Leadership Incentives in EO Companies

Agulhas Applied Knowledge was founded in January 2003 and became employee owned in December 2020. Here Nigel Thornton , one of the 3 founder vendors, kindly shares his journey to making the decision to sell to an EOT, and beyond to its current position as an EOT, B-Corp certified company with the founders stepping back and a new leadership team in place. Why did you originally decide to sell to an EOT, and do you now believe that it was the right decision? I haven't regretted the choice to sell Agulhas to an EOT for one minute. Many years before we made the decision, we had talked to other founders of companies similar to ours, and heard how they were all struggling with the challenge of transition. I knew for a long time that we would have to come to a point where we did sell. We had three choices; the first was to wind the company down. The second was to look for a buyer, probably to a much larger company. And the third, thanks to the 2014 act, was the option to sell to the employees through the mechanism of an EOT. After living and breathing Agulhas for many years, the idea of winding down just didn't seem right, so we looked at the second two options more carefully. Once the three founders talked to others about selling out to a larger company (and we’d had some interest), or getting a venture capital injection, we realized it wasn’t an attractive option for us. We would end up doing the bidding of the buyer through the workout period, being vulnerable, really, to the new owners’ whims. A buyer would likely fire most of the staff, retaining only the seniors, and the company would be gone. From companies that had got venture capital funds we’d seen we’d be forced to grow rapidly to meet an investor’s requirements and become driven by the bottom line. In both these cases, what we'd created that was unique about Agulhas would be lost. We didn't want that to happen. So it became clear fairly quickly that the choice to sell to an EOT seemed best. It meant that the company could work effectively on the kind of things that we've always thought important. The culture of the company would be maintained. We could evolve from where we were rather than be forced to change. And actually it was better than that. It wasn’t the best worst option, quite the reverse. Soon after we made the choice to go for an EOT, and began working through what it meant, we realised that doing so was indeed consistent with our values. It was an expression of who we already were and the founders’ beliefs. And, as its worked out, I think we’ve found that for Agulhas, becoming an EOT was not as great a step as it might have been culturally, or practically. What stage is the Company at now, and what is your ongoing involvement, if any? We’re four years into our EOT life, and about halfway through the payoff of the deferred consideration. It’s gone slower that we’d hoped as our main client is the UK Government and there’s been a lot of disruption to our expected cashflow since December 2020 when we became an EOT. I've handed over being the CEO to Lauren Pett who had been our Chief Operating Officer. We did it in a very Agulhas way, evolving and having a phased process of her taking over. Since we became an EOT, the role of the staff has been strengthened through what we call the Co-Owners Forum (COF). This is still evolving, with informal and more formal working groups aligned to both areas of strategic priority for the company, and themes important to the staff. And the EOT has driven us to put in place more structured governance. We’re in the process of further developing the leadership roles in the company - what the oversight of the company board and the Trust Board means in practice - to ensure that there is a robust architecture to go forward towards and beyond Freedom Day. That’s meant a structured change to the roles that the three founders have, with us more clearly taking an oversight role through the board of Directors and the Trust Board, rather than day to day running of the company. Together with one of the other co-founders, Catherine Cameron, I’ve gone down to a four-day week. That’s for the good of us and the company, and is a deliberate internal and external signal. Beyond the CEO functions, one of the things that has enabled me to step back is the fact that we've employed people who can take on key tasks I used to do, for instance, finance and IT. I think its not unusual that if a company has grown around you, a founder ends up being a Jack or Jill of all trades. And a key thing for me is I’ve stepped out of managing our biggest client, which I’d done for over a decade. Such stepping back is the right thing to do, although doing so can be hard, it is important. When somebody asks me to do something, I’m finding myself saying, well, actually, that's not my problem anymore, go and ask so and so, it’s their job. It takes a while to get people used to that (and people still find it difficult sometimes) but, as a founder, you’ve been the last person that everybody looks to for so long it’s a hard habit for everyone to break. What have been the challenges since the transition, from your perspective as a Founder? I think when you have spent many, many years being where the buck stops, it's hard then not to think of you yourself in that role anymore. Just because it's habit, you think you are responsible for solving things because, actually, you have been responsible for solving things! You've woken up at three o'clock in the morning because it has been your responsibility to worry about whatever the company is facing, be