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Employee Ownership

The world seems to agree that employee ownership is beneficial to business. Any idea that may unite the philosophy of Margaret Thatcher, the Shadow Chancellor John McDonnell and academic researchers must be worth consideration. In the UK the idea has taken many forms. In addition to the confiscatory plans launched at the Labour Party Conference, where it was suggested that companies that have more than 250 employees should part with ten per cent of their shares and put them into a trust for employees, we have Share incentive Plans, Employee Ownership Trusts, share option schemes as well as Save as you Earn Schemes and Enterprise Management Incentives. The aim of all of these schemes is to secure that a percentage of the ownership of a business is held by the people working in that business. Perhaps the most widely known example is the Employee Ownership Trust, the model that is run by the John Lewis Partnership, and this is what many have in mind when they speak of employee-owned businesses.

The benefits of employee ownership have long been promoted. Mrs Thatcher’s encouragement of privatisation is said to have tripled the number of individuals owning shares, many no doubt in businesses in which they worked, although admittedly this was not the prime objective. In July 2012 the Cass Business School carried out research on behalf of the Coalition Government into the benefits and consequences of employee ownership. They concluded that such businesses had a stronger long-term focus, improved financial performance, got more growth from adding new customers and had a more positive public image. Such businesses were also found to invest more in their workers. Most commentators identify the models with a more motivated workforce that is more productive and loyal and gives more of its creativity and talent. This is the positive side, though the recent results at John Lewis show that there is no inevitably profitable outcome. That is balanced by a recent report that stated that productivity in employee-owned businesses improved at twice the rate of productivity in the UK economy as a whole.

What do employees gain if they work in an organisation in which they have a personal investment? Of course, a lot will depend on the size of the business. If one is dealing with a relatively small number of employees, then it seems clear that it is likely to encourage a more collegiate atmosphere and greater concern about long-term development. A positive culture can be embedded with greater effect. The fact that the Employee Ownership Trust model appeals most effectively to such firms is revealed by figures relating to the largest 50 employee-owned companies in the country published by the Employee Ownership Association. Only four of these companies employ more than 6,000 employees and the majority employ fewer than 1,000. However companies employing these smaller numbers represent a large proportion of British business. Of course, much may also turn on the rights associated with the employee-owned shares.

Will introducing a share ownership scheme change the way a business is run? As a matter of company law, that is unlikely. The rules regulating the responsibility of directors and the rights of shareholders are not altered by adopting such a scheme. This may be where the debate about worker-directors makes an additional contribution but it always has to be remembered that all directors, from wherever they originate, have the same responsibilities to the company of which they are officers. This may be the reason why unions have not been unified in their support for such appointments, sensing the conflicts that may arise. It is likely, however, that in a business largely owned by employees their interests will get more consideration than might otherwise be the case.

So how will you tell if the model suits your business? If you are an owner or senior director and know your own staff, you will have a good idea whether it will be a positive move for you. If you are not entirely sure, it is possible to introduce an Employee Ownership Trust gradually at a pace that suits the business. One thing is certain, however: if you are a fan of command control, it is not a model for you, but perhaps the current mood in business tends to move away from encouraging such a culture. Dictatorships, benign or otherwise, may have had their day.


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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.

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