Taking the John Lewis lead

Last year the government appointed an independent advisor, Graeme Nuttall, to review employee ownership with a view to increasing the number of employee-owned companies.

The idea of employee ownership is not new (the first form of profit sharing was introduced at John Lewis in 1929, and the business became wholly employee-owned in 1950) but it has never become mainstream, possibly because of the number of practical, legal and financial hurdles in the way.

There has been a surge in interest in employee ownership in recent years, both in the media and the political arena, with John Lewis often held out as an example of how well the idea works and this led to Nuttall being appointed to head the informal consultation.

The Nuttall Review

Following his consultation, Nuttall’s review was published in July 2012 and he made a number of recommendations, including that the government should:

  • Consult on introducing a new statutory right for employees to request consideration of an employee ownership proposal.
  • Develop simple employee ownership toolkits covering the key legal and tax considerations involved in creating an employee ownership arrangement. These toolkits should include off-the shelf templates for articles of association for an employee owned company and related ancillary documents.
  • Consult on measures to improve the operation of internal share markets, including the possibility of holding private company shares in treasury and facilitating share buybacks.

The government’s formal response was published in October 2012 with the vast majority of Nuttall’s recommendations being accepted.

In particular, the government stated that it will:

  • Set up a minister-led implementation group to oversee next steps and evaluate the viability of an employee ownership institute to raise awareness of employee ownership.
  • Work with professional bodies to produce template documents for employee ownership so that there are resources available to support employee ownership as well as reduce its complexity.
  • Produce a voluntary toolkit to enable employees to request employee ownership, potentially including a template proposal, and after a further three years evaluate whether a statutory "right to request" is necessary or desirable in light of the success or otherwise of the voluntary approach.

The government’s response was reflected in the 2013 budget which provided for £40-50 million annually from tax year 2014-15 to encourage the uptake of employee ownership structures for businesses. This is intended to fund the implementation of the responses to recommendations in the Nuttall review as well as a new capital gains tax relief on the sale of a controlling interest in a business to an employee ownership structure.

What this means

The government’s response to the Nuttall review highlights their commitment to encouraging employee ownership and those interested in implementing employee ownership will be comforted by the general direction shown by the government including their proposals for employee share plans and share arrangements.

The advantages offered by employee ownership may be of interest to companies looking at different ways to incentivise their employees. It will be interesting to see the outcome of these government proposals.

Ed Nurse is a Director of BHW Solicitors in Leicester and regularly writes on commercial issues. Contact Ed on 0116 281 6230 or ed@bhwsolicitors.com

 


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