SCOTLAND LEADING THE WAY WITH EMPLOYEE OWNERSHIP

Graeme Nuttall OBE, partner at law firm Fieldfisher and author of the influential Nuttall Review of Employee Ownership, is the UK’s leading legal expert in employee ownership. 

We spoke to Graeme to find out why Scotland is ahead of the rest of the UK in encouraging employee ownership. 

Graeme Nuttall

Selling a business to employees used to be a rare event. Now every month we hear of another company or companies becoming employee-owned.  Recently, Scotland has seen the Auchrannie Hotel in Arran, North Berwick campervan conversion specialist Jerba Campervans, audiovisual company Mediascape in Glasgow and Perth-based engineering firm Merlin ERD all become employee-owned.  But why this surge in interest amongst Scottish businesses?

I am a partner with European law firm Fieldfisher. In 2012 I took on a part-time voluntary role as the UK Government’s independent adviser on employee ownership. I produced the Nuttall Review of Employee Ownership, which articulated the benefits of employee ownership and identified what was required to deliver more employee-owned firms in the economy, ultimately paving the way for the Employee Ownership Trust (EOT). Legislation introduced in 2014 brought in tax benefits for business owners selling to an EOT and also to employees within EOT owned companies.

Since then, employee ownership in the UK has continued to grow, particularly in Scotland, where I recently met with the Scottish EO adviser community to share insights on the notable growth of the model’s popularity In Scotland.

The Nuttall Review definition is that employee ownership exists when employees are able to participate through a meaningful and significant stake in their business, and this ownership stake is underpinned by organisational structures that ensure employee engagement. A feature of many employee-owned organisations is an element of trust ownership of shares.  The EOT is designed to hold shares long term on behalf of all employees. The main benefits of trust ownership are that employees of the business know that the shares in the trust are held on a permanent basis on their behalf; and have a collective voice, through the trustee of that trust, in how the company is owned and governed.

If a business owner sells a controlling interest in the company to an EOT, the sale proceeds can be completely exempt from capital gains tax, subject to certain conditions being met.  Employees in firms with majority EOT ownership can benefit from an annual income tax free bonus up to a threshold of £3,600.

The introduction of these tax incentives was obviously a game changer.  No-one goes into employee ownership just to take advantage of tax breaks. What the EOT legislation did is recognise the benefits employee ownership brings to the economy and get these more widely known.

It is estimated there are currently at least 300 employee-owned firms in the UK and almost one third of these are Scottish based firms. These firms come from diverse sectors; professional services, health and social care, manufacturing and construction.  Employee ownership can be found in all business sectors; indeed, it is now difficult to identify sectors where there are no examples of employee-owned companies.

EBO collage

Clockwise from top left – Auchrannie, Jerba Campervans, Mediascape and Merlin ERD have recently joined Scotland’s growing number of EO businesses

But why is uptake in Scotland is significantly higher than the rest of the UK?

I believe it comes down to two factors. The Nuttall Review identified two key obstacles to the wider adoption of employee ownership: lack of awareness and lack of practical support. Co-operative Development Scotland has undertaken some sterling work with advisers, evidenced by the amount of interest shown at its January 2018 seminar. The expert help provided by Co-operative Development Scotland goes a long way to support businesses, and importantly the employees, through the process.

And will the number of employee-owned firms continue to increase at the current rate? I would go further than that. I believe we’ll see an acceleration in the growth of employee ownership.  The Scottish experience shows how this can happen.

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