Tag: Glen Dott

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.

Navigating towards employee ownership – now is the time to get on board

Glen DottThis week, law firm MacRoberts will host seminars in Dundee and Glasgow on how employee ownership (EO) can improve a business. CDS specialist advisers will be on hand to share their experiences of being a business’ ‘first mate’ on the EO voyage. 

Here Glen Dott shares his thoughts on sailing safely in to the unknown…

My job is to work with businesses in Scotland, helping them plot their journey to employee ownership and eventually sail off into the sunset.

Over the years I have worked with many different types of businesses on their transition to EO and one thing is most definitely true – EO is the perfect vessel to develop an entrepreneurial and innovative culture within a business.

When employees have a vested interest in the business as a whole they become enthused and engaged in finding ways to make it more successful.

Many EO businesses reap significant rewards from this increased participation, giving them an advantage over competitors which, in turn, leads to greater profit.

It is this camaraderie and entrepreneurial spirit that helps most EO businesses establish an inspiring ‘we’re in this together’ culture – charting the unknown in search of new successes.

Not unlike sailors navigating the open sea, each EO business needs a brave captain and a willing crew. Together they plot their course making sure the journey is safe and one which is filled with discovery.

At CDS, we welcome the captains and their crews with open arms. And I am honoured to be ‘first mate’ to help them navigate their way towards effective employee ownership of their business.

The MacRoberts’ seminars, Employee Ownership – Making Your Business Better, will be held in Dundee on Tuesday, 17 February and Glasgow on Wednesday, 18 February.

You can find more details on their events page.

Inspiring day to drive growth in employee ownership

Glen DottNearly 350 delegates from businesses of all sizes visited the West Midlands last week for the inaugural InspireEO conference, hosted by the John Lewis Partnership (JLP).

Several high-profile speakers addressed a large audience which included prominent government and business figures. Not only did it motivate businesses – it has set the tone for a Scottish event of its own, as CDS specialist advisor Glen Dott explains.

Sitting among the hundreds of entrepreneurs who had gathered to participate in the first-ever InspireEO conference, you couldn’t help but feel motivated and excited for the future.

Gathering in the West Midlands were representatives from businesses across the United Kingdom, keen to hear the benefits of employee ownership (EO) from one of its most well-known proponents.

In hosting InspireEO, JLP provided a platform to promote employee-owned business models of all types. They used their own approach as an example to demonstrate the benefits EO offers both the company and its staff. EOA0037

Supported by several high-profile sponsors, the event underlined the widespread and growing endorsement of EO to exiting owners, advisors and the public sector.

Productivity in EO businesses grew 4.5 per cent last year while others flat-lined, demonstrating the value of the model for sustainable growth. People who work in such businesses are happier and healthier, taking less time off sick.

Business advisers were also in attendance and helped sponsor the event. Not only does this highlight the increasing interest in EO from businesses, but it demonstrates there is growing recognition among the advisor community of the model.

Sir Charlie Mayfield, the chairman of 80,000 partner-strong JLP, was joined by Francis Maude, Minister for the Cabinet Office. Both addressed the audience and in doing so demonstrated just how important EO is to business and the economy.

Sir Charlie Mayfield

Sir Charlie Mayfield

So inspirational was last week’s gathering that we are preparing to have a similar conference in Scotland later in the year.

Awareness and support for employee ownership is growing in Scotland and we are hoping to attract a large audience.  An engaging programme of activity is being prepared, along with some truly inspirational speakers to demonstrate why EO offers a bright future not just to Scottish businesses, but to Scotland as a whole.

We’ll be announcing full details later in the year. Hopefully I’ll see you there.

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.