Tag Archives: Highlands and Islands Enterprise.

Happy partners make for better business at John Lewis Partnership

David Jones started working for John Lewis Partnership as a Graduate Trainee in 1982. Since then he has held a number of roles, including running several Waitrose stores and some time as Waitrose’s Supply Chain Director.  His current role is Partnership Registrar, in which he is tasked with ensuring the business upholds the principles of the partnership. David gives some background to the Partnership’s employee ownership model, and how putting the happiness of the partners first makes for better business.

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David Jones, John Lewis Partnership

“John Lewis Partnership has not always been employee-owned.  The son of the founder, John Spedan Lewis, decided it was unacceptable that his family made more from the business than all other employees combined. His objection wasn’t just moral; he felt it was bad for business.

Spedan’s view was that if he created a more successful business that reinvested in itself, took a long term view, gave everybody a voice in how it was run, and actively contributed more to community and society, then more people would want to spend money in his shops.   In 1929, he sold his shares to a trust, that would hold the shares on the employees’ behalf, and he was repaid for these shares over the next 30 years.

John Lewis Partnership now has almost 400 shops, 90,000 employees and gross annual sales of over £11 billion.  The Partnership employs 3200 people in Scotland. There are seven Waitrose stores as well as John Lewis shops in Aberdeen, Edinburgh and Glasgow.  We also have a customer contact centre in Hamilton.  We support many Scottish companies in our supply chain.  Quality of produce is paramount for Waitrose, and we are pleased to support many Scottish producers. Indeed, Stoat’s Porridge and Mo’s Cookie Dough are two Scottish companies who started out selling products in Waitrose, and have gone on to be national businesses.  We build long term strategic partnerships with our suppliers, and are proud to have been working closely with Aquascot so closely for many years.  I’m thrilled the firm has also adopted the employee ownership model.

As Partners in the business, our employees share the rights and responsibilities that employee ownership entails. This doesn’t mean that everyone is involved in every decision the business makes – we couldn’t function like that.  What it means is that they hold our leadership to account for the decisions they take.  We have 5 employees elected to our Partnership Board. These employees do not have management or executive responsibilities; they are there to provide the link with our partners and to test and probe the management. We have a democratically elected Partnership Council that ensures the business is run for and on behalf of the partners. The Council shares the views of the Partners on key issues and makes recommendations on policy.   The Partnership Council has the authority to remove the Chairman – although I’m pleased to say this has never happened!

Our Partners are rewarded for their commitment. The Partnership’s profit , after investment is distributed to Partners. This can be through pay, discounts subsidised leisure or learning. Each year we announce our annual bonus, which in 2016 amounted to 5 weeks’ salary for each Partner. Fairness is a key value and each member of staff receives the same percentage of salary in their company bonus. The same bonus is paid to employees whether they work in John Lewis, Waitrose or one of the other companies.  If John Lewis has a bad year, and Waitrose do exceptionally well, one balances the other.  This is the dual strength of our model.

John Lewis Partnership can never be sold, which gives us a powerful competitive advantage.  Because we have no option to sell our shares and invest elsewhere, each of our 90,000 partners has a strong incentive to throw all their energy and passion into making this year better than the last.

And it works. In a ferociously competitive sector, where we’ve seen the demise of high street brands such as Woolworths, BHS, Comet and others, we have not only survived, we’ve thrived.  Employee ownership is fundamental to our commercial success.  If we are to build a more diverse, sustainable and inclusive economy, we need to see more companies choose employee ownership.“

David Jones is speaking at a breakfast seminar on 20th October 2016 hosted by Highlands and Islands Enterprise at their Inverness offices. More information can be found here.

The Collaboration Prize is now open for entries


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Scottish Enterprise director Sarah Deas discusses the Collaboration Prize and why businesses should enter.

We are pleased to announce that the Collaboration Prize 2016/17 in partnership with Business Gateway and Scottish Chamber of Commerce is now open for entries.

We want to encourage firms to think collaboratively and pitch an idea for a new enterprise that will help them to access new markets. This could be a new sector or a geographical market including international markets. With the winning entrants receiving £5,000 cash and up to £5,000 business support to bring their idea to life.

