The Employee Ownership Advantage – New Briefing paper from BIS


The Department for Business Skills and Innovation (BIS) has recently published a new academic study entitled “The Employee Ownership Advantage:Benefits and Consequences” written by Professor Joseph Lampel, Professor Ajay Bhalla (of Cass Business School, City University, London) and Dr. Pushkar Jha (of Newcastle University Business School, Newcastle).

Norman Lamb MP (Minister for Employment Relations, Consumer and Postal Affairs), applauds the benefits of Employee ownership and comments that these businesses have “been more resilient to recessions”, and that “employee ownership and engagement can increase workers’ well-being and productivity”. The UK has a small employee-owned sector, estimated to be worth £25 billion annually – equivalent to 2 per cent of UK GDP.

This study is based on a survey of 41 employee-owned businesses (EOB‘s) and 22 non-employee owned businesses. The key findings are:

  • EOBs have a stronger long-term focus. EOBs are more likely to favour activities that have a long-term payback horizon and put greater emphasis on forward growth planning

  • Increasing employee representation at board level can improve EOBs’ performance. Increasing employee representation by less than 30 per cent had no impact on performance, but increasing employee representation by at least 30 per cent had a significant impact on performance. However, increasing representation by more than 60 per cent does not deliver additional benefits

  • EOBs invest more in human capital than non-EOBs

  • EOBs face greater problems when it comes to raising capital and dealing with regulatory requirements

  • EOBs get more of their growth from adding new customers compared to non-EOBs, particularly in the professional services sectors

  • EOBs show greater preference for internal growth over external growth, this is particularly true for manufacturing and processing firms

  • EOBs have a more positive media image than non-EOBs, particularly in the manufacturing and processing sectors

  • Employee commitment supports the strategic imperatives of EOBs according to which sector they operate in.

Philip Henson, Partner and Joint Head of Employment Law at DKLM, comments that: “This new research, whilst banging the drum for employee-owned businesses (EOB’s), may further bolster the calls for employee representation at board level of large UK corporations; especially remuneration committees”.

www.dklm.co.uk

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