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Should More Employees Own Shares?

Posted on Jul 26, 2012 by Kenny Mumford  | 0 Comments

By Kenny Mumford

A recent report published by BIS (the Nuttall Review of Employee Ownership) has resulted in the government announcing that it will:

  • look at giving employees the right to ask their employer to consider introducing employee ownership arrangements;
  • establish an institute for employee ownership; and
  • produce new ‘off-the-shelf’ DIY packs for companies to introduce employee ownership.

The issue of employee ownership comes under the spotlight from time to time, with businesses like John Lewis being held up as great examples of employee-owned companies.  Indeed, one of my own favourite shops, Edinburgh Bicycle Co-operative, has seen tremendous growth under its own employee ownership structure.

While the legal structures of these two examples might be very different, many of us would agree that the concept of employee business ownership is a good thing.

The government report is unavoidably dry reading in parts, with recommendations for further consultation and various recommendations about the role that government should play. It does however recognise that any regulatory burden needs to be kept to a minimum as the overarching message is to recognise the important role of employee share ownership.

Indeed those of us that work closely with high growth companies probably assume some form of employee share ownership is normal in any event – think about share option schemes. Cynics on the other hand might say that a “right to request” share ownership would make little difference to the current balance of ownership in many companies.

Employee share ownership can come in many different forms. However, the last time that a brand new government share ownership initiative became directly relevant to me was when, as a junior lawyer, my then-employer asked me to draft up our first set of Enterprise Management Incentive (EMI) Scheme Rules.  Since then EMI schemes have become the norm for many early stage companies and spin-outs.

Happily, MBM have been able to watch employees actually reap the rewards of such schemes as some clients have grown and made it to a number of successful exits over the last few years.

I’m also interested in the recommendation in relation to off-the-shelf DIY packs. We can now offer very efficient EMI scheme rules but I’d have to admit that, at the moment, some of the structures used in 100% employee owned businesses will not be immediately familiar to many humble corporate lawyers.  

It will be worth watching developments closely, particularly the recommendation that the government “consult upon improving the operation of internal share markets ....., including holding private company shares in treasury and facilitating share buy backs”.

What are your thoughts? If you’re an employer or business owner, do you think that these proposals will make any difference to you? Or, as an employee, do you see a change as having a significant benefit for you in the future? I’d be interested to hear your views in the comment section below.

Kenny

kenny.mumford@mbmcommercial.co.uk

0131 226 8205

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