To be eligible to win businesses must be based in Scotland, have an innovative idea they would like to implement by setting up a consortium co-operative and have identified other like-minded members for the consortium.

Consortia are established when businesses come together for a shared purpose; to buy or sell in scale, market more effectively, share facilities or jointly bid for contracts.  By collaborating businesses can reduce costs, share risks and create new platforms for growth.  Members could be businesses, partnerships or individuals, and the co-operative may be for any purpose which supports the members.

The competition this year has a particular focus on consortia accessing new and international markets. Two of the five prizes will be awarded to those consortia who demonstrate strong international ambitions to be delivered using collaboration. As part of their prize the winners will be able to access export advisor support where appropriate.

At CDS we think the Prize offers a great opportunity for businesses to harness the benefits that emerge through collaboration. Working with others can help businesses grow, and reduce the costs and risks of tackling new markets or investing in new processes.

In our experience collaboration can make a company better at what it does. Whether it’s about sharing resources or finding new markets, collaboration can bring efficiency and lead to increased profits.

For more information about the Scottish Enterprise Collaboration Prize visit the website.

 

Collaboration: A step-by-step guide

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Collaboration brings a number of benefits – including business growth, reduced costs and extra resources –but when should a business join or form a consortium? How does it go about doing so? And what specific benefits can it deliver?

Here, CDS specialist advisor Jaye Martin shares a brief step-by-step guide to consortium working.

Step 1: Identify barriers to growth
For many small and micro-enterprises, lack of scale, time, finance or resources can be a barrier to accessing new markets, tendering for larger contracts or simply marketing services. These challenges will be familiar to many businesses, particularly those with small teams or those who provide unique or niche products and services.

Step 2: Look for a potential solution
Teaming up with other like-minded businesses and forming a consortium is an excellent way to break down these barriers. Suitable for businesses of all sizes operating in any sector, this model can help businesses grow by reducing the costs and risks associated with tackling new markets and investing in new products and services. It can also enable businesses to share resources such as back office functions and premises. Meanwhile, member businesses are able to retain their own brands, independence and control. You can find out more here.

Step 3: Find collaborators
Carefully identifying like-minded businesses to work with is crucial. Trust is a key factor. It can help if the businesses have worked together informally before. In most cases, member businesses operate in similar or complementary fields, although a lot will depend on the rationale for collaboration. You can read about the experience of a number of successful consortia here.

Step 4: Choose the right structure
The consortium co-operative model is an effective collaborative business structure. In simple terms it is an organisation run in a shared and equal way by and for the benefit of its members. Members are independent businesses and the consortium can be for any purpose which supports them, for example marketing, tendering, innovating or exporting. Co-operative Development Scotland has a track record in helping businesses and we’d be happy to help you explore the options. You can contact us here.

Step 5: Benefit from your collaboration
Collaborating can be a real game-changer for businesses. Collaborating can be a real game-changer for businesses. For example, through collaboration, Adventures in Light – an Edinburgh-based consortium which brings together a 3D artist, a film-maker and a carpenter – have been able to invest in essential new kit which has supported them to keep experimenting and inventing. This, in turn, has helped them work on bigger projects such as the International Science Festival and the Kelburn Garden Party.

As well as supporting businesses to access new markets, share risks and costs and develop new products or services, many businesses involved in consortium working also report increased confidence, better business connections, improved knowledge-sharing and an enhanced profile.

The benefits are tangible and numerous – and definitely worth exploring when considering the future of your business.

CDS can help you to explore the options, structure the consortium, and get more members involved. 

If you would like to find out more about collaborative business models, or if you would like to get in touch, visit here.

 

Why working for an employee-owned company makes a real difference

sAt Aquascot’s ‘Successful Succession’ event on Employee Ownership Day, training assistant Sylwia Goluda described her experiences at the Alness-based company.

Her presentation provided real insight into an employee’s journey towards employee ownership and here she provides us with a summary of the talk that so many enjoyed on the day.

