employee ownership: business succession time- · succession planning. highly competitive businesses...

Employeeownership:Defusing thebusinesssuccession time-bomb in Wales

Wales Co-operative Centre

William Davies & Jonathan MichieCentre for Mutual and Employee-ownedBusiness, University of Oxford

Report prepared for The Wales Co-operative CentreMarch 2012

Endorsed by the Federation of Small Business in Wales

Wales Co-operative CentreLlandaff Court, Fairwater Road, Cardiff CF5 2XPT: 0300 111 5050 E: [email protected] W: www.walescooperative.org

@WalesCoOpCentrewww.facebook.com/WalesCooperativeCentrewww.linkedin.com/company/wales-co-operative-centre

FOREWORDIn the second of our reports on the role of co-operatives in the economy of Wales we look at business succession and employee ownership.

The Wales Co-operative Centre is the leading agency in Wales for supportingemployee ownership and co-operative development. Now celebrating our 30th year we are still offering the same high level of support to socialenterprises and SMEs across Wales.

Business succession is a ticking time bomb in Wales. Our economy isdependent on SMEs and micro businesses. In Wales our business owners stay with their businesses longer than other owners in the rest of the UK. If business owners do not have a robust exit strategy in place, they may find that the only option open to them is to close the company and maketheir employees redundant.

This report explores how employee ownership options can contribute to longterm, sustainable succession planning with measurable benefits to bothbusiness owners and employees. It also explores the importance ofconsidering employee ownership succession routes when employees are faced with a parent company’s withdrawal.

The report calls for more awareness of employee ownership and worker co-operatives as important and sustainable business models for the Welsheconomy and as a viable option for business succession planning.

Derek Walker, Chief Executive, Wales Co-operative Centre

As the champion of small business, we welcome this important piece of work.The Welsh economy is heavily dependent on SMEs and it’s vital that there isadequate awareness amongst the business community of the benefits of earlysuccession planning. Highly competitive businesses can fail as a result of badtransfer planning and this report shows that employee ownership is a viablesolution to ensuring our indigenous enterprises are safeguarded for the future.

Iestyn Davies, Head of External Affairs, Federation of Small Businesses in Wales

CONTENTS

01Executive summary

02-04Business succession and the Welsh economy

05-09What is business sucession failure?

10-14The employee ownership solution

15-21Employee buy-outs: The agenda for Wales

22Notes

/01 Wales Co-operative Centre _ Employee ownership: Defusing the business succession time-bomb in Wales

Business succession occurs in Small and Medium-SizedEnterprises (SMEs) when founders or other manager-owners decide to exit a company, often because they have reached retirement after building up a business over decades. Many successful businesses fail every year because succession is handled badly. One estimatesuggests that a third of all business closures can be seenas succession failures.

There are serious social costs associated with businesssuccession failure. These could be avoided through moreadvanced planning of succession strategy, both financialand managerial. The Welsh economy is especiallyvulnerable because:

+ It is more reliant on micro-businesses of less than 10 employees, which are typically more dependent on the founder and harder to sell

+ Rural areas depend more heavily on the sustainabilityof key employers, who might either close or leave thearea as a result of succession

The dominant routes for SME succession at present aretrade sales (to competitors) or family ownership (leavingfounder’s equity in the business). Both of these havesignificant deficiencies, as a basis for sustainablecompetitiveness, reward to the founder and employment:

+ Family ownership is less sustainable than it appears,and typically fails to survive beyond the secondgeneration

+ Trade sales help to realise some of the value of theowner’s equity, but offer no continuity or security for the other stakeholders in the business

Employee buy-outs avoid these risks, offering a model forsuccession which is sustainable, viable and financiallyattractive to the exiting owner. This can involve indirectownership (via an Employee Benefit Trust) or directownership, via purchase of shares by employees. Such buy-outs can be financed by debt, equity or retained earnings.

There is a role for the Welsh Government in raisingawareness of both business succession as a potential cost to the Welsh economy in the coming years, and ofemployee ownership as an optimal route to succession for SMEs. The report recommends that policy-makers,politicians and business leaders:

+ Run an awareness-raising campaign, through theWales Co-operative Centre, to highlight the benefits of planning succession earlier rather than later

+ Highlight the routes to employee ownership, therebyreducing confusion and complexity of this issue, andidentifying standardised models

+ Provide and/or underwrite an equity finance fund, to facilitate more employee buy-outs

+ Commission more extensive research on this topic, so as to gain a clearer focus on the precise risks andcosts of bad succession strategies, and the social andeconomic benefits of succession which keeps SMEs in Wales on a sustainable basis

EXECUTIVE SUMMARY

02/03 Wales Co-operative Centre _ Employee ownership: Defusing the business succession time-bomb in Wales

A business is a complex social entity.Business success requires a web ofrelationships to be maintained over manyyears, between managers, employees,financiers, customers and suppliers. As the recent credit crisis has demonstrated, if a sudden shock afflicts any one of thesevarious stakeholders, it can have a terriblydamaging impact upon the others. Theviability of successful, well-managedbusinesses can be threatened by unforeseenand unforeseeable turbulence in theeconomic environment. The knock-on effectfor employees, local communities andgeneral well-being can be profound andlong-lasting. This is especially true for smallbusinesses, which are less able to bufferthemselves against external shocks.

But there is one source of turbulence that isentirely possible to foresee and avoid, just as long as businesses are thinking properlyabout the long-term future: the transfer fromone set of owners to another. This is rarely a problem for large businesses, which aretypically listed on the stock market, andwhose owners are constantly changingwithout this affecting management unduly. It is a much greater problem for small andmedium-sized enterprises, in whichownership and managerial control of thebusiness are more often in the same hands.

For reasons that we will explore, the smallera business is, the greater the potential threatof succession failure becomes.

