Transition to Employee Ownership?

November 3, 2020

Employee Ownership (EO) is no longer a niche choice for companies. The sector has expanded rapidly since 2015. In part, a more favourable tax regime has helped, but many businesses have recognised other significant benefits from the EO model.

Many SMEs and family businesses have seen EO as their best method of succession, to preserve the ethos and culture of their business, but larger businesses have made the move as well (such as Seetec, Aardman Animations and Richer Sounds). The number of EO businesses grew by 28% in 2019, and 50% of conversions have taken place since 2017.*

Employee Ownership business performance
Key performance indicators also illustrate how well EO companies perform in relation to the rest of the UK economy. Combined sales for the sector were £20.1bn in 2019, up 4.3% on 2018 on a like-for-like basis. That compares with 1.2% growth across the whole of the UK economy.

Median operating profit for the sector grew by 5% in 2019. Perhaps more significantly, productivity (value-added per employee), so long a thorn in the side of growing the UK economy, grew by 6.9% in EO companies in 2019. The figure for the UK as a whole was a fall in productivity of 1% – and this trend of outperformance is one that stretches back over five years.*

What accounts for this strong performance from EO companies? In 2018, the Employee Ownership Association (EOA) published a report, “The Ownership Dividend”, which explored the reasons for this growth. It concluded that employee ownership could deliver a more productive and inclusive economy in three main ways:

Improving productivity: companies unlock enhanced performance and productivity as a consequence of employees increasing their personal endeavour and discretionary effort because of a sense of common purpose once they become employee-owners

Resilient regional economies: EO offers a sustainable, resilient and – crucially – independent business model that roots jobs in local economies with the ability to plan growth and investment over the longer term. They are freer from the constraints typically faced by companies with more traditional ownership models, who are under pressure to deliver short term shareholder return.

More engaged employees: more inclusive, transparent and effective models of governance and employee engagement allows employees to be more involved, motivated and financially rewarded through their ownership stake.

Legal Clarity has almost a decade of experience delivering employee ownership transitions and acting as trustee director in businesses going forward. This means we are not only familiar with all of the issues to be addressed at the time of the initial transition, but understand the day to day realities in bringing the model to life and helping secure the engagement, financial and other many benefits it brings.

We partner with companies in all sectors looking to build a secure succession and exploit the opportunities of employee ownership. We also recognise that you need other support in making the transition, and have built a close and trusted network of consultants or advisers who can assist you in areas such as engagement, communications, valuation and financing.

While we’re fluent in the legal process involved in establishing employee ownership, we always approach it from our client’s point of view. Whether you’re a start-up or an established firm, we will personally guide you through every aspect of set-up, recognising that the model you adopt and how it works will be unique to you.

If you would like to explore Employee Ownership for your business, get in touch

*Source: White Rose Centre for Employee Ownership (University of Leeds) – June 2020.

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