I arrived in Scotland from Poland in July 2006. It was a scary prospect coming to a strange country, having left behind my family, friends and job. Thankfully, everyone was so nice and friendly which made everything so much easier.

I came to work at Aquascot and immediately noticed a difference from how companies work in Poland. What struck me most was the attitude of the managers – they were open and helpful and told us how much they appreciated our hard work. They care for employees and this makes Aquascot a great place to work.

In 2008, the three directors announced at our annual conference that the company was moving to employee ownership. It was an exciting time and we all felt we were part of something bigger and better. A Partnership Council was formed and I was delighted to be elected to this with nine of my colleagues.

We meet on a monthly basis to discuss employee views and to propose ideas and suggestions for our business to grow and be successful. We have been involved in lots of projects including organising social events, charity initiatives, conferences and celebrations, such as the company’s 25th birthday party.

We are almost at the end of our journey to become 100 per cent employee-owned. You can tell that everybody is waiting for that milestone with great excitement. Personally, I can’t wait to see what’s going to happen and how it can lead to even more success.

I feel very proud to work here and I’m glad I have the opportunity to grow and be recognised and appreciated for going that extra mile. I believe that Aquascot’s future is very bright – not simply because we are employee-owned but because we have a great team of people who will make success happen.

Employee ownership – the key to a stronger Highland economy?

AquaScot Dennis Overton 94Earlier this month, Alness-based sustainable seafood company Aquascot opened its doors to the local business community for a ‘Successful Succession’ event jointly hosted with Co-operative Development Scotland.

Here, Aquascot chairman Dennis Overton reflects on the day and the company’s experience of employee ownership.

With 185 employees operating from two sites in the town, Aquascot is currently 85 per cent employee-owned and is set to complete the transition to 100 per cent employee ownership by 2017. As an enterprise, we have a 12 per cent share of the UK’s ‘ready to cook’ salmon market.

On 3 July – Employee Ownership Day – we welcomed employee owners, local business people and local MSP, Rob Gibson to our premises. We focused on how employee ownership has been a successful model for Aquascot, and how it can make a significant contribution to economic growth.

I believe the UK economy would be in a much healthier position if there were more employee-owned companies. At present, I feel we are overly focused on short-term gain to the detriment of long-term value creation.

Employee-owned firms are different. In ‘conventional’ businesses there is often disconnect between shareholders and the company they part own. This can be because shareholders have different, and often more immediate, objectives than the people inside the company who have its long-term success at heart.

In an employee-owned company, the employees control the shares. They are more likely to be concerned about the longevity of the business and know that innovation, productivity and profitability are key to achieving that. Indeed, as Aquascot partner Donald Beaton put it so articulately: “This isn’t just about creating good jobs for us, it’s about jobs being there for our children and their children.”

In the Highlands, succession is a concern. In a survey we conducted in 2005, we looked at what happens to non-family, first generation businesses when it comes to considering succession. The findings were not encouraging:

  • There were few independent businesses of any scale in the Highlands
  • The most common form of exit was a trade sale to a buyer out with the region
  • In the majority of cases , the acquired company no longer had a presence in the Highlands after five years

When our founders came to consider Aquascot’s future, they knew that the final decision had to consider the contribution made by its employees. We have exceptional staff and they have made the company the success it is today.

By selling to employees, our founders have enabled this success to continue, and Aquascot will remain in Alness providing jobs and opportunities for years to come.

Friday’s event encouraged several businesses to explore employee ownership more closely, and with Aquascot as an example, this can only be good news for the local economy and the people of the Highlands.

Innovation and how employee ownership can unlock it

eodayWith today marking Employee Ownership (EO) Day, we asked our EO ambassadors how important innovation is to growing your business and how EO can offer an advantage.

Here, a number of ambassadors from a range of sectors – including manufacturing, oil and gas, textiles and agriculture – offer us their thoughts on the subject.

