Carole Leslie

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  1. 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.

  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.