IMPACT OF EMPLOYEE OWNERSHIP
Below is my summary from the “The Ownership Enquiry – Final Evidence Report” June 2018, which I thought a great introduction for anyone wanting to understand why I introduced employee ownership into our family business. Educating yourself before jumping into launching EO is critical to the success of your succession.
The evidence of the impact of employee ownership on performance is overwhelmingly positive. The most apparent evidence is for smaller firms, firms with larger employee ownership stakes, and in studies over longer time horizons.
Employee-owned firms tend to be more productive, have higher employee engagement, along with factors like rewards sharing, job satisfaction, organisational commitment, and motivation – which is reflected in higher retention and lower absenteeism.
Employee-owned business is more resilient in crises and appear to have a positive impact on the broader community. This evidence has salience in the current economic climate. The economy is increasingly shifting from manufacturing to services. The increasing shift involves the development of firms with a greater focus on human capital through the attraction, development, and retention of talent – all of which are positively influenced by models of employee ownership.
Increasing uncertainty due to economic crises and COVID-19 calls for the development of more resilient businesses and communities – both of which are better supported by employee ownership models.
While the general awareness of employee ownership models is improving, complexities involved in transitioning appears to be a significant hurdle. This should be actively addressed through the combined work of policymakers and employee ownership champions in generating awareness, providing incentives, and creating best practices.
Summarising the main findings:
- GROWTH AND DIVERSITY
- PERFORMANCE AND PRODUCTIVITY
- STANDARDS OF CORPORATE GOVERNANCE
- TRANSITION TO EMPLOYEE OWNERSHIP
- REGIONS AND COMMUNITIES
- BARRIERS TO EXPANDING EMPLOYEE OWNERSHIP
1. Growth and diversity
1.1 Growing sector: The number of businesses moving to employee ownership is increasing, indicating growing awareness and viability of the model
1.2 Wide appeal: Models of employee ownership are present across a variety of business demographics such as sector, size, age, and region, indicating its relevance and wide appeal
1.3 Adaptability of the model: Employee ownership appears to be an extremely flexible model – allowing companies to adapt it to their strategy and industry conditions
2. Performance and productivity
2.1 Business performance: Transitioning to employee ownership is associated with improved business performance assessed as a combination of revenue growth, repeat business, and long-term customer relations
2.2 Productivity and efficiency: Transferring to employee ownership is associated with rapid improvement in productivity, typically the result of the cumulative impact of more engaged and motivated employees making changes that reduce waste and improve efficiency
2.3 Long-term orientation: Employee-Owned Businesses (EOBs) show evidence of long-term orientation in decision-making. Employees are more likely to work harder and forgo short-term rewards in the interest of the organisation’s long-term growth and survivability
2.4 Breadth of performance objectives: EOBs assess performance using both financial and non-financial criteria. They pursue a balance between growth and profit, and other objectives such as protecting the health and well-being of employees, and contributions to the community
3. Standards of corporate governance
3.1 Corporate governance: Transitioning to employee ownership is associated with improvement in standards of corporate governance
3.2 Transparent and accessible reporting: Transitioning to employee ownership tends to increase the sharing of information, and encourage open discussion of the organisation’s strategy, financial outlook, and overall performance with employees
3.3 Engagement and involvement with employees: EOBs tend to have higher employee retention, more engaged employees, and employee-owners who are more motivated to invest time and effort in improving the organisation
3.4 Level of scrutiny by employees: Employee shareholders in EOBs are more likely to scrutinise major management decisions and hold management accountable for their actions than their counterparts in conventional businesses
3.5 People-centric management outlook: Management in employee-owned business focus significant attention on the development of their employees. Employee ownership has a positive impact on employee health and well-being, perception of fairness, employee commitment and retention
4. Transition to employee ownership
4.1 Awareness and uptake of employee ownership in succession planning: Privately owned, and particularly family-owned firms, show increasing awareness of the potential value of employee ownership as a succession option and alternative to trade sale
4.2 Owners’ values and transition to employee ownership: Owners’ values in assessing the balance between financial and non-financial outcomes from succession are a central determinant in selecting employee ownership over other models – most notably exit through a trade sale
5. Regions and communities
5.1 Employee ownership and local job creation: EOBs have a greater propensity to recruit locally and promote talent from within the organisation, and are less likely to relocate or offshore jobs in pursuit of financial objectives
5.2 Employee ownership and the resilience of regional economies: Quantitative evidence shows EOBs’ show relatively greater resilience and sustainability during economic downturns, contributing to the strength of regional economies
5.3 Employee ownership and community development: EOBs’ relatively high degree of commitment to the communities they operate in leads to greater willingness to participate in and contribute to, community development, often by explicitly dedicating a share of the profits and/or employee time to local causes
6. Barriers to expanding employee ownership
6.1 Professional advisory support: Despite apparently growing interest from owners there is a limited number of high-quality professional advisors on succession planning and moving to employee ownership
6.2 Organisational readiness support: Few professional advisers currently have the knowledge or experience to advise owners on the organisational and leadership factors involved in the transition to employee ownership
6.3 Employee ownership in higher and business education: Despite the sector’s growth, employee ownership is almost completely absent from the higher education and business education curriculum
My experience over the last ten years can confirm all of the above as being relevant to employee-ownership. If you would like to understand more related to worker attitudes to employee ownership in Australia, consider reading “Swapping Desk – Pioneering Business Succession through Employee Ownership.”
The full report is available at: