- BRW Lists
Published 09 April 2013 10:59, Updated 11 April 2013 00:46
When a young Robert Care climbed out of his Kombi van at the Crystal Palace camping ground and brushed himself off for a job interview at the London headquarters of engineering group Arup, he couldn’t have known he was about to make a lifetime commitment.
Like so many Australian travellers in the 1970s, he was just another scruffy antipodean looking for work.
“I didn’t know what the company did,” he admits now.
Nevertheless, the company he joined took hold of him, moulded him in its spirit and kept him in its thrall for almost 36 years.
Arup inspires that kind of loyalty in many of its people.
The company manages to keep its employees – sometimes for their entire careers – while often paying them less than their competitors would. This is despite having to compete for talent with the big bucks of the resources industry.
Arup claims a low voluntary staff turnover rate of 5 per cent – about half the industry rate – which is an achievement when other companies are throwing money at them to leave.
“If you join Arup for the money, you are probably in the wrong place,” says Care, who handed over the Australasian chief executive and chairman roles to another “lifer”, Peter Bailey, two years ago to become Arup CEO and chairman in the UK, Middle East and Africa.
Actually, if Arup did decide to join in the global “auction” for talent, the 10,000 employees might not necessarily support the move. Although they might benefit individually through raised salaries, they would also have to bear the cost because they are all owners of the business.
Thanks to the generosity of founder Sir Ove Arup, the company is owned by a series of trusts for the benefit of its employees. While they may not get top dollar in salary, everybody shares in 40 per cent of global profits, which can equate to 5 per cent to 20 per cent of their salary, depending on how good the year has been.
Arup may have more “stayers” than other companies, but staff retention is just one of the benefits the company shares with many other employee-owned companies. Research by law firm Field Fisher Waterhouse shows employee ownership also confers higher levels productivity, profitability and innovation.
Companies owned more than 10 per cent by their employees outperform FTSE All-Share companies, the UK Employee Ownership Index shows.
They also have higher returns on assets and greater net profit margins.
But just giving employees a slice of the action is not enough. Other research (by Rutgers University) shows that to get the full benefits of employee ownership, it must be coupled with high-participation and high-performance policies (which include information sharing and teamwork) and low supervision. Performance increases ranging from 7 per cent to 23 per cent have been recorded at companies that get this mix right.
So employees are not only to be treated as shareholders. For companies to reap the benefits, employees must also be trusted to act as owners, with day-to-day involvement in decision-making.
While some employee-owned companies give staff voting rights – and may be run democratically – Arup has kept a traditional management structure. However, Care says the ethos of ownership has seeped into the company culture, so that there is little hierarchy, a collegiate attitude and employees are empowered to speak up.
“I put myself at the bottom of the [organisational] pyramid”, he says.
Arup is, in many ways, a remarkable company. It has been profitable for every one of its 67 years and carries no debt – a factor that helped it survive the global downturn, when many other companies have collapsed.
“One hundred per cent equity and no debt makes it easier for you,” Care says. “From 2004 to 2010, we have had 35 per cent compound growth with no borrowing.”
Despite the success and prominence in this country of Arup, which helped build the Sydney Opera House 40 years ago, employee ownership has not had as big a profile here as internationally.
Some of the large and successful employee-owned companies include the UK’s John Lewis Partnership department store chain (81,000 employees), Spain’s diversified Mondragon (84,000 employees) and New Zealand engineering group Beca (2600 employees).
For smaller European companies, employee ownership is seen as a way for start-ups to attract quality employees and to help company founders exit a business, while preserving it for the future.
Encouraging it is seen as a way to boost the economy in the UK, and £50 million ($73 million) has been set aside from last month’s budget to fund staff ownership initiatives, including capital gains tax relief for entrepreneurs who sell businesses to their staff.
