Tag: 2014 (Page 2 of 3)

A route for successful business and business success

EO_logo_2014-01Today, July 4, is Employee Ownership Day – an opportunity  for companies that have chosen this model to celebrate their success and spread the word about its benefits.

Co-operative Development Scotland’s chief executive, Sarah Deas, tells us why it is worth celebrating – and why business owners looking for a succession strategy or even a different way of working should take notice.

It may only be in its second year, but already Employee Ownership Day has become a key date in the calendars of employee-owned businesses across the whole of the UK.

There is good reason for this. Employee-owned businesses have something to celebrate; many  have seen real, tangible benefits from the model. Staff work closer together, there is a genuine feeling of a common goal and productivity increases.

Today, Page\Park, one of Scotland’s newest employee owned companies, will host our EO Day celebrations,  A well-known architectural practice, Page\Park is another great example of how the model not only offers a sound succession option but also is an ideal model for professional practices.

Founders David Page and Brian Park have no immediate plans to leave, but they wanted to ensure that the company’s long-term future was safeguarded – and employee ownership was the best option for them. This was no knee-jerk decision either.

The firm was recently named the UK Employer of the Year in theArchitectural Journal Awards. So its transition is yet another example of how Employee Ownership isn’t just a successful route for business, but it’s a route for successful business.

There are other EO Day events taking place across Scotland today – all highlighting the value the model plays not only to individual businesses, but also to Scotland’s economy.

We’ll be tweeting live from the Page\Park event on @cdscotland. Do join us and  share your own employee ownership success stories.

Co-op Congress a real Saturday success

Jaye Martin 03Bees, thumbs up and visual minutes made for a different conference experience at this year’s Co-operative Congress.

Here, CDS specialist adviser Jaye Martin talks through some of the key points from the session.

The Town Hall in Birmingham, with its impressive architecture and historic organ dating from 1834, is not a bad place to spend a few hours. Even if it is on a Saturday (the middle Saturday of Wimbledon, a World Cup Round of 16 day)… and it’s sunny in Glasgow.

Being a consummate professional, I was able to set all this aside and concentrate on the subject at hand. Which was, of course, co-operation – or, more specifically, Co-operation: How?

This year’s Congress had been trailed as a pared down, back to basics approach to provide a space for open and honest discussion about the future of the co-operative movement. Two themes from the International Co-operative Alliance’s Blueprint for a Co-operative Decade were used as the focus of the debate:

  • How do we promote the co-operative message and secure our identity?
  • How do we take participation in co-operatives to the next level?

The pitches, debates and pledges stemming from these themes were used to help shape an action plan for the movement. Delegates were given voting cards with ‘thumbs up’ and ‘thumbs down’, to be used throughout the debate whenever the mood took us.

Visual minutes at the Co-op Congress

Visual minutes at the Co-op Congress

The take-aways were, for me, around the innovative tools employed to make this a different and truly more interactive conference, so I’m giving a thumbs up for:

  1. A good theme – the humble bee, long a symbol and unofficial ambassador for co-operation, was utilised to good effect in Ed Mayo’s opening speech, in the branding of the conference and even in the honeycomb-shaped pledges that attendees were encouraged to write on and stick up on a great honeycombed wall of hope.
  1. Steph McGovern – the BBC Breakfast business presenter was an inspired choice of Congress facilitator, with her down-to-earth humour endearing her to the assembled audience from the off. She has recently covered developments regarding The Co-operative Group and The Co-operative Bank for the BBC and her genuine interest in the sector was clear.
  1. Visual minutes – professional artists from Creative Connections recorded the debate and feel of the room through illustration, creating this wonderful piece of art which is a lasting legacy of Congress 2014.

EOA Network Scotland gets off to successful start

Deb OxleyThis week marked the inaugural meeting of the Employee Ownership Association Network Scotland, with representatives of employee-owned businesses discussing how they can work together.

Here, Deb Oxley, Director of Membership at the EOA, reflects on a successful day for the network.

As an organisation that champions the virtues of engagement and communication, it is only appropriate that this week the EOA facilitated the launch of a new EOA member network in Scotland, as part of a UK-wide roll out across its membership.

With more members than ever, increased demand to network and a universal desire to learn and improve – these networks have the potential to offer significant added value to EOA members – and the wider employee ownership community.

