Employee ownership in architecture
Employee ownership through an employee ownership trust ("EOT") is now established as a proven method of ownership within the architecture sector. Earlier this year, The Architects' Journal featured several Fieldfisher clients in an article looking at why 15 of the UK's top 100 practices have adopted the employee ownership model, with more expected to follow (see "Power to the people: the rise of the employee-owned practice" published by The Architects' Journal on 12 January 2018 - https://tinyurl.com/AJeoJan12 ) (the "AJ article").
Fieldfisher advised Allford Hall Monaghan Morris ("AHMM") on its switch to employee ownership and Fieldfisher partner Graeme Nuttall OBE sits on the board of the AHMM trustee company as independent Chair. On AHMM's switch to employee trust ownership, Peter Morris (managing director of AHMM and a founder shareholder) is quoted in the AJ article as saying: "We wanted to make things as simple as possible when any of us might think about retiring…It is still a long way off for all of us. But we have been together a very long time as students, directors and friends and the last thing anyone wants is for it to become troublesome when we are retiring".
For some who adopt the employee ownership model, succession is a key driver. Often other factors are at play – recent tax changes and other measures backed by the Government are aimed at increasing awareness of employee ownership and making the transition easier. Graeme Nuttall is quoted in the AJ article: "the [employee ownership] model works at every stage of a business’s life cycle…[with the tax changes] There was a recognition in government that something needed to change in relation to how private companies were run and to increase the variety of business models".
A decision to sell your business should not be made on the basis of available tax breaks but they may provide the final push to sell or to sell a higher percentage of shares to an EOT. Neil Farrance from Fieldfisher client Formation Architects admits in the AJ article that: "Without the tax break, it was an extremely expensive move – you have to defer profits or find extra money, which all takes attention away from the day-to day-architecture business."
A frequently asked question for us is what happens to the day-to-day running of a company which is controlled by an EOT. The answer is confirmed by Graeme Nuttall in the AJ article: "To a great extent, the day-to-day management is business as usual". What changes then? "[T]he board of directors becomes answerable to a trustee board" – this provides an opportunity for greater transparency and employee involvement in the business which is now owned for the collective benefit of the staff. This is not without its challenges – Chairman of Fieldfisher client Stride Treglown, speaks of his experience of employee ownership in the AJ article: "…we are now starting to see an understanding from staff that they can flex their muscles and hold our feet to the fire…There is a risk if you haven’t explained properly that people can get quite spooked and preoccupied by troughs in performance…We have to be careful that information is accurate and proportionate and explained".
The feedback from companies adopting the employee ownership model is overwhelming positive. There is important evidence that employee ownership can have benefits that go far beyond the tax incentives - for example: improved business performance, increased economic resilience and greater employee commitment and engagement (see further: Sharing Success -The Nuttall Review of Employee Ownership, published by the Department of Business Innovation and Skills (July 2012)). Neil Farrance highlighted another important benefit in the AJ article: "In addition to keeping more staff, those we are recruiting are often very interested in the [employee ownership] model – particularly the millennials."
Julian Williams, director of BB Partnership which Fieldfisher advised on its transition to employee ownership in 2017, summarised his view of employee ownership's application in architecture in the AJ article: "Architects are accidental businessmen…Employee ownership allows us to get on with what we enjoy doing. [It is] the way that most architects’ practices will one day be owned". Time will tell whether this prediction becomes a reality…