Scott Wright: Why more and more Scottish firms are putting their future into staff hands

But there are many businesses which have prospered, perhaps because of the digital nature of their models that ensured they thrived during lockdown, or at the very least have kept their operations on an even keel.

In cases where companies have performed strongly, it will have been to a large extent down to the skill and endeavours of employees who, against the backdrop of huge restrictions in their personal lives because of coronavirus, have worked long and hard to keep things going.

Progressive employers will have recognised such efforts by awarding pay increases; others perhaps by listening to staff concerns and adapting their working conditions to reflect the concerns they have about returning to the office.

Some company owners thinking of the long-term future of their businesses and succession planning may now be considering whether to pass shares into the hands of employees.

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That appears to be the view of experts who have advised firms in Scotland on moving into employee ownership in recent years, and who are now expecting the trend to gather pace.

“Some business owners have accelerated their succession plans because of the challenging year, and they feel it’s time to move on,” said Carole Leslie, founder of Ownership Associates, which has helped more than 70 companies move into employee ownership.

“However, we are seeing younger business owners –for whom this isn’t necessarily an exit strategy – recognising the support and input from their employees in what have been very challenging circumstances, and are looking to move to an Employee Ownership Trust (EOT) as a means to reward that commitment.”

There are currently 103 employee-owned companies in Scotland, after their ranks were expanded by a further 15 in 2020. This year, Ms Leslie forecasts that 30 more will take the plunge.

The growth rate will have to step up, though, if the Scottish Government target of 500 by 2030 is to be met.

“The compelling success stories of so many companies that have taken this route have done much to raise awareness of EO as a feasible succession option,” Ms Leslie told The Herald, highlighting the example of East Lothian-based Jerba Campervans, which has seen turnover and productivity rise significantly since it became employee-owned in January 2018.

Carole Leslie, Ownership Associates

“Research commissioned by Co-operative Development Scotland (CDS) and Scotland for Employee Ownership discovered more than half of the surveyed employee-owned businesses found their turnover was unaffected, or even grew during the Covid-19 pandemic, with more than 90 per cent of the EOBs (employee-owned businesses) experiencing only minor, or no staff retention problems.”

CDS, the public body which assists firms make the transition to employee ownership, is also anticipating numbers to rise. The organisation highlights succession as a “key driver”, but says it is also encouraging owners to think of the model “from the start-up stage”.

Proponents of employee ownership point to a range of benefits that the structure brings. For individual members of staff, it can have a galvanising effect. If employees hold shares in a business, they will arguably be more motivated to help safeguard its continuing prosperity, in the knowledge that they will benefit financially further down the line, or have greater job protection.

Many owners are drawn to employee ownership to reward loyal staff whose work and ideas have been critical to the development and success of their business. That desire to recognise the dedication of staff may arguably be even more pronounced in the midst of a pandemic, especially when employees have frequently had to go the extra mile amid extremely challenging circumstances.

Employee ownership can be a solution to the often-delicate issue of succession planning, which has sadly caused upset at many family firms down the years. When there is no obvious successor, employee ownership can help safeguard the future of a company, while also ensuring the seller retains some equity.

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It is a mechanism by which company owners can ensure that a business stays within the community that it has grown in, thereby protecting employment prospects in an area. And it is seen as a way of preserving a company’s culture, which is often a critical component of its success.

“If a company is a sound, successful business, then employee ownership allows an owner to manage their exit while achieving a competitive price for their business,” said Clare Alexander, head of CDS at Scottish Enterprise. “It safeguards the long-term future of the company and keeps it rooted in its local community, retaining jobs, skills and investment.”

For Roy Gill of Montrose-based Gill Financial, removing uncertainty was a key consideration as he and wife Lesley planned the future of their business with a move into employee ownership.

“An acquisition would have put so much at risk and I hated the thought of that,” Mr Gill said. “For a start I didn’t want any of our staff’s futures put into uncertainty, or for the culture to change so significantly they felt forced to leave.”

Moving into employee ownership would also appear to be suiting Scottish Woodlands.

The Edinburgh-based company, which is 80 per cent owned by staff and has been in some form of employee ownership since 1986, reported a rise in annual profits this week, despite turnover falling because of the impact of coronavirus. It made a pre-tax profit of £4.02 million for the year ended September 30, 2020, up from £3.6m in the prior 12 months.

“Scottish Woodlands Ltd is like a family business – it isn’t strictly, but it really feels like it,” said managing director Ralland Browne. “It’s the nearest you could come, I think – colleagues have a very close bond and really look out for each other.” He added: “People like working here and we have a really strong record of long service and low staff turnover. People are loyal to us and know that Scottish Woodlands will always do its absolute best to reward that loyalty by treating them well.”

The motivation for passing the ownership baton on to employees is not exclusively altruistic.

Douglas Roberts of law firm Lindsays, who has worked with 15 employee-owned companies in the last four years, said last week that “subject to meeting certain requirements, the shareholders who sell pay no capital gains tax”. But he emphasised that tax “should not be the main consideration.”

Mr Roberts added: “Holding a stake in the place you work creates a different mindset among staff and can certainly spur innovation, performance and productivity, which benefits all involved.”

Ms Leslie at Ownership Associates concurred, stating that tax incentives are “rarely a prime driver”.

Asked if there are any negative aspects to employee ownership, Ms Leslie replied: “If there isn’t at least an embryonic leadership team in place, with no one to take over the reins from the selling owner, then EO won’t work. A sale to an EOT solves the ownership succession, as an exit strategy, but there needs to be new leadership coming through. Having said that, the fact that the selling owner usually remains in post for a transition period supports the development of the next generation of directors.”