Responding to Nuttall – three immediate steps
15 August 2012
appeared in Company Secretary's Review, 1 Aug
Tolley's Practical Business Fortnightly For
Responding to Nuttall – three
On 4 July 2012 'Sharing Success: The
Nuttall Review of Employee Ownership' was launched at the Deputy
Prime Minister's Summit on Employee Ownership. In this
article Graeme Nuttall explains the Government's immediate response
to his independent review.
'Sharing Success: The Nuttall Review of
Employee Ownership' (July 2012) (the "Nuttall Review") sets out a
framework to promote employee ownership in the UK. It was
launched on 4 July 2012 at the Deputy Prime Minister's Summit on
The employee ownership business model has significant benefits,
as shown by research and success stories. But it is an
under-used and under-appreciated business model. The Nuttall
Review was commissioned by the Deputy Prime Minister as an
independent appraisal of why this is and what can be done about
it. There is more information on the background to the
Nuttall Review and a copy of it at: http://www.bis.gov.uk/policies/business-law/employee-ownership.
The Nuttall Review sets out 28 recommendations
and the Government responded immediately to support three key
measures. In his key note speech at the Summit,
'Responding to Nuttall – next steps to a John Lewis economy',
the Deputy Prime Minister, Nick Clegg summed up these measures
- a new Institute to fly the flag;
- empowering staff to get employee ownership into the mainstream;
- off the shelf templates to make it easy.
Each of these will impact on business
professionals, including company secretaries, as well as owners of
private companies and employees.
The Government's current support for employee
ownership is unprecedented. The Deputy Prime Minister called
the above measures "Three extremely important next steps to help
get employee ownership into the bloodstream of the British
economy". The Summit on Employee Ownership was chaired by
Business Minister, Norman Lamb. He explained in the Foreword
to the Nuttall Review that he strongly supports employee ownership
to "encourage more responsible and more diverse ways of running a
business in Britain today" in order "to create sustainable growth
in the economy". Norman Lamb wants this "to be the decade of
employee ownership". Francis Maude, Minister for the Cabinet
Office, is leading the Government's work to create public sector
mutuals. He also spoke at the Summit and welcomed the Nuttall
Review, saying " The Government is serious about building a fair
and responsible economy. We all want competitive, resilient, high
growth business that shares the benefits fairly".
What is employee
One of the obstacles to the wider take-up of
employee ownership is a lack of awareness of the concept.
Employee ownership means a significant and meaningful stake in a
business for all its employees, not just a few executives. If
this is achieved then a company has employee ownership: it has
employee owners. Employee ownership should be appreciated as
a business model in its own right, as distinctive as franchising or
running a business as a charity.
A ‘meaningful’ stake for employees goes beyond
financial participation. This concept is not simply about
delivering extra pay in a tax efficient way. The employees’
stake must underpin organisational structures that promote employee
engagement in the company. If this is achieved, as the
Macleod Review explained, "employees are committed to their
organisation’s goals and values, motivated to contribute to
organisational success, and are able at the same time to enhance
their own sense of well-being" ('Engaging for Success: enhancing
performance through employee engagement' (2009)).
The Nuttall Review has a particular emphasis
on the employees’ stake being a substantial or controlling stake.
This is why the Deputy Prime Minister referred in his speech to the
"John Lewis economy". There is no set rule as to what
percentage of issued share capital is a substantial stake.
The employees' shareholding stake can be less than
100%. Over 25% is obviously substantial from a company law
perspective. A company that is majority or wholly owned by
its employees is an "employee owned company".
The employees' shares may be
held directly or through an employee benefit trust or a combination
of the two. There is more about the mechanics of employee
ownership in Employee Share Plans 29 CSR 24, 190 (22 March 2006)
and on the web site of the Employee Ownership Association (http://www.employeeownership.co.uk/).
What are its benefits?
The three Government Ministers at the Summit
explained why the Government supports employee ownership.
There is also academic support for employee ownership. The
beneficial effects of employee ownership are diverse, but several
strong themes emerge in the literature around:
- improved business performance;
- increased economic resilience;
- greater employee engagement and
- driving innovation;
- enhanced employee well-being; and
- reduced absenteeism.
There is a significant body of research (as
referred to in the Nuttall Review) on these benefits.