The Welsh economy is heavily dependent onsmall and medium-sized enterprises (SMEs)for the creation of jobs and prosperity, withover half of private sector employment infirms of fewer than 250 people. Just 0.1% of businesses headquartered in Wales areclassed as ‘large’.1 Micro-businesses, offewer than 10 people, represent a third of allprivate sector employment, and this sector ofthe Welsh economy has been growing fasterthan the UK average over the past decade.2

Recent research suggests that the averagesize of small businesses in Wales has shrunkfurther in recent years, with an average ofless than 8 staff and a turnover of£454,000.3 Many of these businesses arefirmly embedded in their local communities,with 60% of their sales to local customers.4

These small businesses are typically ownedand run by their founders, on whom much of the identity and the reputation of thebusiness depends. In some instances,founders of businesses might want to exitbecause they have lost interest or becausethey want to withdraw their investment. Somebusinesses are established in order to besold only a few years later. But this is not

BUSINESS SUCCESSIONAND THE WELSHECONOMY

HeavilydependentThe Welsh economy is heavilydependent on small and medium-sized enterprises (SMEs) for thecreation of jobs and prosperity

10Micro businesses, fewer than10 people, represent a third ofall private sector employmentin Wales

£454,000The average small business inWales has less than 8 staff and a turnover of £454,000

TABLE 1:SIZE OF WELSH BUSINESSES5

Fewer than 10 people (micro-business) 33%

10-49 people (small business) 14.6%

50-249 people (medium-sized business) 12.4%

249+ people (large business) 39.8%

BUSINESS SIZE CONTRIBUTION TO TOTAL PRIVATESECTOR EMPLOYMENT

typical in the Welsh context, where smallbusiness owners hold on to their firms forlonger than the UK average, and a fifth have been running their business for over 20 years.6 In rural areas of Wales, theaverage length of tenure is higher still.

Business succession is an inevitable andforeseeable challenge, because eventuallyretirement of founders will occur. The WelshGovernment’s Economic Renewal plan notesthat the Welsh economy faces a problem of a comparatively high proportion of theworkforce nearing retirement – but this same problem affects small businesses, as a problem of ownership succession.7

The Economic Renewal plan recognises that the Welsh economy is failing to keep up with the rest of the UK in two major areas, of employment and productivity. It also notes that Wales faces a distincteconomic challenge in being comparativelyless urbanised than most European nations. Each of these factors only heightens theurgency of addressing business succession,which can be especially damaging and liableto fail in regions where economic activity isalready weaker. As a report for the UKgovernment found:

“Failed business transfers of potentiallyviable businesses in areas of highunemployment and low activity rates thusinvolve much higher social costs… than isthe case in more economically buoyantgeographical areas, especially when theimpact of their closure upon other localfirms, regeneration etc. is taken intoaccount. Similar arguments could be madein relation to firms facing business transferthat are located in remote rural areas. Thehighly localised nature of the market forsmall firms poses particular problems forsuch businesses, and business transferfailure can deprive local consumers of avaluable service – leaving alternatives thatcost more and/or are less appropriate to local needs”.8

Equally troubling, is that more productivebusinesses, creating investment and goodjobs, may achieve successful ownershiptransfers, but to new owners outside ofWales who then move jobs and R&Delsewhere. This does not count as abusiness transfer failure, but it is a type ofsuccession that brings costs to Wales, oftenat a very local level. This is also true ofparent companies that decide to relocateoperations outside of Wales.

60%Many businesses are firmlyembedded in their localcommunities, with 60% of their sales to local customers

1/5thOne fifth of business ownershave been running theirbusiness for over 20 years


Many existing business owners in Wales havea commitment to their employees and tolocal communities that can be impossible toreplicate under subsequent owners. WelshSMEs are noted for being more locally rootedthan elsewhere in the UK.9 This commitmentbrings spillover benefits, on which localeconomies can depend. For example, it iswell-known that manufacturing firms haveabove-average ‘multiplier effects’, creatingmore jobs for their surrounding economies.Remote areas of Wales are especiallyvulnerable to the social costs of individualfirms moving elsewhere, and thereforebenefit from the on-going commitment ofengaged, long-term owners. Given theseexternalities, the quality of ownership shouldbe a matter of policy concern for the Welshgovernment.

But at present business succession, and the particular challenge it poses to smallfirms, receives scarcely any public or policydiscussion in Wales. For example, the issuewas overlooked in the recently publishedreport of the Micro-Business Task and FinishGroup. This is despite the fact that all theevidence shows that business succession is most likely to go wrong – resulting in thefailure or decline of otherwise successfulbusinesses – if it is ignored and badlyplanned by the businesses concerned.

This report aims to raise awareness of thebusiness succession ‘time-bomb’ in Wales. It seeks to highlight the many benefits thatemployee buy-outs can offer to currentowners of businesses, who, reluctantly or otherwise, are considering how to exit abusiness. It also aims to raise the awarenessof employee ownership as a viable optionwhen businesses are threatened with closurein a crisis situation, such as when a parentcompany restructures and decides towithdraw from the market place and relocatebusiness elsewhere.

With the right know how and forethought,employee ownership can enable morebusinesses to avoid an unnecessarydisruption, ensuring continuity and thepreservation of jobs in Wales. But beforeaddressing the benefits of employeeownership, we first need to understand more about how succession works, and why it is liable to fail.

BUSINESS SUCCESSIONAND THE WELSHECONOMY

SuccessionBusiness Succession is likely togo wrong if it is ignored andbadly planned

One of the characteristics of a capitalisteconomy is that new businesses areconstantly being born, and older ones aredying off. This is viewed by economists as a good thing, and an indicator of economicdynamism. A competitive and efficienteconomy will see businesses being closedbecause they are badly managed and lessproductive. The birth-rate and death-rate ofbusinesses in the UK are higher in its moreprosperous regions. The rate of businessbirths and deaths in Wales is slightly belowthe UK average, which signals marginallylower levels of competitiveness.10 Policy-makers in Wales should not be opposed tobusiness failure per se, as regrettable andpainful as many individual closures are.

But business failure is not the same thing asa business transfer failure. It is possible forbusinesses which are viable or even highlycompetitive, to close as a result of badsuccession planning or a failure to preservebusiness success following the departure of afounder or owner. One study suggested thatas much as a third of closures in Britainmight actually be ‘transfer failures’.11

Very few founders give much thought tobusiness succession when they set up acompany. Equally, they are unlikely to givemuch initial thought to how they mightrelease their equity at a much later date,even though this could be highly lucrative for them. An entrepreneur who founds abusiness in their thirties may spend twenty or thirty years nurturing the business,building its reputation, generating trustamongst customers and employees, to thepoint where the company is worth severalmillion pounds – but never give any thoughtto what will happen when they reachretirement, until the moment arises. Lack ofpreparation is the single biggest contributingfactor to succession failures, and manyowners under-estimate how long a successfultransfer will take.12

The dilemma facing an owner in thissituation involves weighing up the relativevalues of preserving continuity and realizingthe monetary value of the business.Preserving continuity means minimizing the disruption to the business of the ownerexiting, such that jobs remain secure, thereputation and brand remains unaffected,and customers and suppliers still feel theyare trading with the same business. It mayalso mean maintaining the business as alegacy for the local community in which it is embedded.

