What employee ownership could do for your business

Companies owned by their employees may have important lessons for human resources leaders to learn

At a glance, the 41 children’s nurseries run by Childbase Partnership look much like any others: pictures on the walls, toys in the corners, play mats on the floor.

Yet, the Buckinghamshire-based firm consistently wins above-average ratings from its inspectors and has new parents continually queueing at its doors. So what’s its secret?

Two words, says Childbase chairman Mike Thompson: employee ownership. Fifteen years ago, the family-owned firm began offering employees share options, before shifting ownership fully into workers’ hands in May 2017.

The principle of employee involvement can be applied across all aspects of human resources management

As a consequence, the company’s workforce is ready to go the extra mile. Mr Thompson says: “Our retention and achievement levels are better than others in the sector; the results are there, it works.”

How employee ownership can boost productivity

Childbase is not alone. Research by the Employee Ownership Foundation, a US trade body, finds that more than three in four (77 per cent) of its members report higher-than-average employee productivity.

Given the human capital benefits reported by employee-owned business, does this emerging sector hold out lessons for mainstream business?

For Loren Rodgers, chief executive at the US-based National Center for Employee Ownership, the core learning from the sector relates to the idea of employee agency.

“As an employee-owner, you have a far greater sense of impacting your own future as well as that of your colleagues, which is hugely rewarding,” he says.

A critical technique for inculcating this feeling of employee agency is open-book management. By seeing what money is coming in and what is going out, every worker has a clear idea of the company’s overall direction.

The same approach can be applied to decision-making, says Mr Rodgers. He cites SRC Holdings, an employee-owned firm in Springfield, Missouri, that holds weekly “huddles” for sections of its workforce.

“People across a business unit say how they are doing, and then others can adjust their plans and collectively focus on the painpoints coming up,” he says.

Open-book banking and more are key to success of employee ownership

Union Industries, a manufacturer of industrial doors, also attests to the value of an open-book approach. Senior management at the Leeds-based company regularly debrief the firm’s 70 or so employee-owners on the current financials and future investment strategy.

The information helps guide decision-making at every layer of the workforce, says managing director Andrew Lane. Because people now know how much raw materials cost or what the energy bill is, for example, they find creative ways of making efficiencies.

“What you then have is a whole business-worth of people who are doing your ‘workings out’ for you. The issue isn’t then how to generate ideas, but how to deal with all the ideas that you get,” says Mr Lane.

The principle of employee involvement can be applied across all aspects of human resources management. Take recruitment. If those on the shop floor are going to have to work alongside a new hire, it makes sense that someone from the shop floor join the interview process.

The same goes for the top of the hierarchy. At Childbase, for instance, directors are voted on to the board for a maximum three-year period. After that, the company’s employee-owners get to decide whether to re-elect them or not.

Employee ownership all about increasing transparency and collaboration

For Mr Lane, providing employees with opportunities to make their voice heard not only creates a more transparent and participative organisation, but also a fairer one.

He gives the example of employee dividends. At Union Industries, everyone gets an equal share of any disbursement of profits. To ensure no one pockets more than others, the firm caps the total number of shares any one individual can buy.

“The reason that our bonuses are all the same is that we all get paid to do our jobs and we share collectively in the success. It means when we say ‘we’re in it together’, we mean it because we really are in it together,” says Mr Lane.

It is important to note that the concept of parity, which is central to the employee-ownership model, does not necessarily extend to all forms of remuneration. Salaries are still typically tied to an individuals’ expertise and responsibilities, as in any conventional business.

Yet the culture of transparency in employee-owned firms, coupled with the sense of collective solidarity, acts to keep salary differentials in check.

Empirical research on remuneration in the employee-owned sector remains hazy, Mr Rodgers concedes. Yet he is confident that the pay gaps in employee-owned firms are “less out of control” than in the market at large.

Employee ownership means keeping the good bits

Of course, not all employee-owned firms are well managed, it should be said. Many conventional firms have working practices that their employee-owned peers could learn from.

But a key difference with employee-owned firms is whatever good practices there are, they are there to stay. In conventionally owned companies, by contrast, it just takes a change of management or a business buyout for the whatever good practices there are, they are there to stay

Ewan Hall, director at Baxendale, a specialist consultancy advising employee-owned businesses, refers to this engrained approach to human resources management as the sector’s hidden “spine”.

“Having the employee ownership aspects makes it [good HR practice] much more real. This is not a game we’re playing and next year we’ll take your toys away,” he says.

Perhaps most importantly of all, employees with a vested interest in how their companies are run are more likely to trust management when they introduce human resources innovations.

As Mr Hall points out: “Employees are less suspicious that this is some management wheeze perpetrated by a group of owners who are just trying to earn more sweat at their expense.”

Employee ownership may not be for every company. But that should not stop human resources professionals learning from the insights it has to share.