Tag: community businesses

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.

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.

 

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. 

James Graham 2323 - 008

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. 

Fact 1 image

  • 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.

Take Five

Jaye Martin 03Jaye Martin is a specialist adviser who joined Co-operative Development Scotland this summer. Here she shares her experience of what it’s like to work at Scotland’s co-operative and employee-owned enterprise development organisation.

It’s already six months into my new role as a CDS specialist adviser, focussing on collaborative business models, so now is as good a time as any to pause for a moment and take stock of my top five experiences so far in what has been an exciting and challenging few months.

 

 1. The CDS Collaboration Prize

PrintThis has been a revelation for me as I’d never been involved behind the scenes of a competition before – unless you count making up a quiz sheet for Comic Relief to sell around my village when I was 12! We were overwhelmed with the quality of the collaborative ideas contained in the applications this year and it’ll be a valuable learning experience for me to be involved in the strategy sessions for the winners when they take place in due course. Excitingly, we are poised to announce our winners shortly so watch this space…

 

2. New consortia

We support so many groups of businesses and communities across Scotland in exploring and formalising their ideas for collaboration and I love the variety this work provides. To mention only a few of the new collaborations we’ve advised so far this year: Destination Stirling, the new tourism group supported by Stirling Council, Scottish Enterprise and VisitScotland; Scottish Mountain Biking Consortium, a group of like-minded businesses committed to developing the best family mountain biking experiences, packages and solutions in Scotland; and Community of Raasay Retail Association (CORRA), the community group behind the purchase of the only shop on Raasay.

 

3. Community shares

On my second day at CDS, I attended our Advisory Board session on ‘Community Shares – Realising the Potential’. Of great interest was a presentation by Hugh Rolo of the Community Shares Unit in England. Their newly launched dedicated web platform for community share issues, Microgenius, is a potential game-changer for this growing sector. We are seeing increasing interest in community co-operatives in Scotland, particularly in relation to renewable energy generation (wind, hydro) and broadband projects.

 

4. Tweeting

Another revelation. Somewhere between dinosaur and sceptic when it came to social media,CDS Twitter I can now see the real value in tweeting, blogging and their ilk – there is the potential to strike up dialogue with like-minded individuals and organisations and to spread the word about co-operative business models. Follow me @CDSjaye and us @cdscotland to find out more!

 

5. Collective Futures workshop

I was pleased to be asked to present on the consortium co-operative model at one of the Collective Futures workshops. This is an exploratory project to define the nature and form of co-operative business models used by designer/makers to sustain and grow their creative businesses. The project is itself a collaboration between Gray’s School of Art, University of the West of Scotland, Glasgow School of Art and a selection of residents who are practising designers/makers from all over Scotland. I was (unsurprisingly) impressed at the creativity used to facilitate the discussion on collectives, particularly the ‘mood boards’ which caused much hilarity (one included a photo of Katy Perry being blasted into outer space) but also revealed inner thoughts about the pros and cons of collaboration.

And as for my top moment outwith CDS…? It has to be when a boy from Dunblane lifted the Wimbledon trophy on that oven-hot day in July. Let’s hope the next six months are just as exciting!

 

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.

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.

Community co-operatives – realising the potential

Karen BirchThe nature of communities in modern society is evolving, but their role remains more important than ever.

Here Karen Birch, managing editor of 3rdi magazine, a leading voice of the co-operative sector, assesses the value of co-operative community enterprises.

Karen is also a member of Co-operative Development Scotland’s (CDS) Advisory Board.

 

Community co-operatives are organisations set up to provide services to a particular community which use co-operative principles to guide their activities. 

A local community, such as a village or a block of flats, has physical boundaries which makes it easy to recognise. But in the increasingly complex world most of us inhabit many different communities exist and playing different roles. For example, we may be a member of a faith group, a volunteer for a charity and or a member of a local sports team.

Almost every activity which involves people coming together for common purpose has the potential to create a co-operative community enterprise. The co-operative enterprise I am most closely involved with, the 3rdi magazine, is just such a community with women and men3rdilogo5 from across the UK coming together to create an on-line magazine which looks at business issues from an ethical perspective.

We do not serve a local community but rather serve a community with a shared interest in ethical business practices and in furthering equality and diversity in the workplace. Community is an active condition reinforced by active membership with people choosing to identify with and support community values and purpose. 

Community Investment involves members of that community buying shares in an enterprise that serves that community. It gives people a stake in the success of that enterprise. Common ownership puts the assets of the community co-operative in a similar relationship to its members as the village green is to the inhabitants of a village. Everyone has use of the asset but no one person has title or claim and no one person can dig it up and take it away. 