Realising the monetary value, on the otherhand, involves a founder receiving anappropriate economic reward for many yearsof business growth and entrepreneurial risk-taking. This might be necessary for foundersto retire on. However there is a significantdifference between realizing the maximumprice that the market can offer, and realizingan adequate price, calculated on assets andbalance sheet. Owners who seek to exit acompany by maximizing the value of theirequity may find that, in order to do so, theycannot also secure the continuity or long-term viability of the company, in the form thatthey have left it in. But there are alternativeexit routes that facilitate better managerialand ownership succession, on a slightly lower business valuation.

WHAT IS BUSINESSSUCCESSION FAILURE?

1/3rdOne third of UK businessclosures may be transferfailures

PreparationLack of preparation is the singlebiggest contributing factor tosuccession failures


Table 2 represents the dominant exit routesfor owners and founder-owners ofcompanies. The first three options are thedominant ones for SMEs, each bringing theirown advantages and disadvantages.Generally speaking, owners who are primarilyconcerned with preserving the continuity andidentity of the company they have built willbe more likely to aim for family ownership.Meanwhile, owners who are more concernedwith realizing the monetary value of theirequity are more likely to opt for a trade saleor private equity buyout. Stock marketflotations are rarely appropriate for firms ofunder 250 people. Finally, owners who seekto balance business continuity with somemonetary reward for themselves are mostlikely to pursue a management or employeebuy-out. They may have to accept a slightlylower price for their equity in doing so, basedon the company’s balance sheet rather thanthe potential market price of its equity.

For SMEs, family ownership and trade salesare the dominant exit routes, although privateequity buy-outs experienced a boom in theyears leading up to 2007. While these havevarious advantages, they also have somemajor defects that will have a negative effecton the Welsh economy, once the currentgeneration of small and micro businessowners reaches retirement. These can be understood as follows:

+ Family ownership:Where small businesses are concerned,family ownership generally meansselecting one member of the nextgeneration to take over running of thebusiness. But a lack of aptitude orenthusiasm of the younger generation is a severe problem, and less than 30%of family-owned businesses make it intoa third generation.13 Often the business is a burden on the younger generation,who feel the inheritance is an offer theycan’t refuse. A third of family businessessee lack of interest or inadequatemanagement skills in the family as an‘extensive constraint’.14 These risks canbe alleviated by appointing professionalmanagers to run a business on thefamily’s behalf, but this is more suited tomedium-sized enterprises. For example,many German ‘Mittelstand’ firms(medium-sized enterprises) are family-owned, but without day-to-day familyinvolvement in the business

+ Trade or private equity sale:Surveys suggest that most small businessowners still view a trade sale as theirpreferred and most likely exit route.However, these owners tend to over-estimate how easy it will be to find asuitable buyer, and under-estimate howimportant they are personally to thebusiness as a going concern. Theseproblems become more acute, thesmaller a firm is. As a result, owners areoften surprised to find that they cannotget either the price or the type ofsympathetic or local buyer that theyhoped. Very often, the announcementthat a company is up for sale can have a negative impact on relations withcustomers, suppliers, employees andlocal community. The sale itself mayfurther weaken the confidence of thesestakeholders in the business


30%Less than 30% of family-ownedbusinesses make it into a thirdgeneration

PrivateequityEquity buy-outs experienced aboom in the years leading up to2007. They have variousadvantages, but also have somemajor defects that could have anegative effect on the Welsheconomy

TABLE 2:EXIT ROUTES FOR EXISTING OWNERS AND FOUNDERS

WHAT IS IT?

Pass on ownership andcontrol to a youngermember(s) of the family.

Sell to a competitor, eitheras going concern or asassets.

Sell to an investment fund,as a going concern.

Sell shares publicly via thestock market.

Sell to managers.

Sell to employees, either viashares (direct ownership) orinto a trust on employees’behalf (indirect ownership).

FAMILY OWNERSHIP

TRADE SALE

PRIVATE EQUITY BUYOUT

FLOTATION

MANAGEMENT BUYOUT

EMPLOYEE BUYOUT

ADVANTAGES

Preserves continuity andavoids need to finance abuy-out; gradualmanagement transferpossible.

Potentially maximizesmonetary value; swift exitpossible.

Potentially maximizesmonetary value; swift exitpossible.

Potentially maximizesmonetary value; rapidincrease in capitalization;avoids subsequentsuccession issues.

Realizes monetary value;preserves continuity;gradual exit possible.

Realizes a monetary return;potentially avoidssuccession issues recurring;gradual exit possible; resultsin higher levels of businessperformance, engagementand wellbeing.

DISADVANTAGES

Founder does not realize anymonetary value of business;younger generation may notbe disposed or qualified torun the business; bad familyrelations can affect business.

Difficulty of finding buyer;jobs, stakeholder relationsand business reputation putat risk; exit can be too swift.

Jobs, stakeholder relationsand business reputation putat risk; exit can be too swift;short-term focus (2-3 yearexit strategy) of the fund,adds risk of asset-stripping.

Potential loss of control;short-term focus on quarterlyfinancial results; mainlysuitable for much largerfirms.

Requires managementtaking on significant debt,which needs securing;succession issue then recursa few years later.

Difficulty in financing buy-out; inadequate knowledgeand understanding ofemployee ownership models;risk with direct ownership ofemployees investing savingsin own business.


Successful transfers require several years of planning on the part of founders, and are best done through a gradual handoverprocess. One survey has shown that 41% of previous owners were still involved in acompany they had exited after one year, and 26% after five years; in most cases, this was deliberately planned, but in others it was due to a transfer going wrong.15

Owners and managers typically under-estimate how long an effective successionprocess will take. They also under-estimatehow long to spend planning it, and smallfirms are more likely to neglect planning. In terms of senior management, it helps iffuture successors are identified early, anddecision-making is gradually transferred overa number of years. A gradual managementtransfer process can ensure that relationswith employees, customers, suppliers andthe local community remain intact, once thefounder has exited entirely. It is especiallycrucial that customers feel they are stilldealing with the ‘same business’.

Selling a business to complete outsiders(either as a trade sale or a private equity buy-out) is not necessarily incompatible witha gradual transfer, and the new owners willcertainly have some interest in maintainingthe reputation and employee engagementbuilt up over time. But they will not be partyto these business relationships themselves,and be consequently less sympathetic to theculture, ethos and local importance of abusiness.

At worse, they may seek to asset strip thebusiness for maximum short-term gain andusurp existing management, as variousprivate equity funds have been accused ofdoing in recent years.16 What’s more, shoulda founder themselves seek to exit rapidly(both financially and managerially), the newowners may be powerless to stop them, and

find that the business reputation andmanagement culture deteriorates far morerapidly than they could have foreseen.

