Employee
ownership produces a unique blend of three things:
- a focus on employee inclusion
and connection;
- incentive; and
- the balancing roles of an operating board and
trust working to common vision.
It is an innately resilient and aligned model,
and one that also preserves the founding ethos and identity of a company.
And
as an exit solution, one real advantage is the ability for founders to choose
when and how they step down. They have a wide range of aiming points; whilst
physical transfer of ownership is marked by signing legal/financial
documentation, employee ownership only comes to life once its principles are
embedded. It is natural to want to be sure the right things are in place.
Succession
means setting the conditions for effective employee ownership
Employee
ownership sees the mantle of ‘being the business and its conscience’ swing from
the founder to all who work in the company, strengthening its heritage in the
process. Succession, therefore, is more than completing a transactional change
of controlling entity, or simply a matter of finding a new managing director,
or an altruistic recognition of employee endeavour.
It
means certain things need to happen to prepare the company and its people:
- Evolving
from a senior leadership team looking to its founder owner for direction, to an
executive operating board thinking collectively on behalf of the company;
- Building
a wider understanding of company context and headline performance to encourage
interest, collaboration, and the confidence to participate in its dialogue; and
- Capturing the methods and values that have grown a successful business, so that
they are enshrined in its thinking and decision making, in its new
constitution, and in its stewardship through the trustees and their
relationship with the operating board.
It seems a lot to achieve
but that depends on where you are starting from – some companies will have already
developed their operating boards and generated high levels of awareness and
collaboration whether they had an eye to employee ownership or not.
There
is lots of flexibility. The trustees and operating board can begin to shape the
practicalities of their relationship in advance, or once ownership has changed;
employees can be brought deeper into strategic conversation, grow their understanding
of the company’s context, and be taught how to interpret its performance either
before or after ownership changes.
And
there is the opportunity to bolster capacity at any stage with independent
trustees and non-executive directors; to offer a practitioner’s eye when
designing the governance, to help mentor and induct people into new roles or
practices, as confidantes, and as steadying hands through the legal ground-rush
and into the first turn of the cycle.
Succession
means carefully selecting the moment for transition
There
is latitude to formally become employee owned at any point in the journey. It
may coincide with the founder departing, or they can plan to stay involved with
the company while things continue to bed in – under the crucial proviso that personal
control has been ceded.
But
that does not mean the timing is not important.
Transition
represents a defining moment for a founder owner, the company and everyone in it.
The balance of power shifts, a Trust is formed, employees become beneficiaries
of their contribution to the company’s fortune and assume renewed
responsibility for it.
It
is a statement of confidence and identity that sends strong signals to clients
and employees alike. It is a milestone to celebrate with none of the risk or
uncertainty that everything will be swept aside on change of ownership, as can
be the case with a merger, acquisition, or sale.
Founders
have told us that the transition of decision making, and trusting a wider
decision making forum such as a company board, is one of the most difficult but
ultimately rewarding and liberating parts of the process. Others have stepped
up to lead the organisation, the buck no longer only stops with them, their
legacy is on a solid footing.
But
the significance of the transition may be imperceptible to employees looking
for something more tangible and immediate on their level. Their expectations
also need to be considered and managed appropriately.
And
how employees feel on the day can be decisive in accelerating or stalling
momentum – whether they are reassured and trust the founder’s motives, are
confident to embark on a future under employee ownership, and whether they
understand where they are on the journey and what the moment of transition will
actually represent.
Founders
are often disappointed that their employees aren’t as excited as they are on
the day of announcement, and this may diminish the excitement for the founders
themselves. But it should be remembered that this is a new journey for
employees, in the same way that the journey to this point was new for the
founder. It takes time for employees to understand their new organisational
ownership structure and recognise their opportunity. Over time, will they
become more excited and will they be inspired participants?
But
succession through employee ownership means it really is your legacy
Employee
ownership is a route that gives founders space to wean themselves from the
business, until they are comfortable with their legacy and that their people
are ready to pick up the torch. The path to succession builds resilience and
stability, leaving the company’s future as assured as it ever can be when the
founder goes. But perhaps most important of all, it is an exit that keeps people
at its heart – and, ultimately, people are what makes a company.
Simon
Carter is a consultant with Independent Directors and Trustees, an experienced
director and Independent EO trustee, as well as a leadership and governance
expert. He is appointed to a number of employee ownership trust boards, working closely with founders to ensure their legacy carries forward to their EO model.
This
article was written for the lead up to EODay 2021 on 25th June 2021,
a day to celebrate employee ownership that is spearheaded by the Employee
Ownership Association of which IDT is proud to be a Supporter Member.