Throughout the last century, the model of community action has been one of volunteering and was heavily reliant on grant-funding from public sector bodies and individual philanthropy. This is not sustainable. I am a fan of enterprise and I’ve run successful businesses for the last 20 years. I see community enterprise as a real alternative to the market failures in the private sector and the continual withdrawal of funding from the public sector. 

Community enterprises provide goods and services to meet the needs of their communities. Community shareholders, unlike traditional shareholders, only expect a fair return not a maximal or rapid return on their investment. This long-term alignment of shareholders to the needs of the community enterprise, promotes long-term sustainability over short-term profit-taking. 

At a time when many communities are faced with the loss of local amenities this change in focus is, I think, crucial. And community shareholders are also far more likely to get involved, to become active supporters of the enterprise, and not just remain as consumers of products and services.

This engagement also strengthens the business model. It creates role flexibility: as customer and supplier and employee and owner is a true stakeholder model, and is more robust and sustainable than the traditional supplier-to business-to customer model. It is this combination of engagement, flexibility and sustainability that leads me to conclude that we need more community enterprise and ownership.

So, what sort of services can community co-operatives provide? Examples are wide ranging and reflect the needs of the communities they serve. These include a crèche in a tower block containing many single-parent families which has enabled them to seek work, through to a launderette in a housing estate.

Most successful community share issues focus on an asset, which is why community shops, pubs and community buildings have featured amongst the big success stories for co-operative community enterprise. As an Advisory Board Member of Co-operative Development Scotland (CDS), I’ve seen first-hand how shared ownership enables communities to develop services such as utilities and broadband, and this can work particularly well in remote regions.

However, just because a community lacks a service that it wants, it does not automatically mean that there is a viable business model that can meet that need. As with any business an opportunity only exists if there is sufficient demand from customers willing to pay a reasonable price for the goods or services provided.

With our long term energy future, particularly our reliance on fossil fuels, looking increasingly insecure, more and more attention is being drawn to renewables. Local communities are rightly seeking to benefit from renewable energy projects based in their vicinity.

By coming together to form a co-operative the local community can receive a direct financial benefit from the development and can use any profits generated to re-invest in other community projects. The profit generated stays within the community rather than rewarding shareholders outside the area.

Harlaw Hydro Electric directors (from left): Martin Petty, Simon Dormer, Lynn Molleson and Ian Hynd – pictured at Harlaw Reservoir.

A good example of this is Harlaw Hydro Limited whose purpose is to own and operate a micro-Hydro scheme. It will generate revenue by selling ‘green’ hydro-electricity. The income generated will allow Harlaw Hydro Ltd to contribute to other projects and initiatives within the local area through the Balerno Village Trust. It is 80 per cent of the way to raising £313,000 through a share offer scheme.

CDS works in partnership with other organisations such the Co-operative Enterprise Hub to help communities develop community co-operatives in the renewable energy and broadband arena. The benefit of this model is that co-owners are involved in decision-making. Income can be invested back into the community through local projects or distributed among the members.

From my perspective the key is enterprise and long-term viability and I think that the model of ownership and engagement in community co-operatives means that they can be more robust and sustainable than either their private sector or charitable counterparts.

If you like the sound of this way of doing business do sign up or visit our website: www.the3rdimagazine.co.uk/ and follow us on Twitter, @the3rdimagazine

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.

 

Success is the common currency of employee ownership…

Carol LeslieEmployee ownership is a business model that reaps rewards for companies home and abroad. Carole Leslie, specialist adviser, Co-perative Development Scotland, reports on her visit to America and why success is the common currency between UK and US employee owned firms.

we the owners

 Here at CDS we’re always keen to cast the net as far and wide as possible when it comes to broadening our understanding of employee ownership. Last month we ran a highly successful series of screenings across Scotland of the powerful film We the Owners: Employees Expanding the American Dream,which interviewed American workers. It cut to the heart of what it means to be an owner in your own business. 

  

I was also fortunate enough to travel to the US recently to take in a conference of employee owned businesses (EOBs) in New England. I was struck by the similarities rather than the differences that exist between British and American models of ownership.

On both sides of the Atlantic, companies owned by their employees are competitive, professionally run, excel in their sector, and operate a form of responsible management with inclusive and transparent governance systems. The result is a more robust and fairer model of business. 

carris reels logoA good example is Carris Reels. Carris Reels designs and manufactures reels and spools for the wire and cable industry, employs 450 staff and has locations across the US and in Mexico.

