Tag: Employee Ownership Association

Sarah Deas discusses EO Day 2016

Today (1 July) is EO Day (Employee Ownership Day) and with 16,000 employers in Scotland looking to transfer ownership in the next five years, we’re urging business owners to explore employee ownership as a viable succession route.

Throughout Scotland’s business community, the benefits of employee ownership (EO) as a driver for growth are becoming increasingly recognised.  EO can be implemented not just as a succession solution for long-term stability, but as a catalyst for sustainable business growth.

The advantages of employee ownership have been proven in Employee Ownership Association-led research, and include improving employee health and wellbeing, increasing productivity and fostering creativity and innovation across an array of industry sectors.

By having a stake in the business, employees have a vested interest in increasing productivity and driving innovation.  This sense of ownership leads to employees being more willing to contribute ideas, from developing new products to identifying new markets.

Many employee owned businesses in Scotland chose to sell to an employee ownership trust with the vendors being paid the value of their business from current and future earnings.  That way business owners receive a fair price for the company and employees don’t have to dig deep into their own pockets.

Co-operative Development Scotland (CDS) can help you decide on the best model of employee ownership for your business.

One of the organisations that sought the support of CDS during its transition to employee ownership is Black Light Ltd. The company, which specialises in lighting, staging, sound and audio visual solutions, became fully employee owned just last month (June 2016) and in this blog for Scottish Enterprise, its founder Gavin Stewart explains the process and his experiences.

Gavin also kindly gave up his time today to join us in a live, interactive webinar to discuss Black Light’s journey to EO. If you missed the out on this the full recording will soon be available on the Scottish Enterprise website.

Today, another employee owned Scottish business is also celebrating success. Computer Application Services (CAS) has achieved the silver ‘Investors in People’ award in recognition of its excellent team engagement and management practice.  Ken Naismith, CAS chief executive, believes this success is down to its talented and motivated workforce who are highly engaged in the business thanks to its EO model. You can read more about this fantastic accolade on the CAS website.

The number of employee-owned firms based in Scotland has doubled in the past six years and this growth is forecast to accelerate.  Currently there are 78 employee-owned businesses operating in Scotland, with approximately 6,500 employees and a combined turnover of around £900million.

Our aspiration is to achieve a tenfold increase in employee ownership in Scotland over a ten year period.

If you would like more information about employee ownership and how it could potentially benefit your business, please do get in touch and our expert advisers will be happy to chat with you.

United States of Employee Ownership

Glen DottCDS specialist adviser Glen Dott has recently returned to Scotland after a fact-finding trip to the United States to learn about how employee ownership works there.

Here, he explores the differences in the systems across the Atlantic Ocean and why the American model of employee ownership has become so popular.

I have recently returned from the National Centre for Employee Ownership (NCEO) Conference held in Denver, Colorado. The NCEO is a membership body similar to the Employee Ownership Association in the UK. Both the United States and the conference were eye openers to me, having not seen either before.

Employee Ownership (EO) is big business in the USA. More than 11,300 firms exist there that use the Employee Stock Ownership Plan (ESOP). An ESOP is effectively an employee ownership trust which allows staff participation in corporate ownership and a share in the wealth these firms produce.

As in the UK, the company funds the purchase of shares from exiting owners, with the shares moving into the ESOP. Typically employees do not buy shares but are allocated a portion; in the UK a combination of both is common.

Purpose – retirement planning versus employee engagement

ESOPs were originally designed to provide for employee retirement. Companies would set aside stock to be given to employees when they decided it was time to collect their pension. This is still the case today. Countless US studies conclude share ownership combined with worker empowerment initiatives produce better financial results, but favourable tax treatment is a significant driver for ESOPs in the US.

Legislation driven

Even conferences in the USA are a little different.

Even conferences in the USA are a little different.

In the US, companies that adhere to a certain tax code and are 100 per cent owned by an ESOP pay no tax. Earnings are passed on to the shareholders (employees) within the corporation and these earnings are only taxed when liquidating the shares – at retirement or upon leaving the company.

Since ESOPs are the only retirement plans allowed by law to borrow money, they are attractive to owners, managers and advisers, as they can be used to raise finance. There is also considerable legislation in place to ensure ESOPs have independent trustees. ESOP valuations are independently verifiable and trustees are truly acting in the employees’ best interests. As you might imagine America’s famed legal system comes fully into play, with the Department of Labor challenging some valuations on behalf of employees.

