Tag Archives: Ralph MacLeod

Starter for six – top tips for those considering EO

????????????The first of five CDS employee ownership events took place last week at animal feed manufacturer Galloway & MacLeod’s HQ in South Lanarkshire.

Here, CDS specialist adviser Glen Dott takes a look at why employee ownership can be the ideal solution for businesses thinking about succession.

Plan for the future

It’s essential for business owners to be planning for their eventual exit. By providing certainty for the future, company value can be maintained. When Ralph MacLeod decided to sell to his employees he shaped the future of his organisation and more importantly dictated the speed and terms of his exit. Furthermore, it meant that the MacLeod family’s desire for the business to remain in Stonehouse was honoured.

Value extraction

An employee buyout offers an incredibly flexible way for owners to extract value from the business. Not only did Ralph strike a deal at a reasonable price but the sale process was simplified without compromising on due diligence.

Tax efficiency bonus

The Galloway and MacLeod deal was designed to ensure the maximum tax efficiency for the family, the business and also the employees. New tax regulations – which came into force in April this year – can ensure that a sale to an employee owned trust is essentially tax free. Businesses controlled by an employee owned trust are able to pay a tax free bonus to employees of up to £3600 annually.

The owners at Galloway & MacLeod

The owners at Galloway & MacLeod

Trust, individual or hybrid share ownership?

Galloway and MacLeod has designed a structure in which the employee trust will ultimately be the majority shareholder. Employees can also buy or earn shares, which allows them to benefit from share value increases and dividends when the company does well.

Marathon not a sprint

The transition to employee ownership can take place over a number of years – 15 in the case of Galloway and MacLeod. The MacLeod family have taken the long view and the employee trust will buy 1/15 of the shares annually using an option arrangement which provides leeway for both the family and the employee trust.

Turbocharging effect

It’s essential for employees to understand and be involved in the buyout process. If everyone is an owner their objectives will be aligned and it is likely there will be a performance uplift. All available evidence confirms this – employee owned businesses where employees have a significant equity stake and an influence on governance are more productive than other business ownership forms. In many cases this can positively affect the ‘earn out’ for exiting owners.

To view the CDS guide to a successful succession, click here.

Our EO journey – Galloway & MacLeod

In the first of five special video blogs this week, Galloway & MacLeod reveal why they became employee owned.

The agricultural firm is hosting an employee ownership event in conjuction with CDS in Stonehouse, South Lanarkshire on April 30. To attend the free event, click here.

 

Going against the grain has led to success for Galloway & MacLeod

Donald Harvey, MD at Galloway & MacLeod

Galloway & MacLeod has roots dating to 1872, and is now one of Scotland’s most successful employee owned companies.

Here, Galloway & MacLeod’s managing director Donald Harvey explains the benefits the business model has brought to the agricultural firm.

Selling the business to the employees is the best succession option Ralph MacLeod could have chosen – for the company and for the employees. It can be an uncertain time when a business owner begins to think about exit from a business. When Ralph started to speak with me and thereafter the management team, his first concern was that we were kept informed and involved in whatever choice he would eventually make. It was the opportunity of a lifetime – owning the company!

The company began in 1872 and Ralph MacLeod was the third generation of the family to own the business. When the time came to think about handing over, Ralph was not clear on the options open to him. He did have strong views on what he didn’t want to do. Galloway & Macleod is a unique company, which is an important feature in the local community. Ralph wanted to find a succession route that protected that.

Agriculture is a fiercely competitive business, dominated by large players. As an example of this domination, there are now only two main players in grass seed supply worldwide. None of us wanted to see Galloway & MacLeod swallowed up by a large conglomerate. We pride ourselves in the strength of relationships we have with our customers.

Ralph MacLeod took the firm down the employee ownership route

Ralph MacLeod took the firm down the employee ownership route

If Ralph had chosen to sell to a trade buyer, then the danger was that the business would have become product driven rather than customer driven. To me, the move to employee ownership allowed us to maintain our independence and preserve our customer-centered focused approach, without a noose round our neck and an overdraft which would have had a big impact on the business.

There have been other benefits in the move to employee ownership. We now have 34 owners who all have a stake in the prosperity of this business. This means that most of the people come into work thinking like owners. They want the business to do well, and they know that they will share in the rewards of that success. We don’t have issues with absence or staff turnover; people enjoy being here. We are able to attract the highest calibre of recruit, and will always promote from within.

Alongside these benefits are challenges, particularly for the management team. How do we make sure that these owners understand how the company works and where our revenues and costs are? How can we ensure everyone has the information to enable them to make the best contribution possible? We had to take a very close look at how we communicated with our people, and how we make complex information accessible. We had to ensure our management team had the skills and support to do their job well. We don’t always get it right but we are quick to acknowledge and address our mistakes.

The owners at Galloway & MacLeod

The owners at Galloway & MacLeod

As Managing Director, I’m accountable to the 34 owners of this business. As these owners are the employees, they see and understand the process from prospecting to order fulfillment and the relationship we have with our stakeholders.  As our management team is running a business in an accelerated growth plan with high expectations, we meet challenges which can be hard to overcome. However, I’m sure we have the skillset and understanding to make these decisions, ensuring our values, sustainability and environmental impact are exceeded. Every day’s a schoolday!

