Employee ownership is not a new thing. It has been around for quite a while – in fact long enough for there to have been dozens of empirical research papers to be published over the last few decades. I won’t go into the detail of all the papers but suffice to say there are differing views on the pros and cons of employee ownership, although the research coming down in favour of the pros tends to outweigh the cons by some way.
Results suggest that, far from being an unstable form, or a form used primarily for transitions, the ownership of a substantial part of a company by employees appears to be a relatively stable arrangement. Indeed, it may be an arrangement that stabilizes the company itself, by making it less likely that the firm will be acquired, taken private, or thrust into bankruptcy. It may also be associated with more stable employment levels. And it appears to achieve this without cost in terms of productivity or financial performance, and may, even, enhance performance.
One relevant and fairly recent piece of research by Cass Business School, sponsored by The John Lewis Partnership, looks at how employee-owned businesses performed before and during the recession. Based on an in-depth survey of senior executives and an analysis of the financial data of over 250 companies, the study finds that employee-owned firms:
- create new jobs more quickly than conventionally structured businesses - they recruit more employees at a faster rate and reward employees with higher wages;
- are nevertheless as profitable as conventional businesses;
- are more resilient: their performance is more stable over business cycles, and they have outperformed the market during the downturn;
- are also more robust: employee-owned businesses have a lower risk of business failure.
Earlier this year, Deb Oxley, Director of Membership for the Employee Ownership Association (EOA) outlined the value of employee ownership to the UK economy, which now outperforms the aerospace sector, contributing £30bn annually to UK GDP.
Sir Charlie Mayfield, Chairman of the John Lewis Partnership when delivering the Robert Oakeshott Lecture said that employee owned businesses are more likely to focus on returns to labour, as opposed to solely pursuing capital returns, thereby delivering what he said was ‘a fairer form of capitalism’.
This is one of the main reason that the Coverdale Organisation became an employee owned business – to give employees a real say in the running of the Company and, ultimately, control and so that those who work in the company can benefit from their hard work through sharing in any success. Lying behind this is an assumption that the motivation gained through ownership will result in enhanced growth and therefore enhanced benefit.
So for us at Coverdale, it’s not just an economic or business issue, it is a philosophical requirement. Cooperation to mutual benefit lies at the heart of everything we do with clients. Why would it not apply to how we run our business?
Lampel, Joseph, Bhalla, Ajay and Jha, Pushkar (2010) Model Growth: Do employee-owned businesses deliver sustainable performance? Project Report. Employee Ownership Association.
by Mike De Luca, CEO of Coverdale UK