Making employee ownership mainstream

The Government wants to drive employee ownership into the mainstream British economy.  Field Fisher Waterhouse partner Graeme Nuttall was appointed the Government's independent adviser on employee ownership on 8 February 2012. "I’ve asked Graeme Nuttall to look at these issues in his review of employee ownership, which will report back in July", said Nick Clegg Deputy Prime Minister.

Graeme's remit is to work with Government to identify the barriers to employee ownership and help find the solutions to knock them down.  Instead of employees only having a relationship with their company as an employee, employee ownership gives them an additional relationship as an owner.  Research shows how involving employees in this way promotes better corporate outcomes. As well as, for example, improved productivity and lower staff turnover, these outcomes also include more accountability and corporate social responsibility.

Graeme has been consulting widely with stakeholders. One of Graeme's
early conclusions is that the fundamental lack of awareness of the concept of employee ownership is an obstacle. The reaction of many is that the Government must mean executive share options or perhaps using shares to provide tax free incentives.  But employee ownership means more than this.  It means more than just financial participation; more than introducing staff suggestion boxes.  Employee ownership is a distinctive business model in its own right; as distinctive as saying we are a charity or this is a franchised business.  And the emphasis is definitely not on shares for executives.  As the Deputy Prime Minister made clear in a speech to the British Chambers of Commerce on 15 March 2012 "we’re not just talking about a few members of staff owning a few shares. We’re talking about a big chunk of the company belonging to a significant number of staff".  In a private company this means around 20% or more of a company's shares and could mean 100% employee control.

Ideas aired to address this lack of awareness include improving education and training, so that different business models get taught.  The founders of recently established employee owned companies such as Childbase and Parfetts heard about employee ownership from examples set by others, such as the John Lewis Partnership and not from their professional training. Also raised is the idea that employees can require an owner to consider a sale to them, if the owner is planning to sell the business.  An employee buy out may be a better alternative than a trade sale as a succession solution.

There are core structural difference in an employee owned company, namely employees will directly or indirectly, that is via a trust, own all or a significant proportion of the company’s shares.  Some have argued that the Government and other institutions, such as employment tribunals and HM Revenue & Customs, do not understand employee ownership business models and, in particular, the employee trust owned business model, and that this leads to regulatory difficulties for employee owned businesses. 

These are typical of the issues Graeme Nuttall is considering. If you would like to know more about Graeme Nuttall's Government work please visit the Department for Business Innovation & Skills webpage. There is a dedicated mailbox for submissions: employeeownership@bis.gsi.gov.uk.

Graeme Nuttall is head of the firm’s Tax Practice and leads the Equity Incentives and Charities and Private Client Groups at Field Fisher Waterhouse LLP.