27 Aug 2019

Turning employees into business owners

Kerry Glazer is executive chair at client-agency relationship experts AAR. After 20 years, she and AAR’s other partners knew it was time to release some equity – but without jeopardising their ideals. She reflects on the practical and emotional appeal of employee ownership for business owners thinking about their company’s future, and for employees themselves: 

If your business is owned by a larger corporation, to some extent it’s their agenda and not yours – nor your employees’ – that matters most. It’s a dilemma myself and fellow AAR partners faced when, after 20 years at the helm, we decided it was time to offload some of our equity. At the same time, we feared we might compromise our values.

 

As a consultancy service for clients and agencies, having license to act independently, to not have an agenda in the way we conduct our business, is absolutely critical. And so, after almost a year mulling over the implications, we as majority shareholders have created an employee ownership trust (EOT) at AAR.

 

Leaving control in the right hands

Often, when majority shareholders part with their shares, they part ways with the business entirely: perhaps to start another venture or to support a charitable initiative. For those who want to retain some influence, to put their people first, to leave their legacy with individuals they know and trust, employee ownership makes total sense.

 

For the uninitiated, an EOT is an indirect form of employee ownership in which a trust holds a controlling stake – at least 51% – in a company on behalf of all employees, giving owners incentive to sell a controlling stake in their business. This particular model means employees are represented by trustees who sit on the board alongside the executive directors, coming to decisions together on how the company will evolve.

 

According to the Employee Ownership Association, employee-owned businesses achieve higher productivity and greater levels of innovation. They’re more resilient to economic turbulence, and have more engaged, more fulfilled and less stressed workforces. To date, employee-owned businesses deliver 4% of UK GDP annually.

 

But employee ownership is not a silver bullet. For some, and particularly those with an eye on international expansion, the business benefits, be they scale, resource or access to data, outweigh the risks of being acquired.

 

“An employee ownership trust allowed us to look after our staff, to make them active rather than passive stakeholders in their future.” 

 

My introduction to employee ownership came as a result of a chance meeting with Tim Birt, partner at Osborne Clark. When I became frustrated that selling to another company might jeopardise our independence as a company, it was he who positioned employee ownership as a potential compromise.

 

It was the famed Bristol-based studio Aardman Animations that showed us this was something that could work for us both as business owners and as a collective. The fact that Aardman, a company also in the creative industry, was relinquishing a 75% stake in a bid to retain independence was something that resonated with all of us.

 

Truthfully, an acquirer might have paid more than the value of the EOT. But to us, the value of our independence, and that of our employees, was worth far and above the money in the bank. Our independence – the freedom to plough our own furrow as an independent company and to not bring a corporate agenda to the table – is of the utmost importance. 

 

Aside from retaining that impartial lens through which we advise our clients, that ability to retain and reassure our staff was another big part of the draw. And when Richer Sounds, with its 53 branches and over 500 staff (at the time of the transaction) announced an employee-ownership transaction a month prior to our own, naturally we took it as a glowing endorsement.

 

Turning employees into partners

Looking at Investec Private Bank’s recently published research on work life balance, we’re not alone in wanting to ensure the well-being of our staff.

 

According to the survey, the most common measure (39%) of success among business owners is in creating a business where people are happy. So perhaps we’ll soon see employee-owned companies soar in popularity as entrepreneurs look to realise the benefits – both practical and emotional – for their employees.

 

For one, there are some very tangible benefits around tax. If the company is a success and a bonus is paid to employees, they are able to realise £3,600 of that annual bonus tax-free.

 

For me – and more importantly – the benefits are emotional. If you feel you’re a member of a company, and if there is an opportunity to actively benefit from the fact you are indirectly a major shareholder – be it through sharing information or consultation on how the company will evolve – I think that raises the game for you.

 

An EOT allowed us to look after our staff, to make them active rather than passive stakeholders in their future.

 

Employee ownership goes beyond names or numbers, yet it permits a degree of bandwidth for leadership to help drive the company forward. For business owners who care deeply for their staff and their legacy, you’re still essentially inside the same business, even if you have liberated some of your equity in it.