Small businesses currently suffer frominadequate awareness of these issues, which is not helped by the advice theyreceive from accountants, lawyers andauditors. Professional advisors rarely takeinto consideration the ‘social’ sides of thebusiness, that is, the relationships, tacitknowledge and reputation that have built up over time, and often work around theassumption that owners simply want to exit for the highest price possible. In theabsence of a carefully planned alternative,many of them will take this advice, withconsequences for their businesses and local economies that they later regret.

The employee ownership route is equally a viable option when businesses arethreatened with closure in a crisis situation,for example when a parent companyrestructures and decides to withdraw fromthe market place and relocate businesselsewhere. This form of business closure has the same negative economic impacts asdescribed above, and often can be amplifiedgiven that many of these businesses arelarger employers, and may have absorbedmany small businesses in the area. This can result in large scale redundancies andsignificantly impacts on the stability andcontinuity of the local business infrastructure.Often in this situation employees feel the onlyoption available to them is finding alternativeemployment. However as Primepac Solutionsdemonstrates, employee ownership couldgive employees in this situation theopportunity to turn redundancy into a futureof business ownership. This not onlysafeguards jobs, but keeps businesses andservices in the local area, maintaining thebusiness infrastructure and keeping theWelsh economy competitive.


41%41% of previous owners werestill involved in a company theyhad exited after one year

26%26% of previous owners werestill involved in a company theyhad exited after five years

PrimePac Solutions Ltd

PrimePac Solutions Ltd, is a worker co-operative that fills bottles, sachetsand tubes for clients including leadingbrands in the health and personal care sector.

The co-operative was formed whentheir parent company decided towithdraw from Wales following a majorfire which destroyed their packingfacilities. Until the fire in 2005, 140people were employed by BudelpackRumney. When the news broke thatthe company was not going to reinvestin the area, a group of employeescontacted the management of TowerColliery, who had famously formed aworker co-operative to buy their pitfrom the National Coal Board, whopointed them in the direction of theWales Co-operative Centre.

Knowing Budelpack’s strategy of highvolumes and low margins the groupwere able to put together a businessplan based on low volumes and highmargins and staff members decided toinvest their redundancy payment intosetting up a new employee ownedcompany. 19 employees were neededto start up the new company and theywere oversubscribed by 100%. Aftermuch negotiation, the employeesmanaged to purchase necessaryequipment from Budelpack and begantrading in October 2005. The companynow employs 22 permanent staff andbetween 10 and 20 temporary staff.

With manufacturing jobs on thedecline in Wales the staff were keen to preserve their livelihoods and keepjobs in the local area. The Wales Co-operative Centre provided legal andbusiness planning advice and helpedthe company access funding from Co-operative and Community Finance,Finance Wales and the WelshGovernment.

“Establishing our business co-operatively means that all employeesfeel that they can become masters of their own destiny and develop ourcompany into a real success story for South Wales”, commented SteveMeredith, Managing Director ofPrimePac Solutions Ltd.

Since 2007, PrimePac Solutions Ltdhas seen a year on year increase inboth turnover and budget. It is now a£1.8million turnover business and haspaid out dividends to shareholdersgreater than the amount invested atthe start.


Both family ownership and trade sales havesignificant defects as paths for businesssuccession. The former may ensurecontinuity for the business, but does notguarantee longer-term sustainability. Thelatter may appear like a simple and lucrativeexit route, but brings far more complicationsthan many owners expect, in terms of findinga trustworthy buyer and then facilitating asuccessful transition. Both owners and firmscan benefit, if all parties to a succession areboth well acquainted with the business andenthusiastically committed to its long-termsuccess. Sadly, this is not the case for manybusiness transfers at present.

Selling a business to its management is oneviable alternative. Partnerships, as seen inmany professional advisory firms, are anownership model that relies on each newgeneration of senior management buying outthe previous one. The advantage is that theculture of an organisation can potentiallyremain unaffected by ownership transfers,and future owners can be identified withsufficient time to plan a succession well. But management buy-outs have their ownshortcomings.

Firstly, they require individual managers totake on large amounts of debt to buy out theowners, which will often need to be securedagainst their own homes or other assets.Secondly, there is an inevitable risk that thenew owner-managers will be less committedto the business than the founder, and pursuetheir own exit route that may not be to thebenefit of the business. Finally, managementbuy-outs (and partnerships) potentially createan insider/outsider culture within anorganization, splitting those who are tobecome equity-owners from those who arenot. Restricting ownership to such a smallminority of employees, albeit the most seniorones, can mean forgoing the benefit of morewidespread employee engagement.

Employee buy-outs alleviate many of the risksof business succession, and avoid many ofthe various defects associated with the exitroutes already discussed. In particular,employee buy-outs achieve various goals of effective succession plans:

+ Safeguard continuity:Employees, customers, suppliers andlocal communities gain the assurancethat the business will retain its identityand culture. Reputation, ethos and tacitknowledge are thereby preserved, withboth business and social benefits

+ Long-term sustainability:Once transferred into employeeownership, the ownership of the businessmay be held in this form indefinitely,without further succession risks(depending on the precise ownershipmodel – see table 3)

THE EMPLOYEEOWNERSHIP SOLUTION

Employeeownership Employee ownership, cansafeguard continuity, offer longterm sustainability, ensure agradual transfer and realiseowner’s equity

TABLE 3:SUCCESSION ROUTES INTO EMPLOYEE OWNERSHIP

‘INDIRECT’ OWNERSHIP VIA A TRUST

Owners sell and/or gift shares to an EmployeeBenefit Trust (EBT) or Share Incentive Plan (SIP)trust.17 Trustees, usually including an employeerepresentative, oversee how shares are voted, with a fiduciary duty to promote the long-term interestsof current and future employees. Trusts may haveparticular constitutional and voting mechanisms to prevent them being dissolved and company sold. Profits can be distributed to employees asbeneficiaries of the trust, typically in proportion to salary.

Bank loan to EBT, secured with company assets;loan to EBT from special purpose lenders such as Co-operative and Community Finance; equityfinance from special purpose funds; debt or equityfinance from Finance Wales; retained earnings paid into EBT.

Employees’ savings not at risk; democraticgovernance model gives equal stake to allemployees; company cannot be sold or asset-stripped by employees or managers; flexible modelcan be combined with other ownership forms; buy-out can be phased over several years(necessary if financed by retained earnings).

