What is it with your people? They all behave as if they own the company! Superb job!”. That was a comment from Brian Gallagher, Founder and Chairman of Pacific Building, the successful Scottish construction firm that became employee-owned in 2018.
Construction firms gathered at the state of the art BE-ST (Built Environment-Smarter Transformation formerly known as the Construction Scotland Innovation Centre) to hear about how the Employee Ownership Trust might fit as a succession solution. The event, organised jointly by BE-ST and Co-operative Development Scotland (CDS), heard from three businesses that had taken this route.
It is estimated that 1 out of every 5 transactions within the construction sector currently involve a sale to an Employee Ownership Trust (EOT). It’s a model that’s a good fit for construction; proves to be a effective tool for attracting skilled employees, and the stable ownership model provides a secure platform for long term planning.
The event began with a tour of the factory, showcasing innovative thinking in creating a truly sustainable environment. Attendees were shown how construction can contribute to achieving a carbon zero future, looking particularly at how building practices can adapt to climate change.
Tom Warren, Impact Manager of BE-ST, explained the purpose and vision of the organisation and talked through the BE-ST activities and goals. Glen Dott of CDS gave an overview of employee ownership in Scotland, and outlined the succession options open to business owners. He then handed over to the three businesses to tell their stories.
First to present was Brian Gallagher of construction and fit out specialists Pacific Building Ltd. Brian, a Chartered Builder, started Pacific in 2005. The company operates primarily in the commercial sector, with an enviable reputation in sports, leisure, hospitality, aviation and education. When Brian started to plan his exit from the business, he was keen to identify a solution that centred both employees and customers. He did consider offers from trade buyers, but had concerns around “cultural fit”. Brian heard about the EOT as an option and with the support of CDS, explored whether that might be an appropriate solution. The company became employee owned in 2019 with a 100% sale of the shareholding to an EOT and the results have been remarkable. Brian reported that feedback from customers had been fantastic, saying there were higher levels of service and productivity. Employees are more engaged and involved in the company. Brian found the process the least disruptive exit strategy and believes the EOT allows for a stronger, more robust business.
Narro Associates is the biggest civil and structural consultancy in Scotland, and was one of the first businesses to adopt the EOT shortly after its introduction in 2014. The business was founded by David Narro 36 years ago. The company has 95 employees across 6 offices in Scotland. Managing Director Ben Adam, who has been with Narro Associates for his entire career, explained the organic nature of the company’s impressive growth. Ben talked through the ownership structure. 80% of the shareholding in the EOT. Founder David Narro was keen that individual employees had the opportunity to own a stake in the company and the remaining 20% is held directly by employees. Ben talked through the company’s governance arrangements and how decisions are made in the business. The company’s board has responsibility for all strategic decisions within the company, the management team run the business and there is an EO group that promote the benefits of employee ownership internally. Ben’s view is that employee ownership has worked very well for Narro Associates saying it’s a perfect way to keep jobs and brains locally.
Hector Munro, Managing Director at Grossarts Associates, believes that the move to an EOT enhanced the business in many ways. He reported that financial management had greatly improved and overall the company had found ways to be more efficient in managing the quoting and billing processes. Hector believes employees are much more interested in how the commercials work in the business and said the EOT was a huge selling point for recruiting high calibre engineers. A sale to the employees had not been the first choice of the company’s directors; a sale to a trade buyer had been explored and the process had started. However, the shareholders believed that this would not be in the best interests of the firm and called the sale off. Hector believes that the EOT was the right move for Grossarts and the results reinforce that. The company had exceeded forecast performance and was likely to be in the position of paying off the former owners one year early.
Q & A
Following the presentation the audience had the opportunity to ask questions.
- What advice would you give to companies considering taking this path?
Engage an EOT specialist to guide you through the process. CDS were very helpful in signposting us to help and further information. Set realistic timescales.
- I can see what’s in it for employees and business owners. What’s in it for managers?
Effectively, managers get to run a business without risking their own capital. There’s no liability for managers in an EOT, and there is no requirement to invest. There is the security that they won’t suddenly lose their jobs because the company is sold and their services are no longer required. Leading an employee-owned business is different; employees are more engaged and invested.
- Who decides on bonuses and salaries?
The company’s leadership and management still have responsibility for remuneration policy within the company.
- What did customers think?
Response was very positive. The continuity is important in project based work and customers benefit from our employees having a stake in the business. Some customers are now exploring the EOT for their own company.
- How did you tell staff?
One company told the staff once the transaction completed. The reason was that it was viewed as sensitive information and the company considered very carefully the best way to communicate to staff and customers. One of the companies involved staff much earlier on, holding workshops and information sessions well in advance of completion. There is no one right way; the company has to look at what will be the most appropriate.
The slides form the day hare available to download here: BE-ST presentations overview
If you would like to find out more about employee ownership for your business, please get in touch via our web pages on the Scottish Enterprise website.