Of course any network is only as strong as those that support it and so we launched this network in Scotland clear that it has to be member-led – just like the businesses that are part of it, which are, in the main, employee-led.

So it was great that not only was this launch hosted by EOA member Tullis Russell, and supported through facilitation by EOA member The Coverdale Organisation, but that we had eager volunteers from other EOA members offering their facilities and time to take forward the network.

But of course this new network must seek to fill a gap and to add more value to what already exists. And so it was great that the group affirmed that as it delivers the agreed shared objectives for the network, that these will aim to complement the existing activity of the EOA including the Annual Conference, EO Day and other learning events – as well as the awareness raising activity of CDS.

Probably of most importance is that there was keen support for this network to be a channel to inspire and enthuse the thousands of ordinary employee owners across Scotland.  It was agreed by everyone that it is these people that are essential  to businesses realising the many benefits that employee ownership can deliver, from increased productivity and profitability to improved engagement and staff wellbeing.

A member-led network that enables improved networking and trading, provides a route for more learning and problem solving and which inspires and enthuses employee owners – a challenging task but definitely achievable in a sector of the economy renowned for its innovation and resilience.

Network to bring employee-owned companies closer together

Sarah Deas resizedThis week sees representatives of employee-owned businesses and other parties gather at Tullis Russell for the first-ever Employee Ownership Association Network Scotland, part of a national rollout by the EOA.

Here, Co-operative Development Scotland chief executive Sarah Deas discusses the potential benefits of the Network.

Scotland’s first-ever EOA Network Scotland is an exciting prospect which will allow businesses operating with a similar ethos to gather, share common problems and work towards common goals – regardless of the industry each individual business represents.

This first gathering of the Network, held tomorrow morning at Tullis Russell’s paper mill, is an important step. Deb Oxley, director of membership at the EOA, will chair the event and lead discussions on the day, with the overall goal being to agree the purpose of the Network and decide how it will develop in years to come.

Staff at Tullis Russell

Staff at Tullis Russell

To those attending on Wednesday, remember this is your chance to have your say and influence how the network will work for you.

Just as exciting is the venue. Not only is Tullis Russell an employee-owned company, but the first EOA gathering will be held at the company’s recently opened eco-education building, the Tullis Russell Environmental Education Centre – or TREE, for short.

TREE acts as a terrific education space, designed to motivate the local community to take action to help secure a more sustainable future, as well as provide a first-class conference and meeting space for local businesses. It’s a fitting venue.

Employee Ownership Association

Co-operative Development Scotland will be there – and we are delighted to be. The establishment of the EOA Network Scotland is an important step towards providing a solid foundation for existing employee-owned companies. It will also provide further reassurance to those organisations considering employee ownership as a business model that it works and help is there for them.

Most of all though, it will strengthen the voice of employee-owned businesses and that can only help drive policy and influence decision makers in future years.

The route to a successful succession – part two

????????????????Earlier this week, we heard from a business owner on his thoughts about employee ownership after visiting most recent “What’s Next” event at Aquascot. 

This week, he continues his thoughts on the meeting and discusses why he is seriously considering it as a potential succession strategy for his business.

Both Galloway & MacLeod and Aquascot  approached exit in a similar way, with the founder(s) selling a percentage of shares each year over a considerable time.  This reduces pressure on the business to finance the share purchase and can mean the vendor benefits by any growth in share value over the years.  However, it does mean the vendor does not get full value up front.

In both cases, the founders have remained with the business and that does seem to make for a smoother transition.  I can see this phased transfer makes for a smoother transition for the business and being able to control the pace of exit must be an attraction to vendors.

Employee Benefit Trusts are a feature in both companies. Aquascot is aiming for 100% of the shareholding to be held in Trust, whereas Galloway & MacLeod also operate a tax effective Share Incentive Plan.  The company admitted this had been slow to take off, but now has over 90% participation. Interestingly, productivity has increased in line with share purchase.

Both visits provided much food for thought.  They were very different businesses, but with many similarities.  Members of staff demonstrated a strong commitment to their company that was encouraging to see, and a level of commercial awareness I wouldn’t have expected from employees in non commercial roles.

Both businesses appear to operate very efficiently; there was no evidence of constant committees or protracted decision making. Both businesses are thriving and have ambitious plans for the future.  It was inspiring to see the commitment to the sustainability of the local community.