it a cash flow issue or a delivery issue or a sticky relationship with a key client. So the first thing you've got to do is actually change where your head is at. And that's been a challenge for me. So I’ve needed to change my headspace, and also my actions. It also takes time for people to believe you when you say you aren’t going to be around forever and that you do want to step back. I think it's also a difficulty, or certainly one that I've had, which is to know when to say something and when not to say something, when to intervene and when not to intervene. You've got to let the new leadership take the decisions. And sometimes those decisions are not going to be the same as that you would have made, and sometimes there are going to be mistakes that you might see coming and you might warn people about, but actually they've got to go through and learn from the experience in the same way that I've learned over many years. And the best teacher is, in the end, experience. So it's important to calibrate when to keep your mouth shut, and crucially to be available to the new leadership if they want to ask you a question, ask what you think, to be helpful and supportive, so that they know that you have got their back if necessary. It’s delicate and I haven’t always got it right. The key issue for me is knowing that the company is safe; and that’s essentially about knowing that the beliefs, people and systems are sound, and that as far as possible there’s a secure commercial outlook. What have been the positive highlights that you can share with others? At each of the last three company away days, I've said a version of the same thing which is that 20 plus years ago, when we founded the company, if you had told me that Agulhas Applied Knowledge would have the number of staff we have, our diversity, the level of energy and interest they show in the work, and that we would have a portfolio that is as wide and interesting (and if I may say as influential) as we have, I probably wouldn't have believed you. We founded Agulhas because (apart from probably being unemployable by anyone else!) we wanted to do interesting and impactful work. We never set out as the founders to create a company that Agulhas has become. A lot of the recent change is down to the energy of our CEO, Lauren, along with the rest of our team, and the energy and creativity that being an EOT engenders. They and us have built on the foundations we created. And Agulhas has become something bigger than me or the founders; it's beyond us, and that is fantastic. The employee ownership trust creates a whole new dynamism and crystallizes the company as no longer about who we are, but about the collective energy and commitment of the entire workforce of Agulhas, our beliefs, values and its culture. And that is amazing. Truly amazing! As a Founder, and Seller, what advice would you give to leadership teams of an EO business? Firstly, don't rush. Set a clear direction, but realise the wheel can take time to turn. All the change, all the all the evolution of your company to be a fully fledged EOT is not going to happen overnight, and different parts of it will grow at different paces. There will be hiccups along the way. Which leads to the second point, its important therefore to start the process early and allow things to work through! My guess is that many founders start too late, often perhaps too close to the time when they should be moving on. Thirdly, don't be greedy. If you're greedy, if you want your payout early, if you want a lot of money, that's probably not a good thing. We had to slow down our deferred consideration repayment because our expected cashflow was heavily impacted, first by COVID and then by political machinations in the UK. We had to manage our payoff at a slower phase than we expected. I think those who look for too much money or want it too quickly run into trouble. Fourthly I think it's very important to be clear about the beliefs and values of the company; for us that was easy because our job has always been very clearly value driven. It's very important to get a sense of who you are as a company, your values, your culture, so that that can be shared amongst everybody. And if somebody comes into your company, its clear they're buying into that – and being an EOT is now who we are. Very soon after becoming an EOT we also applied for and became B-Corp certified (with a very high score I might say!). That was very good for us as the combination of both EOT and B Corp was a clear public declaration of what we stand for and communicated the identity of Agulhas internally and externally. Fifthly, get the governance right. That took us a bit, but we are well on the way. A long time ago as a young management consultant in one of the Big Four, I realised that most organisational problems boil down to two issues; role clarity and effective communication. Get those both right through the transition from a company that relies on the founders to one that is mature and no longer dependent on you, and you’ll not go far wrong. Agulhas Applied Knowledge was founded in January 2003 and became employee owned in December 2020. A research, evaluation, and consultancy specializing in international development and social policy, Agulhas is based in the UK working across the world with a variety of clients including governments, UN Agencies, NGOs, and international organizations. www.agulhas.co.uk Agulhas Applied Knowledge Trustee Limited has had an IDT independent trustee appointed to their trust board since July 2022.

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