A few months back I put together this document which you can read in full below (grab a coffee and put your feet up – it’s a bit long). It was my first attempt at understanding the impact a worker cooperative or an employee owned company could have on the economy and its participants.
After sending it out to close to a hundred fellow employees, I was approached by two of them in succession; one was interested to know more about the concept. The other – more timid – although expressed genuine interest, seemed more concerned what the management might think of it. A valid comment from a life-long employee who for the new overseas owners was no more than an entry in the revenue and cost sheet.
Read the full text below:
The End of Us and Them
The case for Employee Owned Companies as the basis for successful local economies
‘Firms that have engaged employees, who own a chunk of their company, are just as dynamic, just as savvy, as their competitors. In fact they often perform better.’
Nick Clegg – UK Deputy Prime Minister and Lord President of the Council
‘As owners, the employees have made the company superbly successful. Instead of just making my family rich, this has spread millions of pounds to all the employees (in addition to their wages) and consequently to their families and communities. It has also transformed their working lives: it is no longer a dictatorship, but an open system in which they as full partners get the three key benefits of ownership: information, the ability to influence things, and a share of the wealth they help create.’
David Erdal – Honorary Senior Research Fellow at University of St Andrews, former owner of Tullis Russell – a paper company owned by his extended family since it’s conception in 1809, who initialised an employee buyout in 1984.
To create fair and profitable co-owned businesses that are vehicles for people who work in them to build a great lifestyle, with a friendly, cooperative culture and a secure financial future for themselves, their families and the communities they live in.
Think about the following for a moment:
Consider who benefits from the profits made from your work. Is the money being re-invested in your community? Are your family or friends going to benefit from the fruit of your labour? Is your company owned locally or is it a part of a global corporation with the head office in another country?
Have you ever hit a wall when you found something not working and wanted to improve how the company operated? Have you ever been refused information on the “need to know” basis? Do you feel attached to your work, or do you try your best to forget about it the moment you leave the building?
Have you seen or felt the result of moving manufacturing out of your local economy, or maybe even your company? Do you feel that you have any say if a decision to relocate affects your position? Will your family be secure financially if that happens?
Due to recession and market changes of recent years, well known established companies have gone under with workforce left on their own with tiny redundancy packages. This has been magnified by the removal of manufacturing from local communities to overseas over the past 30 years. Global ownership means that more and more profits are being pumped out from the local economies to overseas owners. The workforce has no control over their work or the fate of their positions. They work to fabulously enrich the few and not to create even moderate wealth for their families. We currently witness income disparity between the workforce and business owners or high level managers. The workforce is alienated from owners and some high level management through income disparity and lack of information flow. If an employee wanted to leave the treadmill, the options are unemployment, self employment or starting a company. The government has not been able to provide a full solution apart from income redistribution with 40% of society supporting the rest in one way or another. This creates a stark polarity of political views with labour on one side and capitalist conservatism on the other with no middle ground.
The “why” behind the problem:
Job security is an illusion sold by both corporations and the government. To a person owning or running a business who wants to maximise their profits, hiring people is a necessity (click the link for a fantastic bloomberg post by Nick Hanauer – a billionaire philanthropist). If their job can be done away with, they will find a way to get rid of them. The government tries to create employment law to protect workers, but needs to be careful not to create a situation in which the capital leaves the country completely. Therefore this is a constant “us and them” struggle. Since employees are treated as a resource and a cost, owners will always seek cheaper labour. With access to labour overseas, they will not hesitate to move all manufacturing out of one country and put it into another. Where does it stop if the labour force in China is getting more expensive these days? When the big corporate owners or individuals ship profits overseas, local economy suffers. This money will be used for buying another yacht instead of the workforce supporting local pubs, restaurants and food producers. One person making 50 times more than the UK average will not buy 50 pairs of trousers or 50 pints a night. The system was set up for money to create money, thus the minority that controls the capital is able to extract all profits from the economy.
The employee will be held accountable for the product they make. Like an engineer who makes a mistake that causes an accident or a worker who puts components in the wrong way, but neither the engineer nor the worker will share in the success of the product. Should a change be envisioned by the owners or top managers of the business, like re-locating a plant or office from one part of the country to another or overseas in general, whatever wealth they helped build will stay with the owners bar a small redundancy package if any. There is no connection between the workforce and the owners apart from renting their time to the employer. They need to compete against each other for positions and any monetary rewards available. This leaves the workforce divided and strung out for cash.
Because people are a cost and resource, the unemployment rates are kept up artificially. This is with the help of the government, and it allows employers some control of their costs and a constant availability of talent. Additionally this makes workers disposable with minimum time to train the next person willing to work for a little less money than the predecessor. The unemployment option, although heavily subsidised by the government, does not allow for a lifestyle on the same level as our peers, so the next possible option is self-employment. This option is very hard to achieve and not suitable for everyone. Not all self employed people are able to support themselves or their families and often need to go back full or part time employment. Starting a company is not something the general public is prepared to do. The education system focuses on creating workers and not entrepreneurs.