Governance

From a UK EO perspective, employees in US EO firms do not seem to have great formal influence. This system appears to lack the ‘checks and balances’ we have, where the operating board is overseen by trustees.  There are no employee-elected directors and no employee-elected trustees. Furthermore, the trustees are appointed by the board.

There is however a certain logic to this. Trustees are legally obliged to work in the best interests of employees and are able to remove the company’s board, although in practice this rarely happens. The two interdependent governance structures are required to ‘work things out’ in the best interest of all.

While the systems across the pond differ, there is no doubt the American ESOP structure allows employees to fully share in the fruits of their labour – and provides interesting food for thought when considering how UK businesses approach employee ownership.

Memorable year for co-operative working

Sarah Deas resized2014 has been a busy year for Co-operative Development Scotland (CDS), with interest in co-operative working higher than ever.

Here, CDS chief executive Sarah Deas reflects on the year and looks ahead to what 2015 may bring.

As we hurtle towards the end of 2014, it is a natural time to look back on the past 12 months. Last December, I remember fondly writing how the eyes of the world would be on Scotland throughout the year – and that certainly proved to be the case!

One shining moment was the XX Commonwealth Games, held in the always-friendly city of Glasgow. I was proud to serve as a Host City Volunteer at this spectacular event which will live long in the memory as an example of what can be achieved when we work together. CDS was delighted to contribute to Glasgow City Council’s (GCC) business event held during the Games. In fact, one of the highlights of the year was seeing GCC and its counterpart in the capital progress their commitment to be Co-operative Councils.Sarah Deas

This is a significant endorsement of co-operative working, which CDS is supporting through the provision of specialist advice. Co-operative working is now recognised as a means of achieving competitive advantage by businesses in a wide range of sectors and there is also growing interest in employee ownership – specifically as a succession solution – helped by the new tax incentives.

To tap further into that growing interest, we held five ‘successful succession’ events during the year. Kindly hosted by employee-owned companies – Aquascot, Galloway & MacLeod, Page\Park, Stewart Buchanan Gauges and Scott & Fyfe – these sessions gave those interested in the ownership model the opportunity to see how it works in practice.

We also engaged with Scotland’s professional advisers through our expert briefing sessions, tackling subjects including funding the employee buyout and employee share ownership.

David Narro Assoc 09

David Narro Associates celebrated becoming employee owned in August.

CDS helped a wide range of businesses across the year, including Fitwise and David Narro Associates, both of which made the transition to employee ownership. Scotland has a host of new employee owners, and hopefully they will find the newly-formed EOA Network Scotland useful – one to watch in 2015.

I was also grateful for the opportunity to visit Quebec for the International Summit of Cooperatives, a truly insightful conference. We heard from the Mondragon Corporation, often seen as an example of best practice when it comes to co-operative working. It is worth noting that the Basque region, where Mondragon is headquartered, is now looking to learn from the UK. Just last month, I welcomed a delegation from the Gipuzkoa province who visited some of our well-established employee-owned companies.

Finally, we once again offered companies in Scotland the chance to win £5,000 in cash and £5,000 in support to make their collaborative ideas a reality. The standard of entries to the Collaboration Prize this year was high, and all of us at CDS are excited to see who will follow in the footsteps of past winners the Scottish Mountain Bike Consortium and The Wee Agency.

In 2015 we anticipate interest in co-operative working to continue to grow as the benefits for staff, business and the economy are further demonstrated. While awareness is most definitely increasing, our job is to keep that momentum going. The growing desire for fairer, more inclusive approaches to working is an opportunity to further underline the virtues of the models – and we will continue to shout about it.

The year began with Kim Lowe, a managing director at John Lewis, calling for more businesses to consider a co-operative approach. I think it is clear that many have done just that, but more can and will be done in 2015.

2014 has been a memorable year in many ways, and I wish you all a happy, healthy and successfully prosperous 2015.

Scottish success stories at employee ownership conference

????????????The Employee Ownership Association held its annual conference in Nottingham last month, with over 500 delegates attending.

Here, CDS specialist adviser Glen Dott takes a look back at the event and recounts some of the highlights.

This year CDS took seven clients to the Employee Ownership Association Conference. No sightings of Robin Hood – or even a forest – but it was a great learning experience for those considering employee ownership. Who better to ask than those who have ‘been there done that’? With over 500 delegates in attendance there were plenty of ‘doers’ and our contingent had a number of networking possibilities.