 

 

BillI met with Bill Carris, who engineered the transition to employee ownership in 2008. Bill’s father started the business in 1951, and Bill grew up in the company, taking over as CEO in 1980. Father and son shared the recognition of the importance of the individual, and of community.

 

 

Bill looked to find ways to involve employees more in the business. He knew that many companies pursued “emotional ownership” but he wanted his employees to have real ownership of the business. He embarked on what became known as the “LTP” or Long Term Plan, which would not only transfer 100 per cent of the ownership to employees but also 100 per cent of the governance.

Carris Reels 2Herein lies the real challenge. Firms who have gone through the transition, whether in UK or US or anywhere else, would agree that getting the technical elements in place is the easier bit of the business transfer process. Attaining true ownership – hearts and minds ownership – is much more difficult. Speaking with some of the employees and seeing the business results left me in no doubt that Carris Reels has been successful in achieving that transformational culture of employee ownership. 

Carris Reels used a three stage process to implement their ownership culture. The first step was to set out the objectives and vision. Bill Carris was quite clear in what he was looking for – total employee governance to fit with total legal ownership.

Carris Reels

The second step was to make this vision real by building the capacity of employee owners to understand what ownership means for them. This included a wide ranging examination of the business goals and how the company is managed.

A thorough education programme was implemented which explained the risks and rewards, company strategy and operation, and the technical details of ESOP operation.

 

The third stage examined the context for employee ownership, ensuring that managers and staff have the appropriate skills to manage and work in a transparent and productive environment. As part of this stage, structures for employee involvement and participation were devised and introduced, as was a systematic process clarifying decision-making responsibilities. Each one of these three stages is constantly assessed, reviewed, revisited and new recruits are fully inducted.  

Carris Reels StaffThis kind of programme might appear daunting and time consuming, but the long term benefits are evident. Indeed, Scottish firms such as Clansman Dynamics and the Keil Centre will testify that doing the spadework in the early stages reaps rewards later on and brings success much more quickly. Getting the legal structures and the tax repercussions resolved are both important; but these are only the start of what is a continual process.

The US experience tells us that legislation to support employee ownership in tangible ways is key if we want to see a step change in growth. However, to achieve that transformational change takes sustained and considered application. In many ways, the technical architecture is just the vehicle.

Achieving true employee ownership takes courage and conviction. But US companies like Carris Reels and native examples like Woollard & Henry and Accord Energy, clearly show the results are positive and far reaching.

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.

Seafood Producer Serves Up Food For Thought…

Angela Wardrope hi resScotland has a thriving food and drink sector. Employee owned companies like seafood producers Aquascot are reaping the rewards of co-operation.

Angela Wardrope, project manager, Co-operative Development Scotland, shadowed Aquascot’s Dennis Overton when he went before the Scottish Parliament Cross Party Group on Food.

 

I had the opportunity to hear Employee Ownership Ambassador Dennis Overton from Aquascot address the Scottish Parliament Cross Party Group on Food in January. The experience provided an insight into Aquascot’s journey towards employee ownership and a fascinating bird’s eye view of Scotland’s food and drink sector. It got me thinking about the bigger role co-operation could play in this industry. AquaScot Dennis Overton 94

Aquascot is based in Alness and takes its inspiration from the 1920 pioneering profit sharing model of employee ownership set up by John Spedan Lewis. The seafood producing firm began its journey towards employee ownership in 2008, which it will complete 2016. 

AquaScot 02In 2008 the main driver was to sustain and grow the business for the future. The potential was huge: a strong team, accelerating health drivers, expertise in aquaculture and strong market demands. A business owned by the employees was the only solution to create long term value in a fairly remote part of Scotland.

Now, four years later turnover has reached £29m and total staff numbers are up to a healthy 135. Aquascot is also benefiting from a reduction in absenteeism and leaving rates – half that of the sector average. Staff are twice as productive as the sector average and feel they can bring forward ideas that are listened to and implemented.

AquaScot 05So what is the wider potential for this model in Scotland’s food and drink sector? The industry is made up of lots of micro-businesses, a few large family businesses such as Tunnock’s and Mackies and a few giants like Devro. The industry also has plenty of first generation entrepreneurs, who in my view would be a great fit for employee ownership. The challenge is how we ensure other companies take inspiration from the benefits enjoyed by Aquascot, and think about employee ownership themselves.

But back to our parliamentarians. A good debate took place amongst Cross Party Group members following Dennis’s address. They wanted to hear more about the risks when changing ownership structure and how businesses adapt to this change. Dennis responded by pointing out the difference between ownership and management. He conceded the transition process can add complexity to the mix, but a well run business is a well run business, irrespective of the ownership structure. 

