Andrew Walker: Employee businesses could hold the key to growth
Andrew Walker, partner and head of corporate growth at Morton Fraser, discusses the role employee businesses could have in boosting the wider UK economy.
The Scottish government’s Programme for Government included a goal to reach 500 employee-owned businesses (EOBs) by 2030. We currently stand at 200.
Appetite for this employee ownership model is rising. Indeed, the rate of businesses turning to employee ownership has increased by 13 per cent since June 2020. It is hard not to see this rate increase further, as EOBs are often remarkably resilient to risk and economic downturns.
Much of the growth of EOBs has been driven by succession planning – in particular smaller businesses creating Employee-Ownership Trusts.
A recent example of this is the online retailer Executive Shaving Company, which gave colleagues a stake in the business as part of the owners’ retirement plans. Another to take this route is Carlton Bingo, which has become Scotland’s largest employee-owned business. Carlton’s major shareholders commented that, although a management buyout was initially a possible exit option, it just deferred the inevitable for the business – succession through employee-ownership.
There are sound macroeconomic reasons why employee ownership should be viewed positively. Primarily because it means that businesses do not have to be sold via trade sale or be wound down. The rise of EOBs helps to keep the economic cogs turning.
EOBs also often show greater resilience than non-EOBs during economic downturns. This is because non-EOBs increasingly think more in the short-term in times of trouble. They also tend to turn to cost-cutting which can have a negative impact on the economy. Meanwhile, EOBs tend to focus more on the long-term, including innovation and risk-taking, which often results in more effective performance.
With today’s cost-of-living crisis, it’s perhaps this innovation and risk taking that will better support business growth and economic resilience.
Furthermore, EOBs are becoming more attractive because employees have greater confidence in their long-term thinking. EOBs can spur on job creation through innovation and offer greater job security, too; a survey from the midst of the pandemic suggested that EOBs were 3.2 times more likely to retain staff in times of economic hardship than non-EOBs and that they “kept considerably more money in employees’ hands – and in the economy”.
But, beyond profit, there’s great purpose in being employee-owned. Many businesses that have become employee-owned believe that it’s the socially responsible thing to do.
By giving colleagues more control of the company, profit is distributed more equally, and engagement and confidence in the business increases, too.
We can see this positively impacting the inner workings of business – if employees are more involved with decision-making processes, they learn valuable lessons about the consequences of business decisions and gain greater individual responsibility. This doesn’t just benefit the business – it increases colleagues’ awareness of wider economic implications.
Confidence in EOBs has evidently increased in recent years. In Scotland in particular, more SMEs have adopted the model. With a cost-of-living crisis on our hands, giving employees more ownership of businesses may be part of the solution. Not only because it can benefit those working for the business, but because it will, in turn, assist the Scottish economy too.