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Employee Ownership: good for SMEs

Posted on February 12, 2010

A report entitled Model Growth: Do employee-owned businesses deliver sustainable performance was published in January 2010 by amongst others, Professor Joseph Lampel, Professor in Strategic Management at Cass Business School, City University, London.

The report is based on a survey of 41 employee-owned businesses (EOBs) and 22 non-EOBs in the UK, and draws upon secondary data on the commercial performance of 49 EOBs and 204 non-EOBs.

It is stated that the EOB sector, where companies are wholly or substantially owned by their staff, is estimated to be worth £25 billion per annum, equivalent to 2% of the UK's GDP.

The analysis highlighted the commercial benefits of EOBs as against their more traditional counterparts: a snapshot of the report's findings reveals that EOBs are at least as profitable as non-EOBs, and those firms with fewer than 75 employees do significantly better than non-EOBs of a similar size, in terms of profit before tax. It is apparent that EOBs have the ability to create jobs faster, and it is a feature that EOBs tend to be more resilient over the business cycle they have a lower risk of business failure, and during the recession have outperformed the market, demonstrating more stable performance and less variability in sales.

In the wake of the global recession, policy makers are acknowledging the potential of employee ownership in both the private and public sectors. However, the report stresses the barriers to growth historically endured by EOBs namely, access to finance and the regulatory environment in general.

The time would therefore appear ripe for Government and business to work together to create the conditions that may lead to a fairer, more responsible form of capitalism, and the promotion of wider employee ownership of firms in the future.

If you would like to discuss methods of transferring ownership to your employees through equity based rewards, please call one of our advisers on 020 8949 5522.

 
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