A question was also raised around ‘co-opetition’, when businesses co-operate with competitors. At Co-operative Development Scotland (CDS), we are seeing a strong appetite for this. Especially where there is an opportunity for businesses to collaborate to help a sector grow.

For example Food from Argyll is a consortium of nine food producers that came together to sell their produce at events under its singular banner. Overall, the members all saw the co-operative as an opportunity to get into a market that would be really hard to crack on their own. A consortium co-operative allows single businesses to pool their resources in this way without compromising their independence as singular entities. They look at the bigger picture and will reap the benefits as a consequence. 

Best of Food Argyll 2So did the Cross Party Group members feel that co-operative business models were a good fit for Scotland’s food and drink businesses? Overall, there was a feeling that any form of co-operation would be beneficial. And that much more needed to be done to promote collaboration for the benefit of the sector.

CDS supports all businesses in Scotland, irrespective of sector or size. If you like the sound of accessing bigger markets through co-operation we can help you. We have produced a short paper on Scotland’s food and drink sector, so if you want to read more see: Co-operate for growth; Growing Scotland’s food and drink sector.

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.

Employees can have their ‘stake’ and eat it…

Austin Flynn - PortraitAustin Flynn is a corporate lawyer and head of Morton Fraser’s business team where he advises business owners from across the UK. Here, he reflects on the rising popularity of employee ownership and says workers’ rights need not be compromised by this business model.

 

 

For more than twenty years I’ve been advising businesses on a variety of corporate and commercial legal matters. For most of that time the majority of my clients have been owner-managed. As a result, the person who’s instructing me not only works for his/her business, but also owns it, has capital tied up in it and sees the business as ‘part of the family’ and inextricably linked with it.

There isn’t the kind of work/life distinction that allows owner-managers to leave work behind when they get home and it certainly creates a different dynamic when compared with taking instructions from someone who is simply an employee and has no share in the business. Interestingly, increasing numbers of my owner-managed clients are now looking at ways of giving their key employees a financial stake in the business.

sharesThese range from share option schemes where a small proportion of the company is made available, to more radical and far-reaching re-structurings that in some cases can effectively be a partial exit for the owner. As with anything in life, there’s no ‘one size fits all’ solution when it comes to employee ownership but it’s striking how popular the concept has become, thanks to organisations like CDS spreading the word about the benefits.

On my own weekly blog on the Morton Fraser website I commented last year on George Osborne’s new owner-employee contract under which employers will be able to award shares to staff in return for staff giving up unfair dismissal, redundancy and training rights and also relinquishing the right to ask for flexible working.

FiguresI commented at the time that as a fan of employee ownership I couldn’t see any reason why an employee can’t have his/her employment rights and a stake in the company. My guess was that many of the benefits of true employee ownership (increased productivity, innovation and profitability) would be undermined by a structure where the employee is shackled to a company and can be walked over roughshod. Also, the lack of liquidity in the private company share market could make the value of such shares very subjective anyway.

 

It was therefore interesting that recently in the House of Lords John Gummer declared the plans to be ‘mystifying’, adding “I cannot imagine in any circumstances whatsoever that this would be of any use to any business that I have ever come across in my entire life.”

Lord Pannick QC added: “What is so objectionable is that these employment rights were conferred by Parliament over the past 50 years and they have been protected by Governments both Conservative and Labour precisely because the inequality of bargaining power between employee and employer means that freedom of contract is quite insufficient to protect the employee. To allow these basic employment rights to be traded as some sort of commodity frustrates the very purpose of these entitlements as an essential protection in the employment context.”

I couldn’t have it put it better myself, so I won’t even attempt to do so.

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.

A co-operative consortium that’s bringing home the bacon…

D&G Farmers Cooperative 02Farmers Nigel and Angela Taylor look after 180 Highland cattle at Castle Douglas, Dumfries and Galloway. The company, Barlochan Highlanders, was one of three similar outfits to win the CDS Collaboration Prize. Here, Nigel reports on why forming a co-operative consortium with Annanwater Organics and Clash Saddlebacks will bring home the bacon.  

 

 

I once read that forming a co-operative could best be described as a leap into the unknown. Until now I never fully appreciated the scale of the challenge involved, but more importantly I’d never really considered the huge benefits that taking a collective approach to a business can bring.