EBTs no longer receive tax relief, creating major taxinefficiency; HMRC-approved SIP trusts receive taxrelief but can only hold shares for 10 years atpresent; lack of awareness of indirect ownershipmodels amongst professional advisors; some maynot view indirect ownership as ‘real ownership’.

HOW DOES IT WORK?

HOW IS IT FINANCED?

ADVANTAGES

DISADVANTAGES

‘DIRECT’ OWNERSHIP VIA SHARES

Owners sell and/or gift sharesdirectly to employees. Employeesvote their shares and receivedividends from them. Employersmay use HMRC-approved tax-advantaged schemes, such as aShare Incentive Plan, to encourageemployee share-ownership.

Employees’ savings and earnings;bank loan to employees, securedagainst own assets.

Employees have direct stake insuccess of business; buy-out can be phased over several years.

Employees have job and savingstied up in single entity; potentiallack of liquidity for employeeswanting to increase or reduceequity; potential inequality in voiceand stake, may be closer tomanagement buy-out.


+ Gradual transfer: Succession is best carried out graduallyover a number of years and withconsiderable long-term planning.Employee buyouts also work well asgradual mechanisms for ownershiptransfer

+ Sale of retiring owner’s equity:Existing owners can realize monetaryvalue for their equity, through selling toemployees. The valuation of the businessmay be slightly lower than what themarket would offer, and the buyout maybe a phased one. But this is still a morelucrative option for the founder thanfamily succession and a more stabilizingone than sale to an outsider

Employee-owned companies are alreadyworth £1bn to the Welsh economy,employing 7,000 people.18 Quite aside fromthe benefits of employee ownership as aroute for business succession, a substantialbody of evidence indicates that thesebusinesses out-perform their competitors bya range of measures, including productivityand sustainable job creation.19 A study byCass Business School of employee ownershipacross Britain discovered that employee-owned businesses were more resilient to therecent recession than their competitors, andemerged from it quicker.20 In Wales today,47% of SMEs overall expect to grow in thenext 12 months, while 57% of co-operativesand social enterprises expect to do so.21

These businesses do better at engaging with their employees, utilizing the knowledgeand skills at their disposal. The benefits ofemployee ownership are also discovered by management, in terms of reduced staffturnover and reduced levels of sicknessabsence.22 Employee ownership facilitates a virtuous circle in the creation of social and economic value, where one reinforces the other.

One of the most significant findings fromresearch on employee ownership around theworld is that the ownership model only deliversproductivity gains if employee-owners havesome form of collective voice within theorganization.23 This may be as simple aselecting a single representative to a non-executive role in the company, to facilitatedialogue and trust between seniormanagement and employee-owners.24

While managers must still exert authority overan employee-owned firm, the cultural divisionbetween managers and employees is likely tobe weaker. This can take time to adapt to, andremain a challenge for managers who feelaccountable to the owners on a daily basis, but can ultimately lead to a far more energizedand productive working environment.


57%57% of co-operatives in Walesexpect to grow over the next 12 months

£1bnEmployee-owned companiesare worth £1bn to the Welsheconomy

7,0007,000 people are employed inemployee owned companies inWales

Aber Instruments

Aber Instruments was founded inAberystwyth in 1988, producingmeasurement instruments used forfermentation in brewing. Today, Aberhas 28 employees, with 95% of itscustomers overseas. It was initiallyowned by four partners, each with anequal stake. These partners were keento instill an ethos of engagement anddialogue within the business from thestart.

In the 1990s, the founders decided to widen share ownership amongstemployees, using HMRC’s taxadvantaged share ownership schemes.This meant individual employeesacquired a direct stake in thebusiness, by receiving an allocation offree shares. The founders knew thatbusiness succession would eventuallybecome an issue. They were aware ofthe dominant exit routes available tothem, but didn’t like them. AsManaging Director Barry Wise explains:

“Most of those routes involved anequity stake sitting outside thecompany. We didn’t want that. We’dalways been an independent companyowned by members of the company.

We wanted to guarantee jobs inAberystwyth. We wanted to guaranteeengagement by staff”.

Thanks to advice from the Wales Co-operative Centre Aber’s foundersstarted to look into employeeownership as a solution.

An Employee Benefit Trust wasestablished (alongside existing directshare ownership) which could be usedto buy the shares of founders or otheremployees, as they left the company.From 2004, a proportion of profitsbegan being paid into the EBT, wherethey were used to gradually buy outthe shares of the founders. One of thefounders left in 2007 but by 2009, thatfounder had been completely boughtout by the EBT.

This succession process was delayedby the recession, which affected theprofits that could be distributed intothe EBT. Aside from the EBT,employees are still permitted to buyequity shares directly (which theyreceive a dividend on), though nobodyis allowed to own more than 5% andall are obliged to sell shares back tothe EBT when they leave. Shares canbe traded amongst employees at an

annual ‘dealing day’, and their value is set in agreement with HMRC – their value has roughly doubled over the last ten years.

Today, Aber is 85% employee owned,of which 55% is held in the EBT and30% is held directly as shares byemployees. The remaining 15% is stillheld by founders, all of whom will haveexited within another 2 years. BarryWise recognises that the founders have extracted less money from thebusiness than they might have done,“but that is balanced against beingable to work for the company and pass it on to safe hands, rather than to someone who can asset strip it”.

The managerial and cultural transitionto employee ownership is not withoutchallenges. Aber established a newgovernance structure to offer acollective voice to the employee-owners, and it took time for employeesto understand that this new ownershipmodel meant giving real responsibilityto employees. But the benefit, in termsof reduced staff turnover, knowledgesharing and sustainability, is now clearto all.

60%Welsh SMEs do 60% of theirbusiness locally. What is theirvalue along the supply chainand in their own communities?

2/3rds2/3rds of employee-ownedcompanies in Wales wereestablished as employee ownership companies from their inception


These research findings suggest thatincreased employee ownership is somethingthat policy-makers in Wales should bepursuing anyway as a route to greatereconomic competitiveness.25 This ownershipmodel is proven to work successfully for theSMEs which are so important to Welsh jobcreation and prosperity. There are manyexamples of high value-added andknowledge-intensive producers in Walesbeing owned by their employees, of whichthree are examined in the case studies.Anecdotal evidence would suggest thatemployee ownership is particularly suitablefor firms which invest heavily in R&D, wherelong-term, less transactional relationships aremore valuable. At present, 2/3 of employee-owned companies in Wales were establishedunder that ownership model from thebeginning. But the other third wereconverted to employee-ownership throughbuy-outs.