Seeing employee ownership in action is persuasive and it’s an option we’ll give serious consideration.  I’d certainly recommend any prospective business vendors take advantage of the Co-operative Development Scotland programme to explore whether a sale to employees might fit with their aspirations.

The next Successful Succession event takes place July 4 at Page\Park Architects in Glasgow.  For more information and to register, click here.

The route to a successful succession – part one

The second of our “What’s Next” events in our Successful Succession programme, was hosted by Aquascot in Alness. 

One local business owner currently considering a succession strategy for his business attended to see how employee ownership may work. Here, he sums up his thoughts from the day. 

I’m interested in ways to make our business more sustainable for the long term and provide an eventual exit solution for the current shareholders.  As a business, we are constantly looking at ways to improve and reviewing our ownership structure is part of that.

I’d like to find a model that rewards and engages our staff for the contribution they make to the success of the business. I’m intrigued at how businesses owned by their employees appear to achieve much higher levels of staff engagement and productivity improvements.

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Our Scottish Enterprise account manager drew my attention to a programme run by Co-operative Development Scotland, which is showcasing employee owned firms around Scotland. I attended two events and found they greatly helped my thinking.

The first visit was to Galloway & MacLeod, who manufacture and sell agricultural feed. This is an impressive business.  It is innovative, high tech, and focused on growth.  A family firm, and significant employer in the area, a trade sale would have meant a likely relocation.

Selling to the employees means the business stays where it is, providing opportunities for local people.  The honesty was refreshing; they admitted that initially share uptake was low, but had now reached over 90%.

aquascot

The Aquascot visit was thought provoking.  This is an innovative company, very grounded in their values.  They strive to be a great place to work – and aim to have fun while “doing the right thing well”.  The MD, Dennis Overton, admitted a trade sale would have been quicker, simpler and easier, but did not fit with the strong partnership ethos.

It was good to hear the bankers who attended stress they are quite comfortable with employee owned business models; succession management is critically important, if the management team disappear, the business is exposed.  Employee ownership is a solution that promotes continuity.

That was the year that was – a look back at 2013-14

Sarah Deas resizedCo-operative Development Scotland had a stellar 2013/14, working with co-operatives and employee-owned businesses throughout the country.

Reviewing progress, chief executive Sarah Deas outlines how the results demonstrate the potential for growth in the coming years.

During 2013/14, Co-operative Development Scotland supported 36 new ventures and buyouts across the country, nurturing successful business collaboration and succession.

consortia infographic

We helped establish 19 new consortia covering key sectors, including tourism, creative industries, forestry and renewables. This will directly benefit more than 150 businesses in the first year – with that figure expected to increase to more than 350 over the next three years as the influence of the consortia grow.

We also helped eight new community ventures to get off the ground and are currently advising 91 Scottish companies that are interested in the employee ownership model as a succession option.

The figures, published in our 2013/14 annual review, demonstrate clearly that co-operative and employee ownership models are proving attractive options for businesses as the benefits become more widely known.

It is for that reason we are confident we will meet our target of a 10-fold increase in employee ownership over the coming decade, as well as helping to establish a further 350 new co-operatives in the same period.

the future

Others are keen to learn from our approach; last year we advised the Malawi Trade and Investment Centre on Scotland’s approach to co-operative development.  We also participated in a project led by the Flemish Government to promote co-operative entrepreneurship across European member states.

Looking forward, we will continue to work closely with Scottish Enterprise and Highlands and Islands Enterprise, as well as key partners including Business Gateway, industry bodies, membership organisations and professional practices, to raise awareness, provide advice and influence policy.

We are determined to build on the successes we have had over the past year – and the enthusiasm the model has been shown so far only whets our appetite to spread the message even further.

Funding the employee buyout – Part Two

CDS Employee Owner Managers Event 21Last week, we looked at the issues raised by John Alexander of consultancy firm Baxendale on funding an employee buyout during his presentation at a recent Expert Breakfast Briefing session.

Carole Leslie, a specialist adviser with CDS, continues her look at the points raised.

Alexander, who has been responsible for structuring more employee buyouts than anyone else in the UK, was clear in his view. There is a significant opportunity for the financial sector to fill a funding gap for potential employee-owned businesses.

The gap is for patient capital, which accepts that investment in employee ownership can provide good reliable returns – albeit over longer periods.

Among the other issues identified were:

Longevity and steady performance are two proven benefits of employee ownership.

