Deputy Prime Minister speech on employee ownership: Robert Oakeshott Memorial Lecture
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Deputy Prime Minister Nick Clegg gave the inaugural Robert Oakeshott Memorial Lecture.
In the lecture, the Deputy Prime Minister outlined progress the government has made on employee ownership since the Nuttall Review was published in July 2012.
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I am honoured to be here today to give the inaugural Robert Oakeshott memorial lecture. As the champion of employee ownership, Robert lived by his principles; principles of justice, fairness and participation. An extraordinary and colourful character, everyone who knew him seemed to be struck by his irrepressible and infectious energy. Robert was as at much at ease dining in high society as he was heading to the local greasy spoon with workers up in the North East, where he founded Sunderlandia - a construction cooperative - in 1973. Sunderlandia broke from tradition by employing women in skilled trades and as young apprentices - and in doing so he inspired the start of a new wave of co-operatives. He went on to found Job Ownership Limited in 1979, now the Employee Ownership Association, which has been witness to changes in Government and the economy alike.
One of Robert’s closest friends was a predecessor of mine: the late leader of the liberal party, Jo Grimond. Jo became the Chairman of Job Ownership Limited, after having been inspired by Robert and the work of the famous Mondragon worker co-operative in Spain. And through Job Ownership Limited, Robert helped the Baxi Partnership and Tullis Russell make the transition to employee ownership - Baxi Partnership is celebrating its 30th anniversary as an employee owned business this week. In addition to all of this, Robert stood - albeit unsuccessfully - as the Liberal party’s parliamentary candidate up in Darlington.
If you look across Robert’s many adventures and causes, you see an attitude - a set of instincts - which, for me, sum up what liberalism is all about. He went to Hungary to help the revolutionaries. He developed schools for children in Botswana. After the fall of the Soviet Union, he travelled through Eastern Europe, urging workers to take a greater stake in their companies before the oligarchs arrived. Robert Oakeshott - like all liberals - was optimistic about people. And he knew that power and opportunity must not be hoarded by the few; they must be spread among the many, and the world will be better for it. Those are noble ideals. And they underpinned one of Robert’s great passions, which I am here to talk about today: employee ownership.
The empowerment of the ordinary worker.
I set out last summer that I want this Government to be ambitious in driving forward employee ownership. My goal in Government is to help lay the foundations for a stronger economy and a fairer society - and employee ownership helps do both. We know our economy needs to be rewired to properly assess and share risk, to properly motivate and reward workers and to think for the long term. And I am pleased that the scale of employee participation in today’s economy is already significant. Companies where employees own a significant stake in the company they work for have a combined annual turnover of over £30 billion, around 3% of GDP.
The Employee Ownership Association has ambitions for this figure to grow to 10% of GDP by 2020 and I welcome this. Today the EOA have published new research revealing that there has been a 10% growth in the number of employee owned businesses in the past year. Employee ownership helps to create a stronger economy because it structures businesses to do things differently. A diversity of business models in an economy is important because it ensures that not all firms are structured to take short sighted, gung-ho risks on behalf of others.
But crucially, employee ownership can drive employee engagement by aligning the incentives of ordinary workers and the business. Robert Oakeshott thought that the key to the success of employee owned firms was the increased staff engagement of workers who own a share in equity. In practical terms, it means lower absenteeism and lower levels of staff turnover.
Across public service mutuals we have seen organisations who have decreased their absenteeism by an average 20% since spin-out. Many companies spend thousands of pounds to come up with quirky ideas to motivate their staff, yet fundamentally it is the structure of their company which fails to align incentives. The Cass Business School concluded in 2010 that employee owned businesses are between 9 and 19% more productive than traditionally structured companies. So not only does employee ownership help build a more motivated, more committed workforce, but it improves the bottom line too.
And the recent results of some of our best known employee owned firms speak for themselves. John Lewis announced three weeks ago that this year its pre tax profits have risen by 15.8% compared to last year. Owned by its employees, a proportion of John Lewis profits are paid as bonuses every year - and this year is remarkable. Each and every John Lewis employee will receive a 17% bonus, the equivalent of 9 weeks salary. It’s refreshing news to hear that over 84,000 employees will benefit from a company’s success - not just the bosses at the top. That’s the kind of bonus season I want to see.
I also want to pay tribute to other companies who are taking encouraging steps to widen participation and ownership. Sainsbury’s has announced that they are expanding their employee Sharescheme by 25% by 2020 as part of their sustainability plan. This year their Sharescheme will see 11,000 of their employees receiving £2,000 each in dividends this year. And now yet another household name is looking to turn employees into shareholders. Just two weeks ago, Unilever, the world’s second largest consumer goods group, set out in its annual report that it is considering an all employee share scheme.
This shows how businesses at a range of stages in their life cycle can become employee owned. The opportunities for more businesses to become employee owned are vast. From the very conception of a business, through to changing the structure of a company to the handing over of a company to your work force as part of your succession plans - these are all opportune moments. Employee ownership is possible for new starters and old hands.
