Following the John Lewis model: More Cambridgeshire companies explore employee ownership
Cambridge Design Partnership is latest to switch, as research confirms beneficial effects
John Lewis, PA Consulting and Mott Macdonald – just three of the companies in Cambridgeshire that are owned by their employees.
Now you can add Cambridge Design Partnership to those names, after it completed its transition to a model that is growing in popularity.
The equity in the Toft-based technology and product design company has been transferred into an employee-ownership trust, part-financed by a loan from Barclays that was completed last week.
The 10 partners in CDP will continue to manage the company under the new structure but staff will have a say in business decisions through an elected employee committee.
A member of the committee will be invited to attend every monthly management meeting to encourage greater responsibility and involvement in the direction and running of the business. The employees will also share in CDP’s profits.
The company hopes that becoming employee-owned means it can accelerate its expansion without the involvement of external shareholders.
The move comes after research conducted over the course of more than a year by an independent panel of senior business leaders and industry experts concluded employee ownership was beneficial and constitutes a dividend.
“The ownership dividend pays off at three levels: for individual workers, for businesses, and – most critically – for the wider economy,” said the report from The Ownership Effect Inquiry, chaired by Baroness Bowles of Berkhamsted.
While acknowledging it was “not a panacea”, the report noted: “As a structural arrangement, employee ownership (EO) hardwires the inherent enthusiasm, purpose and commitment of staff members throughout the entire fabric of a firm by providing a meaningful ownership stake.
“Yet far from being purely structural, it is a transformative route that challenges conventional wisdom about the relationships between owners and employees; EO encourages employees to work smarter and deepen their contribution to their organisations as they think and act like owners.”
The study found evidence that employee ownership can improve productivity and results by engaging workers more strongly.
It was this people-centric approach the prompted CDP to make the change, 22 years after being formed by three engineers.
Mike Beadman, one of the founding partners, said: “As a technology consultancy business, CDP recognised that people were the real value in the company and the key to future growth, so transferring ownership to the employees was the most logical progression.
“For the clients of CDP, EO demonstrates the commitment of the company to independence and the long-term relationships that fuel their success.
“We are now looking forward to the next phase of growth where we can take on even more challenging developments for our clients.”
As well as being a powerful motivator for staff, employee ownership can aid succession planning and reinforce a company’s status as a key local employee.
The Ownership Dividend report noted: “EO roots jobs regionally, which helps local communities. One characteristic of EOBs that shone through the evidence presented to the inquiry is that they regard community engagement and supporting those communities as part of their identities.”
For CDP, which is growing fast and now employs more than 120 engineers, designers, digital experts and support staff in Toft and Palo Alto, California, the model could help give it the edge in highly-competitive jobs markets.
Graeme Nuttall, tax and structuring partner at international law firm Fieldfisher, which has offices in London and Silicon Valley and advised CDP on the move, said: “Cambridge Design Partnership has moved to employee ownership because of the benefits for the local economy, the business itself, its clients and, of course, its employees.
“The company believes that EO will help it sustain and build upon its success to date. Staff are about to see an early sign of the benefits of EO, when they receive their first cash profit share as employee owners. This is income tax-free up to £3,600 per tax year, per individual.”
For Cambridge Weight Plan – the Corby-based diet company that can trace its roots to biochemist Dr Alan Howard’s work at the Dunn Nutrition Laboratory in Cambridge – employee ownership has helped it attract new staff..
“We’ve noted in terms of recruitment that a lot of millennials are quite keen to work for an employee-owned business – it’s something that makes this business different to one down the road,” the company told the inquiry.
With it inherent openness and transparency, the model has also helped bring about a cultural change.
“People are more interested in the bottom line, what profits are we making, what is that going to mean for us in terms of employee voice, how can we get involved in deciding what happens to employee stakeholders profits and how we spend those,” the company said.
“Since becoming employee-owned, UK sales have gone up by 17 per cent, export has gone up by 22 per cent and our total sales profit has increased by 25 per cent – a lot of that has been driven by the fact that we are all working towards a common goal.”
Mott MacDonald, the global management, engineering and development consultancy with offices in Station Road, Cambridge, told the inquiry it believes employee ownership and community engagement are inseparable.
The model also enables the company to resist takeover attempts and avoid asset stripping, so that it can focus on sustainable, organic growth and the long-term benefits for the company and its employees.
“I think that we are driven by innovation, by having great people … great business with clients, good clients, great client relationships. We have all of that and it delivers us [good] financial performance,” a representative told the inquiry.
Camlab, which supplies water testing and laboratory equipment globally from its base on the Norman Way Industrial Estate in Over, says it empowers its employees “to make informed commercial decisions” and “implement changes to improve processes and systems” through EO, which enables the workforce to “share in the future rewards and legacy” of the company’s success.
The attractions of employee ownership are prompting the sector to grow, by about 10 per cent a year. It now contributes about four per cent of the UK’s GDP annually – equivalent to the combined income of more than £30billion.
The largest example of the model is, of course, the John Lewis Partnership, which set the ball rolling on employee ownership as far back as 1929, and now has 50 department stores, 353 Waitrose supermarkets, and annual gross sales of more than £11billion.
All 85,500 of its staff are recognised as partners in the business and look forward to the announcement of their annual bonus each year.
Despite this, the inquiry found that lack of awareness, understanding and capability are holding back the growth of the EO sector.
Business schools and education providers can play a part in raising awareness, the inquiry suggested.
It also advised that Westminster should follow precedents set in Scotland and Wales and invest directly to aid the creation of new employee-owned businesses. Evaluation of the scheme in Scotland has shown a tenfold return on investment.
The study also urged the government to work with the sector to develop a dedicated national strategy to foster the growth of EO and mutual firms. Led by a minister, this would include a UK-wide data project to track the growing value of the ownership dividend and devise further improvements to the tax regime.
The report also suggests devolved bodies could work with the sector to set up pilot schemes that would raise awareness of EO, particularly among exiting business owners but also provide hands-on support and attract inward investment to help local firms looking to make the transition.
James Palmer, mayor of the Cambridgeshire and Peterborough Combined Authority, told the Cambridge Independent: “In principle the idea of supporting the potential for more employee ownership-type businesses is something that I’m happy to explore further.
“The Combined Authority has a responsibility to double the size of the Cambridgeshire and Peterborough economy and ultimately we should be looking at all avenues of fostering business growth. It will be interesting to see how Cambridge Design Partnership’s new structure works in practice.
“Our new business board, formed after the merging of the Greater Cambridge, Greater Peterborough Local Enterprise Partnership into the Combined Authority, will also be on the pulse of the local business community, actively supporting growth areas, of which employee-ownership seems to offer much promise.”
Three models of employee ownership
The inquiry described three types of employee ownership:
■ Direct EO: Staff become shareholders, each holding a set number of shares and using one or more tax-advantaged share plans. Inquiry participants using this model: 8 per cent
■ Indirect EO: Shares are held collectively on workers’ behalf via an employee trust. Participants using this model: 28 per cent
■ Hybrid model: Combination of direct and indirect share ownership. Participants using this model: 64 per cent