I’ve just returned from the second of two events marking Employee Ownership Day. Employee ownership is one of those worthy but rather dull sounding policy ideas which has been in our Manifestos from time immemorial, but like motherhood and apple pie, has a comforting rather than inspiring air.
What this Government has done about employee ownership however, deserves rather more attention. In 2012 Norman Lamb appointed Graeme Nuttall, the leading legal adviser in the field, to produce a report on what need to be done to promote employee ownership (EO). His report contained 28 recommendations. The Government has carried them all forward. The most eye-catching is a £75 million commitment to provide various tax reliefs for people who sell their shares into an employee-owned business. As a result, the sector is booming. Membership of the EO trade association doubled last year, with companies across the economy – from architects to insurance brokers – switching to EO.
The Government itself has also promoted mutual EO as the business model of choice for public service spin-offs. In privatising the Royal Mail, we have allocated 10% of shares for employees – a first for a privatised entity. And in supporting the Social Value Act we have made it easier for local EO companies to bid successfully for government contracts.
A report sponsored by John Lewis published yesterday by the Centre for London – “Local Owners: Promoting Employee Ownership Locally” sets out a raft of ideas for developing the sector further. It stresses the importance of local action to promote the sector, not least for those who are active in or support EO to act as evangelists for the concept.
This new impetus has been driven by Liberal Democrat Ministers in Government. Norman Lamb, supported by Vince Cable, in commissioning the Nuttall Report. Jo Swinson and Jenny Willott for overseeing its implementation. Danny Alexander for pushing for the tax breaks. Nick Clegg for hosting an EO summit in 2012 in which he argued for the development for a “John Lewis economy”.
When people argue that we’ve forgotten our values in government – remind them of what we’ve done for EO.
Photo by EG Focus
* Dick Newby is the Leader of the Liberal Democrats in the House of Lords.
Follow @LibDemVoice on Twitter
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
Temporary Traffic Order - Lower Pleasance
Calling them out
The railway wars come to Market Harborough
Constructive opposition: a phrase you will hear a lot
Hugh Young
Roland
Kevin Hawkins
Steve Trevethan
15 Comments
All good stuff and something we should be shouting more loudly about. We should also be thinking of ways to go further – I think people should have a basic right to own shares in the company that employs them.
One quibble I’d raise with the article is the idea that the 10% of employee shares in the Royal Mail privatisation is a first. My understanding is that when the National Freight Consortium was privatised in 1982 more than 80% of shares went to the employees, with 35% having some kind of holding. The company then operated a profit-sharing scheme and gave employee shareholders two votes compared to one for an ordinary shareholder. If Thatcher could do this thirty years ago, why couldn’t we have gone further now?
People need to think through the logic of things. Andrew says “people should have the basic right to own shares in the company that employs them”. What percentage should they get each? If they get shares taken away from them when other people join the company or they have to give them back when they leave the company then it isn’t employee ownership.
Time to act like a proper party of government and not dream about 100 year old flawed ideas. I am afraid. Bonus pools are fine, but this isn’t ownership.
Best regards
Eddie – Why isn’t it employee ownership if people are required to sell shares to new employees or to sell them when they leave the company?
Hi Andrew, just because for me ownership means you can sell them whenever you like and at whatever price you like. If you are forced to sell shares and given a price you must accept then it is not really ownership, just borrowing.
Thanks.
The confusion is because some companies, such as many investment banks, will issue shares in bonuses that they can keep even if they leave, This is real ownership and a different term needs to be used for arrangements where they have to stay in the employee share trust.
The investment banks, and many tech companies, can do this because what they will do is simply get the bonus cash and go on the stock market and buy their own company shares back with it. It is very hard to do this when a company hasn’t already been listed on the stock market and there isn’t frequent trading in its shares.
Regards
Eddie – I think we’re just quibbling over definitions. People have their property rights constrained in all kinds of ways all the time. Would you argue that someone who purchases a listed building, for example, doesn’t really own the property because they can’t do whatever they like with it?
To me, the important thing is that employees have a measure of control over their business and can profit from its success.
Andrew, I think the difference between being able to sell your shares and not is not simply “quibbling over definitions”. In your system the trust owns the shares, not the employee.
OK, I can see how it is “quibbling” a bit, but for me there is a big difference between what is effectively a bonus pool and ownership. I used to be a financial adviser, so if someone says we want employee ownership and then talks about writing shares into a trust then for me it is just not ownership.
I am very much in favour of bonus pools, but not ownership. They are different structures and different definitions need to apply.
Best regards
If a person buys a share, they own it in perpetuity, or until they choose to sell it. Indeed, the net present value of a share or an option is calculated on that basis. http://www.theoptionsguide.com/discounted-cash-flow-net-present-value.aspx
It is a crying shame that Royal Mail is the only example, particularly as 10% allocation isn’t particularly revolutionary – it has been the MINIMUM level required to qualify as an ESOP since the 1990’s. However, it isn’t clear whether the Royal Mail shares are held within an ESOP (and hence ring fenced for employee ownership) or are held directly by individual employees and so over time we can expect the holding to dilute…
I would of thought that state owned businesses, such as: HS2, Directly Operated Trains, Network Rail, to name a few could also operate employee ownership schemes…
Also in terms of changing the ownership structure of business, I note the missed opportunity offered by the BDUK project, which could of been used to create a raft of community interest companies (CIC’s) in the telco’s sector.
I think that when people talk about “employee ownership” what it means is ownership by a trust. This isn’t the same thing as a “bonus pool”, because it brings with it voting rights, and so an influence in the running of the company. Neither is it the same as individual ownership of shares. It’s that good old favourite, a “third way”, and there’s much to be said for it.
I believe it’s how John Lewis Partnership works, and that’s generally regarded as a paradigmatic case of employee ownership.
This new business structure option is to be welcomed.
Community Interest Companies, introduced in 2005, have enabled the delivery of public services, including where I live, to be expanded in a flexible and targeted way, with better value for money for the taxpayer. The CIC structure is not appropriate in all circumstances, in particular where an existing private business is converted to employee-owned.
I would certainly prefer to have a CIC or EO business deliver health services rather than most for profit private structures.
Ah, very interesting Malcolm, I never knew they got voting rights with the employee share trusts.
I think they are fine as long as they are voluntary.
I agree with Roland, 10% is a very small share of the Royal Mail business.
I wonder for how much longer this will remain a tiny niche of the UK economy? I have to admit that until this article was posted I hadn’t noticed that anything had happened.
Cooperatives represent 3-5% of the world GDP. Could not find a figure for the UK (in the few minutes effort I put in) but my guess is it is less. The work we have put in to this seems fine, but these are not big victories.
What has the party actually done?
In reality the Royal Mail privatisation was a Conservative Party policy initially opposed by us.
On employee share ownership Lib Dem Policy agreed at conference in September 2012 was to change the law to allow Private Equity backed companies to offer all employee share schemes (Share incentive plans like those offered at Royal Mail and Save As you earn plans like those offered at BT and BP). The Party also voted to adopt as policy a change in the law to reduce the minimum holding period for Share Incentive Plans from 5 years to 3 years before employees could benefit. These changes would have benefitted millions of low and middle income workers, increased productivity, boosted the savings ratio and helped the wider economy. Despite having a Lib Dem Secretary of State at BIS and a BIS Chief Secretary to the Treasury there has so far been absolutely zero progress made on either of these two policy objectives. That is the reality of our party in power – lots of waffle, zero action and then attempts to mask the truth. Thoroughly dispiriting.