That is why in the Budget last week we set out how we will be investing to incentivise growth of the employee owned sector. To grow a sector which really can help to reform our economy. From next April the Government will set aside fifty million pounds each year to encourage and incentivise businesses and employees to adopt Employee Owned models. One of the things we will be doing is providing Capital Gains Tax relief for those who sell a controlling stake in a company to their employees.
Too many businesses fail at the point of succession or soon after. Business owners can be faced with the unsettling task of handing their business on to new owners without knowing what those owners will do with the business they have cherished. Many end up selling to the investor who has the largest cheque book, but little regard for the traditions, employees and customers of the firm. Others hand the business on to their children even if that isn’t what they or their children really want. What we want to encourage is for more owners to sell the business on to those people who know the business inside out, who will go the extra mile, the wider family who have worked to build it up and contribute to its success - in other words, the employees.
Let me be clear, the Capital Gains Tax exemption is not only a welcome incentive for business owners to consider employee ownership at the point of sale or succession - but it is also vital in raising awareness amongst business advisors, lawyers and accountants, who until now have too often ignored these options. And we want to go further.
Employee Ownership works because it so neatly aligns incentives and puts the workers at the heart of the business. It is those incentives that I want to see strengthened. So that the incentives are not just for owners who sell to their employees, but for the employees themselves too. Our economy is based on the skills and knowledge of our workers. Our profits are based on their efforts. Our growth on their labour. Therefore the Government will consider further incentives that specifically aim to reward employees.
I can confirm that we will be publishing a consultation that will assess the impact of a range of options to make sure the right people benefit from any tax changes. For example, one option that has been suggested would reduce tax on bonuses paid through benefit trusts, where a significant chunk of the business is owned by employees. Where all employees, not just those at the top, stand to benefit. This consultation will be launched in the summer and I very much encourage you to be involved, so by this time next year we have the right measures in place for employee ownership to flourish.
In addition to the improvement in the tax environment, we’re also creating the conditions for more employee ownership in other ways. Last year, I asked Graeme Nuttall to conduct a review into employee ownership. He has worked tirelessly on this agenda and I am grateful to him and my ministerial colleague Norman Lamb for driving it forward. Norman has now passed ministerial responsibility to Jo Swinson - and the job of delivering Graeme’s recommendations is not a small one, but I know one which Jo is working flat out to deliver.
One of Graeme’s recommendations was to simplify the information available on employee ownership. That is why we have progressed the idea of Employee Ownership in a Box - a package of legal, tax and regulatory information on how to become employee owned. Templates that owners can fill in and use as a basis for their business. I would like to thank David Pett [of Pett, Franklin and Co] for his work on the articles. And I am pleased that these are nearing completion. In the coming weeks, we will publish these in draft, so that experts and advisers in the field can comment and refine them before the launch.
I would also like to welcome progress on the Institute for Mutual and Employee Ownership, and am pleased that the members have come together and agreed the broad scope and model. I would also like to thank KPMG for the work they have carried out pro-bono on the commercial viability of the proposed Institute. The Institute will be established with a broad cross sector reach, representing and promoting employee, mutual and co-operative ownership. Its objectives will be to provide focus, raise awareness and support the growth of this unique and important sector of the economy. Initial priority will be given to its role in helping to implement the recommendations of the Nuttall Review. Once established, the Institute will build on a base of research, collect data and provide a range of standardised organisational models - including the proposed “employee ownership in a box”. It will also seek to offer licensing of higher education and training courses and accreditation of individuals - a one stop shop for companies and their advisers who are either considering or have already made the transition to mutual, co-operative or employee ownership.
Last year I called on those founding the Institute be ambitious - be assured that the Government stands ready to support you over the coming years. The challenge is considerable but I can only encourage those involved to work together and at pace. I also hope you will continue to work with Francis Maude and his team who have been leading the Government’s work to create and grow new public service mutuals. The Cabinet Office is now tracking over 100 of these fledgling organisations, across 13 different public services, together delivering over £1bn of public services.
Finally I have an ask for the people in this room. I ask those companies who have already embraced employee ownership - to spread the word; tell others of the benefits you are seeing; help those in transition. I ask those who have not yet considered it to open yourselves to the possibility - look, seriously at what greater employee engagement can do for you. I ask the professional bodies - the lawyers and accountants - to understand this model so that you can advise your clients on the benefits. It is not by accident that we find ourselves at the Law Society today. And I’d like to take this opportunity to thank the Law Society for hosting this event. In the meantime Government will press on with: simplifying the mechanisms, incentivising the behaviours and promoting the case for employee ownership.
I hope that Robert would have smiled approvingly when last year I talked of stakeovers not takeovers - I now hope he would feel proud that we are taking positive steps to build on his legacy for the benefit of more employees. To create a fairer society which distributes its rewards. To create a stronger economy which is diverse and sustainable. A stronger economy shared by all.