Why Responsible Capitalism is About Taking Ownership

A way of driving growth that avoids the corporate excesses of the past and addresses disparities in wealth and reward that are simply unfair - that is the holy grail of British politics today. The search appears under many rubrics: curbing crony capitalism, boosting boardroom responsibility, securing a fair deal for the squeezed middle.
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A way of driving growth that avoids the corporate excesses of the past and addresses disparities in wealth and reward that are simply unfair - that is the holy grail of British politics today. The search appears under many rubrics: curbing crony capitalism, boosting boardroom responsibility, securing a fair deal for the squeezed middle.

In the last 10 days all three leaders of the main political parties have staked their claim to pushing a new, more responsible kind of capitalism. Yesterday Deputy Prime Minister Nick Clegg made the most substantive contribution to this debate so far.

Calling for a renewed focus on employee ownership in the UK economy, Mr Clegg pledged to identify a number of measures over the coming months to help ordinary employees hold a real stake in the companies for which they work.

In so doing he articulated a realistic path to giving more people a direct stake in the country's economic recovery - boosting growth whilst at the same time doing something about that intractable fairness issue. He should be applauded. For employee-owned businesses, which come in many different forms, are models of responsible capitalism - not just superficially, but in depth.

The John Lewis Partnership, employee-owned since 1929, is widely recognised as an outstandingly successful case. It was mentioned again by Nick Clegg. But it is far from the only example of a successful, responsible, growing, employee-owned business in Britain today.

Employee-owned businesses come in all shapes and sizes, and exist in all sectors of our economy - from engineering to professional services, and from healthcare to manufacturing.

The success stories are there for all to see - and what's more, they are multiplying. For example, Arup, the 10,000-strong engineering and design company responsible for Beijing's Bird's Nest Stadium and the bridge between Denmark and Sweden has been employee-owned for forty years. Childbase, the rapidly growing provider of nursery services in South East England now has 1,400 employee owners and the highest profitability and Ofsted rating in the industry. The list goes on.

My own decades-long involvement was inspired by leading Tullis Russell into employee ownership, since when it has outperformed its industry rivals: the power of the transformation has to be seen to be understood. Employee-owned Baxi Partnership, where I am a non-executive and former managing director, has worked for the last 12 years to promote the growth of strong, sustainable employee ownership. In that time, we have helped to create over 40 employee-owned businesses. We have welcomed in over 70 new Partners (employee-owners) in just the last month.

So John Lewis is not alone. Strong, growing employee-owned businesses are being built all the time. In total these businesses are worth in the region of £30bn to the UK economy every year. Many of them are private companies, but stock prices of public companies that are more than 10% owned by employees have long outperformed the market as a whole, by an average 10% per annum. Sales growth and employment in employee-owned companies are 2.4% higher than they are in those with conventionally structured ownership.

The productivity difference is vitally important, and it is intimately liked with cultural development - responsibility and individual autonomy. It here that employee ownership starts to broaden its political appeal. Employees have an opportunity in this kind of company to share in the knowledge and influence, as well as the wealth that come with being owners. Without such cultural development the productivity effect is weaker.

Just as employee-owned companies create jobs faster, and tend to be more resilient in tough economic times, they also have higher levels of job satisfaction and employee commitment, and lower rates of absenteeism and staff turnover. Employees in these companies are typically paid more. But perhaps more importantly, they usually receive financial benefits as a result of ownership that are directly tied to the company's performance.

In employee-owned businesses, productivity and responsibility are fundamentally intertwined. Decisions are not taken by absentee owners or unaccountable executives. They are influenced by those who know the company best and are most invested in its success: its employees.

And this is the true reason why employee-owned businesses provide a model for responsible capitalism. Empowering employees to take responsibility, the companies themselves become responsible. They encourage decision-making that is driven less by short-term profit-making motives, and more by the need to improve the performance of the business through innovation over the long term.

Clearly this approach is not risk-free. If employees take an actual stake in a business and that business fails they will stand to lose out - just as they stand to gain if the business succeeds. Which is often precisely where the phenomenal levels of motivation found in employee-owned businesses comes from. Ownership motivation is a powerful strand in capitalism itself.

As with all businesses, employee-owned companies are not immune from failure. Management quality is vital. But a key ingredient is that employees have the opportunity, often currently denied to them, to have a stake in the businesses for which they work and a meaningful say in how those businesses are run. That combination is like adding oxygen to fire in the pursuit of explosive productivity.

The Employee Ownership Association's Manifesto for Employee Ownership published in 2010 cites one major study showing that when employee ownership is introduced with employee involvement in decision making, the rate of productivity growth is boosted by an average 52%.

As an increasing number of companies are realising, that's a better way to run a company. And as Mr Clegg rightly argued yesterday, it's a better way to run an economy.