The world’s most universal economic system – capitalism – is great at creating wealth. However, this prosperity is nearly always delivered at a cost.
For a start, wealth tends to gravitate to a minority – those that take the risk, the business owners. The reward is financial, and wider considerations like the health of the planet are often secondary.
In his book Drive, Daniel H Pink explains how the nature of work has changed. As we follow procedures less and problem-solve more, the nature of reward also needs to change – from financial to fulfilment.
Many studies show that people go to work for more than just money – a happy work environment, respect and a sense of achievement can all contribute to fulfilment at work.
Traditional business ownership models don’t necessarily deliver fulfilment – hierarchical decision-making structures and profits going to shareholders work against fulfilled and motivated employees.
Employee ownership may reverse this trend – which is where Employee Ownership Trusts (EOT) come in. Introduced in 2014, EOTs allow an owner to sell the business in a way that truly empowers the employees. The phrase ‘employee owned’ is a little misleading, but catchier than the more accurate ‘employee controlled and indirectly owned for the benefit of the employees’.
This is how it works: the owner sets up the EOT, which has trustees. The employees are beneficiaries of the EOT. The company is independently valued, and the owner sells their shares to the EOT. As the EOT has no money, a deferred consideration is created, which is repaid from future profits.
I recently went through this process with my own business, Ovation Finance Ltd. Not all employees greeted the initial announcement with the excitement I was expecting. Challenges lay in developing a decision-making structure which would involve everyone and deliver both good business decisions and engaged employees.
I realised that employee ownership is not just about who owns the shares of the company. An EOT business is not like any other business. A clear sense of purpose and collaborative decision making are key to the success of the business where the employees are (albeit indirectly) also the shareholders of the business.
What an EOT can deliver, however, is fulfilment. For the very reason that EOT businesses require collaborative decision-making structures to give the employees a true voice, working in an EOT business provides the opportunity for employees to get involved.
In the UK today there are currently 280,000 businesses with between 10 and 250 employees (considered the ideal size for an EOT) – but only some 320 are owned by an EOT. The sector is about to explode as more business owners realise the EOT model can deliver the best outcome for them, their employees and their clients.
There is also a wider advantage for society. So often investment in businesses solely targets increasing the share price for a future sale. In EOT businesses, the focus is on long term sustainable profit; happy employees and clients. Furthermore, the profit is distributed more equally across all employees rather than a select few shareholders.
The rise of the EOT is also set to deliver significant advantages for society as a whole, radically re-emphasising the way we think about workplace wellbeing and fulfilment but also how we organise the economy to be more inclusive and fairer for all its participants.
This is the first in a series of occasional guest blogs exploring alternative business models driving or emerging from a new economy.
Chris’s book The Eternal Business will be published by Harriman House in September. He is also the author of the Financial Wellbeing book and podcasts. For more information see the Employee Ownership Association website http://employeeownership.co.uk/
Chris is a trustee of Happy City.