Carole Leslie

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  1. 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.

     

  2. 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.

  3. Seller’s remorse: it’s about more than the money

    March 23, 2012

    For most business owners, selling their firm is more than just a financial transaction.  Many describe it as akin to saying goodbye to their child, and indeed, many entrepreneurs will have spent more time with their company than with their family.  There are the customer and supplier relationships, the loyal employees and often a unique culture and way of doing business.

    Yet, when the business owner seeks out the adviser for guidance on business exit, the most likely option presented will be a trade sale. Sell to the highest bidder, and sit back and enjoy the spoils.  If this is the right answer, why do so many business owners regret taking this route.

    At a workshop run by Telos Partners a few months back, we heard from an entrepreneur who had set up a successful recruitment business.  He sold to one of the multinational players, and he remained as an employee.  More accurately, he planned to. He left within the first month.  He told the group that the culture changed almost immediately.  The personalised service was ‘deskilled”, and quantitative rather than qualitative measures were used.  The bespoke consultancy was becoming a CV factory.  He told the group that he had his nice car, the cash in the bank, but wished there had been another way.

    The irony is that there is another way. Employee ownership must be one of the best kept secrets of British business.  By selling a business to employees, the business owner can manage their own exit from the business, to an extent shape the future of the company, and importantly, ensure that as long as the business remains viable, it can remain in the local area providing jobs,  developing skills and retaining much of what made that business special.

    Oxford academic, Will Davies, carried out a comparison of a business sold to private equity investors, and one sold to its employees.  The report can be read here.  The findings were conclusive.  The private equity sale led to decline in quality, in customer relationships, and employee relations. The employee owned business, Gripple, continues to be innovative, profitable and productive. Employee ownership can lead to a sustainable, successful business.  Selling to employees must become a serious consideration for owners looking to exit their business.

     

  4. Corporate social responsibility – or a real sustainable social business?

    December 10, 2011

    Someone pointed out a painful truth to me today: the fashion for corporate social responsibility is often a marketing front, masking the true objectives and operations of the business. And yes, when I reflect, usually the responsibility for CSR within a company sits in the marketing department. What a depressing thought.

    That someone was Mark Adams, leader of Vitsœ, an exciting and innovative company which takes the whole matter of sustainable business very seriously indeed. As Mark spoke so passionately about the company’s products – they produce shelving systems – I wondered if he was a designer or an engineer. The attention to detail is incredible. The smallest components are painstakingly designed and custom-manufactured. Customers are provided with everything they need for a smooth installation in an attractive recycled cotton bag. The integrated IT system supports the company’s global operations. The units grace the pages of the glossiest magazines. It’s clever, and it looks good.

    Mark is neither an engineer nor a designer. He told me he was a zoologist. And it all fell into place. Mark views business as you would an ecosystem. No waste, just find another use. Don’t recycle, reuse. Get it right, and it will last. Evolve. Every stage of the business process has been considered to ensure that it is sustainable, customer focused and efficient.

    And Vitsœ mean it. It’s not empty words. Rather than using polystyrene, starch pellets protect the products in transit. A notice is pasted on the package to let customers know they can compost the pellets. The cardboard box packaging has been designed to minimise waste as far as possible. Even in the staff canteen, bottled water is banned and filtered water from the tap is kept cool in glass bottles in the fridge. A jar sits on the worktop with milk bottle tops ready for recycling. The array of bikes lined up in the workshop demonstrate the company’s favoured mode of transport. Even the workforce are sustainable. Two of the employees are returning to their homelands, Scandinavia and New Zealand, and Mark has given them the option of continuing to be part of the Vitsœ team. The company has locations in New York, Tokyo, Munich, Los Angeles, Melbourne and Sydney.

    Mark is now looking at how this sustainability can be anchored into the business for the long term. How can his vision, and the company’s very special ethos, be protected for the future? An admirer of John Lewis Partnership, Mark wanted to explore whether employee ownership might offer a potential solution to this. John Lewis Partnership is not owned by individual or corporate shareholders. It is owned by an Employee Benefits Trust, and the 80000 employees of the company are the beneficiaries of that trust. This ensures the company is protected from future sale – as far as possible – and free from external influences. A similar model would allow Vitsœ to continue to do business their way, and not be forced to compromise their ethics for short term gains.

    Sustainable business is about more than getting the product out the door and putting a marketing gloss on it. It has to be real. It would be an injustice to say Vitsœ produce shelving. No, Vitsœ produce the best shelving in the best way. Like the natural world used as the model, it’s the honest and ethical way to do business.