In a world where the mantra of ‘shareholder value’ has long reigned supreme, a quieter revolution is taking root. The employee ownership trust (EOT) model, once a niche curiosity, is now a headline act in the global corporate reform theatre. And the script is being written, surprisingly, by the British.
The model, which allows owners to sell their companies to a trust that benefits all employees, has seen a surge in adoption since the UK introduced tax reliefs in 2014. Some 1,300 companies have now converted, up from just a handful a decade ago. But the numbers are less interesting than the motivations. Owners cite a desire to secure the company’s legacy, to reward loyalty, and to ensure that their life’s work does not get carved up by private equity vultures or sold to a foreign conglomerate. It is a heartwarming tale, but I cannot help but view it through a more cynical lens: is this a sensible exit strategy or a sentimental tax dodge?
Take the case of Riverford, the organic veg box firm, where founder Guy Singh-Watson sold a majority stake to an EOT. Or Aardman Animations, the Wallace and Gromit studio, which did the same. These are not corner shops; they are substantial enterprises. The tax advantages are considerable: owners pay no capital gains tax on the sale, while employees receive tax-free bonuses of up to £3,600 per year. In a country where the capital gains tax take is already under pressure, this is a significant leakage. Yet the government has resisted tinkering, perhaps sensing a political win: ‘worker capitalism’ appeals to both left (employee empowerment) and right (profit-sharing).
The global traction is real. In the US, similar bills have been introduced in Congress. The Employee Equity Trust Act, inspired by the UK model, promises tax breaks for businesses that sell to employees. Australia, Canada and Ireland are all exploring variations. The World Bank has even published a guide. But before we pop the champagne, let us examine the numbers. According to the Employee Ownership Association, EOT companies outperform on productivity by 8-12% and have lower staff turnover. That sounds impressive, but correlation is not causation. Perhaps only well-managed companies choose to convert. Or perhaps the tax tail wags the dog: the savings allow higher wages or investment, but the taxpayer is footing the bill.
There is also a structural risk. In a downturn, an employee-owned firm may struggle to cut costs if it cannot make people redundant due to the ‘cooperative’ ethos. The John Lewis Partnership, the original EOT-style model, has not had a stellar decade, despite its revered status. And while the model protects against hostile takeovers, it also locks in ownership, potentially stifling the kind of restructuring that markets sometimes demand.
Still, in an era of disenchanted workers and short-termist capital, the allure is clear. Employee ownership provides a buffer against the whims of the stock market. For the sellers, it is a way to exit without losing the soul of the business. For the employees, it is a tangible stake in the enterprise. But let us not kid ourselves: this is state-subsidised altruism. The tax breaks are a deliberate policy decision to tilt the playing field away from conventional ownership. Whether that is good for the economy long-term remains an open question.
The bottom line: the EOT model works best when the owner’s motives align with the employees’ interests and market forces. But as more businesses jump on the bandwagon, watch for the margins. In a low-growth economy, we need every efficiency gain. If this model delivers, fine. If it becomes a crutch, expect the Treasury to come calling for its share.
