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The employee ownership trust as a modern economic model

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Graeme Nuttall OBE on the significance of employee ownership trust as a modern economic model.

A conference held on 27 September 2019 in London commemorated the 150th anniversary of the birth of Mahatma Gandhi. Organised jointly by The Gandhi Foundation and Brahma Kumaris (UK), it explored a range of themes related to Gandhi’s thought and life. In particular, it covered the non-violent resolution of conflict, climate change and modern economic models.

Fieldfisher partner and employee ownership expert Graeme Nuttall OBE spoke on the significance of the employee ownership trust (“EOT”) controlled company as a modern economic model. His introductory comments are set out below.

“There is a business model inspired by Gandhi's vision of trusteeship in industry and Quaker values. This is the Scott Bader Commonwealth and in 2014 the Gandhi Foundation International Peace Award went jointly to this business and its founding family. Ernst Bader wanted to create an alternative form of wealth creation to the traditional share owning and profit distributing joint stock company. In summary, he established an employee-owned charity, the Commonwealth, as the parent of the Scott Bader manufacturing group.

In the employee ownership sector we have seen several such pioneers, over the years up to 2014, each inventing structures to meet their aspirations for a better business model.

One modern pioneer is Hugh Facey, at the Sheffield manufacturing company Gripple. An important part of Gripple’s structure is a not for profit company called GLIDE. It owns shares in Gripple (alongside employee shareholders) with the aim of looking after the interests of employees and developing Gripple’s employee ownership culture.

Swann Morton, surgical blade manufacturers, and Arup, the engineering and design company are longer-established employee owned companies. Both these companies’ structures include a charity as a permanent holder of shares in the trading group, which operates alongside the trustee of an employee trust as the other shareholder.

Even longer established, of course, is the John Lewis Partnership, 100% owned by an employee trust established in 1929.

The common theme in these structures is custodianship or trusteeship. These pioneers of employee ownership invariably incorporate some form of trust or its equivalent as a permanent feature in the ownership structure, to nurture employee ownership culture for the long term.

Thankfully, since 2014, we now have a default model for such a trust – known as the employee ownership trust or EOT. The EOT was introduced in the Finance 2014, following the findings of my 2012 Nuttall Review of Employee Ownership, as part of the Coalition Government’s drive to promote employee ownership in private companies. There are capital gains tax and income tax exemptions to encourage the use of EOTs as majority owners of trading companies. There has been a period of sustained growth of this business model. There are now some 400 employee owned businesses in the UK with more than 60% of conversions to employee ownership happening since 2014 – the year that the EOT was introduced.

Among architects, EOT ownership is a mainstream business model. The 2017 move to employee ownership of the UK’s fourth largest architects practice, AHMM, in particular, acted as a catalyst for many other architects firms to make this move to EOT ownership.

If we test the EOT against some of the Gandhi Foundation’s aims, we can see how it is an excellent match:

  • the EOT provides an harmonious way of transferring ownership from a small number of owners of a company to all that company’s employees;

  • the employee bonuses that are a typical feature of EOT owned companies help reduce income inequality;

  • an EOT owned company emphasises self-reliance, cooperation and, of course, trusteeship. Each employee is made aware of their responsibilities as well as their rights as employees and beneficiaries. The trustee of the EOT has to act in the best interests of all employees;

  • EOT owned companies create, typically, decentralised businesses that involve the active participation of every employee;

  • research into the MoralDNA of employee trust owned companies showed significantly higher scores in the values of fairness, trust, excellence, humility and courage, with no significant differences between seniority levels; and

  •  the Ownership Dividend report found that a majority of employee-owned businesses make explicit commitments to contribute directly to their local communities.

So, in response to calls for adapting or re-inventing capitalism for a modern economy and especially calls for a reinvention of the co-operative or other form of worker co-operation we can point to a tried and tested model, the EOT, to answer those calls.”

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