On the Monday evening we attended the Philip Baxendale Awards, where ‘the best employee-owned organisations are recognised in a tremendous celebration of excellence’. From a Scottish perspective, Page\Park Architects was Highly Commended as an Employee Ownership Rising Star while Fred Bowden Snr, chairman of Tullis Russell was awarded the The Philip Baxendale Fellowship for his outstanding contribution to employee ownership.

Employee Ownership AssociationIain Hasdell, chief executive of the EOA, welcomed us to the conference and illustrated how far employee ownership has come in a relatively short time. The icing on the cake for ‘Team EO’ in 2014 has been the tax breaks afforded to owners selling into Employee Ownership Trusts (EOTs) and the tax-free bonuses now payable to employees of EOT-controlled businesses. In Scotland we are already seeing the fruits of this legislation with EOTs in operation at Mike Stoane Lighting and David Narro Associates and more deals in the pipeline.

Two strands of sessions followed for ‘newbies’ and those already in employee ownership.  In between, we took the opportunity to link up our guests with relevant advisers and like-minded businesses, before keynote speaker Mike Thompson of Childbase explained why his company is moving to a Trust-only model. Surprisingly, external investors currently share most of the profits but a deal has been struck where an employee trust will buy out external investors and also the founding family. The primary advantage will be that future profits will be shared exclusively by employee owners via the recently introduced tax-free bonus.

The conference came to an end with John Lupton of 150-year old Tayport firm Scott & Fyfe telling us of their remarkable transition from family-owned jute business to a modern, outward looking, innovation led employee-owned industrial textile manufacturer.

This story illustrates that Scotland has much to be proud of and we certainly lead the UK charge in adoption of the EO model. We have every reason to believe our clients will join the employee ownership fold and we aim to bring an even bigger contingent next year.

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.

2013: Looking back at a year of employee ownership

Euan_Ferries low res 2Co-operative Development Scotland recently took a delegation of employee-owned businesses and advisors to the Employee Ownership Association’s Annual Conference 2013 in Birmingham.

Euan Ferries, Corporate Advisory Director at professional chartered accountants French Duncan LLP shares a brief account of the day.

 We had a great time at the Employee Ownership Association’s Annual Conference 2013. The large number of attendees and exhibitors clearly demonstrated the increasing popularity of employee ownership (EO).

EO is now very much viewed as a viable alternative to other exit mechanisms such as trade sales and management buyouts. This is demonstrated through the established EO transaction structures including the increasing availability of funding geared towards EO such as mini bonds and specialist capital providers. The sheer number of employee-owned and aspiring EO businesses attending this year’s conference was further testament. 

I particularly enjoyed listening to the real life examples of employee-owned businesses at the conference and seeing business journalists who have previously never spoken about EO, such as the BBC’s John Pienaar, now very much aware of it. 

We all took a few good tips away with us from the conference including:

  • Think:  “culture first, legals later”
  • Hybrid management structures are becoming increasing popular.
  • And the original Golden ethos of “Do Good Work, Have Fun and make a Profit”!

It is likely that the popularity of the EO model will grow further in popularity with the support and tax breaks currently being considered by the Government. 

The Autumn Statement introduced a new tax relief which will allow companies that are indirectly  owned and controlled by an employee trust, to pay employees a tax-free bonus up to £3,600 from October 2014.

Owners who sell their shares to an employee ownership trust will be able to do so from April 2014 free of Capital Gains Tax, as long as controlling interest in the company remains within the employee ownership trust following the sale. In most cases this will save Capital Gains Tax at 10per cent.

These tax proposals should be a great incentive and improve productivity, so a ‘Win Win’ for employees, the business and the economy.

Here’s to many more EOs in 2014!

The PIGS that DO fly

 Glen Dott low resSheffield is a hive of employee owned organisations and the place to embark on a learning journey to see what makes these places really tick.

Here Glen Dott, specialist advisor with Co-operative Development Scotland (CDS), reports back on his findings and offers plenty of food for thought.

 

‘Pigs might fly’ is the sort of cliché that applies to an idea that however well intended is unlikely to ever have any practical application. But when it comes to Pigs in the business world we have a model whose time has truly come and offers Scotland Plc. a dynamic alternative to growing the economy.

My role as a specialist advisor with CDS is to promote business ownership models which are Productive, Innovative, Growth-oriented and Sustainable. Pigs that fly in the commercial world…in other words!

