Opinion
31 Oct 2014 09:03am

Sir Charlie Mayfield: A greater plurality of business ownership is profoundly good for the balance of the economy

Why are more companies not owned by their employees? It’s a question that challenges the conventional wisdom of how businesses should be run. I think there are three big reasons

The first is lack of awareness. Not many successful employee-owned businesses are in the public eye. Second, it is a form of ownership that wouldn’t suit every company. And third, while setting up an employee-owned business is comparatively easy, creating one from a fully-grown company has been much harder. The single easy way of creating one from a mature company – through a singular act of altruism – is now a rarity as society seems to have settled on a different form of philanthropy.

Spedan Lewis, the founder of our Partnership, decided to give his wealth away to employees to create a better society through better businesses. But in the same way we need many and different forms of ownership, we need an equally varied palette of philanthropy because a greater plurality of business ownership is profoundly good for the balance of the economy.

EMPLOYEE OWNERSHIP DELIVERS

There is increasing evidence that companies owned by their employees deliver higher productivity and greater levels of innovation. They are more resilient to economic downturns and have more engaged and happy workers, who are less stressed. With 4.5% year-on-year productivity increases and 25% annual increases in profits, employee-owned businesses really are at the forefront of driving economic growth in the UK.

For most owners, the primary means of value realisation is to sell the company. This explains why it is perfectly rational to manage a company for short-term results. The average tenure of owning a share in a company listed on the London Stock Exchange is now only nine months, which explains why shareholders often look for a CEO who will be able to move market sentiment – at least for long enough to drive a rally in the share price. Owners of promising companies are drawn towards such a short-term ownership structure long before their companies reach their potential.

Employee-owned businesses such as the John Lewis Partnership can never be sold, so we focus on future earnings. That focus on continuous improvement is a powerful competitive advantage.

LONG-TERM THINKING

The economy needs more employee-owned businesses because employee owners think and act for the long term and because employee ownership retains jobs, skills and wealth in local communities to a greater extent than external-owned businesses.

This government has done more than any in recent times to encourage more firms to become employee-owned. And as two tax changes came into effect in October to put employee owners on a more equal footing with employee shareholders, more businesses are asking the question: is this for us? Membership of the Employee Ownership Association has doubled in the last year, with the number of employee-owned businesses in the UK growing at an annual rate of 9%. And the hottest growth is among high-tech, knowledge-intensive firms that are forecast to be the greatest source of employment growth.

So what can be done? With local institutions and business networks helping to bring employee ownership further into the mainstream of doing business in the UK, we have the tools for growing the sector at our fingertips. Spreading the word is crucial as more people start to recognise employee ownership as a fantastic business model.

That is why we, along with KPMG, Nationwide and C2MH Hill, are arranging a one-day event in February 2015 to promote the benefits of employee ownership. The primary audience will be family businesses considering their succession plans, start-up enterprises, public bodies and tax, accountancy and legal firms.

Business owners who want a more engaged workforce and increased productivity can find out more about how to convert to the employee owned model at inspireeo.co.uk


Sir Charlie Mayfield is chairman of the John Lewis Partnership

 


 

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