Bigger Thinking Series Part 6 – Potential on Tap: What does the Ownership Dividend mean for the UK economy?
Our ‘Bigger Thinking’ series has explored and explained how the employee owned business structure affects performance and productivity, corporate governance and employee voice.
As this first series draws to a close, it is clear there is potential in employee ownership for businesses aspiring for a sustainable structure that benefits the individual, the business and the regional and wider economy.
In 2017, the EOA, in partnership with The eaga Trust and the John Lewis Partnership, commissioned an inquiry led by an independent panel of UK senior business leaders and industry experts to examine evidence from over 100 employee owned businesses and advisors to those businesses of the ownership effect. Subsequently, the findings of the year-long Ownership Effect Inquiry were launched in June 2018 in the evidence report, The Ownership Dividend.
The Ownership Dividend
The Panel of the Ownership Effect Inquiry concluded that there is significant and valuable ownership dividend to be obtained from creating greater amounts of employee ownership in the UK economy. The dividend sees benefits on three levels: to Individuals, for Businesses and for Economies.
The performance of every organisation is built upon a foundation of individual endeavour – often, individuals collaborating effectively to drive success. The new findings evidence that when individuals have a meaningful ownership stake, there is alignment of the interests of owners, managers and workers, which unites people behind a shared goal and ensure that employees can:
- enjoy higher engagement, motivation and wellbeing.
- top up their salaries by sharing in the capital value they create.
- work within transparent governance regimes that lock in benefits for the long term.
All of these gains cement employees’ sense of fairness and happiness at work, galvanising the collective effort.
The Inquiry also gathered evidence that demonstrated an irrefutable consistency of outcomes: firms reporting increased performance and unlocking exceptional levels of discretionary effort as a direct consequence of employees becoming owners. The evidence shows:
- greater levels of productivity and efficiency than non-EOBs.
- stronger workforce retention/find it easier to recruit.
- employees encouraged at every level to drive innovation.
- decision making and planning based on long-term stewardship of value which enables resilience.
(Data also showed that EOBs are more sustainable during economic downturns.)
Furthermore, employee ownership succession plans typically leave highly satisfied owners and secure, thriving firms, in their wake.
The inquiry evidence shows that the EO model is increasingly recognised as a key contributor to regional economies via a broad range of sectors as they display more sustainability, resilience and long termism.
The values, outlooks and approaches of EOBs also ensure that they are more likely to create and retain jobs that are rooted to local areas, and less likely to relocate or offshore jobs. As a result, EOBs directly drive economic resilience at a regional level. Additionally, capital distributed to staff in the form of dividends is often spent or invested locally, and the majority of EOBs make explicit commitments to contribute directly to their local communities.
So what? Why the Ownership Dividend matters right now
In 2016 the UK lagged 16.3% behind the average G7 economies. As the UK seeks to secure a stable and prosperous future for itself, employee ownership could become a pivotal asset to a more sustainable UK economy.
The regional resilience created by employee owned businesses is in direct contrast to the risk of over two thirds of all SMES – 3.4 million businesses – not having any succession plan (Aldermore Future Attitudes report) and only 13% of the £519bn family owned business sector having a robust documented and communicated succession plan (PwC Family Business Survey).
With 120,000 family businesses due to be looking for a succession solution in the next ten years and the futures of many SMEs currently being determined by advisors that have no or little understanding of employee ownership, there is the risk that the opportunity for these businesses to be sustainable and contribute to regional economies rather than being sold and the possibility of jobs disappearing will be missed.
Meanwhile, for many people, the economy feels as though it has stopped working in the best interests of the individual. Every challenge creates, or exacerbates, division right at the very moment where the country is crying out for cohesion and common purpose. If these problems remain unaddressed, we risk the economy falling into a dangerous, downward spiral.
EO offers a meaningful response to our many, fundamental economic challenges, and does so by starting with a focus on the value and experience of the individual at work. It builds outwards from that nucleus to shepherd the creation of dynamic, successful firms that, together, drive a robust – and genuinely inclusive – national economy.
While EO is not a panacea, it provides a clear and attractive dividend with particular relevance to succession and growth planning for SMEs and family businesses.
If we are to emerge from the next 10 years in a stronger economic position, we must have more effective collaboration and cooperation within our places of work, and across our wider society. Now is the time for innovative leaders to reconsider how they do business. The EO model is tried and tested and provides a win for employees, businesses and customers alike.
For the UK to fully benefit from the Ownership Dividend the government must invest in ownership capacity building, with regional pilots focussing on succession and resilience, that echo Scotland’s successful scheme that has seen a tenfold return on investment for every £1 devoted to on-the-ground support.
The results of the report also led to the call for the creation a National Strategy for Business Ownership working with the sector and key stakeholders to establish the best possible business climate in which to foster the growth of EO and mutual firms.