It’s perhaps obvious how staff benefit from an EOT ownership…but does the business itself do better?
Evidence suggests “YES”, most businesses thrive under employee ownership!
At a most basic level, if staff are happy, the business does well…but let’s dive a bit deeper.
The purpose of an Employee Ownership Trust
Power to the people
Where an EOT owns 51+% of a company, the employees collectively control it. They have real power to change the future of the business.
It’s worth emphasising the word “collectively” used above. As individuals each employee will have negligibly more power than they would in a privately owned company. Together though, they can overhaul anything!
Who better to help staff do the best job they can do than the staff themselves!
Employee Ownership encourages idea generation and implementation from shop floor workers.
It also enables them to oust poorly performing bosses. Nobody can stick around in a position of power just by virtue of their surname!
Rewards to the people
When the business makes profits, those profits go back to the employees.
This could be immediate in terms of a cash profit share payment. or it could be longer term, by reinvesting in the growth of the business. Of course business growth should mean higher future profits to the employees.
Staff should be aware of this. They know that anything they do that boost profits will boost the income of themselves and their colleagues.
It also means they know that any slacking colleagues are hurting their income. EOT owned companies therefore tend to be better focused on all staff performing at their best.
Of course all these things lead to a better business!
Improved employee engagement and motivation
Ownership in a company leads to increased feelings of responsibility among employees.
If you do a bad job or slack off, you’re not hurting some fat cat at the top. You’re hurting your peers. The people you work alongside every day, maybe go for a beer with after work.
Employee Ownership Trusts help every staff member truly feel part of the business. After all, it is THEIR business.
Decision making tends to be broader in EOT companies than their privately owned counterparts.
It’s worth stressing this one isn’t clear cut. There is no obligation (nor is it even recommended) that EOT companies will run every decision by all staff in a democratic way. Plenty of reasons why this would be a terrible idea!
The company directors will still have legal control and responsibility of the day to day running of the business. They can, and sometimes will, make decisions without running by employees.
However, EOT companies will typically involve employees in decisions more often than other businesses. Also employees in EOT companies have the power to choose the trustees, who in turn have the power to evict directors.
Hence indirectly staff do have a lot of power over decision making. When they’re aware, and believe, that’s the case, this increases trust and collaboration.
Greater continuity and stability
Staff turnover tends to be lower at employee owned companies. This is for all the reasons laid out above. People care, and feel part of the business, so are less likely to jump ship when things get tough or they’re offered a slightly higher salary.
More stable staff helps keep the whole business more stable. Customers have long term regular points of contact, as do key suppliers.
Irrespective of whether a business sells goods or services, at the end of the day people buy from people. Building relationships inside/outside the business helps.
People want to build something, then enjoy the fruits of what they built. It’s an ongoing process, year after year.
Improved succession planning
It’s a sad fact of life that all people are mortal. Nobody lives forever.
Human shareholders will need to be replaced at some point.
Trusts are not mortal
Legal buffs may point out that technically trusts do have a limited span…but it’s currently 125 years. Even John Lewis, the most long-standing employee owned company in the UK, hasn’t yet reached this.
Your average human may live to (say) 80 years old, which doesn’t sound wildly different to 125 years. But:
- The first ~20 years of life is often education.
- The last ~20 years of life is often retirement.
- So they’re restricted to the bit between, often a few decades tops.
An EOT can therefore leave the company’s shares remaining in the same ownership for over a century, far longer than is possible with other structures.
Employees will come and go
Whilst the company may live for over a century, along with its trust owner, the individual employees who work there will not.
This doesn’t in itself cause a problem.
Sure, at various times, there will be some employees that are really important to the business. But no one individual should ever be irreplaceable.
There shouldn’t be anybody who, if they were hit by a bus, it’d lead to business collapse.
Of course with small privately owned companies, they can be much more fragile, often dying with their human owner.
Summary
An EOT can provide numerous benefits for a business:
- improved engagement/motivation
- increased productivity and profitability
- greater continuity and stability
- improved succession planning