CEO Blog: Access to patient capital for employee owned businesses is just the ‘rocket fuel’ the UK economy needs

Blog by James de le Vingne, CEO of the Employee Ownership Association




Employee ownership (EO) has been brought to the forefront of many minds by the recent media coverage around the John Lewis Partnership’s plans for the future, and the possibility that they are considering selling a stake of their currently 100% employee owned business to external investors.

We don’t comment on individual members’ trading or media stories at the EOA, so I won’t be speculating about what John Lewis should decide to do. However, I want to use this opportunity to highlight the importance of access to capital for employee owned businesses (EOBs).

Views from EOA members

The range of reactions from EOA members clearly demonstrates the passion that EO ignites in all of you. In the press, there have been comments from several of our members such as Guy Singh-Watson from Riverford Organic Farmers, who is ‘completely gutted’ by the story.

David Whittleton, Chair of Trustees at Arup, reflected that the story gave them ‘pause for thought’, but that John Lewis Partnership know their business best, and need to find ‘what works for them’. At Arup, EO remains core to the way they work. ‘Everyone in the organisation has the opportunity to influence what we do and how we work. That is hugely powerful,’ David commented.

Julian Richer, founder of Richer Sounds, commented that he was less ‘worried about what sort of deal [John Lewis Partnership] would have to strike to get new money in unless they can find a business angel who… is less worried about a financial return’.

Levelling the playing field for EOBs

We want to make the most of the national interest in employee ownership and how successful EOBs can obtain the investment they need. All successful businesses need to adapt and invest in their future periodically, but this can be harder for many EOBs to do compared to their non-EO counterparts.

There are as many ways to ‘do’ EO as there are EOBs, with many different ownership structures. For some businesses, employees may own a minority stake, but the business nonetheless embodies the key aspects of what the EOA considers good EO – strong governance that includes the employee voice, open and inclusive communications and engagement with employees, and great leadership. Whilst we love to see 100% employee owned businesses, we don’t prescribe a specific form of EO to our members, and different approaches will work for each business. One of the strengths of EO is its flexibility.

However, we want to ensure that EOBs, in whatever form they take, have fair access to the funding they need. EO businesses deliver greater employee engagement and satisfaction, and are on average more resilient and more profitable than their non-EO counterparts, and yet – particularly for those businesses that are 100% employee owned – access to the capital they need to grow can often be comparatively more difficult.

Access to ‘permanent capital’

This is why we’re supporting the Private Members’ Bill put forward by Gareth Thomas MP in parliament on 29 March that aims to facilitate better access to ‘permanent capital’ for employee and worker owned businesses. The bill would enshrine in legislation the option to issue specific types of shares, similar to the Core Capital Deferred Shares already available to Building Societies, that return dividends but confer minimal voting and governance rights, preventing the dilution of the ownership model.

It’s great to see the national interest in employee ownership and its funding lead to demonstrable action by policymakers, and we look forward to supporting this bill’s progression. Other countries such as Australia already have legislation in place to ensure access to patient capital for mutuals, including EOBs and worker co-operatives. It’s time the UK caught up.

Seizing the moment

To ensure this happens, we need to continue to advocate on behalf of the sector so that we can facilitate a favourable environment for the future growth of all of our members and the EO sector as a whole. This is one of the central reasons we are delivering the Knowledge Programme, the biggest EO research project ever conducted in the UK, which will provide hard evidence on the impact of EO.

It’s also one of the reasons we’re continuing to work with regional government to grow our network Ownership Hubs, which are already up and running in South Yorkshire and London. The hubs provide a model for how the public sector can support EO, as well as increasing knowledge and interest in local areas.

The UK EO sector continues to be in a great position, and is still growing at an unprecedented rate. We remain confident in the model and its positive outcomes for employees, businesses, and the wider economy, and we’re looking forward to seeing the outcomes of the sector’s growth and increased national interest in EO. As a sector, we need to harness this moment to help strengthen the sector even further going forward.

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