Tag Archives: Nuttall report.

Why Scotland should take Employee Ownership seriously

Sarah Deas 05Co-operative Development Scotland’s (CDS) Advisory Board recently met to explore ways of increasing take up of employee ownership.

CDS is the arm of Scottish Enterprise (SE) that is charged with promoting employee ownership.

Here, Sarah Deas, chief executive of Co-operative Development Scotland, explains how they invited policy influencers and membership bodies to join the debate.

In order to bring participants up to speed the features and attributes of employee ownership (EO) were first described. Participants heard how Scott & Fyfe, Tullis Russell, Accord Energy Solutions and Galloway & MacLeod came to choose the model and the resulting benefits. With the exception of Accord, these were all long established family businesses that chose EO as a succession solution. Whilst their experiences differed, there was one common and positive result – long term sustainability of the business and its jobs. This offered a clear demonstration of ‘why we should take the model seriously.’

The benefits described by the participants included securing local employment, driving performance and generating socio-economic well-being. We heard that since 1992, the ‘Employee Ownership Index’ has outperformed the FTSE each year by an average of 10%. Also, EO businesses have a significant presence in the ‘Sunday Times Best Businesses to Work For’ – there are three in the top 10. Clearly the model won’t be appropriate in all cases, however, research shows that on balance it out-performs other models.

Scottish paper and board manufacturer Tullis Russell made the transition to employee ownership in 1994

Scottish paper and board manufacturer Tullis Russell made the transition to employee ownership in 1994

It was acknowledged that there is growing political interest in the model, both within Scotland and across the UK. The Nuttall Review generated 28 recommendations that are currently being taken forward. HM Treasury has committed £50million per annum to incentivise uptake and recently consulted on the best way to use this funding. CDS is promoting the model directly to businesses and via the media and professional advisers. 83 professional practices (lawyers, accountants and bankers) have met with CDS over the last year – and two are now even considering the model themselves!

 We also learned that 73% of Scottish businesses are family owned and account for 50% of private sector employment. However, evidence shows that only 9% progress into third generation family ownership. So, what is happening when the family sells out? Answer: trade sale, management buy-out, employee ownership or insolvency. EO is one of the options – but suffers from being little known and understood. It was acknowledged that the number of businesses being sold has reduced due to the recession – which may lead to what some call the ‘succession time-bomb’. 

So, what more could we be doing to position EO as an effective option?

It was now time to reflect on the wider policy and business environment. Who better to kick off this discussion than respected economist, Jeremy Peat? He described two lenses through which we could look at the economy: GDP (output) and ‘economic well-being’. Jeremy felt that there are signs that economic well-being is becoming more important to the Scottish public: ‘There is a change in tone … and EO is part of this’. 

Jeremy Peat OBE

Economist Jeremy Peat

In reflecting on finance, he worried that there is limited understanding of the model by banks resulting in a lack of mutual empathy. In his view, we need banks to take a longer term perspective, new forms of finance (eg patient, crowd) to be created and for equity investors to appreciate that longer term factors matter. On a positive note, Jeremy felt that this is starting to happen. Overall, he felt that more plurality of business models would be helpful in rebalancing the economy. A ‘let many flowers bloom’ approach.

Guests included representatives of the Institute of Directors, Confederation of British Industry and Royal Society for the encouragement of the Arts, Manufactures and Commerce, alongside members of SE’s regional and industry advisory boards. Some shared perceptions of what they had heard. Others focused on the process by which the model could be most effectively introduced to companies. 

Scottish Enterprise and Highlands & Islands Enterprise account managers were seen as crucial in this process. A focused approach was strongly recommended, enhanced by diagnostic tools and support from ambassadors.  An important message was that EO should be presented as one of the options – cautioning against a ‘one trick pony’ approach.

The rich and wide ranging discussion also explored the employees’ view and the role of unions. The model was shown to work well from all perspectives. In summing up, it was felt that the ‘quick buck era has gone’ and ‘people are increasingly questioning values and priorities’. Employee ownership is a model for ‘sustainable enterprise’ and, as such, has an important role to play.

New Chair reflects on 40 years of championing co-operative business models.

 

Dick Philbrick, Chairman of Clansman Dynamics, is the newly appointed Chair of Co-operative Development Scotland.   

 

 

 

Here he explains how his passion for co-operative models has underpinned a successful business career of 40 years.

You could say I’ve been on a forty year journey of promoting and developing co-operative or employee owned structures. My interest in the sector was first sparked on a visit to work in a kibbutz in Israel in the early 1970’s.

There I was struck by the animated debates surrounding the election of the new canning factory manager and the easy and informal relations that existed between all those who worked in the factory.

Canning beans and cucumbers was not a great job but the attitudes to work and towards each other were so refreshing compared to those in the Birkenhead shipyard where I was training.  I discovered that there really was a better way to organise work.

Almost 40 years later, in 2009, we took Clansman Dynamics into employee ownership (Clansman is an engineering company that designs and builds large robots for foundries and forges – see www.clansmandynamics.com).  Clansman does not have the structure of a pure co-operative, but everybody now has a stake in the business, everybody has the same vote and the business has thrived since we made the change.  

It’s why we have introduced coke and pizza meetings where members of staff present on company results so that everyone feels engaged. At Clansman we want our team to act and think like owners and the results are empowering for our workforce.

I feel compelled to spread the word that working within a different structure can be fairer and more rewarding, but it boosts profit margins too – all academic studies that compare comparable businesses support this.  So my message to those within Scotland who look enviously at Germany’s manufacturing sector, which is three times the size of ours, is that we can inspire our workforce by changing our structures.  Let’s inspire our workforce by giving them more responsibility.

I’m not just talking about the manufacturing sector here.  The open day at the Edinburgh Bicycle Co-operative earlier this year highlighted a successful retail business competing in a vigorous market. It showed that co-operatives, community enterprises and employee owned businesses are far from the idle talking shops their detractors would have us believe but instead deliver prosperity.

Clansman has dealt with foundry businesses within the Mondragon movement in the Basque country, in Spain for 15 years. We have learnt, to our cost, there is nothing whatsoever that is undynamic about their buyers and engineers!

And I feel the experience that Clansman has gained from collaborating and co-operating with small companies around the world has shown me clearly how a little Scottish company can compete successfully in Brazil and Beijing.  We are bringing 30 of our collaborating partners to East Kilbride in three weeks’ time for a two day meeting.  The co-operative consortium model can be the way for small companies to get into new markets.    

I’m looking forward to working alongside Co-operative Development Scotland who share my zeal for promoting a better way of doing business. I pledge to give any support I can along with other members of the Board. It’s a fantastic opportunity to help spread the word about the benefits that collaborating, co-operating and sharing ownership provide.  

It is so easy for those of us who are familiar with the model to assume that everyone out there is familiar with the benefits, but that’s not the case, as confirmed by the recent Nuttall report. For me the principles are the same in all of the models Co-operative Development Scotland promotes. 

High salaries and new cars are nice to have but if your company is serious about boosting its productivity there can be no substitute for a workforce coming together for a common purpose. A company that runs as a team in both thought and deed is one that will maximise its resources and output.

 

Co-operative Development Scotland is a Scottish Enterprise subsidiary, established to help companies grow by setting up consortium, employee-owned and community businesses. It works in partnership with Highlands and Islands Enterprise.