EO Founder Journeys

IDT recently undertook a pilot survey of 9 employee owned organisations to identify any consistencies and best practice in how these companies are organised. The full report was published by Ownership at Work, the research arm of the Employee Ownership Association.

Using the findings from the research, as well as our own experience acting as the independent trustee with a broad range of IDT clients, we have written a series of articles providing further insights into best practice in action in EO companies.

In this article we focus on the role of the founder post transition.

 

The majority of companies that transition to ownership by an employee ownership trust already have an ethos and culture of employee participation and engagement. However, prior to their transition, leadership and direction sat solely with the founder(s). This leadership, along with the teams that have grown as the organisation itself has grown, is at the core of the success of the company.

With the transition to EO, maintaining the best parts of this ethos and culture into the future organisational structure is key to enabling the best benefit to be obtained from both the history of the company, plus the future opportunities.

 

To support the transition, founder(s) often remain in an organisation in some way or other. Often this transition is formalised prior to the transfer date. More often, it is gradually implemented over time as new leadership teams emerge, organisational opportunities are developed and the company becomes more confident under its new ownership structure.

The survey identified that:

• founders mostly retain some form of active role in the company on transition. Most also tend to feel more comfortable staying closer to the high-level decisions while there was still a significant proportion of the deferred consideration payable.

What we have seen most influences this decision post transition are the considerations and contacts that the founder has outside of the business that they have been so heavily intertwined with up to this date. The impact of the change should not be under-estimated, even where a founder may maintain a role within the business. As one founder noted 3 months after their transition:

   I still lead the business, but I no longer feel the pressure and anxiety of sole decision making.

This mental change and reduction in anxiety and stress for the founder is often the most unexpected, but welcomed, outcome of the transition.

The survey also identified that:

• Although most founders saw their medium to longer term future only as a trustee, few take this step immediately on transition. More prevalent is a middle phase where the founder reduces to part-time hours as a director whilst a new CEO/MD steps up.

The appointment of this new leader may be an internal or external appointment. In either case, it is the appointment and leadership by this new director that can be the catalyst for significant change for the founder.

Once they have handed over the running of the company, and trust the new CEO/MD and their team to lead the business, the founder often feels like an elder statesperson – available for reference but no longer required for day to day operations and decision making.

This role as the elder statesperson can then be crafted to be part-time or ad hoc depending on need. It can also be an opportunity to re-invigorate the passion they had that created the foundation for the company in the first place. Reverting back to a part-time role in their original creativity, activity or focus, leaving the administrative and leadership burden to others.

 

Planning for Founder Change

Across our discussions with EO companies, we have found that, whilst there is usually some ongoing involvement by founders, it is rarely as these individuals planned. Often those intending to stay in a role within the organisation find that, having found the freedom to expand their horizons, they no longer felt the need or drive to be intricately involved in the day-to-day activities of the business that they had founded.

What cannot be planned is the potential change in how the founder perceives their company once they are no longer the owner and/or the head of what was once ‘their’ business. Across our clients we have seen founders who were adamant that they would leave immediately to allow their new leaders to run the company. Often this happens, occasionally either the founder or the new leaders seek to keep closer engagement in the early months and years than originally planned.

On occasion we have also seen founders and new leadership teams that have planned for continued founder involvement but, very quickly, have found that this is not necessary or wanted by either the founder or the leadership team.

The difficulties lie where the founder and new leadership teams’ wishes are opposed to each other. Where there is a positive and open on-going communication on the topic, this can be a positive discussion and journey that both go on. Where it is ignored or avoided, it merely pushes the discussion further down the path with the add on effect that employees are unsure of where the ‘new’ leadership and decision making authority lies.

For the benefit of the business, its continued success and the understanding and engagement of all employees, it is better to be transparent on plans, continue to communicate and not be afraid to adjust as expectations, needs and desires change post transition. As with all aspects of transition to employee ownership, it is enabling flexibility in plans and timings that allows for a successful transition.

The full report can be downloaded from the Ownership at Work website at: OAW-IDT-EOTs-In-search-of-best-practice-28-March-2022.pdf (ownershipatwork.org). Alternatively, you can obtain a copy of the report, or arrange a confidential  discussion on the contents or your specific EO  with IDT , by contacting us at: info@directorsandtrustees.co.uk