Surge in employee ownership forecast for Scottish businesses

A further 30 firms are expected to move into staff hands this year – double the number which took the leap in 2020 – as experts underline the benefit to individual workers, companies and the Scottish economy from the trend.

There are currently 103 employee-owned companies in Scotland, after 15 took the plunge last year. The Scottish Government has set a target of lifting that number to 500 by 2030. And Co-operative Development Scotland, a division of Scottish Enterprise which supports businesses looking to make the change, expects 2021 to be the most prolific year yet.

The prediction coincides with Employee Ownership (EO) Day today, which takes place to highlight the growing contribution of staff-owned companies to the economy.

Carol Leslie, founder of Ownership Associates, which has helped 72 companies move into employee ownership, said: “EO has the ability to bring real prosperity to businesses, and not just through staff satisfaction, but increased productivity and revenue.

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"We’re forecasting a further 30 Scottish companies will move to employee ownership this year, and that’s great news for the Scottish economy.”

Among firms which have become employee-owned in the last 12 months is Montrose-based Gill Financial. It was the first financial services business in Scotland to make the switch when its 10 members of staff became owners through an employee ownership trust in a deal announced in December.

Speaking at the time, Roy Gill, who founded the business with his wife Lesley in 2000, said a sale of the business had not been considered “despite receiving multiple emails most weeks from prospective buyers”.

“An acquisition would have put so much at risk and I hated the thought of that,” said Mr Gill at the time. “For a start I didn’t want any of our staff’s futures put into uncertainty, or for the culture to change so significantly they felt forced to leave.

“Likewise, we know we deliver great value for our clients across pensions, investment and mortgage advice. The brand has been built up through hard work – and that’s a precious thing.”

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Gill was advised by Ownership Associates and law firm Lindsays.

Douglas Roberts, a director in Lindsays’ corporate team, who has worked with 15 employee-owned companies in the last four years, said: “The Scottish Government target is ambitious, but the increasing number of EO companies will have a huge benefit to the economy because it will keep jobs, wealth and talent in this country.

“Commonly when Scottish companies are sold then the main administrative roles – often the highest paid positions in the company – are moved out of Scotland and eventually the Scottish operations may be shut. Employee-owned companies are far more likely to remain.”

EO Day is held to highlight the economic and social benefits that can be gained when employees are invested in and have a say in how the company they work for is run. It is hoped that these benefits will be beneficial amid the effort to recover from the fallout of the pandemic.

Mr Roberts added: “We tend to find an EO company’s staff are more motivated and provide better service because they are more engaged and benefit from the profits of the company.

“Research after the 2008 credit crunch showed that employee-owned companies outperformed non-EO companies. As a result of the staff having ownership of the business they “stick together” and work harder knowing that they will all benefit rather than just a few shareholders. There is less of the “them and us” attitude.

“It is hoped that EO companies will also come out stronger from the Covid pandemic.”

There are various routes through which companies move into employee hands, a decision which is often taken by owners as a form of succession planning. They include issuing share options to selected members of staff, and equity being moved into a trust for employees.

Most deals are said to involve more than 50 per cent of shares being transferred to staff. Tax planning can be part of the motivation.

Mr Roberts said: “When a company transitions to employee ownership then, subject to meeting certain requirements, the shareholders who sell pay no Capital Gains Tax. Due to Business Assets Disposal Relief (formerly Entrepreneurs’ Relief), most shareholders pay CGT at 10% on the first £1million of a sale which means that someone selling a company for £1m, for example, walks away with an additional £100,000. Recent changes to CGT make this even more attractive.

“Tax should not be the main consideration. Holding a stake in the place you work creates a different mindset among staff and can certainly spur innovation, performance and productivity, which benefits all involved.”