The flip side is that I’m leading a team of people who have a stake in the future of this business. It’s in their interests to do as good a job as they can to ensure the company prospers. I’ve first-hand experience of the evidence demonstrated in the research: employee ownership is the most effective route to true employee engagement.

And it all seems to be going in the right direction. Sales are up 39% since 2010. We keep our customers and have won several new ones. Our employee satisfaction levels are extremely high.

As for Ralph, I’m delighted to say he’s still there for when we need him. He knows this business and its people inside out. It’s good to see him have the time to spend on his other passions of sailing and hill walking. Ralph MacLeod did a great thing for the employees of Galloway & MacLeod. The current owners know we have a lot to live up to, and we are all working to ensure we continue the legacy and deliver a prosperous future for our business.

 

Keeping it in the family?

Carol LeslieCo-operative Development Scotland (CDS) is working with the Scottish Family Business Association to help family businesses explore employee ownership as an exit route.

CDS specialist advisor Carole Leslie shares the experiences of two heads of family-owned businesses on why this model is such a success.

“Scotland is a brand”, Maitland Mackie told the capacity audience assembled at Strathclyde University for the launch of the International Centre for Family Enterprise at the end of last month.

Seventy-three per cent of Scottish firms are family-owned, employing half the private sector workforce. Family firms are an important feature of the Scottish economy as well as playing a major role in their local area. As Martin Stepek, chief executive of the Scottish Family Business Association says: “Take away family business and there will be no community in Scotland.”  

The International Centre for Family Enterprise is an initiative which brings together the business, academic and professional world to provide a world-class collaborative resource to support this critically important sector. Martin Stepek, alluding to the difficulties caused to his family in running their successful family firm, put it so well: “I want to save family businesses the challenges that we experienced.”  

Maitland Mackie’s presentation was the first in a series exploring the essence of family business.

Maitland Mackie subtitled his talk: “How not to be a cantankerous old father”. He described the challenges and rewards of heading up one of Scotland’s most recognised brands. He emphasised the importance of people; not just family members but also the local families employed in the business. Most of his employees have at least 10 years’ service, many have 20 years plus. 

Maitland described his Damascene conversion from command and control management (or, in his words “Dae fit yer telt”), to a more inclusive and participatory culture. He advised the audience to “involve, involve, involve” employees and to be clear on business objectives. Mr Mackie also spoke of his “no change, no chance” philosophy. There are two rules; get the product right and market it well. 

Mackie’s of Scotland went from dairy farming to ice cream production and, in conjunction with another Scottish family business Taypack, diversified successfully into crisps. The firm is about to launch a chocolate range. Maitland attributed the successful diversification to the strength of the Mackie’s brand name. Family ownership enables Mackie’s to plan for the long term. The firm “lives” on its capital. There are no outside shareholders to consider. The company can focus on doing what it does best; serving the customer.

Much of what Maitland Mackie described resonates well with the experience of employee-owned firms. There is that same fierce loyalty to the brand, the commitment to producing the best product, and delivering the highest quality service. With no external ownership, the business can look to the long term. 

Keeping the business in the family was not an option for Ralph MacLeod, third generation of Lanarkshire-based agricultural feed manufacturers and merchants Galloway & MacLeod. It was important to him that the business remained independent, and the staff that had helped develop the business should have continuity, job security and the business should continue to support the local community. The Employee Ownership Model satisfied all these needs and enabled the employees to take over without incurring personal debt. In December 2010, The MacLeod family shares were transferred to two Employee Trusts.  

Maitland Mackie (left) and Ralph MacLeod (right)

Maitland Mackie (left) and Ralph MacLeod (right)

  His experience is encouraging. “I believe we’re more of a family business now”, he says. “Many staff have long service records and career progression is encouraged through personal development training. Galloway & MacLeod directors no longer have to worry about family succession every generation and the dynamic structure created rewards endeavor and innovation. The staff think and act like owners which is to the benefit of everyone connected with the business.”

“Galloway & MacLeod is a progressive, quality-focused business delivering the best service to our customers. Our people understand that and will all share in the success.” The firm has performed well since the transition of ownership, and has ambitious plans for the future.   

Passing on the business to the next generation is likely to be the preferred route for most family businesses. Maitland Mackie’s three children are now running the family firm. With nine grandchildren waiting in the wings, it looks like succession is solved for a few more years. When the next generation isn’t an option, models which preserve and protect the unique qualities that make the enterprise successful – the relationships, the loyalty, the personality – should be considered.  Employee ownership is one such model.

As Galloway & MacLeod demonstrates, selling the business to employees can be the natural progression. The employees are the people who know the business well, and have a vested interest in its success and sustainability. Like family firms, they provide quality employment and training for local people, in what is a proven business model. 

Family and employee-owned enterprises are critical to the long term prosperity of the Scottish economy. CDS welcomes the International Centre for Family Enterprise to Scotland, and looks forward to collaborating with such an exciting and worthwhile venture.

The second lecture in the series of the International Centre for Family Enterprise will feature Bill Gordon of William Grant & Sons and takes place on Wednesday 18 September 2013. To register for this presentation please email: corporate-events@strath.ac.uk or call 0141 548 2245.