Nick Kuenssberg, Scott & Fyfe: “Recent findings from an employee survey have confirmed the intuitive belief that a sense of ownership and a genuine understanding of and commitment to the revised innovation-led strategy would enhance performance and thus the longer term future of the company. In parallel a visit from an internationally respected textiles consultant in April said that he had been impressed by such an innovative and vigorous company. Simultaneous innovation and ownership change was perhaps a risk but it is already proving to be well worth taking.”

Alan Spence, Accord Energy: “At Accord, we believe that investing in people and giving them space to think outside the box not only benefits them but also the company. Over the past five years, our employees have developed and presented a number of new and exciting approaches to oil and gas allocation. Our innovative work has helped clients by improving their systems of allocation, while we have benefited through wider industry exposure, higher levels of activity and improved recognition and satisfaction for our engineers.”

John Housego, WL Gore: “Bringing a continued stream of innovative products is the only way to keep your business alive and fresh in the marketplace. The benefit of an employee owned business is large in this arena because of the increased engagement EO businesses often demonstrate with their teams. Innovation comes from passionate associates who can use their knowledge of the capabilities available and the culture to have their ideas more readily heard, and so leveraging a larger proportion of the team in innovation. That feeling of ownership and joint reward really helps this process.

Ralph MacLeod, Galloway & MacLeod: “When structured correctly, employee ownership can unlock innovators within the business and reward them correctly. This is having a huge impact – differentiating us from competitors, identifying new markets and improving margins for stakeholders and customers in a responsible and sustainable manner.”

Dick Philbrick, Clansman Dynamics: “Cynics predicted that in an employee-owned business there would be a cautious attitude to technical development. The cynics were wrong – 2014 was our busiest year for technical developments. Nothing is guaranteed in engineering but if there are problems the Employee Owners will bust the proverbial gut to fix them.”

Five points from Italy’s co-operative capital

Jaye Martin 03CDS specialist advisor Jaye Martin recently took part in a study trip to Emilia Romagna, the area of northern Italy with probably the richest co-operative history in the world.

Here, she reflects on the visit and looks at how Scotland can learn from the region.

The tour I was lucky enough to be part of was a collaboration between the University of Bologna and Saint Mary’s University (SMU) in Halifax, Canada. I joined a group of students undertaking a part-time Master’s Degree in Co-operative Management at SMU, all of whom are managers at co-operatives across Canada and the United States. Their organisations include food co-ops, insurance co-ops, credit unions and co-op development and their experiences provided me with valuable insight.

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One of the Towers of Bologna

Our chief executive, Sarah Deas, wrote a series of comprehensive blogs on her own experiences in Emilia Romagna a couple of years ago. With that in mind, I thought I’d simply touch on my highlights reel – although I can assure you that it was an intense eight days packed with visits to co-operatives and lectures on co-operative theory and economics!

So here’s my five most interesting points of learning:

1. Co-operatives are one of the most important tools in the reduction of inequality  Bologna – the capital of the Emilia Romagna region – has a lower unemployment  rate than other Italian cities. Emilia Romagna itself ranks first in Italy in terms of equality, evidenced by high average income and low income inequality.  Female participation in the workplace is significantly higher in Emilia Romagna (c65%) than in the rest of Italy (c45%). All of this can be linked back to the presence of co-operatives in the area.

IMG_01532. Social co-operatives… the future?

Legislation was introduced in Italy to create the legal and tax structure for the ‘social co-operative’ (what we might call a ‘social firm’).  At least 30% of employees must be categorised as disadvantaged (e.g. those affected by drug or alcohol addiction, physical or mental disabilities).  We visited some wonderful examples, such as Cooperativo Il Cammino e L’altro Giardino (‘The Alternative Garden’), a residence and gardens where herbs, fruit and vegetables are grown and used to make products such as jams and syrups.  Social co-operatives were oft-mentioned as the potential future growth area of the sector, but funding and support is increasingly hard to come by – so much will depend on the economic sustainability of projects and how they diversify and adapt to achieve this.

