserved.