Should more businesses consider employee-ownership?

Employee-owned companies are those where employees own a stake in the company they are working for.  There are two main types of employee ownership, these are direct and indirect. Direct employee ownership lets employees hold their own shares in the company they are working for, whereas in an indirect ownership the stake/shares are held on behalf of the employees, normally through some sort of trust. John Lewis is an excellent example of indirect ownership; they currently have over 90000 partners within the company who each have shares held for them in a trust of some sort, and each year they will share an equal percentage of the profits.

But you might be asking how does this benefit a business?

Productivity levels are higher than those of a traditionally structured business. When employees work in a culture of respect and equality they are happier to work those extra hours as well as focusing all their efforts on the task in hand. Research has also shown that employee owned businesses are more resilient during a recession as performance remains positively stable each year.

Employees will feel a sense of belonging and responsibility, especially when they have a voice in the running of the business. This leads to lower Labour turnover, along with absenteeism, which is mainly because employees have a greater incentive to work and generally happier in their working environments.

It is also seen as more sustainable, as the employment structure allows employees to voice their opinions on the running of the business, hence why decisions are made to benefit the success of the business in the long run rather than trying to please external shareho

lders by making short term risky decisions.

They create jobs faster. Employee owned businesses saw a greater employment growth than their non-employee-owned counterparts in the years 2005-2008, with an average yearly increase of 7.5% compared to 3.9% in a non-employee-owned businesses, and this rate of growth nearly doubled when the market took a downturn in 2008-2009 (Lampel et al, 2010) which relates back to labour turnover and the commitment levels of staff in an employee-owned organisation.

(Employee Ownership Association, 2014)

Like anything though there are some downsides to using this model in a business. Firstly if the business is making a loss it will have a negative effect on morale and maybe staff retention, as employees may feel like they have little to no control in the matter. Secondly as a business gets larger it will be harder for management to engage and listen to all its employees, which will affect the employee’s sense of belonging to the business. Raising finance is also another stumbling block of employee-owned firms.

But even so the advantages far outweigh the negatives in this instance, which is why I believe that more business should at least think of adopting this sort of model. At the moment in the UK, employee owned businesses only represent 2% of the UK economy; it is however growing, which might indicate that more businesses are turning to the employee ownership structure. 

References

Lampel, J., A. Bhalla, and J. Pushkar. Model Growth: Do Employee-Owned Businesses Deliver Sustainable Performance? London: Employee Ownership Association, 2010 

Employee Ownership Association (2014)  retrieved from: http://employeeownership.co.uk/resources/reports/