Why aren’t more businesses embracing the employee ownership business model?

As well as being Independence Day in the USA, did you know that it is also annual Employee Ownership day in the UK?

As it is only the second year of this event, it may not be a surprise that you haven’t  heard of it, but it certainly got me thinking about why some companies choose employee ownership as a business model.

The John Lewis Partnership is perhaps the most well known and arguably most successful employee owned company in the UK and it was fascinating to hear an interview with the Executive Chair, Sir Charlie Mayfield on the subject this morning.

It’s not a Co-Op

The first thing he made clear was that employee ownership is a different business model to co-operatives – but maybe you knew that?  He also said that the small and medium enterprises (SME’s) usually derive the most benefit from this business model – more revelations!

Because so many of our clients are SME’s I thought it might be useful to explore this a bit more to find out what the benefit of this business model so here goes…

For most, the reason for creating an employee ownership business model is “the combination of employees feeling they have a meaningful stake in their own organisation, alongside a culture that gives them a greater say in how the organisation is run.”

Extensive research shows that employee owned businesses:

  • deliver superior organisational performance
  • outperform more traditionally structured firms in times of recession
  • have productivity levels, between 9 and 19% higher than traditionally structured similar businesses
  • are more sustainable enterprises, as decision-making is focused on promoting longer term success over short term risk-taking to the benefit of external shareholders;
  • are often employers of choice in their sector because they have high employment standards and  high staff satisfaction
  • are good at recruiting and retaining talented, committed staff
  • have higher levels of employee engagement,  reduce absenteeism and a culture of genuine participation
  • Staff tend to be more innovative, entrepreneurial and committed to the company and its success, sustaining internal an culture of peer challenge and continual improvement
  • Tend to enjoy stronger customer and supplier relationships, and high levels of commitment to corporate social responsibility

What about the downsides?

Like any business model there will inevitably be some downsides for the business and it appears that there are only a few:

  • there are costs associated with establishment and administration of the business model
  • where the share price of the company’s shares does not increase, it can affect morale and retention;
  • as more shares are issued each share you own becomes a smaller percentage of the company

The basic proposition is simple: people work better if they are working for themselves. Hence businesses that are owned by those who work in them are more likely to be successful.

Given the findings that the benefits far outweigh the disadvantages, my question is why aren’t more businesses embracing the employee ownership business model?

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