The model doesn’t fit with the ‘scrag it and sell it’ short term model.  Many funds prefer a 3-5 year sale of businesses that can demonstrate a “hockey stick” profit forecast, selling at the point optimal value is achieved. While a valid model for investment, it relies on undermining ownership.

Employee Benefit Trusts are an important, but often misunderstood, element in the employee-owned structure. 

Securing the majority of shares in the Trust reduces the requirement to finance the internal share market. The absence of external shareholders for trust-held shares means cash that would have gone out in dividend can be distributed to employees.

Whilst Capital Gains Tax relief may not convince owners to sell to employees, it will ensure the option is on the agenda.

The tax relief is not insignificant, but unlikely to swing the deal, according to Alexander.  What the relief does do is put the onus on advisers to inform business owners that the option exists.

There are too many misconceptions surrounding employee ownership.

Too often employee-owned businesses are presumed to be less than commercial, when in reality they are anything but.  These are good businesses which happen to be owned by their employees.  Indeed, employee-owned firms report higher productivity and more innovation than conventionally structured firms.

The latest Co-operative Development Scotland employee ownership event is taking place at Page\Park’s HQ in Glasgow on July 4 – Employee Ownership Day. To find out more, click here.

Funding the employee buyout – Part One

At a recent Expert Breakfast Briefing session, John Alexander of consultancy firm Baxendale tackled the issues around funding an employee buyout.

Here, CDS specialist adviser Carole Leslie looks at some of the key points raised in the session.

Employee ownership is a model fast gaining pace – the number of employee-owned firms in Scotland has doubled in four years, and if more of the right kind of finance could be made available, this number would increase significantly.

Alexander said: “It’s chicken and egg. Raising awareness is important, but for an exponential increase in employee ownership there has to be access to the right kind of money. The money comes first.”

  • The equity gap must be addressed

Alexander proposed the solution as being the establishment of high-profile funding sources staffed with visionary fund managers. The Baxendale experience proves that employee ownership presents a reliable, if different, investment. Patient capital is required to nurture the model and that will take a change in behaviour from funders.

  • Vendor financing plays an important role

Properly structured vendor financing can benefit the seller and the business. The outgoing owner will usually be a benevolent and well-informed lender who will take a flexible approach to repayment, ensuring the employees are not overly burdened with debt. An earn-out deal can mean that the vendor benefits from productivity gains driven by the new employee-owned structure.

  • The importance of the employee stake must not be underestimated.

Alexander counselled that employees do not become the main funders of the transaction. This could create funding issues for a future internal share market. However, employee investment is the result of a decision by the employee that their company is worth investing in. Financial buy-in results in an emotional buy-in that reflects in performance.

Next week, we’ll be looking at some of the other issues around financing an employee buyout.

A new generation lighting the way…

Sarah Deas resizedLeaders from across Europe came together recently in Brussels to discuss all aspects of co-operative development, including how to engage with young people looking to collaborate in business.

Fresh from the insightful conference in the Belgian capital, CDS chief executive Sarah Deas reveals some of the different approaches being taken by various countries.

Across Europe the next generation is eager to create new endeavour – young people wanting to start their own businesses.  Many are talking about doing so together – championing a co-operative approach to match their values.

Recently I attended an event at which this message was loud and clear. I joined leaders from Flanders, Finland, Italy, Sweden and the UK in Brussels to share our approaches to co-operative development.

We heard from Gordon Hahn, chair of Sweden’s Coompanion, on how his organisation is tapping into this growing desire to collaborate. They recently launched ‘Generation Kooperation’, a campaign targeting 20 – 35 year olds.kooperation

I explained how here in Scotland we are also supporting the growing interest in the younger generation by developing teaching resources and a toolkit for use in universities and colleges. Following a successful pilot, we are now working with the Scottish Funding Council to support the roll-out of these resources across the futher and higher education sectors.

Other insights from our day in Belgium included recognition of the role that strong national bodies play in promoting the adoption of co-operative models. We were all impressed to hear how Coompanion, which operates 25 co-operative development centres across Sweden, has supported 5,000 new co-operative entrepreneurs over the last fiveyears.