The government is elected by the masses but supported by big money through powerful lobbies. Over the years social laws were brought into place to redistribute the wealth artificially from those who make more to those who make less. This helps the less fortunate but doesn’t eliminate the divisions in general. On top of that these laws promote removing of capital from local economies to other countries. Wouldn’t the owner of the capital facing large taxes (used to support the lower income families) much rather take it to a country where taxes are lower?
There is a lot of money concentrated within the pockets of the minority of the population. On the other hand there are a lot of people sharing the daily problems stemming from not having enough money to support their lifestyles. In a democracy, part of the ruling class is behind the people with money and part of it is behind the working class. There seems to be no middle ground.
There is a type of business organisation that is generally not spoken about much although it is very well known amongst society in general. Some call it a Co-Operative, others an Employee Owned Company. In any case the employees hold a substantial share of the business if not all of it. There are tax incentives available for employees owning stock in the company they work for. In the case of existing successful organisations, employees buy a stake in the company or own it outright. The shares can be held by employees, a trust fund or a combination of both. Profits can be paid out annually as dividends and/or kept in the trust. Depending on the company structure, the rule can be democratic or through top down management. In either case, flow of information is open in both directions, and employees provide a valuable supply of ideas.
How does it work?
The security of workers’ jobs is still dependant on market forces and external competition from other companies. However, there is no one person to say that they are now too expensive to pay salaries to, or that all production will be moved to a cheaper region. Additionally having worked for the business, they will be leaving with a payout from the fund created from profits the company made in the previous years. Any movement of production overseas won’t happen if the employees who are the business owners decide that it is still profitable to keep the business where it is. They are not a cost anymore to anyone, but they are building their own wealth. The only money flowing overseas will happen when the worker takes his or her family on a well deserved holiday abroad. Everything else will help support the local economy.
In history, a slave signed a contract giving their lives to their owners, hence they did not share the profits from his or her labour. Should they do something condemning them and/or their owner in the light of law, they would have shared the responsibility or born it in full. Working in an employee owned company doesn’t change the fact that the worker is responsible for what they produce, but this time they have full control of their fate and share in the success of their work. With many owners in the company the wealth is naturally distributed with no one person having an exaggerated income stream. The government does not need to interfere in the re-distribution of wealth and therefore it is easier to create tax incentives for employee owners.
With the workforce now working to reach a common personal goal of creating wealth for their families, managers can focus on managing the business and not the workforce. If anyone is struggling they can have a mentor and not a disciplinary procedure. Workers don’t have to compete for positions to better their lives because they all share in the pie. Internal politics go away and true cooperation takes place. Trust and transparency take place.
This option seems to be overlooked by the majority. Owners will not talk about it to protect their wealth. The general public doesn’t seem to know about it or doesn’t believe that an employee takeover could happen. This has been done successfully by a number of companies and some examples are provided below.
The redistribution of wealth at government level is a costly process. It involves a lot of bureaucracy, takes time and in essence is not fair. This is not a case for policy changes, because the solution proposed is a natural way of sharing in the wealth and distributing it at source without the involvement of the government. If the majority of big companies employing a big chunk of the workforce were employee owned and governed, then parliament would not have to spend time on the many futile discussions between the labour representatives and the employers’ representatives. Historically this has always been an unresolved pain point of any ruler or government.
- Tullis Russell – Paper manufacturer that was sold to it’s employees in 1994. The business operates in a highly competitive industry. 90% of all UK paper mills have been closed down and moved abroad. Employee engagement have been the deciding factor in its survival.
- Gripple – manufacturing organisation with no job titles or HR. Nearly 80% of the company’s 220 employees own equity in the firm.
- AquaScot – a Scottish food processing company. In 2004 they were bought back by former owners and an employee buyout. It since has doubled in size.
- PrimePac – A co-operative started by former employees of a business which was closed down after a fire and removed from the area by their past employers. The business before the fire employed 140 people. The new business was started by 19 and have grown to 35 – 50 people as of 2013
The call to action
Speak to your colleagues, start open discussions, ask for consultations. Spend some time exploring your options. Perhaps you will find that some of your colleagues share the same problems, worries or views. If this is the case, then just maybe there is value in buying a stake in the company. It is a great time to do it – the number of employee owned companies is on the rise and the well established ones are proof that this model of ownership works.
There are organisations and people that can be contacted for help with organising a new ownership structure:
- Employee Ownership Association – the voice of co-owned business in the UK. employeeownership.co.uk
- Baxi Partnership – The mission of the Baxi Partnership is to support the growth of strong, successful mutual and employee owned organisations. www.baxipartnership.co.uk
- Co-ownership Solutions – a specialist provider supporting and guiding employee owned and worker co-operative businesses. www.coownershipsolutions.co.uk
- Cooperatives UK – http://www.uk.coop – the campaign for cooperation