With this in mind I was fortunate enough to be part of a trip to Sheffield to understand variations in ownership and governance models and their impact on performance. Sheffield happens to be a hive of Employee Owned organisations which exhibit diversity in structural and governance options and in their own way exhibit one or more of the ‘PIGS’ characteristics.

Learning Journey attendees: Co-operative Development Scotland advisers and staff, Scottish Enterprise organisational development advisers and Co-ownership Solutions staff. Taken outside the Aston Hall Hotel in Sheffield.

Learning Journey attendees: Co-operative Development Scotland advisers and staff, Scottish Enterprise organisational development advisers and Co-ownership Solutions staff. Taken outside the Aston Hall Hotel in Sheffield.

 First port of call alongside tour leaders Andrew Harrison and Norman Watson from Co-ownership Solutions was Parfetts Cash and Carry. It’s a traditional cash and carry founded in 1980 by the Parfett family. Steve took over from his dad in 1989 and by 2006, when he started reviewing his own succession options, it had six depots and a £250m turnover.

Steve was heavily influenced by his time working as a management trainee at John Lewis which has galvanised him into pursuing an EO exit option. In 2008 55 per cent of the company shares were sold to an employee trust, with an option for the trust to take up the balance of the shares in future. 

Employee engagement activities begun once the deal was concluded. Although it’s a fantastic result for 550 employees our advice generally is to engage with the workforce at the earlier opportunity available. Employees certainly now have their say, the business is growing and local jobs have been preserved.

After a gourmet lunch, courtesy of Parfetts, our next stop was Gripple, a model example of employee engagement and home of their eponymous and ingenious wire tensioning device. Charismatic and straight-talking founder Hugh Facey is one of the UKs foremost proponents of employee ownership and gave a fascinating account of his beliefs and the company.

A company limited by guarantee (GLIDE) has been set up as a holding company and will ultimately be the governing authority for Gripple and other operating companies and hold majority shares in the subsidiaries.

Gripple UK office

Gripple UK office

Employees are required to purchase shares and as demonstrated in the well attended communications meeting the returns, displayed publicly, are highly attractive. In addition to having a strong international focus, innovation and new product development are crucial with some 25 per cent of revenue being generated from products less than four years old.

I couldn’t help admire the way that all staff were immaculately turned out by choice in company uniform – a fantastic endorsement of any business. Fun certainly appeared to be part of the ethos with a screening of a corporate video involving many in the Old West Gun Works and espousing all Gripple’s principles including honesty, integrity, commitment, humour and passion. Gripple is certainly productive, innovative, growth oriented and sustainable.

That evening we were treated to an overview of the Employee Ownership Association’s vision to increase EO contribution to GDP from three to 10 per cent by 2020. David Daws, legal partner at Co-ownership Solutions and part time helicopter pilot, gave an eloquent description of the governance system options within EOBs. The message from David was clear: keep transitions simple and don’t let the tax tail wag the corporate dog.

Next stop was School Trends. The business was founded by Peter Beeby who sold the business to an employee trust in 2004 to preserve the ethos and maintain a community culture.  Employees are also required to buy shares as a condition of employment. The 120 employees are consulted widely on many decisions and have influence within the business, not least on the governing council, board of directors and via trustees.

We then travelled a short distance to a very interesting business. SUMA is a true workers’ co-operative and the largest equal pay organisation in Europe. All workers receive a flat wage of £14/hour and rotate jobs on a regular basis.

Members (shareholders) in the reception of SUMA  in Elland near Sheffield

Members (shareholders) in the reception of SUMA in Elland near Sheffield

But wait for it…no-one is a boss! Sounds crazy? Maybe so, but both myself and my colleagues were impressed since the business has 100 members and turns over £30m annually. Furthermore it is growing and has successfully penetrated the Chinese market.

That’s amazing I hear you ask…how does such a ‘flat’ structure like SUMA deliver growth at a time of widespread economic gloom?

In truth, they are a highly organised worker community with a clear vision of the value they provide. They maintain close contact with their clients whilst and do so in a highly competitive marketplace.

Over tea and home baked cake in the canteen personnel officer Bob Cannell talked us through facts and figures relating to the business. It was set up as a workers’ co-operative in 1975, as an Industrial and Provident Society. Policy and direction is decided by general meeting of members, and an elected management committee oversees the fulfilment of a democratically agreed business plan.

Conventional no, but effective yes, SUMA passes the PIGS test with flying colours. They are productive, innovative, growth oriented and definitely sustainable. Food for thought.