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Caseificio 4 Madonne

3. Caseificio 4 Madonne and the mix of the traditional and the innovative

My favourite visit – and not just because we got to taste all the lovely Parmigiano Reggiano cheese! Caseificio 4 Madonne is one of 350 Parmigiano Reggiano co-operatives in the region and together they form a huge consortium.  Caseificio 4 has 65-70 member farmers and produces 104 wheels of cheese each day.  We were shown the various stages of production and I was struck by the clever merging of traditional methods (e.g. use of muslin cloths and copper cauldrons) and innovative methods without the loss of the integrity and provenance of the product.  Perhaps something for Scottish food and drink companies to consider?

4. Co-operative funds – replicable here?

Co-operatives in Italy must pay 3% of their annual profits into one of three funds (each controlled by one of the three co-operative associations).  We visited Coopfond, the largest of the funds at 422m EUR and controlled by Legacoop.  The fund is used for the promotion of start-up co-operatives, growth capital for expansion and support for co-operatives in financial distress.  They will also help fund worker buyouts such as Greslab.  Given the issues around access to finance for employee-owned businesses and co-operatives in the UK, could a similar initiative be a potential game-changer?

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Our group outside University of Bologna

5. The importance of international connections

This study trip was important not just for the opportunity to see and hear about the strength of co-operative models in the region, but also to meet and discuss with fellow co-operators from Italy, Canada, USA and England.  Everyone in the group had a different interest or angle to their observations and questions and, for me, that was just as fascinating as the visits and lectures themselves. What is clear is that we should seek to build on these experiences, relationships and learning as far as possible as we continue to support company growth in Scotland using co-operative business models.

United States of Employee Ownership

Glen DottCDS specialist adviser Glen Dott has recently returned to Scotland after a fact-finding trip to the United States to learn about how employee ownership works there.

Here, he explores the differences in the systems across the Atlantic Ocean and why the American model of employee ownership has become so popular.

I have recently returned from the National Centre for Employee Ownership (NCEO) Conference held in Denver, Colorado. The NCEO is a membership body similar to the Employee Ownership Association in the UK. Both the United States and the conference were eye openers to me, having not seen either before.

Employee Ownership (EO) is big business in the USA. More than 11,300 firms exist there that use the Employee Stock Ownership Plan (ESOP). An ESOP is effectively an employee ownership trust which allows staff participation in corporate ownership and a share in the wealth these firms produce.

As in the UK, the company funds the purchase of shares from exiting owners, with the shares moving into the ESOP. Typically employees do not buy shares but are allocated a portion; in the UK a combination of both is common.

Purpose – retirement planning versus employee engagement

ESOPs were originally designed to provide for employee retirement. Companies would set aside stock to be given to employees when they decided it was time to collect their pension. This is still the case today. Countless US studies conclude share ownership combined with worker empowerment initiatives produce better financial results, but favourable tax treatment is a significant driver for ESOPs in the US.

Legislation driven

Even conferences in the USA are a little different.

Even conferences in the USA are a little different.

In the US, companies that adhere to a certain tax code and are 100 per cent owned by an ESOP pay no tax. Earnings are passed on to the shareholders (employees) within the corporation and these earnings are only taxed when liquidating the shares – at retirement or upon leaving the company.

Since ESOPs are the only retirement plans allowed by law to borrow money, they are attractive to owners, managers and advisers, as they can be used to raise finance. There is also considerable legislation in place to ensure ESOPs have independent trustees. ESOP valuations are independently verifiable and trustees are truly acting in the employees’ best interests. As you might imagine America’s famed legal system comes fully into play, with the Department of Labor challenging some valuations on behalf of employees.

Governance

From a UK EO perspective, employees in US EO firms do not seem to have great formal influence. This system appears to lack the ‘checks and balances’ we have, where the operating board is overseen by trustees.  There are no employee-elected directors and no employee-elected trustees. Furthermore, the trustees are appointed by the board.

There is however a certain logic to this. Trustees are legally obliged to work in the best interests of employees and are able to remove the company’s board, although in practice this rarely happens. The two interdependent governance structures are required to ‘work things out’ in the best interest of all.

While the systems across the pond differ, there is no doubt the American ESOP structure allows employees to fully share in the fruits of their labour – and provides interesting food for thought when considering how UK businesses approach employee ownership.

