Why employee ownership is driving growth
5 min read
04 February 2013
Given the green light by the government, employee ownership could become the next driving force for economic growth.
Employee ownership is the model in which a business is totally or significantly owned by its employees.
This is a growing economic force in the UK. Employee ownership is now being embraced as the most prominent alternative to conventional forms of business ownership.
Its growing popularity is partly a reaction to our economic context. The UK economy remains in transition as we face up to the mistakes of the past. Stagflation is an on-going risk. This context has called into question the short term-ism of conventional forms of business ownership, and the consequences of that on the economy and our communities.
But the emerging popularity of employee ownership is also a response to the growing evidence of its benefits. Employee ownership makes economic sense; employee owned business tend to have higher productivity, greater levels of innovation, better resilience to economic turbulence and more engaged, fulfilled workers who are less stressed than colleagues in conventionally owned organisations.
Economic competitiveness and high performance are a central part of the DNA of employee owned companies. And, crucially, over the last 15 years investments in shares in employee owned businesses have considerably outperformed those in conventionally owned businesses.
All employee owned companies combine: ownership by their workforces, deep engagement of their employees in the management of the business, transparency about financial performance and equitable distribution of rewards. They make prudent decisions for the long term. Employee owned businesses continue each day to make great strides in the real economy, selling high quality services including world class public services and making marvelous products. They’re competing, succeeding and outperforming others as a direct result of being employee owned.
Indeed, there is hardly any part of the economy in which employee ownership is not a key part of the growth agenda. From the world class infrastructure provided by Arup and Mott MacDonald, to the leading edge architecture of Make, through to the chemical products of Scott Bader, the paper and packaging of Tullis Russell, the precision engineering of Gripple, the brilliant cash and carry operations of Parfetts, the advanced textiles of Scott and Fyfe, the instrumentation of Aber and the project and programme powerhouse that is CH2M Hill, employee ownership is leading the way on economic growth.
There has never been a better time to consider employee ownership. Government has recently endorsed employee ownership as an important part of the economic recovery. It has made a very public commitment to bring to the table a range of resources to increase the number of employee owned businesses, and to keeping open the idea of introducing further tax incentives to promote employee ownership. This endorsement included, for the first time, the explicit support of the Treasury.
In addition, there is clear evidence that more and more professional advisers are becoming interested in employee ownership and how to become competent in advising about it. This is brilliant news because one of the pieces of soft infrastructure that we must build is a larger number of enlightened intermediaries who have the curiosity, skill and confidence to recommend employee ownership as a viable option to their clients.
Furthermore, an asset class of patient capital and social investment that aligns with the financial requirements of employee ownership is slowly emerging for those wishing to create or fund employee owned businesses.
So, momentum is good and employee ownership is now becoming a core component of UK industrial strategy. It is a successful business model in every sector of the economy that constantly challenges the conventional wisdom of those who suggest business owners should always share ownership with external investors.
We really are in the decade of employee ownership – an engine for economic growth that is now too powerful for the business community to ignore.
Iain Hasdell is the chief executive of the Employee Ownership Association, the independent voice of employee owned businesses in the UK.