All that changed a few months back when myself and two other farming outfits from Dumfries and Galloway found ourselves clinking champagne glasses together having just won £10,000 worth of funding as part of Co-operative Development Scotland’s (CDS) inaugural Collaboration Prize

My partners are Steve and Sarah Burchell from Annanwater Organics, based near Moffat, who sell organic blackface and blackface-cross lamb and Robert and Caron Stewart, based at Port Logan, whose firm Clash Saddlebacks sells rare breed traditional pork and bacon.D&G Farmers Cooperative 07

The first strength of our enterprise is the fact that we have known each other for years and our triumvirate of existing businesses all share an obsession with delivering produce of the highest quality. Here in Dumfries and Galloway we all have the same approach to high animal-welfare, outdoor reared, slow grown, ethically and locally sourced and artisan produced meat.

We would all tick the same boxes and this has proved a positive foundation to forming our co-operative.

So what’s the big deal? Well, I guess it’s all to do with working together…the very definition of a co-operative, you might say.

Of course agriculture is known for its solitary lifestyle. After all my outdoor office in the beautiful Scottish countryside, and comprises just me and 180 Highlanders (cattle that is!) and we spend most of our days together. It’s only when a rep turns up, or I have to go and get something fixed, that I meet anyone else.Highlander Barlochan 2 for blog

Farmers’ markets each weekend throughout the season can be a real test of my dormant social skills.  We are simply not used to working with other people, especially when we only have a share of the decision making process. But then again, that’s the whole point.

Setting up a consortium has been a big step forward for each of us. We have immediately been thrown into a season of re-adjustment that we could never have envisaged. Geographically separated by almost 100 miles of open space, we have had to plan ahead and consciously think about how to communicate. Whoever invented the conference call deserves a pat on the back.

We have had to adjust to each other’s timescales in terms of lifestyle and when we are each available. Steve & Sarah (Burchell) from Annanwater Organics, out at Moffat, are just about to embark on what is their most demanding time of the year … lambing! Sheep Annanwater 2 for blogWhilst Robert and Caron (Stewart) in the fantastic area of Port Logan with Clash Saddlebacks are always busy.

Saddleback Clash 1 for blogGood communication will be key to our success and is all part of our exciting new venture.

I think each of us are quite creative in their own way and that again is important for this enterprise. We each have strengths and specific areas of experience that we each bring to the kitchen table (or conference call).

Okay, we each have our weaknesses and areas we would rather avoid, but somehow the co-operative knits together six individuals, all from different backgrounds, knocks out all the rough edges off, sticks us all back together, and then gives us something exciting and rewarding to fight for.

The future looks bright. We are just about to sign the lease for premises that will enable us to develop an exciting range of pork, beef and lamb added value charcuterie products, as well as providing a distribution and admin location.

Our new branding (including new co-operative name … watch this space) is in development with one of the top marketing companies in Scotland, and we just can’t wait for the summer when we are planning our official launch.

So, to answer the initial question: Yes, we are taking a huge step, but so far we are all finding it a hugely exciting one to be making.

Highlander Barlochan 4 for blog

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.

Celebrating 110 years of building a successful co-operative…

It was an honour and a privilege to be invited to Italy by CMC di Ravenna.The company had invited me to speak at a conference to celebrate its 110th Anniversary.  The event also marked the Italian launch of the United Nation’s International Year of Co-operatives (IYC) 2012.  It was a wonderful experience to visit Emilia Romagna, which is world renowned for the prominence of co-operative enterprises, at such a important time.

CMC di Ravenna is an international business – a worker co-operative operating in the construction industry. The company was established in 1901 by bricklayers and cement masons to give them competitive strength. It delivers large projects – including the Singapore underground, Milan subway and the United Nations conference centre in Addis Ababa. It employs 9,000 people and has a €715 million turnover.

The company operates as a co-operative controlled group. There are three forms of members; staff, retired staff and financing members. Voting rights and board differs within these groups. By involving retired members the company benefits from their knowledge and goodwill and financing members enable access to external investment. Governance structures are designed to maximise member engagement and influence, while enabling effective decision making which involves an Assembly, Board and a Council of Delegates.

The anniversary celebrations took place in CMC’s conference centre – which had been recently upgraded to include a concert hall venue for the local community (an excellent example of the company’s commitment to the community).  Massimo Mattencci, chair of CMC, opened the event, reflecting on the company’s success and strengths citing the company’s philosophies of ‘act locally, think globally’ and ‘our strength is human resources – not capital’.

The event had been widely promoted – including posters visible on the streets – a format we in the UK would more typically align with concerts!  

