Employee ownership: happier workers, more productive businesses

By Jim Knight MP / @JimKnightMP

As Britain came out of the 80’s recession I was leaving university. Like many others I set up my own business as the best way of chasing my ambitions, but in my case it was a workers’ co-operative – not one of Thatcher’s typical new enterprises. As we come out of this recession I am keen to see others use new models of employee ownership and involvement.

One of the lessons we can learn from the financial crisis is that having a diversity of economic models can only be good for our economy. Employee ownership is a case in point. Expanding the size of the co-owned sector – in which staff have a collective stake of at least 25% in a business and a say in how they are run – has the potential to bring about a radical shift of economic power to individuals.

While many of us may be dimly aware of the existence of co-owned businesses, I think few of us realise the role that they play in the economy – with a combined turnover of £20-25 billion putting the sector above agriculture and making their contribution larger than the agricultural sector.

The most famous example of this is, of course, the John Lewis Partnership, founded in 1929, at the very start of the Great Depression. Its underlying principle then, and now, was to build a fairer form of capitalism where employees could employ capital, not the other way around. It was set up in the belief that a business could put the happiness of its employees at the heart of everything it did, play a socially useful role and generate healthy profits. It is this ethos that has built a business with 27 department stores, 214 Waitrose stores and a workforce of more than 69,000 employee owners.

And what works for John Lewis is replicated in other organisations in which staff own a significant share of the company and have a say in how it’s run. Giving employees a stake in their business provides workers with economic gains and creates companies that are responsive to their frontline staff. Evidence from the industry shows that co-owned firms do not just create happier workers; they also make more productive businesses.

In a survey of co-owned firms, 72% reported that staff worked harder, 81% that they took on more responsibility, 49% that competitiveness was enhanced and 44% that profits were higher.

The degree to which employee ownership boosts productivity can be seen in the performance of co-owned companies, which have consistently outperformed their PLC rivals. In cash terms, an investment of £100 in the EOI (Index of Employee Owned Companies) in June 1992 would have been worth £453 at the end of December 2008; the same amount invested in the FTSE All-share would have been worth £172.

These range from professional services and knowledge businesses such as PA Consulting and Arup, who designed the water cube for the Beijing Olympics, to innovative employee-owned deliverers of public services like Greenwich Leisure and Eaga, which provides energy services to the most vulnerable households. All will testify that when employee ownership and participative management are combined, this creates a passion amongst staff to ensure that the business is successful. This feeds in to low absentee rates, low staff turnover, improved job satisfaction and improved quality of output.

Moving into the upturn, there is a question about how we create the successful economy of the future. A greater role for employee-owned businesses would be a valuable addition to our economy and our society. I look forward to working with the employee ownership movement to see how we can bring this about.