Turning public servants into service partners
The track record of employee-owned businesses is superb, both in economic terms and in human terms
The news that the coalition government is considering passing some government services into worker-cooperatives or employee-owned businesses is welcome. In this area many lessons have been learned over the years, both simple wisdom and caveats.
Firstly, if this initiative represents a genuine commitment to spreading the ownership of businesses to all their employees, then that is excellent. The track record of employee-owned businesses is superb, both in economic terms and in human terms. They are more productive and give much happier working lives.
The 1982 example in the UK of National Freight, led into full and enthusiastic employee-ownership by Peter Thompson, later knighted, showed for some nine years what can be achieved. However, the ownership structure was flawed, the company eventually had to float its shares, the leadership changed and succumbed to City pressures, the magic of co-ownership was lost and the company was eventually taken over by a German corporation. So that is lesson number one: the ownership structure must be tailored for the long term. That will include a significant collective element: a trust (like John Lewis, employee owned for 81 years so far, and Arup, 40 years, and Zeiss, 119 years) or cooperative (like La Ceramica d'Imola, 136 years and the Mondragon worker-coops, up to 54 years). It is nothing short of grotesque that in the recent successful initiative by the nurses of Central Surrey Health to move into employee ownership they were specifically prohibited from forming a trust. Why is unclear: probably the failed old City ideology at work on the government agencies involved.
The second lesson is that the financial structure must be tailored to support the businesses during the buyout process. The successful transitions into employee ownership have usually involved a patient approach by the vendor. In John Lewis, for example, the owner took a 20 year interest free bond for the value of the company. Tullis Russell were allowed up to 15 years to pay the price, with interest payable meanwhile – the debt was fully paid in just seven years. The government is in a position to adopt a similar approach. It is vital that City equity is not used. The owners of the shares must be the employees and trusts for the employees – not outsiders. But the City may be able to come up with suitably tailored mezzanine finance.
The third lesson is the importance of finding leaders who truly understand the potential of co-ownership, and are committed to making it work. The most difficult time in any transition is the early years, when the new way is strange to everyone. There are often issues of distrust, and it takes sometimes years for commitment to build. Clear leadership is vital – always focused on the need to build a strong business.
The fourth is the importance of a truly inclusive management style: open information, genuine consultation and active involvement of all the employees. People must be treated as active partners in the business, with full rights to information, influence and involvement. This is not just being nice: that is what they actually are. Treated like this, people respond with sometimes breathtaking innovation and commitment. This leadership needs to have a governance structure with the partner-employees as the final arbiters. Certainly there can be outside input, and regulatory supervision of sensitive services. But the final decisions in each business must rest with the partner-employee-owners.
Finally there is a need to share the proceeds. If the company is wholly trust owned, then the sharing is wholly in terms of profit. If there are individual stakes, then the shares or their equivalent can allow participation in the capital growth of the business. Sharing must be on a fair basis – not necessarily equal, but not disproportionately slanted to the leaders. And always investment comes first.
Success leads to good quality service, to innovation, to expansion, to high productivity, to flourishing communities (the economic multiplier in local economies is huge) and last but by no means least to happier, more committed partner-employees, who understand their world better and are more integrated in society.