Niina Immonen and Mirja Taipale, from Tampere Region Cooperative Center, also described the important Finnish initiative upskilling 820 business advisers – ensuring co-operative models are considered as mainstream options. Their contemporary campaign – ‘Enterprising Together’ – was designed to stimulate public interest in working with others. It involved radio broadcasts, mass distribution of brochures and events across Finland.  Together these initiatives resulted in a 10% per annum increase in co-operative start-ups.

enterprising

All the nations identified emerging opportunities for co-operatives in:

  • creative industries
  • tourism
  • social care
  • renewable energy
  • broadband

Consortium co-operatives are becoming increasingly prominent in the tourism and creative industries as a vehicle for business collaboration. Italy’s distinct legislation has resulted in 15,000 social co-operatives. The UK’s community shares initiative has enabled over 200 communities to invest in local enterprises. And, in Sweden, co-operatives provide 20% of the broadband infrastructure.

Our host, the Flemish Government, in its commitment to co-operative entrepreneurship is calling for ‘proposals’ for new co-operative business models – a refreshing and pioneering approach.

The increasing relevance of co-operative models in modern-day Europe was evident throughout the day – driven by changing societal values and the need for innovative solutions to local issues. A big ‘thank you’ goes to Kristof Welslau for arranging such a valuable day.

It is over 50 years since President Kennedy spoke of the torch being passed to a new generation. “United, there is little we cannot do in a host of co-operative ventures”. It may be our young people who will now take forward that torch and drive the adoption of co-operative models, not just in Scotland but world-wide.

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.

My personal journey to employee ownership

Nick Kuenssberg ICAS photoIn 2012, industrial textile manufacturer Scott & Fyfe – a fourth-generation family business – made the transition to employee ownership (EO).

Non executive chairman Professor Nick Kuenssberg explains how lessons learnt in Germany, Peru, Chile and the UK led to the introduction of EO to the family behind the Tayport-based firm.

 

Germany, 1967

  • Representation and trust are paramount
  • Social welfare is necessary in the wake of mass redundancies

germany

I helped with the restructuring plans of a Hamburg manufacturer. Its acquisition proved to have been a major strategic mistake (the first bank con that I came across) and the textbook solution was to transfer the rump of the business elsewhere and close down the balance.

What struck me forcibly was that it proved possible to close it in an orderly way without headlines or hysteria – not only was there a social welfare plan for those made redundant but there was union representation on the supervisory board which meant that the employees believed the management story.

Peru, 1971

  • The profit motive is critical if investment is to prosper
  • Expectations for EO must be managed realistically and sympathetically

peru

The left-wing military government introduced the concept of an industrial community, a form of co-operative within each industrial company, which gained ownership up to 50 per cent of equity through the allocation of 15 per cent of annual pre-tax profit. The greater the profit, the faster the original shareholders were diluted, undermining the normally acknowledged capitalistic profit motive. Incidentally, there was also a profit share to be distributed on a per head basis.

This novel regime undermined the industrial sector within a few years because the profit motive was eliminated – investment dried up and any actual investment made saw surcharges on imports deposited outside the country – and the trade unions which dominated the industrial community board also had representation on company boards.

There were ways round this to be exploited involving transfer of profits but these routes di little to promote industrial development generically.

Chile, 1974

  • The rigid communist state planning controlled price model does not work

chile

In the post-Allende era, I worked to recover a company that had been sold to the Chilean Government (but never paid for). The company was comprehensively bust and 23 per cent inflation per month made normal life difficult.

Real demand collapsed and government price control meant not only that costs could not be recovered, but that the product was resold at a black market premium. Staffing was excessive and there was no cash to cover the payroll – other than via a government bank that charged interest at inflation plus.

Radical restructuring was necessary to recover the situation and price freedom was vital to make this possible.

Since then both economies have recovered and flourished under the Chicago School of Economics model with open frontiers, low duties, realistic exchange rate and promotion of investment and exports.

UK, 1975

  • The relevant parties did not listen to each other
  • Determined people will beat most governance systems unless board, management and employees are working to the same agenda

gb

The Bullock Report on employee representation appeared, recommending that employees be represented on the boards of UK companies with directors to be selected by the trade unions.

The bosses rejected this (in the light of the state of play in the late 1970s) and the unions did too, as they interpreted it as undermining their pay bargaining rights.

UK, 1999

As a non executive director of a large engineering company owned by the workforce through a trust, I resigned. The combination of an ambitious chief executive and a self-aggrandising chairman persuaded the company to embark on a reckless path to European leadership.

This transaction needed short-term finance of an aggressive acquisition which could not be refinanced, ending with a fire sale to private equity at a fraction of its market value.