Professor Zygmunt Bauman (Professor  of Sociology at Leeds University) was billed as the main act . And I was surprised to see my name listed as one of the supporting acts!  I think that is what they call an ‘Andy Warhol moment’. The advertising clearly worked with at least a 400-strong audience in attendance and the paparazzi at every turn!  

Professor Noreen Hertz (from Judge Business School, University of Cambridge) author of ‘The Rise of Co-op Capitalism’ was also on the bill and attracted much interest. Co-operatives UK recently published a paper summarises her work which is interesting reading click here to read. Perhaps terming the conventional system ‘Gucci Capitalism’ was not the best idea in front of this audience!  But her main message was clear – given all the challenges of the conventional system, it’s time for us to change to a system that values relationships and is based on collaboration – what she terms ‘Co-operative Capitalism’.

Other speakers included Vera Negri Zamagni, academic and author of a number of books on the history of co-operatives – including one on CMC di Ravenna which was launched at the conference. Dame Pauline Green, President of the International Co-operative Alliance spoke of the significance of IYC 2012 and the ‘once in a lifetime opportunity’ that it offers. Arantza Laskuran, Secretary General, Mondragon Co-operative, provided an overview of its business strategy and R. N. Pandey, Managing Director of the National Labour Co-operatives Federation in India spoke of developments in his country. And, I provided an overview of Scotland’s innovative approach to co-operative development. A very eclectic, insightful and thought-proviking line-up if I do say so myself!

So what were the final lessons we can take from this for Scotland?   CMC di Ravenna and Mondragon are both good examples of co-operatives that have achieved scale. New organisational structures and forms of finance have been utilised to enable this growth.  A key message for Scotland is the importance of business model innovation in enabling growth and international competiveness.

This is my final blog on my most enjoyable and informative visit to Emilia Romagna. I’d like to convey a very special thanks to Massimo Mattencci and Valda Miani, CMC di Ravenna, for inviting me to be part of their celebrations and to Stefania Marcone and Sara Vicari, Legacoop, who kindly organised my study tour. 

All that remains for me to say is a very sincere ‘grazie’ to all!

Until next time…

And remember…think ‘co-operatively’!

Sarah Deas is the chief executive of Co-operative Development Scotland, 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.

Spotlight on co-operative youth…

The UK faces constant challenges in terms of youth unemployment. I thought it would be interesting to share my experience of how our Italian friends have used the co-operative models to help address this issue. 

Over the years Italy has faced tight labour markets, with young people leaving the higher education system and finding it difficult to secure work.  Faced with unemployment, many of the forward thinking Italian youth have chosen to establish their own businesses – setting up a worker co-operative with other graduates.

I visited Atlantide – a tourism co-operative – established by environmental studies graduates who were struggling to find employment.  Their endeavours certainly paid off, establishing a business which has grown to 50 worker members, with temporary staff doubling that number during peak seasons.

Like many co-operatives, Atlantide collaborates with other businesses. I visited one venture that is operated by a consortium of four businesses; Atlantis plus two cultural co-operatives and an environmental services company. Together they have established a society co-operative providing educational services on ecological, environmental and cultural assets. 

The consortium has a contract to manage 14 country parks in Emilia Romagna and deliver environmental educational services to schools. My visit included a tour of one of these parks – which I will never forget as the park was home to the most amazing wild flamingos. And just to add a bit of trivia – did you know that the reason Flamingos are pink is because they eat red plankton? That is a fact!

I was also lucky enough to visit Ravenna’s Museum of Natural Science which the consortia manage on behalf of the municipality.

So it seems the young professionals of Italy can teach us Scots a few lessons. This example illustrates how young people can create their own successful business and by working together, they can pool knowledge and resources while sharing risks. 

Until next time…

And remember…think ‘co-operatively’!

Sarah Deas is the chief executive of Co-operative Development Scotland, 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

 

Sociable Italia…

Before departing for Italy, I was determined to find out more about social co-operatives – a model pioneered in the country in the late 1970s. It has had impressive growth, especially in recent years, with numbers doubling since 2005 to 15,000 businesses. 

So, why are social co-operatives so popular?

The answer lies in the co-operative model being central to Italy’s social services system. It is legally recognised and given preferential treatment in public procurement. It places civil society at the forefront of service reform. Most are worker co-operatives, however the multi-stakeholder model – where workers, beneficiaries & volunteers share control – is also popular. 

Principles of reciprocity, equality and accountability are important in the delivery of humane care and the organisational attributes of co-operatives offer such advantages. Other drivers include dissatisfaction with service quality and a perception that user involvement will ultimately enhance delivery. Also there is an expectation that social co-operatives will deliver at a lower cost and with a commitment by the government to ‘subsidiarity’, services delivered and controlled by organisations closely relate to citizens.

