Employee ownership: Sharing the action

Posted on 3 May 2013 by The Manufacturer

Employee ownership of UK firms is rising at an average annual rate of 10%. But how popular is it with the manufacturing sector and what is the attraction of increasing the employee shareholder stake? Iain Hasdell chief executive of the Employee Ownership Association shares some observations and evidence.

Employee ownership will play a key part in carving a new economic balance for the UK – including raising the contribution of the manufacturing sector. It represents business model innovation of a kind which will alter the economic consensus and create a more robust, flexible economy.

Government has acknowledged this. In this year’s Budget statement the Chancellor linked employee ownership to the growth agenda and promised that government will establish a range of resources to increase the number of employee owned businesses in the UK. This included the introduction of capital gains tax incentives on the transfer of existing businesses by current owners into employee ownership.

What is employee ownership?

Employee ownership is now the most prominent alternative to conventional forms of business ownership in the UK. The number of employee owned businesses is growing at an annual rate of around 10%.

Employee ownership means employees have a very significant stake in the ownership and management of the business in which they work. It takes one of three forms:

  1. The workforce directly owning a large proportion or all of the share capital of the business
  2. The share capital of the business is held indirectly in trust for the benefit of the employees
  3. A hybrid of the above two approaches.

Employee owned businesses now contribute around £30bn a year in GDP according to figures from the Employee Ownership Association and the model flourishes in all sectors, including almost every subsector of manufacturing. Successful examples of employee ownership in the UK manufacturing sector range through chemicals company Scott Bader, Tullis Russell – a paper and packaging manufacturer, precision engineering firm Gripple, advanced textiles company Scott and Fyfe, blades and scalpels maker Swann Morton and conserves manufacturer Wilkin and Sons.

Scott and Fyfe
Scott and Fyfe

Why convert to employee ownership?

Employee owned businesses tend to have higher productivity, greater levels of innovation, better resilience to economic turbulence and more engaged, happy workers than conventionally owned organisations. Over the last 15 years, shares in employee owned businesses have considerably outperformed those in the FTSE All- Share Index.

Employee owned businesses think and plan for the very long term, counteracting the effects that short term thinking has had on our economy. They are driven by the development of broad value rather than short-term financial gain meaning they retain jobs, skills and wealth in local communities.

Employee ownership offers a brave new world for UK manufacturing. Its track record in boosting productivity could provide the surge that industry needs in order to close the 20% lag between the productivity of other G7 nations and the UK. It can also serve as a powerful force for image change, altering perceptions of the manufacturing sector as a process driven environment with low levels of employee engagement.

But for employee ownership to really take off in manufacturing there will need to be far greater awareness of employee ownership. Its benefits and implementation options need to be communicated better and simplified. There also needs to be better access to finance and advice for manufacturing organisations that want to create and or fund employee ownership.

You’ve been owned – Feedback from three UK manufacturers who have become employee owned

Sutcliffe Play Playground
Sutcliffe Play Playground

Children’s play park equipment – Sutcliffe Play, Pontefract

Robin Sutcliffe, chairman: “Our sector has been challenging over the past three years, but the way employees responded has, I believe, given us a real edge over our competitors. I believe this is thanks to their ownership of the company and it manifests in high levels of cooperation, flexibility and motivation to support the business.”

Martin Griffin, MD: “Since I joined Sutcliffe Play this year I’ve noticed a significant difference in employee attitudes compared to privately run companies. The team is more engaged and positive with a genuine interest in the future of the business.”

Glen Bishop, metalshop rolling & bending operative: “After the challenge of entering into employee ownership, I feel the whole workforce has been prepared to meet any tasks and challenges set before them, and we look forward together to the future success of the company.”

Sutcliffe Play says employee ownership has brought:

  • Increased flexibility
  • Increased involvement from a more engaged work-force
  • Increased motivation and more resilience of morale

Textiles – Scott & Fyfe, Tayport

John Lupton, CEO: “With the right teamwork we can be entitled to a share of the profits, with the right attitude we can add real value and with the right effort we can go out and make it happen. It is a new dawn for everyone at Scott and Fyfe and it is up to us to seize this opportunity.”

Michelle Quadrelli, member of the finance team: “With existing management and employees as shareholders, control is in the hands of the people who know best and who are most committed to making it succeed.”

Scott & Fyfe says employee ownership has brought:

  • Improved engagement
  • Clearer Communication
  • Greater unity and stronger common purpose

Food – Wilkin & Sons, Tiptree

Ian Thurgood, joint MD: “Added value from the new factory development benefits employees directly; not just from a stronger balance sheet but also from our commitment to local employment and manufacturing.”

Shane Waughman, factory supervisor: “Employee ownership provides a sense of belonging to a secure, independent and local family business where everyone is focussed on the long term future of the company and the people it employs.”

Wilkin & Sons says employee ownership has brought:

  • Employee control of voting rights on strategic issues through a trust establish in the 1980s. This owns more than 50% of the voting rights
  • Balanced and broadly experienced decision making thanks to the diverse makeup of trustees including staff, directors and third parties.
  • Long term strategy and commitment to capital expenditure. Employees have been closely involved in consultation and development plans for a new factory.