An EOT is an Employee Ownership Trust. For many years now, employees in the UK have been able to hold a stake in the businesses for which they work. Employee ownership, however, only really took off following The Nuttall Review of Employee Ownership in 2012.
The following has been taken from a book called the Eternal Business by Chris Budd. Chris believes the Eternal Business will be of interest to the owner who is proud of their business: proud of what they produce, proud of the team of people, proud to be called the founder.
I have been involved as a Non-Executive Director of a company that became an EOT a few years ago. It certainly worked for the Directors and still exists today. I am now involved with a smaller company called Maslins (around 10 employees) which is taking that route, hence reading Chris’ book.
“I transferred a controlling stake in Maslins Ltd to an EOT a few months ago. It’s certainly a big move, not something to be taken lightly, but myself and a few key staff had been working towards it on and off for a couple of years (slowed a bit by Covid!). I could give a dozen different reasons as to why I made the move, all of them true. It’s a combination of wanting to share the responsibility more widely, but also the profits. Yes, it could have remained privately owned with us being voluntarily more generous with bonuses perhaps based on profit, but I like the (hopeful!) longevity that EOT ownership gives. I will no longer be central to the business. Unlike with direct staff share ownership, nobody had to put their hand in their pocket/mortgage their home to get a stake in the business, but equally we don’t have the problem of what to do with shares of a staff member who leaves. Staff can come and go, they get a profit share and a say in how the business is run while they’re with us. Neil’s been a great help in coaching the senior team towards more of a business owner mentality and helping me ease away from the firm gradually. We’re only 3 months in, but no big regrets so far!” Chris Maslin Founder of the business
As a founder, setting up an EOT gives them the opportunity of releasing capital, an option of an ongoing income and an ongoing role at least in the medium term. It also means they don’t have to sell to a third party which can mean the culture changes or gets embedded into their main business to the employees’ discomfort. Hopefully the business can continue to run as a happy business with contented customers.
For the EOT to work it needs to focus on long term sustainable profit, employees to work long term and benefit from the success of the business and to have some form of control. The owner needs to learn to let go, while at the same time the employees need to start thinking more like business owners. Not an easy transition for the founder to “let go of their baby” giving the leadership team space to make one or two mistakes.
For an EOT to be successful the product or service delivery needs to have a shared vision, consistency of delivery and a common sense of purpose. All parties need to understand the core values of what the business stands for. The process needs to be taken slowly, at a pace that brings everyone along together. Over time the original founder needs to become the least important person in their business which is never easy to achieve.
How do employees think more like business owners? From micro to macro level; from functional to collaborative; from department to the whole business. For this to work employees need to step up and think like business owners.
- Respect them – they will have different knowledge from you
- Listen to them. Find out their motivations, often people do want the same end goal but might get a bit lost in translation
- Give them decision making powers
- Give them training and information
Ownership and Control
An employee-owned business is not a democracy. Whilst decision making may be wider to harvest as many ideas as possible, it is likely that certain decisions will continue to be the responsibility of a small number of individuals. Ownership does not mean control. Care should be taken not to become a talking shop with the potential for ‘death by committee’, where decisions never get made.
From my limited knowledge of EOT’s, I hope they expand over time. In the insurance industry I have seen so many ‘spoke’ and ‘hub’ models of takeover. These reduce choice in the market and reward shareholders but are frequently to the detriment of the employees who often leave the company or have to travel miles to continue being employed. EOT’s are an area of interest to me, so if you want to have chat at any stage, contact firstname.lastname@example.org