There are two types of social co-operative:

‘A’ Co-ops – account for seventy per cent of social co-operatives. They serve the elderly, children, and disabled people through the provision of health, education and social services. They operate as commercial businesses but have privileged relationships with the municipalities.

‘B’ Co-ops – account for thirty per cent of social co-operatives. They are similar to UK’s ‘social firms’. Their aim is to integrate disadvantaged people – referred by municipalities’ social services departments – into work.  Over thirty per cent of employees must be deemed ‘disadvantaged’. These groups typically undertake cleaning, landscape gardening, parks maintenance, laundry and packing/assembly work.  Disadvantaged employees can be compensated at lower pay rates (recognising a lower productivity) and there is no national insurance paid on wages. 

Social co-operatives, like other co-operatives, have beneficial tax arrangements and access to finance on good terms. This is balanced against restrictions on distribution of profits. The law ties social co-operatives to only serve a given municipality – although wider coverage is often achieved through collaborating in consortia.

During my stay in Emilia Romagna I visited Cadiai – a ‘category A’ social co-operative. It was established in 1974 to provide services to the elderly, handicapped and children, now employing 1,246 staff, primarily working in Bologna. Services include residential care, nursing care, day nurseries and home care. 

I visited one of its nurseries which is operating under a 28 year contract with the Bologna municipality. It is owned by a consortium of two social co-operatives, a construction co-operative (that built the facility) and a catering co-operative (that provides the meals). This enables an interesting financing model as investment can be spread over a long contractual period (enabled by both the contract period and a construction company being part of the consortium).

I was fascinated to see the thought that had gone into the design of the nursery. It was clearly based on a scientific understanding of a child’s development.

It was more client centric than any nursery that I’d visited back at home. The ethos that underlies co-operative ownership was explained as the reason. 

 

Some serious lessons for us here in Scotland. The potential role of mutual models in delivery of public services is currently being explored. Italian social co-operatives demonstrate that such models lead to reduction in costs, improved quality and higher job satisfaction. They also illustrate that legislation – put in place to promote a specific approach – can have far reaching effect.

Until next time…

And remember…think ‘co-operatively’!

Sarah Deas is the chief executive of Co-operative Development Scotland, 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

Collaboration Italian Style!

My recent visit to Emilia Romagna left me excited about the possibilities for co-operatives in Scotland. In this third instalment I share insights in how collaboration is core in this famous European co-operative region.

Before visiting Emilia Romagna I was very much aware that it is the ‘home’ of business consortia and industrial clusters. Robert Putman (Professor at Harvard University) identified culture as a key driver. I was keen to gain a deeper understanding of this and what else was driving this collective approach.

Collaboration is the norm in this region, with companies collaborating while remaining competitors. The form of collaboration varies from relationships centred on a specific contract to fully constituted ventures established to enable on-going business. Firms are highly specialised and exist as part of a co-operative production system and as such, there is a genuine desire to work with others. Success of one firm is intimately connected to success of others – a recipe for success. 

Emilia Romagna is known for leadership in the production of specialised manufacturing machinery – expertise that builds upon its strengths in agriculture, ceramics, textiles and packaging. Collaboration lies at the core – creating vibrant industrial clusters.  Often businesses will be members of more than one consortium or industrial cluster. Similar practices exist within the service sector.

Throughout the world collaboration is well established in agriculture.  In Italy farmers owning vineyards are members of consortium co-operatives which harvest grapes on their behalf and the latter are members of secondary consortia that produce the wine. 

During my stay, I enjoyed a visit to one of the Cervico Group’s plants.

The co-operative was established in 1963 and is now number one producer in boxed wine and number two in packaged wine (bottles/Tetra Pak) in Italy.

 

 

The business is self-financing and has recently undertaken major capital investment. I was fascinated by the pallet storage system’s use of gravity to move the next pallet into position!

 

I was also interested in the finance and services consortia. These are a relatively recent development for the region. Legislation was passed in 1991 to encourage the creation of ‘business clusters’ and ‘inter-firm co-operation’ with three types of consortia emerging; credit guarantee, export and services.

Credit guarantee consortia operate like lending circles, with individual loans guaranteed by other firms in the consortium. Business members pay a fee, which may be supplemented by the government. The resulting ‘guarantee fund’ is deposited in a credit or banking institute, with which a specific agreement has been established. It is used as collateral for credit extended to members. By doing it this way the risk associated with lending is divided between the bank and the credit co-op, or borne completely by the latter.