What do Co-operatives mean to you?

What words spring to mind when you think of co-operatives? Do you think of a specific business model or company? Perhaps you think of the business benefits? Maybe you reflect on your own experience?

We asked our team for their suggestions and compiled the answers into this word cloud – which we think is a terrific summary.CDS word cloud

What would you add to the list?

 

Employee ownership on agenda for professional advisers

Graeme Nuttall smlA recent CDS seminar saw professional advisers gather in Glasgow to hear from Graeme Nuttall OBE, author of the Nuttall Review of Employee Ownership.

Here, Graeme – partner of Fieldfisher – discusses the growing enthusiasm for the model, the important role played by CDS, new tax reliefs and Scotland’s success stories.

I was delighted to be invited to speak to an audience of professional advisers in Glasgow and was hugely impressed at the level of interest and enthusiasm that exists for employee-owned business structures.

There can be no doubt – the case for employee ownership has been made. A few years ago, a company owner looking to explore employee ownership would likely have been dissuaded from this path by their adviser. Now, advisers are much more likely to present employee ownership as a feasible succession option for their clients.

Co-operative Development Scotland (CDS), under the leadership of Sarah Deas, must take some credit for this achievement. CDS has been instrumental in building the employee ownership community in Scotland, and engaging with professional advisers to help them recognise the role these individuals and firms play in the development of employee ownership.

Advisers will know about the tax advantaged share plans designed to increase individual share ownership amongst a firm’s employees. These have been around for almost 40 years. In the Nuttall Review, I wanted to give greater priority to the trust model of employee ownership.

This is a simple model and gives employees a collective ownership of the company. I was delighted that as a result of the findings of the Nuttall Review a new tax regime for “employee-ownership trusts” (EOTs) was introduced last year. Briefly, there are two main new tax exemptions:

  • From 6 April 2014 there is an exemption from Capital Gains Tax (CGT) on gains on certain disposals of shares in a trading company (or in a holding company of a trading group) that provides an EOT with a controlling interest in that company; and
  • From 1 October 2014 there is an exemption from Income Tax (but not National Insurance contributions) of £3,600 per employee per tax year for certain bonus payments made to all employees of a company or group where an EOT has a controlling interest.

The CGT exemption has attracted attention to employee buy outs as a succession solution. Instead of a sale of shares being taxed typically, for owner managers, at an effective rate of 10% after entrepreneurs’ relief, there is an unlimited exemption from CGT.

The Income Tax exemption means there can also be a tax benefit for staff in this business model. In most cases dividends otherwise payable to the EOT as a majority shareholder are waived by its trustee and are paid out instead as bonuses to all staff – tax free up to £3,600 per employee per tax year.

This is a key concept – instead of external shareholders receiving dividends and staff bonuses being paid simply at the discretion of a board of directors, the EOT model provides staff with an economic stake.

However, tax should not be the driver of employee ownership. It is important that attention is paid to the business case. Scotland has more than its fair share of success stories.

Page\Park Architects, recently appointed to restore the world-renowned Glasgow School of Art Mackintosh Building, is a superb example of a trust owned model of ownership. Stewart Buchanan Gauges, a business where 85% of the workforce live within a five mile radius, represents the hybrid model of trust and direct employee share ownership. There are many more, and increasing all the time.

It’s always rewarding working through a transaction to completion. With an employee ownership transition, there is an additional bonus in that the relationship extends beyond the deal. The average life of a Standard & Poor’s listed company was apparently 60 years in 1958, around 30 years in the 1970s and was down to 15 years by 2014. Obviously businesses have to evolve and markets change but I like the idea that companies I help convert to employee ownership many years ago are still in existence in contrast to their competitors.

It was a real pleasure visiting Glasgow, especially speaking to so many advisers already convinced of the benefits of employee ownership. We do need more champions, and with advisers onside I trust we’ll see even more employee buyouts in Scotland over the next few years.

To read the speech Graeme gave during his presentation at Ernst & Young Glasgow, click here.