An Employee Ownership Business could be described as ‘Purposeful Capitalism’ a term used to explain making money with ethics –it means there is a purpose to the venture and activities and a positive ethos or spirit to the business model. The strategic choice to be a ‘good’ company is no longer defined solely by yield, productivity and return – there should also be a mission statement in terms of what positive difference and contribution the business makes to society.
An employee ownership business is where a sale to a Trust is structured whereby the trust runs the business on behalf of the employees. This exit strategy is becoming increasingly popular amongst business owners looking to sell – partly driven by the sale being at 0% Capital Gains tax and the ability to achieve comparable terms to a trade deal, but also because it ensures the legacy of the business and rewards the employees.
Employee ownership structures actively embrace a new business model that drives the business forward post-completion and any deferred pay-outs to the exiting shareholders. Instead of focusing on short-term financial goals, employee-owned businesses are run to be more sustainable, ethical and productive – thereby becoming more purposeful businesses that make a positive contribution to society.
What employee ownership businesses have in common is the idea that businesses need more varied measures of success than simply profit and growth, and an understanding that the new employee ownership structure is key to implementing these measures. Ethical brands can market their purpose but must ‘live the change’ in their business model, approach and results. Additionally, Government policy needs to address the growing wealth inequality created by an increasingly consumer-led, capitalist society.
Having led a number of successful employee ownership sales, we think there is too much focus on the 0% tax benefit to sellers, the employee council, and the voice of a more team-driven business. Of course, these aspects are important and represent huge benefits of employee ownership, but in our advisory work on employee-owned businesses, we believe there is a new goal. This new goal is to create better commercial business models that are more successful with a greater contribution to society – and these businesses just happen to be employee-owned. An employee ownership business then becomes a real way to create wealth yet tackle some of society’s injustices whilst building a greater number of truly ‘good’ companies.
Perhaps Jim Collins had it wrong in his management book ‘Good to Great’ – maybe ‘good’ is exactly what we should be choosing. Therefore, it may be time to reconsider the social contract for capitalism, so that it becomes more inclusive of a broader set of interests with employee ownership being part of the honest solution.
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Avondale are EME business advisors. Through our management consultancy, we support growth and scaling up. Through our M&A and corporate work, we secure investment and finance for EME businesses, help people buy and sell companies and enhance shareholder value. We recognise ambitious owners who require ambitious, specialist advisors.