WHY ARE THERE NOT MORE EMPLOYEE-OWNED BUSINESSES IN AUSTRALIA

After attending many business functions, seminars and conferences, I have found that business owners in Australia are unfamiliar with employee ownership. Even my accountant initially advised not to proceed with an employee-owned cooperative, due perhaps to a combination of inexperience and a warped perception that cooperatives were too tricky and complicated. He later told me “cooperatives were in his toolbox under dairy farmers”.
Our C-Mac experience has shown that:

  • The owner rarely thinks of selling to all the employees
  • Owners don’t consider that employee ownership represents another succession option
  • The owner does not consider that management and employees possess the requisite skills to run the business
  • Owners are concerned about losing control of their company
  • Accountants do not understand employee-owned companies
  • Most economists and professionals have limited knowledge or understanding of the benefits of employee ownership and don’t consider them as serious alternatives to conventional corporate structures
  • Management Buy-outs often receive priority consideration
    • Management is in the driver’s seat with more likely access to security to find lenders to secure capital
    • Management obviously enjoy a monopoly on management skills
    • Management staff generally have insufficient funds to undertake a buyout. However, where there is a sale to management, they possess vital insider knowledge of the business and its processes and should have an optimum chance for success.

Historically, in Australia, management buyouts are far more common than employee buyouts. Overseas data demonstrates in the long term that only 20% of management buyouts are sustained, versus 80% of employee ownership buyouts.

  • Employees often lack access to financial planning and legal advice
  • Employees are risk-averse
  • Cultural change, thinking as owners instead of employees, is slow and tedious
  • It takes perseverance and time to create an employee-owned cooperative
  • There has been little professional support and practical knowledge readily available for establishing employee-owned companies as in Europe and the USA

Additionally, the legal and tax aspects of employee ownership are very complex, and even simple schemes are difficult and expensive to create. Locating competent advice on selecting the right employee ownership structure is confusing. Employee share ownership plans (ESOPs) can take time to implement. Transfer of share ownership is slow and requires companies to be very profitable. Cultural change to management ownership is gradual.

There is agreement amongst academics that worker-owned firms are scarce due to being disadvantaged in the startup phase. However, once over these obstacles, they can demonstrate superior productivity and “X” efficiency.

Making it even more difficult, there is no government support or encouragement for the creation of employee-owned cooperatives, assisting them to overcome these obstacles. When raised in discussions, it is unfortunately seen as introducing a form of socialism. There is a considerable lack of knowledge in our government, professionals and the general public about the cooperative model in Australia. This is demonstrated by the fact that most Australians don’t realise they are already a member of one or more cooperatives and are surprised when they find out. Statistically, eight in every ten Australians are members of a cooperative or mutually owned enterprise such as a road-side assistance organisation (NRMA or RACV) or a member-owned superfund like Australian Super. A scant 28% are aware of their rights and advantages of membership. Due to this ignorance,
members don’t take full advantage of their membership.

Australian consumers and policymakers seem to lack awareness of the significance, distinctiveness and features of the organisational structure of cooperatives. They also appear not to appreciate the implications, both financially and to the community, of switching to mutually-owned businesses. Employee-ownership seems to be a “Disruptive Idea”!

Most Australian companies are owned by shareholders and operate to maximise profits, whereas cooperatives are owned by members and seek to maximise member benefits.

Misconceptions about worker cooperatives add to why there are not more employee-owned businesses. There are several lessons to be learned by our country’s leaders from the history of demutualisation that, together with the following misconceptions, should be addressed.
These dot-points are a list of comments/questions repeatably asked when talking about C-Mac’s succession:

  • Cooperatives are solely for agricultural activities
  • Management is by committee
  • It is hard to make decisions when getting input from everyone
  • Everyone has their own ideas
  • Everyone is equal
  • People cannot lose their jobs
  • “Free Rider” problems are rife
  • Worker cooperatives are perceived as small, specialised, undercapitalised enterprises, rather unlikely to succeed. 

Employee-owned businesses are similar to any other business but with many added attractive benefits to employees, customers and the wider community. There is a lot of literature about cooperative benefits but it is widely ignored in Australia.

Misconceptions that create barriers could be easily overcome by a combination of education and government assistance via well-structured policy and tax rulings.

We all need to advocate for recognition of employee-owned businesses. Leave an employee-ownership legacy.

MORAL:

  • Cooperatives and mutuals contribute to our society over the longer term
  • Consider the flow of benefits; all or a few, short and longer-term
  • Cooperation is vital for cooperatives to be created 

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