When these buy-outs are achieved, thispotentially achieves a number of positiveoutcomes. The business is saved from therisks associated with trade-sales, whichinclude the risk of new owners moving thebusiness elsewhere against the wishes ofemployees. The founder or previous ownerreceives the comfort of knowing that thebusiness will continue to trade in the sameway, and in the same location. Given thatWelsh SMEs do 60% of their business locally,the value of retaining individual businessesand preventing their failure has knock-oneffects. Where businesses representimportant local institutions, and the foundersare well-known individuals, this is one of themost important motivations for pursuing anemployee buy-out. And finally, once thebusiness is employee-owned, there are goodreasons to expect this to translate into higherproductivity.


There is good evidence that employeeownership delivers better economic andsocial outcomes, which have spilloverbenefits for local communities and localeconomies. It is already feasible for founders,owners and parent companies to take thisexit route, as the case studies demonstrate.So what is the broader public or policyinterest in this, if any? Or as is so regularlyasked of employee ownership – if it’s sogreat, why doesn’t it just happen of its ownaccord?

To identify the agenda for Wales, we need to take three questions in turn. Firstly, whyshould this be a matter for policy interest?Secondly, what is currently preventing moreemployee buy-outs? And thirdly, what mightthe Welsh government and the businesslobby do in order to reduce some of theseobstacles and further this agenda?

The public interest in sustainablebusiness successionThe Welsh government and industry bodiesmust accept that a high rate of businessbirths and deaths is a symptom of a healthy,competitive economy. However, there are anumber of factors in business successionwhich make this a matter of policy interest:

+ Market failure:There are a number of ways in whichbusiness succession suffers fromproblems of market failure. SMEs, andmicro-businesses in particular, often find it harder than they expect to findappropriate external buyers. There areadditional difficulties in the need to costthe ‘social’ value of a business into asale: SMEs have various positive externalbenefits, upon employees, communitiesand local economies, which are notincluded in the valuations used in tradesales and private equity buy-outs. Thereis therefore a case for government insupporting business succession whichsecures sustainable social value of thiskind. Government should also be keen to promote employee ownership as asustainable succession route whenparent companies withdraw from thewelsh market place.The withdrawal of a parent company may generate anopportunity to create an innovative andviable employee owned company whichprovides local jobs and enhances localwealth

EMPLOYEE BUY-OUTS:THE AGENDA FOR WALES


+ Equity and wellbeing:The Welsh Government’s EconomicRenewal document notes that “we wanta strong economy, not as an end in itself,but for the integral contribution it canmake to the quality of life and theeconomic, social and environmentalwellbeing of people and communities in Wales”.26 There is good evidence that employee-ownership contributes to higher levels of wellbeing amongstemployees. Exit routes involving a sale of SMEs to external owners are morelikely to result in stressful transitions anduncertainty, which rebound on wellbeing,and also correlate to higher levels ofinternal pay inequality within firms. In contrast to management buy-outs and some forms of employee shareownership, indirect ownership (via anEBT) has progressive implications for the distribution of profits

+ Productivity and regional competitiveness:SMEs are vitally important to the Welsheconomy. Micro-businesses, of under ten employees, are especially prevalentin Wales, and especially vulnerable tobusiness succession failure when asingle individual reaches retirement. Yet many of these firms are engaged inthe forms of high value-added, export-oriented production that are crucial tothe future prosperity and competitivenessof Wales. Even highly productive firmscan suffer succession failures. If moreR&D is to be privately financed withinbusinesses, reducing reliance onuniversities (as per the EconomicRenewal plan), Wales will needownership forms that have a long-terminvestment orientation, and not one ofshort-term profit-maximisation. Firmswhose value resides largely in knowledgeand social capital (as opposed totangible assets) can be harder to sell andthen harder for an outsider to manageeffectively. Selling to outsiders may alsomean high quality, high value-added jobsmoving out of Wales

Current obstaclesEmployee buy-outs currently suffer from anumber of cultural, regulatory, financial andprofessional hindrances. These are largelycommon to the entire UK, and some are aconsequence of UK-wide policies. The mostsignificant ones are:

+ Lack of awareness and understanding: The first barrier preventing greater use ofemployee buy-outs is that few foundersor owners have heard of this exit route.The Wales Co-operative Centre, throughits business succession and consortiaproject, is actively working with anumber of other organisations to raiseawareness of employee ownership as anexit route for owners. But it is vastlyoutnumbered by the professional advisorsand bank lenders who either don’t knowabout employee ownership, or areskeptical towards it. Often the skepticismcomes from the misconception thatemployee ownership necessarily involvesemployee management of a business andadherence to a particular ideology. Whereowners do get to hear about employeeownership and its possible benefits, theythen face a further struggle in identifyinga model that suits their needs, in termsof governance, financing and exitstrategy. Finding a lawyer to support thisprocess can be difficult and expensive.The Wales Co-operative Centre canprovide support to owners, helping themidentify an employee ownership model tomeet their withdrawal expectations, andpointing them in the right direction ofprofessional advisers, experienced in theemployee buyout process


Employeeownership Employee ownership contributesto higher levels of wellbeingamongst employees

OwnershipWales needs ownership formsthat have a long terminvestment orientation

SCS Group

Allan Meek established SCS Groupwith one other partner in Caerphilly in1993, to produce ventilation andsmoke control systems in newresidential buildings. He bought outthe partner ten years later, leaving himas the sole owner. The business wassuccessful, growing to 30 members ofstaff and a turnover of over £5m, withoffices in London and Birmingham. Bythe early 2000s, Allan was beginningto think about succession planning,with a view to leaving the companywithin five years.

He began to consider a few options,including a trade sale or amanagement buy-out, but was uneasyabout how little long-term sustainabilitythese models offered. As Allan puts it,“I could have made a lot more moneyif I’d been in it for the money, butwe’ve always been about growingsomething for the future”. SCS had areasonably decentralised managementstructure already, but Allan had neverbeen involved in co-operatives oremployee-owned companies before.Employee buy-outs seemed to provideexactly the type of succession route

that he was after, in putting theinterests of the business first.

An EBT was established in 2005 tobuy company shares using retainedearnings, in addition to shares beingsold and gifted to individuals directly.By 2007, 15% of the company’sshares were either directly or indirectlyowned by employees. But in the sameyear, the housing bubble burst, andwith 85% of SCS Group’s business inresidential new-build property, thebusiness had to make some rapidchanges just to stay afloat. The corebusiness was shifted towards otherareas of construction, offeringintegrated systems for fire protection,ventilation and heating, which could beused in offices and car-parks. Thebusiness shrank to 25 employees andthere were no profits available withwhich to continue the employee buy-out plan.