Scotland, 2014

scotland

Many of the above lessons were applied to the transfer of ownership at Scott & Fyfe, ownership that is both indirect via an employee benefit trust and direct in that it provides opportunities for employees to acquire shares in the business.

The benefits have been real, wide-ranging and surprising; greater flexibility of labour, improved productivity, enhanced understanding of the business, an end to company politics and genuine trust in management. The move from employee to owner is well under way.

Employee ownership provided an exit route for shareholders and has contributed to a much better business – one committed to its local community, less exposed to takeover, sustainable in every sense and geared to a long-term strategy.

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.

 

Time to learn from the experts…

CDS Employee Owner Managers Event 21Last week we hosted the first of our expert adviser breakfast briefings, with Baxendale’s  legal director Ewan Hall delving into the world of employee ownership.

Here, CDS specialist advisor Carole Leslie reflects on the key learnings from the session.

At CDS, we have been working with professional advisers on building knowledge of employee ownership (EO) over the past 18 months.  We uncovered a real appetite amongst lawyers, bankers and accountants to learn more so we organised a series of expert breakfast briefing sessions, each one led by a respected specialist in their sector, covering an aspect of employee ownership.

Our first event took place last Tuesday (4 February), with Baxendale’s Ewan Hall – one of the foremost legal advisers in the field of EO in the UK. He has managed more than 20 EO transitions directly and been involved in many more.

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Ewan Hall, Legal Director, Baxendale

 The company itself is a major player in the EO field across the UK, with an impressive 50% of their projects in Scotland. They offer specialist advice and investment to help support the creation of sustainable and growing businesses.

During the session – which was covered exclusively by BusinessScotland.com – Ewan spoke about the key decisions and elements involved in an EO transition and talked the audience through the process of an employee buyout (EBO).

 Breaking the subject matter down, Ewan touched on many important points during the 90 minute presentation – here’s a snapshot of the key learnings:

  • An EBO deserves every bit as much consideration as a trade sale or management buyout. The vendor can expect to get open market value for their business, which can be hugely attractive to them.
  • Having a stake in the business doesn’t just motivate people as the new owners of the business; the stability of the EO model safeguards the future of the firm, sustaining local jobs.
  • The vendor also retains considerable control and influence over both the process and the outcome, and can help to put the post transfer structure in place.

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  • Vendor financing is a major feature of today’s EBOs and is often the favoured source of funding – many businesses are conservative about taking on external debt.
  • The sector is incredibly supportive, with CDS providing adviser support in the initial stages. CDS will introduce potential EO companies with established EO firms, so they can share their experience  of the process.
  • Scotland is seeing more EO transactions than the rest of the UK – this is possibly due to the amount of support available.
  • EO doesn’t end with the completion of the legal transaction. It is a constant process, with engagement and communication key to driving the benefits of the model.
  • The EO model gives a long term solution to the issue of succession, but it doesn’t mean the owner has to leave the business – they can still be involved post transfer, often in a non-executive capacity.
  • The key to success for the EO model is flexibility, as it can be adapted to suit the vendor and industry.
  • EO is growing and there is a high level of interest. Upcoming changes to tax legislation are likely to make a major impact on encouraging new EO businesses and rewarding employees of existing ones. The changes will enable businesses to pay out bonuses free of income tax.

If you were interested in attending one of our breakfast briefings, we have four more throughout 2014 – for more information, click here.

And for those of you who couldn’t make it, you can watch Ewan’s full presentation on our website or watch a short teaser below:

Co-operative Development Scotland is the arm of Scottish Enterprise working in partnership with Highlands & Islands Enterprise  that supports company growth through collaborative and employee ownership business models.


Shining a spotlight on finance

Jaye Martin 03At the most recent CDS Advisory Board meeting, some of Scotland’s key industry figures gathered to discuss how ‘stakeholder banks’ can be the ideal solution for co-operatives looking to raise capital.  

Jaye Martin, a Specialist Advisor at CDS, shares her experience of the day.

As January comes rapidly to an end and the weather shows no signs of improvement, like me, you are probably longing to get away from the soggy grey skies.

But at the recent CDS Advisory Board session, we refused to be cowed by the January blues and instead presenting an eclectic mix of speakers to throw some light (and shade) on the topic of Financing and Capitalising Co-operatives. 