The advantages to entrepreneurs is that they do not need to provide collateral based on personal assets and are able to access credit at relatively favourable terms. A positive aspect of this model is that the default rate is a fraction of that of a normal bank – due to the credit guarantee consortia’s role in monitoring. In Emilia Romagna the insolvency rate by firms guaranteed by the consortium is less than one per cent compared to a national average of ten per cent.

Export consortia promote members’ goods/services abroad and facilitate their export. The model is now well established with approximately 350 consortia. The high number is the result of the law establishing public funding for export consortia with more than eight members (small & medium sized enterprises). Government will contribute up to forty per cent annually to operating costs (higher level in first five years and for those based in Southern Italy).

Consortia comprise groups of firms that pay a one-off lump sum to underwrite the consortia’s capital and an annual membership fee for operating costs. Services vary and include market information, translation, secretarial, credit guarantees, merchandising, franchising and legal assistance. Consortia may also benefit from tax reductions – the ‘indivisible reserve’ is tax exempt and so too are the services rendered and acquired by the consortia. I was told about a textiles consortium in Prato that worked with its members to produce a new image, developed an export culture and other ventures to improve competiveness.

Services consortia play an important role in providing strategic advice, payroll, marketing, bidding and fundraising guidance to their members. They offer the advantage of access to skills and economies of scale.

So some further lessons for us in Scotland.  It was crystal clear that there is significant benefit to be gained from working with other businesses in order to achieve scale in buying, producing and selling. There is scope for much wider levels of adoption of this model in Scotland – especially for export purposes.

Until next time…

And remember…think ‘co-operatively’!

Sarah Deas is the chief executive of Co-operative Development Scotland, 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.

Italy provides some food for co-operative thought…

Welcome to the second instalment of my blog series on my recent Italian adventure in Emilia Romagna.

So what else did I learn from one of the richest and most developed regions in Europe? One of my early discoveries was how prominent worker co-operatives are in Italy (the term also refers to what we in the UK would call employee ownership).

My host in Emilia Romagna was CMC di Ravenna, a worker co-operative operating in the construction industry. The company was established in 1901 by bricklayers and cement masons.

It operates internationally delivering large projects, such as shopping centres and petro chemical plants.  CMC invited me to speak at its 110th Anniversary celebrations (details of which I will share in a later blog).

 

During my stay, I also visited another long established worker co-operative – Camst – the world’s largest catering co-operative. It is involved in restaurants, schools, hospitals, residences, as well as banqueting and eighty per cent of its 10,000 workers are members.

The company was established after WWII by unemployed waiters who spotted the opportunity to sell meals on railway platforms. It operates as a co-operative controlled group with 20 subsidiaries and employee ‘voice’ is promoted through regional and national assemblies.

A more recent driver of employee ownership has been the Marcora Law, passed in 1985. This legislation provided state backing for two funding streams to support co-operatives; a general fund for the development of all types of co-operatives and a special fund to help companies in a crisis. The latter invests in the share capital of phoenix co-operatives, in proportion to employees’ own investment. The mutual funds are capitalised by the three per cent of annual surplus that co-operatives are required to invest in return for tax advantages.

The Government recognises worker co-operatives as an effective means of rescuing companies going into liquidation. They must be viable businesses (often re-engineered) and operating to an approved plan. Many were established in the economic crisis of the 1980s, although large numbers have also been formed in the last few years. There are currently five requests per week in Emilia Romagna and it has proved a successful model with eighty per cent of worker co-ops created in this way still trading.

I met with a number of phoenix co-operatives. Artlining manufacture textiles for neck ties, boasting leading fashion houses such as Armani as customers. The company fell into difficult times and was restructured, with 19 of the original 22 employees remaining after the transfer.

Similarly, Greslab – a ceramic tiles business – was restructured saving 57 jobs. Ownership of this business is now split between employees (seventy per cent) and investor members (thirty per cent). 

 

Aussametal – a metallurgy business – passionately recounted how they had transformed their business.  In all cases, what was most evident was the enthusiasm and energy of employees to save and transform their business. 

So what were the lessons for Scotland?  Quite a few!

Mutual funds provide a virtuous circle of investment within the co-operative sector. Worker co-operatives (employee owned businesses) unleash entrepreneurial spirit resulting in highly competitive businesses. And, the innovative use of subsidiary structures in order to achieve scale and access capital.

Until next time…

And remember…think ‘co-operatively’!

Sarah Deas is the chief executive of Co-operative Development Scotland, 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.