Employee Ownership Day 2021: Growing number of staff-owned firms will play an important role in financial fightback from Covid-19, according to experts.
Employees are expected to become the owners of 30 more Scottish companies this year - double the number of deals completed in 2020.
The forecast has been made as Employee Ownership Day (EO Day) today highlights the growing contribution of staff-owned companies to the national economy.
Lawyer Douglas Roberts, a Director in the Corporate team at legal firm Lindsays, is working with a number of businesses embarking on the change, having advised more than 15 EO companies in the past four years.
There are currently 103 employee-owned companies in Scotland - with the Scottish Government targeting 500 by 2030.
Mr Roberts believes that growing awareness of the benefits of firms being owned by their staff will make that type of model an even greater force in the Scottish economy.
He said: “The Scottish Government target is ambitious, but the increasing number of EO companies will have a huge benefit to the economy because it will keep jobs, wealth and talent in this country.
“Commonly when Scottish companies are sold then the main administrative roles - often the highest paid positions in the company - are moved out of Scotland and eventually the Scottish operations may be shut. Employee-owned companies are far more likely to remain.”
Fifteen firms made the switch to employee ownership in 2020 with Co-operative Development Scotland - the Scottish Enterprise division supporting the EO-drive - having already said it expects 2021 to be the most successful year yet for transitions.
Carole Leslie, Founder of Ownership Associates, who has worked with Mr Roberts on a series of deals, said: “EO has the ability to bring real prosperity to businesses, and not just through staff satisfaction, but increased productivity and revenue. We're forecasting a further 30 Scottish companies will move to employee ownership this year, and that's great news for the Scottish economy."
Organised by the Employee Ownership Association, EO Day highlights the economic and social benefits that can be achieved when employees have a stake and a say in where they work.
And it is hoped that these benefits will prove particularly positive as part of the financial recovery from the Covid-19 pandemic.
Mr Roberts said: “We tend to find an EO company’s staff are more motivated and provide better service because they are more engaged and benefit from the profits of the company.
“Research after the 2008 credit crunch showed that employee-owned companies outperformed non-EO companies. As a result of the staff having ownership of the business they “stick together” and work harder knowing that they will all benefit rather than just a few shareholders. There is less of the “them and us” attitude.
“It is hoped that EO companies will also come out stronger from the Covid pandemic.”
Mr Roberts and Ms Leslie this week briefed members of Glasgow Chamber of Commerce on the benefits of employee ownership.
Ms Leslie, who has worked in the field for 20 years, added: “As more Scottish business owners consider their exit strategy, an increasing number are finding that a sale to an Employee Ownership Trust delivers what they are looking for.
“They can achieve a fair value for the business, remain with the company as long as they want to, secure in the knowledge their business will continue in the hands of those who know it best, the employees.”
Lindsays advised Edinburgh-based IT consultancy Quorum, through its transition to EO, which was completed in March 2019. The company employs 100 staff and is clear on the benefits that change has brought.
Quorum Co-Founder and Managing Director Andrew Watson said: “Employee owned companies are a way of keeping the skills a business develops and the wealth it generates closer to the people that have invested their time and expertise into building it. It helps keep companies within local communities - and right now that is more important than ever.
“We should celebrate the companies that have decided to build a community around their working lives, building something for the benefit of everyone. I’m passionate about investing in people because I’ve always run service businesses - and they are only as good as the people. I believe we have a skills based economy in this country and I am very eager to try and encourage and build the currency of skill for generations to come.”
Jackie Wyllie, Sales Account Manager and Employee Representative at Quorum added: “I genuinely care about Quorum and all of the employees and being employee owned is a big part of that. It helps to ensure Quorum continues to be run with the employees in mind and to help the board of directors make decisions that allow Quorum to be successful and a company that we are all proud to work for.
Montrose-based Gill Financial is among the firms which has become employee-owned in the past 12 months - the first financial services business in Scotland to do so. Its 10 employees became owners through an Employee Ownership Trust (EOT) with Lindsays and Ownership Associates advising on the change.
Roy Gill and his wife Lesley decided to make the move to provide a new level of certainty for staff and customers while allowing Mr Gill, who has worked in financial services since 1991, to make plans for his own future.
Explaining why EO was right for Gill Financial, Mr Gill said: “It was about the brilliant team here and our clients, first and foremost.
“An acquisition would have put so much at risk - and I hated the thought of that. For a start I didn’t want any of our staff’s futures put into uncertainty, or for the culture to change so significantly they felt forced to leave.
“Likewise, we know we deliver great value for our clients across pensions, investment and mortgage advice. The brand has been built up through hard work – and that’s a precious thing.”
There are different levels of EO, from share options to selected members of staff to the employees or a trust owning 100% of the company. Due to legislation introduced in 2014, most EO deals involved the process of more than 50% of a company’s shares being transferred to the staff of that company. This is typically done by entrepreneurs or family-owned businesses as part of their succession plans. They also attract strong tax benefits.
Mr Roberts explained: “When a company transitions to employee ownership then, subject to meeting certain requirements, the shareholders who sell pay no Capital Gains Tax. Due to Business Assets Disposal Relief (formerly Entrepreneurs’ Relief), most shareholders pay CGT at 10% on the first £1million of a sale which means that someone selling a company for £1 million, for example, walks away with an additional £100,000. Recent changes to CGT make this even more attractive.
“Tax should not be the main consideration. Holding a stake in the place you work creates a different mindset among staff and can certainly spur innovation, performance and productivity, which benefits all involved.”