Why employee owned businesses are better equipped to cope with recession

I attended a very interesting and stimulating event today which was arranged jointly by the Employee Ownership Association and John Lewis Partnership.  The line up of speakers was impressive - Will Davies (Reinventing the Firm), Richard Wilkinson (Spirit Level)  , Philip Blond (Respublica), Charlie Mayfield (Chairman John Lewis) Prof Joseph Lampel (CASS business school) and John Kay (Financial Times).  The purpose of the event was the launch of a new report by CASS Business School which examined the growth of employee owned firms.  More of that later when I get a chance to digest the report and assimilate my thoughts.  It was an excellent event for a powerful report, which presents a strong argument as to why firms owned by their employees can be stronger and more sustainable.  You can read the full report here.

However - there are two points that came up that I'd like to challenge but it was such a lively debate I didn't get a chance to raise at the time. The first is that employee owned companies do well because of "legislative and regulatory favouritism" and the second was that employee ownership is particularly suited to "knowledge businesses".

The first one is easy to refute.  There is no favouritism!  Employee owned businesses co exist with traditionally structured businesses under the same restraints and laws.  There is a bit of an internal debate within the co owned community as to whether there should be concessions or incentives for employee ownership or whether we compete on a level playing field.  I suggest there should be support for what is intrinsically fairer and more sustainable business model. However, I am delighted that so many employee owned businesses are outperforming the competition.

When the report suggested that employee ownership is particularly suited to "knowledge" businesses, my hackles arose, perhaps unjustifiably.  I have the privilege and pleasure of working with a large number of employee owned businesses from all sorts of industries.  I work with engineering companies, manufacturing companies, customer service businesses and yes, many businesses that fall into what is viewed as the "knowledge" sector: design companies, planning consultancies, consultant engineers.  Some of them are great examples of successful employee owned businesses, some are working their way towards that.  The way I see it, is employee ownership transcends business sectors.

I thought of Loch Fyne Oysters' employees, who voted last year for a pay cut when the company faced difficult times.  70% of the employees in a North East engineering company voted AGAINST a pay rise, because they were afraid that during a recession, a pay rise for some might mean job losses for others.  To me, that's why employee owned businesses do well in a recession -because their owners are focused on the long term health of the business, not short term personal wealth.

However, Mark Adams from Vitsoe made me think.  Vitsoe is a very innovative and successful manufacturing business.  Mark put me straight.  He told me Vitsoe is a knowledge business within the manufacturing industry.   It is the ability of employees within Vitsoe to seek out new ways of improving processes, customer relations, innovation and technology, that makes the business successful. This made me think of other business who fall into that category.  Parfetts Cash and Carry which moved into employee ownership two years ago is a knowledge business. I remember how impressed I was that shop floor employees knew the customers by name, knew their business, and even knew which football team they supported!  Woollard and Henry in Aberdeen - so successfully bucking the trend within the paper industry because each and every employee- welders, engineers, designers -  is finding new ways to do business to do business in a changing market. Is that not a knowledge business?

Let's not categorise and let's not say some companies make better employee owned companies than others.  Nita Clarke from IPA got it right - ownership is important but so is the "how".  Ownership isn't just about shareholding - it's about employees feeling like owners.  That's what arms a business to fight a recession.