Is employee ownership to be a fixture in business?

Is employee ownership to be a fixture in business?

For many business owners, the topic of succession planning weighs heavy – with efforts to select the strongest leadership team, spread risk and protect jobs a key focus. However, for socially-conscious organisations, the question of how to preserve the ethics and values of the business can be even more challenging. Rather than assuming they can rely on a small group of individuals to carry on best practice, outgoing CEOs should take time to assess their options, select committed leadership and move to hardwire the values of the organisation into its structure and corporate governance. In particular, carefully vetting potential buyers and exploring the merits of shared or employee ownership could prove instrumental in ensuring an organisation’s mission is a central part of its legacy.

In the world of mission-led business, changes in ownership or leadership can be powerful catalysts in diminishing an organisation’s social impact. CEOs need look no further than former high-street institution The Body Shop, for an example of this in action. Following the sale of the organisation to French cosmetics giant L’Oréal in 2006, the chain, previously famed for founder Anita Roddick’s environmentally conscious philosophy and rejection of animal testing, has somewhat lost its stripes. Widely criticised for its work with unethical palm oil suppliers, The Body Shop has struggled to re-establish itself as the high street’s most socially responsible cosmetics company following the ban of animal testing in 2013 and the rise of competitor LUSH. Indeed, many believe that the sale of the business to an organisation so at odds with the Body Shop’s core values has been instrumental in the firm’s current difficulties.

The right sale

In some instances, the sale of a business may be the only viable option. If this is the case, pursuing the right sale rather than a quick one, or the most lucrative, must be a priority to preserve values. Although it may be tempting to include clauses in a sales contract that act to tie the new owner to operating to certain standards, doing so is likely to have a limited effect on the business’ legacy. UK law is not geared towards constraining new owners to ethical or behavioural terms and such clauses are difficult to enforce.

However, considering the record of potential buyers as part of the sales process can prove extremely useful – analysis of the organisation’s history in relation to social responsibility and cultural values is a good place to start; the previous completion of a social return on investment report or social impact audit (even when imperfect) demonstrates ethical intent. Aside from background checks into the conduct of an incoming owner, building a personal relationship with this individual or group of individuals can often prove illuminating, highlighting their methods and motivations and allowing the current CEO to communicate the true nature of the business’ mission.

When looking to the future of a values-led business, the effectiveness of any transition may be based on what the owner or owners are prepared to sacrifice. Changing a business’ structure by broadening the shareholding so that it includes a greater number of staff and customers means that business values are more likely to be preserved, but by the same token, also means a smaller dividend for the owner. If implemented effectively, this option has the highest likelihood of long-term success.

Employee ownership

Brought into the mainstream by retailer and shared-ownership flag-bearer John Lewis, employee ownership could prove the most failsafe answer to preserving a business’ mission and values. By involving staff members in the successes and operations of an organisation through shared decision making and profits, if implemented effectively, employee ownership can yield numerous benefits including reduced absenteeism, increased longevity and enhanced staff satisfaction. This aside, its merits in driving positive change have begun to become apparent in the social business sector, a precedent privately run, for-profit organisations should take notice of.

One of the shining examples of how employee ownership can benefit communities and ensure the entrenchment of strong organisational values, comes from Warrington-based social enterprise and care provider, Catalyst Choices. Previously part of a local authority, it launched as an independent community interest company on 1 February 2015 and is now employee-owned – with a fully functioning staff council, and a staff director on the board. The structure of the organisation has afforded enhanced staff engagement, greater accountability and a stronger connection between the goals of the company and those it serves – resulting in better care for the end user.

When executed correctly, employee ownership lowers the risk of a drive for profit reducing the social impact of a business – however, its effectiveness relies on a systemic change in how to make decisions. In practice, leaders must ensure that executive decision-making abilities are not left in the hands of a select few, and that in their absence, or following their retirement, on-the-ground employees and those with the company’s values at heart, have influence. This means involving staff in the recruitment of senior hires and giving employees board-level representation, along with the training and support they need to truly participate.

Although the long-term preservation of a business’ mission and values can prove difficult, there are measures that business owners can take to futureproof their organisation’s ethics. From selecting a buyer based on their appetite for social impact, to considering the benefits of employee ownership – true protection is often reliant on strong corporate governance, and the selection of a legal structure that ensures the business is in the best corporate form to meet its objectives.

David Alcock is a partner and head of social business at Anthony Collins Solicitors.

Further reading on employee ownership

Does your business turn over between £50,000 and £500,000? If so, you are eligible for the new Small Business Grants initiative from SmallBusiness.co.uk. We’re giving away £5,000 every month in a free-to-enter competition. Apply now by clicking here. Good luck!

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