#walescoopreport Employee ownership could offer long term resilience in the Welsh SME sector

In the second of our blogs on the potential implications of the recommendations of the Welsh Co-operatives and Mutuals Commission, we look at the potential for developing employee ownership approaches in Wales.

Rhian Edwards is Manager of the Succession and Consortia project in the Wales Co-operative Centre and has been heavily involved with work in Wales and the UK raising awareness of Employee Ownership as a viable succession option and as a means of encouraging engagement and growth in our indigenous businesses.

The Welsh Co-operatives and Mutuals Commission report has recommended increased support for those employee groups who could consider employee ownership as a means of continuing viable businesses which are at risk of closure as well as specialist funding mechanisms to support employee buy-outs.

Employee ownership is a proven growth driver so it makes sense to raise awareness of, and support, a business model which is good for the business, good for the employees and good for the community the business is rooted in.

CASS Business School, a highly respected school within City University has been at the forefront of research into employee owned businesses for many years. Its 2010 study “Model Growth: Do Employee Owned Businesses Provide Sustainable Advantage” concluded that employee owned businesses are more likely to be resilient in both the ‘good times’ (2005-08) and recession (2008-09) than their non-employee owned counterparts. CASS Business School has recently published a follow up study which concludes that employee owned businesses showed significantly higher growth in sales turnover relative to non-employee owned businesses throughout the recession (until 2011). This was reflected in higher growth in employee numbers and in employee contribution to profitability. This research demonstrates that although employee ownership is not a panacea that guarantees growth – after all, employee owned businesses are just as effected by external forces as any other business –increased employee ownership and engagement almost always results in increased stability and resilience than those businesses that don’t engage effectively with their employees.

At the Wales Co-operative Centre we have a long standing commitment to increasing employee engagement and empowering individuals within the workplace. A few years ago, we published ‘Defusing the Business Succession Time-bomb’ which asserted that Wales was in danger of losing an unreasonably high percentage of indigenous small enterprises over the next five to ten years due to poorly planned succession and unrealistic expectations of the potential for trade sales.

The Commissions report has recognised this issue and tried to address some of the big barriers to the approach: awareness, available support and finance. There is no doubt that employee ownership is a valid and sustainable plan for long term business succession. Allan Meek, Managing Director of Caerphilly based SCS Group explains,

“For me one of the main advantages of employee ownership as an exit model for owner managers is the freedom to be open about plans for the future and for the exit to be conducted for the mutual benefit of the owner and the business”

There is evidence that businesses with high levels of employee ownership have substantial advantages over those without. Employee-owners have higher levels of job satisfaction, feel a greater sense of achievement, fulfilment and job security and are more likely to recommend their workplace than employees in non-employee owned businesses.

Barry Wise was one of four founding directors in Aberystwyth based Aber Instruments. He states,

“Employee Ownership ensures that everyone embraces a culture of openness and team-working. In turn this leads to all employees sharing some responsibility for the well being of the organisation and this drives profitability… The long term stability of the company is enhanced by Employee Ownership because employees, who know the business inside out, have a say in their future. This minimises external influence and our share structure ensures that ownership stays "within the four walls".

Gill Wilde from Skye Instruments in Llandrindod Wells believes that the benefits of employee ownership are multiple,

“The first benefit is job security. No external shareholders can influence our direction. The success, or failure, is down to the employees. The second is financial; we have a profit sharing scheme so our employees benefit financially from our success. Thirdly, our employees have a voice. They have the opportunity to contribute to any activity of the business. Their views and suggestions are considered seriously and treated professionally. All employees are eligible to act as Trustees on the Employee Benefit Trust or as Directors in the company.”

Allan Meek of SCS Group agrees,

“We use employee ownership as part of a toolkit for engagement of our employees which is part of our core business strategy and we believe a source of competitive advantage. It is hard to say how much this alone encourages people to go the extra mile but it goes a long way to show employees that their opinions count”.

Employee ownership can also help ensure indigenous companies stay indigenous. As Gill Wilde explains,

“There are limited job opportunities in rural areas that aren't connected to tourism and agriculture. Transferring the ownership of Skye Instruments to its employees enables a high tech business to remain and grow in the area and to be able to continue to offer specialist careers to future generations”.

Barry Wise concurs,

“We have seen other companies sell out and, as a result jobs and know-how have been lost in the locality. We were determined not to go that way. Employee Ownership brings stability and control over our destiny”.

In the new financial year, Capital Gains Tax exemptions have been introduced to encourage business owners to consider employee ownership as a viable means of succession.

If the recommendations in the Welsh Co-operatives and Mutuals Commission report are taken up there is every possibility that employee ownership could become a common and accepted business model in Wales, and one that makes a substantial contribution to the Welsh economy.