Like Aber, SCS Group’s successionroute was dependent on businessgrowth, which ceased as a result of therecession. Ironically, in the face ofsuch severe challenges to the businessmodel, Allan now feels more energizedand committed to the business once

again. He is in no hurry to leave, andso feels no need to explore other exitroutes – the employee buy-out shouldstill go ahead, but over a longer periodof time.

Allan’s primary concern is to leavebehind a successful business, withrewards going to those who havecommitted their energies to thecompany. Realising a decent monetaryvalue for his stake is important to him,but secondary to the more urgent taskof setting the company on a stablepath, which he believes has nowhappened. With adequate growth overthe next ten years, the transition toemployee ownership should becompleted. He’s hopeful that many ofhis remaining shares will be solddirectly to employees, especially if thecompany can start hiring again soon.

The great luxury of Allan Meek’sposition is that that there is no urgentnecessity for him to exit, which allowshim to focus on what’s best for thebusiness.


+ Access to finance:Some employee buy-outs may not requireexternal finance, if retained earnings arehigh enough, as the case of AberInstruments highlights. But a self-financing buy-out can take longer and be vulnerable to fluctuations in profitmargins. Loans to EBTs, either frombanks, from Finance Wales or specialistfunds such as Co-operative andCommunity Finance, are feasible, butneed to be secured somehow, whichrequires a business to have sufficientassets. Often banks will be suspicious ofemployee ownership. Businesses withoutsignificant assets such as property willtypically need some equity investment, in addition to a loan; this will eitherneed to come from employeesthemselves (with the risks associatedwith that) or from a specialist equityfund, such as Finance Wales

+ Tax inefficiency:Until 2003, EBTs were subject to taxrelief, such that profits could be paidinto them prior to corporation tax. Thiswas being abused by companies thatwere not committed to long-termemployee ownership, and the tax reliefwas removed. However, companiesowned indirectly via such trusts are noweffectively taxed twice on their profits:once as they enter the EBT, and againwhen they are distributed as dividends.At present, every £100 of companyshares bought by an EBT costs £139

in company cash.27 The current taxsituation isn’t simply a lack of incentiveto employee buy-outs, but a positivedisincentive. Entrepreneur’s relief oncapital gains tax is also skewed in favourof selling to outsiders, and againstemployee buy-outs

+ Mindset of owners:Every founder or owner will have theirown unique relationship with a business,which influences their exit strategy (andwhether they even have one). This can be understood in terms of a spectrum of ‘stewardship’.28 At one end of thespectrum are owners who have nurturedand grown a business over decades, and are deeply reluctant to ever depart;at the other, are owners who view acompany in purely financial terms, as a vehicle to produce profits and grow inmarket value. The latter mentality willcreate a problem of owners tending toover-value their business, and under-appreciate the subtleties of successfulbusiness transfer. But Welsh SME ownersare likely to be closer to the formermentality, especially micro-businessowners and especially those in more ruralareas. These owners will often be willingto accept a lower price for their companyequity, if that guarantees a sustainablefuture for the business. Their mindset ismore problematic where it is resistant tothe entire notion of business succession,and they are reluctant to plan their exit


£139Every £100 of company sharesbought by an EBT costs £139in company cash

RecommendationsWith the exception of EBTs’ tax inefficiency,which is an issue that can only be dealt withvia the UK government and HMRC, many ofthese obstacles can be tackled by the WelshGovernment and the Welsh business lobby.Welsh policy-makers should be particularlyconcerned by the possible impact thatbusiness succession failures could have onan economy that (like the rest of the UK) isstill struggling to grow and generate jobs, andis uncommonly dependent on very smallemployers. Rural areas are particularlyvulnerable. Business leaders and advocateshave an important role to play, in conjunctionwith the work of the Wales Co-operativeCentre, in raising awareness of the issue andthe benefits of employee ownership.

We make the following recommendations:

+ Business succession awareness-raising:Business succession failure is causedlargely by inadequate or rushed planning.Politicians, policy-makers, the Wales Co-operative Centre and the Federationof Small Business in Wales (FSB) have astrong role to play, in encouraging ownersand founders to start planning early,ideally at least five years before an ownerhopes to have exited. Good successionoccurs slowly, meaning that long-termplanning pays dividends. A campaign tohighlight the benefits of early successionplanning, and the risks of badly plannedsuccessions, should be run across Wales,aimed especially at small and micro-businesses

+ Highlighting routes to employee ownership:Politicians have huge power to raise theprofile of employee ownership, simplythrough speaking publicly about it. TheWelsh Government should publish andpublicise clear guidance on the mainroutes to employee ownership, definingtwo or three possible ‘off-the-peg’ modelsof how employee owned companies canbe structured and financed. The WalesCo-operative Centre can support thiswork, based on its significant experienceof working with business owners andsupporting employees through theemployee buyout process. This needs tobe accompanied by information on howto access finance and legal advice,integrating the knowledge from Wales Co-operative Centre, FSB Wales, FinanceWales, Co-operative and CommunityFinance, and the Employee OwnershipAssociation, to create a single one-stop-shop for any founders and ownerscontemplating an exit strategy

FiveyearsEncourage owners to startplanning at least five yearsbefore they hope to exit

One-stopshopCreate a single one-stop-shopfor any founders and ownerscontemplating an exit strategy


+ Equity finance for employee buy-outs:The Welsh Government has already madeavailable various sources of businessfinance, such as the Wales EconomicGrowth Fund. This has been followed by the recent announcement of a £6mMicro-Business Loan Fund, which willbegin operating in 2012. In view of themany benefits of employee buy-outs as a route for business succession, there isa strong case for the Welsh Governmentto provide and/or underwrite an equityfund, dedicated to facilitating micro-business buyouts. Specialist equityfinance which enables owners to selltheir equity to a fund, which thengradually sells on to employees (often via an EBT), at an agreed rate of returnsufficient to ensure replenishment of thefund, would be extremely valuable. Thistype of finance is crucial for employeebuy-outs of firms without significantassets to secure loans against

+ Evidence gathering:At present, there is inadequate evidenceon the potential costs of businesssuccession failure to the Welsh economy.There is also too little data on the exitroutes that are being selected, includingon employee ownership. The WelshGovernment and FSB Wales, workingwith the Wales Co-oprative Centre canassist with evidence gathering on thecurrent state of business succession and planning, especially amongst micro-businesses


EquityFundThere is a need for an Equity Fund to facilitate microbusiness buy outs

DataNot enough data – how much isbusiness succession failurecosting the Welsh economy?

