Employee ownership ticks the boxes but is not always the right answer
Not all entrepreneurs are insensitive, venal bullies. Forget the Victorian workhouse conditions favoured by Mike Ashley.
Put aside the broken pension promises of Sir Philip Green. Instead consider the noble and generous conduct of Peter Neumark, who the other day gave away his classic car restoration business to its 60 staff.
The vintage car nut co-founded the Shropshire-based company as a hobby business, restoring cars for fellow aficionados. It grew into a profitable operation with a loyal client following, highly skilled workforce and a £5 million turnover. Closer to 70 than 60, Mr Neumark started to ponder its long-term future. He could afford to give away a business worth a few million. He’d made at least £50 million selling his Target Expressparcels business in 1998.
It was the subsequent fate of Target that made him pause. He regarded it as horribly mismanaged under a series of new owners. It ended up as part of the delivery business of Rentokil Initial that years later hobbled that group.
He didn’t want such a fate for his labour of love, Classic Motor Cars. Instead of a trade sale, he started to look at gifting it to an employee trust, just as John Spedan Lewis had done with the John Lewis department stores group almost a century earlier.
“Virtually every example of an employee-owned trust business we looked at showed greater profitability, greater productivity, better staff retention and ultimately of course happier customers,” says Mr Neumark, who has just transferred his majority holding in CMC into an employee trust.
Employee-owned businesses are on a bit of a roll. If your image of the sector is of naive worker co-ops run by idealistic sandal-wearers, happier burbling Marxist ideology than worrying about keeping customers happy, think again. These are for the most part commercially savvy and professionally managed businesses. There’s the grand-daddy John Lewis but also large consultancies such as Arup and AT Kearney. And there are a string of innovative fast-growers like Childbase Partnership, the nurseries operator, Cambridge Weight Plan, the diet products group, and Gripple, an ingenious fasteners manufacturer. In four years, membership of the Employee Ownership Association has grown from fewer than 100 to more than 300.
Got right, an employee-owned culture can buzz with creativity. Speak for five minutes to Hugh Facey, founder of the Sheffield-based Gripple, and it’s impossible not to be caught up by his enthusiasm for the worker-ownership model. He insists that all 460 of his employees spend at least £1,000 on shares in the business, lending them the money if necessary. The long-servers who joined in the 1990s have made more than 21 times their money, a return that would shame a private equity genius.
Got right, employee ownership can engage and motivate employees and keep them loyal. At Gripple, no one has job descriptions. Everyone’s responsible for everything. Anyone regarded as backsliding is soon told about it by colleagues. Innovation is king: between 4 per cent and 5 per cent of revenues are ploughed into research and development each year and Mr Facey aims for a quarter of sales to come from products invented in the previous four years.
There could hardly be a more apt business model for the era of Theresa May and her pledge to build a Britain for the many, not the privileged few. But it would be silly to get too dewy-eyed about the employee ownership model. There have been disappointments. Triumph Motorcycles, which was owned by a worker co-operative backed by government loans in the 1970s, went bust in 1983. Loch Fyne Oysters had a brief spell as employee-owned but was taken over by a trade buyer and private equity in 2012 after heavy losses.
Employee ownership can stifle innovation as well as stimulate it. John Lewis may now be the pin-up of the sector, but in the 1990s it was regarded as a laggard. It underinvested, partly perhaps because of pressure to keep paying a staff bonus. Its checkout staff at Waitrose were keying in individual prices long after its peers had introduced scanning technology. Its management was seen by some as bureaucratic and complacent. And, for a supposedly democratic company, it was surprisingly formal and hierarchical. Even into the 1990s, staff had to call bosses by their surnames.
There is also the problem of making tough decisions in bad times. When redundancies are necessary to save the business, a worker-owned company can be at a disadvantage.
Even having more loyal staff can be a two-edged sword. The workforce ages and can be more resistant to the kinds of reskilling and adaptation needed as competitors come up with disruptive products or working practices. There are fewer infusions of fresh blood with new ideas. Risk aversion can creep into the business.
John Lewis seems to have learnt some of those lessons. Only yesterday Andy Street, its managing director, was parading a £150 million investment in highly automated warehouses, in spite of it leading to some job losses. Staff recently agreed to allow their final-salary pension scheme to be watered down after the deficit widened to more than £1 billion.
Employee-owned businesses have undeniable advantages, but they will lastingly prosper only if they learn
to be as disciplined as their conventional competitors. That’s
the same lesson whether you’re running supermarkets, or titivating the bodywork on a vintage Jaguar.