CEO viewpoint: ‘The ownership effect’
I recently had the pleasure of presenting at the Co-operative Party conference, ‘In our interest; building an economy for all’, where the topic was responsible business.
Obviously, this is something close to the heart of the EOA as it is a phrase frequently used to describe the way in which businesses that the EOA represents, those that are employee owned.
The sector, which employs over 300k people, and contributes around £30bn to the economy each year, that’s about 4% of GDP, is growing at pace – at about 10% per annum, as entrepreneurs use the model to attract the best talent at start up, business owners adopt it as they plan their succession, owners with growth ambitions use the model to incentivise their staff during scale up, and public service leaders adopt it as part of the new mutuals that are spinning out of local and central government and the NHS.
As was described by the Ownership Commission and Nuttall Reviews of 2012, the employee owned business model is an essential addition to the mainstream business environment, and it is now established and recognised as helping to provide the plurality needed to deliver a balanced, more productive and resilient economy, better stewardship of companies, and greater engagement of employees and shareholders.
And now with the Government’s renewed drive for better corporate behaviours, it is important that we understand and appreciate fully the role of employee ownership in delivering more responsible business.
Many of you will be familiar with the ‘Ikea effect’ – that enormous pride most of us have felt, having managed to successfully assemble a piece of flat pack furniture, often without reference to the instructions, and usually after having realised that various screws and small fittings are missing! The effort, concentration, sweat and tears that we have invested in building the piece of furniture makes it something we are immensely proud of. And we can’t wait to show it off to our family and friends!
There are other obvious examples of where having ownership in something leads to different behaviours – think about owning a car rather than hiring one, or owning your home rather than renting it. The commitment involved in ownership unleashes an entirely new relationship by the individual.
And I rather think that there is a similar effect created by ownership of a business by its employees.
There is normally more pride in the work undertaken and a heightened sense of responsibility to the organisation and to colleagues. Hence these businesses experience less lost days through sickness, higher levels of staff satisfaction and better retention and more affable employment relations. This is illustrated very well through the latest survey conducted by the EOA and its partner CIPFA, where 53% of 30 public service mutuals reported lower levels of staff absences after becoming employee owned mutuals.
This heightened responsibility then often leads to greater productivity, driven by a desire by all employees to play their part more fully and going the extra mile. A great example of this is engineering firm, Union Industries based in Leeds who saw their turnover increase by an amazing 30% the year after becoming employee owned, when as they say quite clearly, everyone is an owner, therefore everyone shares in the responsibility of lowering costs and increasing revenues.
And the personal stake present by the employees also leads to more empowerment, employees having a voice and feeling like they are able to provide more constructive challenge – often leading to these businesses being more innovative and creative.
Whilst businesses with employee ownership are often organisationally structured very similar to any other business, the way in which they behave is often dramatically different;
Firstly, there is a greater shared sense of purpose, with greater transparency and sharing of information, both operational and financial. This is often accompanied by supporting staff so that their business and financial literacy is developed such as in engineering firm Gripple, where all new employees must buy shares in the business but the business shares its quarterly performance figures with everyone at the same time, using simple infographics to ensure they are relevant and meaningful to all.
Secondly there are formal mechanisms to allow for employee representation – often at Board level, and always in some form of employee council or forum.
Our most recent survey in this regards shows that of a survey of 116 EOA members, 45 per cent have 1 or more employee directors drawn from the workforce on the main company board.
Thirdly, and most importantly, these businesses are operating with the long-term interest of the employees, customers and communities in which they operate, meaning they are able to invest for the long term making them more resilient during the downturn.
And finally, these are businesses that deal fairly and equally with all shareholders – hence there is a likelihood that they also share financial rewards more fairly. Bonuses are often standard across the entire workforce.
This ‘ownership effect’ is therefore a powerful driver for more responsible, fair, businesses, which share their rewards more widely, operate more transparently, and which are more engaging of all shareholders, that all political parties must support as we continue to work hard to ensure employee ownership becomes part of the mainstream.