Skye Instruments

Skye Instruments was founded by Gill Wilde and her husband John. Itproduces electronic instruments whichmonitor the impact of micro-climaticvariations on crops. Skye Instrumentsemploys 18 people, with a turnover of £850,000. Its products are inextremely niche markets, though areincreasingly used to research climatechange. 70% of Skye Instruments’sales are exports.

The owners hadn’t considered asuccession plan, but came acrossemployee ownership via the Wales Co-operative Centre. One of the mostattractive aspects of an employee buy-out concerned securing the business’slocation. As Gill says, “What John andI were really keen on was keeping thecompany here, in Powys. If you werebuying a high tech company, youwouldn’t keep it here. You’d move it toOxford or Cambridge. And the peoplehere have made it what is”.

The immediate difficulty they facedwas in accessing affordable and clearadvice on how to facilitate an employeebuy-out. There seemed to be too many different models, and no clear

indication of which one was mostsuitable. In the end, Gill and Johnpresented different forms of employeeownership to the staff (including directownership via a SIP and indirectownership via an EBT), who voted foran EBT model. The equality ofemployee voice offered by indirectownership was an important factor in this decision.

The EBT was set up in 2009, and thefollowing year 10% of the company’sshares were sold to the EBT usingretained earnings. A further 30% were sold using a bank loan to SkyeInstruments, secured against companyassets. The Wildes benefited from atwenty year relationship with the samebank, which was sympathetic to theiraims. They expect to sell the remaining60% of shares into the EBT over thenext six years.

Having examined other employee-owned firms, Gill and John put rules in place to uphold the commitment toemployee-ownership for the long-term.The EBT has five Trustees, who playan active role in holding managementto account, and must consult staff onmajor decisions affecting the business.Company profits must first of all be

used to buy shares for the EBT – the rest is split between a dividendpayment to employees and retainedearnings. While the Wildes expect tohave exited financially in six yearstime, the management hand-overprocess will be ongoing, and they willretain involvement in the business.

Continuity and local identity are clearlystrong motivations for this businesssuccession route. But the Wildes feelthat they’ve had to struggle, not only inthe face of often unhelpful professionaladvisors, but also in the face of a taxregime which makes EBTsunreasonably inefficient. They do feelthat they’ve benefited from support oforganisations dedicated to employeeownership. They could have mademore money via other routes, andreceived offers to sell to outsiders.Within a few years, they’ll havewithdrawn their equity stake and left a sustainable business in Wales.

22/ Wales Co-operative Centre _ Employee ownership: Defusing the business succession time-bomb in Wales

1 FSB Wales (2007) Globalisation and Its Impact on Wales

2 Micro-business task and finish group report(2012)

3 Federation of Small Businesses (2012) TheFSB ‘Voice of Small Business’ Survey. A yearearlier, the average business turnover was£458,000 and average staff size of just under 9

4 FSB-ICM Annual Survey 2010

5 Micro-business task and finish group report(2012)

6 FSB Wales

7 Welsh Assembly Government (2010)Economic Renewal: A New Direction

8 DTI (2004) Passing the Baton: encouragingsuccessful business transfers

9 FSB Wales (2007)

10 Statistics for Wales (2011) BusinessDemography: Enterprise Births and Deaths,2009

11 DTI (2004)

12 DTI (2004)

13 McKinsey (2010) ‘The five attributes ofenduring family businesses’, McKinseyQuarterly, January 2010. DTI (2004) puts this same figure at under 15%

14 DTI (2004)

15 DTI (2004)

16 For a case of this, see W. Davies (2012) All ofOur Business: Why Britain needs more privatesector employee ownership. EmployeeOwnership Association

17 Employee Benefit Trusts are trusts created to hold shares in a company on behalf of itsemployees. The employees are beneficiaries of the trust and no individual employee ownsshares in it

Share Incentive Plans were introduced byHMRC to give employees tax and NICsadvantages when they buy or are given sharesin the company they work for

The plans work by keeping the shares in a trustfor the employees until they either leave theirjob or decide to take the shares from the plan.The shares must be kept in the plan trust for aspecified number of years to give the full taxbenefits

NOTES

About the authorsDr William Davies is Academic Directorof the Centre for Mutual and Employee-owned Business, University of Oxford.He is author of All of Our Business: Why Britain needs more private sectoremployee ownership (EOA, 2012),‘Bringing Mutualism back into Business’(Policy Network, 2010) and Reinventingthe Firm (Demos, 2009). He is a regularadvisor and speaker on the topic ofemployee ownership, has discussed it on BBC Radio 4’s In Business andToday, and written on the topic in TheFinancial Times and The Scotsman.

Professor Jonathan Michie is Presidentof Kellogg College, University of Oxford,and Director of the Centre for Mutualand Employee-owned Business. Hispublications include ‘Employee share-ownership trusts and corporategovernance’, Corporate Governance,2001; Employees Direct: shareholdertrusts, business performance andcorporate governance, Mutuo, 2001;Ownership Matters: new mutual businessmodels, Mutuo, 2001; Employeeownership, motivation and productivity,The Work Foundation, 2002; and SharedCompany: how employee ownershipworks, Job Ownership Limited, 2005. He was a founding director of Mutuo.

The Centre for Mutual and Employee-owned Business is based at KelloggCollege, University of Oxford. You canfollow it at @meob_ox

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18 Wales Co-operative Centre (2012) Co-operatives in the Welsh Economy

19 Employee Ownership Association (2010) The Employee Ownership Effect: A review ofthe evidence

20 J. Lampel et al (2010) Model Growth: Do employee owned businesses deliversustainable performance. Cass Business School

21 Wales Co-operative Centre (2012)

22 R. McQuaid (forthcoming) Health andwellbeing of employees in employee-ownedbusinesses. Employee Ownership Association

23 D. Kruse, (2002) ‘Research evidence on theprevalence and effects of employee ownership’,Journal of Employee Ownership Law andFinance 14, no 4

24 For detailed examination of this see W. Davies (2009) Reinventing the Firm, Demos

25 See W. Davies (2012) All of our business:Why Britain needs more employee ownership.Employee Ownership Association

26 Welsh Assembly Government (2010)Economic Renewal: A New Direction

27 See N. Mason (2009) A Matter of Trust: How to create more employee ownedbusinesses. Employee Ownership Association

28 For variations of stewardship forms, seeTomorrow’s Company (2009) ‘Tomorrow’sOwners’

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