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. Reaching for the skies

    April 20, 2015

    Last Saturday, I had the pleasure of participating in a sponsored walk to the top of Criffel, the highest peak in the Dumfries and Galloway region. Dumfries and Galloway is a beautiful, often overlooked part of Scotland. From Criffel point, you could see the Cumbrian coast of England, the undulating countryside of the Scottish borders, and to the West, the outline of the Irish coast.

    The sponsored walk was to raise money for Friends of Stewartry Care

    Stewartry Care team reach the top

    Stewarty Care is the leading care provider in Dumfries and Galloway and is owned 100% by the employees who work in the company. This means that there are no external shareholders to satisfy, all money goes into improving the business and the employees. The “Friends” were set up to provide funds to enable service users to enjoy trips out and activities. Social exclusion can be a huge problem for the elderly and vulnerable. Meeting basic care needs is only part of a solution; we need to ensure that these individuals are also given the opportunity to participate in the community. Stewartry Care organise regular coffee afternoons and day trips for people (not just their own service users) to come together and chat over a cuppa and some home baking. The Friends fund any additional support required for people to attend these events.

     

  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. A new landscape for employee ownership?

    April 6, 2014

    On the 17th January 2012, Nick Clegg pledged to “drive employee ownership into the bloodstream of the UK economy”. Such a step change hasn’t quite happened yet, but he did make several strong moves which helped raise the profile of a business model that’s gaining interest across the globe.

    The most noteworthy policy change was the move to bestow Capital Gains Tax relief when an owner sells their business to the employees. As Policy Director of EOA at the time, I was involved in the discussions with various HMRC,BIS and Treasury officials. Danny Alexander, Chief Secretary to the Treasury, has taken an active interest in employee ownership, having visited the very successful Woollard & Henry engineering company in Aberdeen, innovative manufacturing company Gripple in Sheffield, and opened the new offices of Highland Home Carers in Inverness. He was always very supportive in discussions, but did challenge why there was a need to incentivise a sector that appeared to do very well without any help. A good question. There are some spectacular success stories demonstrating how employee owned firms can be more productive and profitable, with happier staff and customers than similar conventionally structured companies.

    Tax breaks were not a factor for these owners, and I believe tax breaks will not be an incentive for future business owners. Yet, I’d judge these tax incentives to be a huge success- and they’re not even in force yet! What the tax breaks have done – already – is create tremendous interest within the adviser community. Lawyers and accountants were largely oblivious to employee ownership prior to these changes. This meant that the option was not even going on the table when the client had the business succession conversation. Trade sales, MBOs, Listing – no mention of selling to employees. Employee ownership is now on the agenda.

    The Institute for Chartered Accountants in England & Wales hosted the launch of the Nuttall report in July 2012. Co-operative Development Scotland, responsible for promoting collaborative business models in Scotland, has been running a series of very well attended seminars for professional advisers interested in raising their knowledge levels on employee ownership.

    This is all good. The biggest hurdle obstructing the progress of employee ownership isn’t fiscal, it’s awareness. Not enough business owners and entrepreneurs know the model exists, and if they do, there are insufficient expert advisers with the knowledge to advise and support companies through the process. By giving tax relief to business sales to employees, the government has ensured that the professions now have a duty to know about, and explore the model with their clients.

    Perhaps not a new landscape yet, but it might just be a new dawn.

  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. The danger behind “Shares for Rights” proposal

    May 1, 2013

    Many of us in the employee ownership sector are rather bemused at the government’s intent to push through the much decried “Shares for Rights” legislation. This is a proposal in the Infrastructure Bill which creates a class of employee where certain employment rights are compromised (e.g. on redundancy and dismissal) in return for a negligible shareholding in the business. The government’s own consultation was dismissive of the idea, and the House of Lords rejected the idea on the first two readings, with an eventual passing last week. I was with one of Scotland’s leading lawyers last week who dismissed the notion as “irrelevant” -take up will be less than negligible. There might be a limited application for small high tech startups, but the reality is that models already exist which fit with these organisations which are probably more tax effective.

    I agree with almost all of that. There is little danger that hundreds of employees will lose employment status in return for shares which might be worthless because the policy won’t get off the ground in the first place. A non event? Yes. Irrelevant? No.

    The idea came from nowhere at a time progress on employee ownership was gathering pace. Following a comprehensive consultation, and led by expert Graeme Nuttall, the Nuttall report had been published in July making many recommendations to promote the employee owned business model. “Employee shareholder status” was not one of them. In April this year, the Chancellor announced a £50m annual budget for the development of employee ownership. Some of this money is to be allocated to tax incentives for owners who sell to their employees – a policy we have been pushing for a long time.

    The whole nonsense idea has at best been a distraction to much of the good work going on to promote a business model that is better for our economy, our communities and our workers. At worst, it has tainted employee ownership with the tawdry brush of exploitation. Employee owned businesses tend to be better employers, with enhanced terms and conditions in comparison to conventionally structured firms.

    “Shares for Rights” is not employee ownership. It is far removed from what our growing sector is trying to achieve. Let’s put the idea to sleep and focus on positive moves that will create and sustain good jobs and shared wealth.

  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. 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.

     

  10. 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.

Copyright © 2011 Carole Leslie. All rights reserved.