Employee Ownership: The Solution to the Productivity Gap in Business?

With income inequality at record high levels, employee ownership is a potential solution to spreading wealth more broadly. However, despite strong growth in employee owned businesses, it is still a rare way to operate.

There are various reasons. Contrary to what some might expect, greed is a very minor one. For the most part it is ignorance of the benefits that employee ownership can offer to founders, employees, the community and the economy as a whole.

Employee owned businesses tend to have shown stronger growth, higher valuations and are more resilient in difficult economic conditions. From a founder or owner’s perspective, it can be a route to exit the business. However, it can also be a way to stay in the business, create more wealth for themselves and share the wealth created by the business more widely with those people who help create it. It comes down to that age-old question in business: “would you prefer to earn £100 from your own work or £1 each from the work of 100 people?”

Another barrier to becoming employee owned is the investment to get the ball rolling. If the employees can’t afford to buy the shares directly (or the aim is to put the shares in trust), then finance may be required. The options are limited. Few investment funds specialise in employee ownership because their aim is generally to get the highest return possible, whereas an employee buyout is looking for the fairest return possible for all.

Businesses and Governments worldwide are struggling with how to reverse the decline in productivity in this country. Results from employee owned companies suggests they strongly outperform their non-employee owned counterparts. However, employee ownership is not a panacea. It will not turn around the fortunes of a business if it is done for the wrong reasons (tax benefits, for example) or in a business with the wrong culture.

Similarly, giving employees shares without helping them to understand how they can increase the value of those shares and benefit from it, will not result in increased engagement and productivity. The attitude of ownership comes when they are committed to the goals of the organisation, know how they can affect them and know how they will benefit as a result.

Positive cultural engagement, ongoing financial education and an annual planning cycle that widely involves employees are cornerstone leadership initiatives required to support the company of owners.

In the right culture and with the right support to develop the company of owners, employee owned companies thrive, increasing wealth throughout the company, their community and the country as a whole.