Deputy Prime Minister, Nick Clegg, has pledged to turn Britain into more of a “John Lewis economy” – an appropriate metaphor for the country that was branded a “nation of shop-keepers” by Napoleon. The John Lewis Partnership was created when Spedan Lewis transferred his shares in the retail empire into a trust 78 years ago. The company has been outperforming its rivals, reporting a 9.1 increase in sales over the past year.
The retail chain celebrated by announcing an increased bonus for staff, equivalent to nine weeks’ pay.
Clegg has said: “Employee ownership works because it so neatly aligns incentives and puts the workers at the heart of the business.”
In Australia, despite both sides of politics voicing support for the concept of employee ownership, little has been done to encourage it. We may pride themselves on our egalitarian spirit but, in practice, Jack is only as good as his master when he is off the premises.
Rather than viewing employee ownership as a chance for ordinary workers to get ahead – and for business to benefit – the Labor Party and the Coalition have been more concerned that senior executives use it to avoid paying income tax.
In 2009, the Rudd government tightened up the tax treatment of company share schemes and many employers responded by freezing their plans. The changes (affecting more than 4 million employees) meant those earning more than $60,000 had to pay tax upfront on share and options packages.
Employee Ownership Australia and New Zealand chairman Angela Perry, says: “There’s a suspicion that it is all about dodging income tax.”
She says most companies have now reopened their schemes but that the concept of employees as owners is hampered by an old-fashioned industrial relations mindset which sees the divide between employers and labour as inevitable.
The complexity of transferring ownership to employees is also off-putting and there can be extra expenses in preparing prospectuses.
An adviser to the UK government on the issue, Graeme Nuttall, says Australia could learn from the UK’s experience and use his Nuttall Review (handed down last July) as a checklist of goals to achieve.
The UK government, which commissioned the review, has accepted all his 28 recommendations, which include: establishing an implementation group with the Minister for Employment Relations; assessing the viability of setting up an independent institute to raise awareness; developing simple “off the shelf” templates for setting up an employee-owned company; and developing a voluntary tool kit for employees and employers to use when requesting and agreeing employee ownership in a company.
In an online interview with Angela Perry, Nuttall, a partner at law firm Field Fisher Waterhouse, says the business community has become complacent about the models it adopts.
“In my professional practice, I see listed companies that should not be listed. I see charities that should not be charities. We just have to work harder to make sure that each business has the right business model at the right stage of growth and I believe employee ownership is particularly suited to small and medium-sized enterprises and encouraging growth in them, and also as a start-up model.”
Robert Care says the employee-ownership model is not for every business – or everyone. “There are some people who struggle to get it. Sometimes we go out and try to recruit senior people and they come in and they never fit.”
Nuttall will be in Australia to speak at the Annual Employee Ownership conference in Sydney on May 24.
Mondragon: This is the seventh largest Spanish company in terms of asset turnover, providing employment for 83,869 people in 256 companies.
It operates in four areas: finance, industry, retail and knowledge. Co-operatives are owned by their worker-members and power is based on the principle of one person, one vote.
A portion of each member enterprise’s net revenue goes to a fund for research and development, which finances new product development. R&D employs 800 people with a budget of more than $75 million. The company’s first product in 1956 was paraffin heaters. In 2010, 21.4 per cent of sales comprised new products and services that did not exist five years earlier.
John Lewis: The British company is hailed as one of the best models of worker-owned businesses. Employee-owned since 1929, it has sales of £8.7 billion ($12.7 billion), 81,000 employees, and profits of £354 million.
Over the last 50 years, the average bonus has been 16 per cent of the annual wage (compared with 0 per cent to 3 per cent in British industries in general in the last three years).
Publix: The largest employee-owned supermarket chain in the United States, Publix has been one of Fortune magazine’s 100 top companies to work for, over 15 consecutive years.
It had retail sales of $27 billion in 2011 and employs more than 152,500. It is the fastest-growing employee-owned supermarket chain in the US and excels in community involvement and volunteering.
Source: Employee Ownership Australia and New Zealand