Corporate governance or personal responsibility? Uncovering the ownership effect of corporate governance

After sprinting down Euston Road in the London rush hour last Friday evening, I settled down on the train to reflect on the most recent hearing of The Ownership Effect Inquiry.  The second hearing, hosted once again by the Department for Business, Energy and Industrial Strategy (BEIS) led our Panel into the topic of corporate governance and behaviours in employee owned businesses.

We were fortunate to be joined by 12 employee owned businesses across the day who generously shared their approaches, structures and views on how governance, engagement and behaviours worked and were experienced in their own organisations.  And fascinating it was!

We heard that in many businesses that had transitioned to employee ownership, the culture beforehand was already engaging and inclusive.  Therefore, the move to employee ownership was an obvious one, with one participant describing the structures of corporate governance that were subsequently introduced as ‘legitimising their employee ownership culture’.

We also heard that it is not uncommon in such businesses to codify the values and principles in formal constitutions or in Articles of Association – to secure ownership longevity, and, in some cases, to define reserved matters over which employee owners have influence, with the aim of preserving the integrity of the ownership.

Repeating what was heard in the previous hearing, participants this week described a corporate governance culture that is based on transparency and sharing of information.  Whilst this level of information sharing and openness may be seen as onerous in other business structures, it was revealed that it leads directly to employees taking ownership and providing discretional effort.

We heard how these businesses are powered by people, the employee owners – and that those people are enabled and encouraged to step up and take responsibility through various formal governance representative groups such as Employee Forums, Trust Boards or main operating Boards.

What was striking in every participant’s description was that the culture of the business was developed bottom up; by employees’ behaviours being a natural product of their ownership of the business, and not due to a dictating set of guiding principles laid down by management.

Building on the evidence we heard at the first hearing, there was repeated reference to the long term stewardship of a business by its employee owners – how they seek to build value into their organisations for the benefit of the next generation of employee owners, as part of maintaining their independence

However, what was clear was that, even within the established protocols of Employee Ownership Trusts (EOTs), employee ownership businesses often develop their own, bespoke approaches to governance.  As adherence to the Corporate Governance Code is voluntary for privately owned businesses, I was therefore left wondering if the Code could better support employee owned businesses more explicitly?  Would this help to define the expected standards and encourage more standardisation across the sector?

This led to a discussion about training and development of Trustees Directors and Company Directors of employee owned businesses – and a feeling from most of the businesses that there is a gap in the market for this essential learning.

The topic of social responsibility and whether employee owners are more likely to deliver personal value to their communities generated a number of examples where ideas and initiatives were led by the owners, and were developmental or contributing to community impact.  I wondered if Corporate Social Responsibility (CSR) was, in the case of employee owned businesses, actually becoming Employee Social Responsibility (ESR)?

The Ownership Effect is not only evidencing the many positive attributes of employee ownership, but is also identifying future priorities for the ongoing development of the sector.

One such area, which was discussed at length in the first hearing, is access to funding and the lack of understanding and awareness of employee ownership by the mainstream lenders.  This emerging topic will no doubt feature more in future hearings – and I am looking forward to hearing the views of some of the lenders as we travel around the UK in the next weeks.

The structures of engagement and representation were considered an asset in terms of attracting and retaining talent – with a general observation that the employee ownership structure and culture WAS an attractor.  However, there remains the challenge for some businesses of how to turn the employee ownership into a more competitive advantage with clients?

As I observed the Panel in action, I was hugely impressed by their ability to challenge and question our participants, to get the most out of the conversations and then to hear their reflected observations about how the employee ownership sector can support future growth of the economy.

The Ownership Effect is building momentum and I am more convinced than ever that through the programme of hearings and the online consultation, our Panel will uncover far more about the important impact and effect of employee ownership in the UK.

Day three in Edinburgh awaits this week and I look forward to more evidence being uncovered!

Deb Oxley, CEO of the EOA

The Ownership Effect
Inquiry panel hearing 2 – June 23 London BEIS
Chair: Baroness Sharon Bowles
Subject: The Ownership Effect of corporate governance in employee owned businesses

Panel representatives from the following businesses and institutions:

  • Institute for Family Business
  • Small Business Research Centre, Kingston University Business School
  • CIPD
  • Grant Thornton
  • Scale up Institute
  • Federation of Small Businesses
  • Institute of Directors
  • Fieldfisher
  • Employee Ownership Association
  • A G Parfett
  • British Chambers of Commerce

Participants from the following employee owned businesses:

  • Steer Davies Gleaves
  • Saxton Bampfylde
  • Golder Associates (UK) Ltd
  • 3BM Ltd
  • OPM Ltd
  • Cullinan Studio Ltd
  • Barnard &Westwood Limited
  • Cubiks Group Ltd
  • Donald Insall Associates Ltd
  • Hayes Davidson
  • Leading Lives
  • Wise Investments

Observers from the following organisations:

  • Cass Business School
  • Law Society – Scotland
  • Employee Ownership Association
  • Employee Ownership Insight