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James Graham of SAOS

Insights gained from the session will help inform our thinking over the coming year as we consider in sharper detail the financing issues affecting the businesses we work with particularly relating to employee buyouts and consortia of scale.  This is of course in the wider context of Scottish Enterprise’s ongoing work in the Access to Finance arena and the Scottish Government’s Sustainable, Responsible Banking strategy, published last year.

 Attendees from CDS, our Advisory Board, Scottish Enterprise and the Scottish Government heard from James Graham of SAOS on the challenges of capitalising a typical agricultural co-op and the potential need for a farming and rural financial intermediary to serve that community, and Angus Waugh and Gerry Sweeney from First Milk on the challenges of raising capital in a 1,700 member strong dairy co-operative. 

New Economics Foundation’s Tony Greenham gave an in-depth analysis of the UK’s banking system and the benefits of ‘stakeholder banks’ with Rod Ashley of Airdrie Savings Bank, the UK’s last remaining independent savings bank, highlighting the benefits of local banking.

Trying to summarise the rich learning and discussion from this jam-packed session is probably an injustice. However, as a taster let’s consider on the top five financing facts:

  • The UK, and particularly Scotland, lacks diversity in its banking system as compared to other developed nations.  In the UK, local banks comprise just 3% of the sector as compared to 67% in Germany and 34% in the USA. 

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  • Co-operative (and employee-owned) business models by their very nature make capital-raising difficult due to the ownership structure.  In the USA, there are special provisions supported as a necessary counterbalance to other types of enterprise.
  • Collaboration is the name of the game in Germany. Local banks co-own central services (for example, back office, regulatory and marketing functions).  This collaboration (rather than the consolidation seen in the UK) allows them to remain locally focused, with sophisticated systems.

    Rod Ashley, chief executive of Airdrie Savings Bank.

    Rod Ashley, chief executive of Airdrie Savings Bank.

  • Airdrie Savings Bank was founded on 1 January 1835 and is the only institution now operating under the auspices of the Savings Bank (Scotland) Act 1819.  Customers have ready access to bank managers and staff with knowledge of the local area and local businesses.  The Bank faces an ever increasing scrutiny from the regulatory landscape. 
  • There are comparatively higher levels of lending to co-ops, social enterprises and charities as well as local SMEs by local banks.  For example, the German government-owned development bank KfW has specific funding available for family businesses to help the younger generation to buy out the older (retiring) generation. 

Although, like the January sun, this is just a brief account of the topics, the discussion will help us to put finance in the hot seat in 2014.

CDS is here to help businesses considering the adoption of co-operative business models.

New Year Message

Sarah Deas resizedFrom Sarah Deas, Chief Executive, Co-operative Development Scotland

The eyes of the world will be on Scotland in 2014 as we host the Commonwealth Games, Ryder Cup and Homecoming. It’s a fantastic opportunity to showcase our country on the global stage.

Whilst we wish our sportsmen and women every success, 2014 is much more than medals – it’s a catalyst for regeneration, innovation and sustainable economic growth. An opportunity to build international business relationships, demonstrate our capability to host major events and present Scotland as a leading tourism destination. 

Commonwealth-Games-2014For Co-operative Development Scotland it’s an opportunity to shine a light on the positive contribution that co-operative and employee ownership models are playing in the Scottish economy. Working with the Supplier Development Programme, we’ve been helping businesses to tender together to compete for Games related procurement contracts – capacity building that will have long term legacy benefits. 

One co-operative that will play a key role in helping visitors discover the best places to stay, eat and drink is the Merchant City Tourism & Marketing Co-operative. The Merchant City will be a hive of activity during Games time, including hosting the venue for high profile business events. 

Another co-operative that should benefit from the growth in tourism is the Scottish Mountain Bike Consortium. Set up to increase the range and quality of mountain bike experiences, it aspires to make mountain biking the ultimate family-friendly adventure activity.

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Scotland is leading the way in the adoption of innovative business models. The coming year offers an excellent opportunity to leverage this success. Businesses that are already successfully exporting, such as employee owned Tullis Russell, Clansman Dynamics and Scott & Fyfe, are well placed to use the flexibility and power of their business model to seize new opportunities for growth. 

As Scotland ‘Welcomes the World’, hopefully you too are considering what 2014 could mean for your business. Are you capturing this once in a lifetime opportunity to profile your business and build international relationships? 

Wishing you a successful 2014

Best wishes

Sarah

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