Although, in practice, what most influences company owners to
introduce employee ownership are the success stories around the UK
involving companies of all sizes and in all business sectors.
There are case studies on the Employee Ownership Association's web
site and on the web sites of other sector bodies. Companies
including Arup and Swann-Morton have benefitted from decades of
successful employee ownership, and others such as Wilkin & Sons
and public sector mutuals have more recently introduced the model
and are reaping the rewards. The Nuttall Review is a call for
the wider business community to appreciate what employee ownership
can do for business and the growth of the UK economy.
An independent and expert Institute
for Employee Ownership
The evidence heard when preparing the Nuttall
Review showed how a lack of awareness and other factors means
employee ownership is under supported, particularly in the
information and guidance available on setting up and operating an
employee owned company. Someone interested in introducing
employee ownership is currently unlikely to get the support he or
she needs from professionals, because of their own lack of
familiarity with the concept. Extra resources are needed.
There is a well-established model for the development of
professional knowledge and dissemination of advice and guidance.
Typically, an independent Institute is established. The
Nuttall Review established that the employee owned and co-operative
sectors would welcome a new Institute whose primary role would be
the dissemination of knowledge in relation to employee
The Government has confirmed its support for
this new sector led Institute, to provide information and advice
to: managers and employees; lawyers and accountants; business
schools, researchers and Government Ministers. This will be a
professional body, offering accreditation to its members. It
will not be a quango. As Norman Lamb has explained "We have
already had a remarkable response from the professional bodies and
representative organisations, pledging their commitment to this
programme and to developing a new Institute for employee
Achieving wider employee share ownership,
particularly when shares are held directly by employees, requires
company secretarial skills, and it is expected that company
secretaries will be among those seeking accreditation by the new
A call for evidence on measures to
raise awareness of employee ownership
There is a statutory ‘right to request’ to
enable an employee to discuss flexible working with their employer
and also to discuss time off for study or training. The
Nuttall Review proposes a new statutory right, for a group of
employees to develop an employee ownership proposal and discuss it
with their employer. The initiative to introduce employee
ownership does not have to come from a company's owner; it can come
from staff. There will be no "right to have shares". A new right to
request would create a powerful "nudge", in law, to ensure the
benefits of employee ownership get considered.
Employee ownership works well as a business
succession solution and another proposal is for owners to encourage
employee buy outs when a change in control is up for consideration.
The Nuttall Review also asks the Department for Business,
Innovation and Skills to work with ACAS, to develop a voluntary
Code of Practice setting out best practice on requesting and
agreeing employee ownership in a company.
The Government has issued a call for evidence
on all these awareness raising measures (see http://www.bis.gov.uk/policies/business-law/employee-ownership).
If this new right to request is introduced,
company secretarial input will be valuable when choosing between
the various models of employee ownership.
New off-the-shelf ‘DIY
The actual, or perceived, legal and tax
complexities of employee ownership present another obstacle to
achieving wider employee ownership. There were frequent calls
during the work on the Nuttall Review for assistance with model
constitutions for companies with employee ownership. A strong
case was demonstrated for a unified set of model documents with
official endorsement. This is part of the reason why
community interest companies have been successful. There is a suite
of model constitutions and accompanying guidance available from the
Community Interest Company regulator's website.
In response to this recommendation, the
Government has agreed to introduce new off-the shelf DIY packs
covering legal, tax and other regulatory considerations, to help
companies adopt employee owned business models quickly and easily.
This will help combat the perception that employee ownership
is too difficult, time-consuming and expensive compared to more
These DIY packs will involve, for example,
precedent articles of association and employee benefit trust deeds,
and supporting documents, which will obviously be of interest to
The Government will respond in full in Autumn
2012 to the Nuttall Review. Other recommendations in the
Nuttall Review cover, for example, changes in company law to make
it easier to operate internal share markets, including holding
private company shares in treasury and in relation to share buy
backs. The evidence collected in relation to the proposed new
right to request and other awareness raising measures will be
considered as a part of developing the formal Government response
to the Nuttall Review. Anyone wishing to provide evidence
should email firstname.lastname@example.org
by 7 September 2012.
Nuttall, Partner at Field Fisher Waterhouse LLP