When a company is in trouble, there are often only two options left to it: sell up or close down. But troubled businesses, including those in the engineering sector, can be saved – by their own staff.
Under the employee buyout (EBO) the workers become the shareholders. So what are the benefits of employee ownership for engineering firms? Is it a lifeline that is worth grabbing?
Carole Leslie is the managing partner of the Baxendale Partnership, a business that helps any company interested in becoming an employee-owned business achieve that aim. Baxendale advises and supports companies who decide to go through an EBO by meeting the firm to tell them what is involved. It provides case studies of businesses that have gone down the route into employee ownership. It explores the feasibility of the company going through a business transfer and how it can be funded. If the company proceeds with an EBO, Baxendale supports it throughout the implementation process and provides aftercare to make sure employee ownership works for it.
Leslie says that more companies are turning towards employee ownership or are at least considering it.
“It’s the kind of thing that spreads so once people hear about a company that’s done it then we always get enquiries,” she says. “It tends to snowball from that.”
Employees tend to work harder and come up with good ideas when they have a share in a business because they have a direct investment in it, she says. And because there are no external shareholders looking for dividends, the company can focus its strategy on long-term benefits for the business, using profits for reinvestment or to share among employees.
She adds that EBOs suit engineering firms because a big part of engineering relies on innovation. “When you start harnessing ideas from people that are actually working on the job you really reap the awards,” she says. “It’s not a case of the boss saying we want you to do this because it will make me richer. It’s a case of saying, look, if we can make this work we will all benefit.”
Retention and recruitment of staff is easier and you get the best out of them,
she continues.
“By having a real ownership stake in the business you’ve got to benefit from retaining the talent. You also find that you are able to recruit talent because people are interested in the ownership stake and you also find that people take a real interest in developing the very best products that they can.”
Woollard & Henry, which manufactures dandy rolls for the paper industry, is an example of an engineering firm that has become an employee-owned company and reaped the benefits. With the help of Baxendale, the 135-year-old Aberdeen firm made the move in 2002 when the paper industry was in serious decline.
Baxendale provided the funds for the employees to buy out the company from the previous owners and it became the first outfit that Baxendale took into employee ownership.
Eight years on and Woollard & Henry has quadrupled its sales, completed global orders and won a Queen’s Award for international trade. Principally, it still manufactures rolls for the paper industry but it has diversified into products for the oil and gas sector.
Stuart Robertson, commercial manager, says that an EBO was the only solution left available as the previous owners were going to retire and either sell the company or close it down. If it was not for the buyout, the company was unlikely to have entered such a positive phase, he says.
“That sort of diversification, I’m fairly sure, might have not happened under the old regime,” says Robertson.
He says the initial reaction of the employees in the ownership scheme was upbeat. The firm has grown from strength to strength and performance has significantly improved because of it.
“It has turned out to be very successful,” he says. “There is a drive and a motivation and ambition now throughout the whole company. It’s still led from the top by our MD but you get a greater motivation throughout the whole place.
“As time has gone on we are getting far more involvement from the guys. They are a bit more inclined to come up with suggestions now.
“You are not just turning up for your job every day – there is a different philosophy. If times are good everybody enjoys it, if times are bad everybody knows about it. I can’t really say that it would suit everybody, but business-wise it’s proved to be good.”
Clansman Dynamics, which designs and manufactures robotic handling equipment, became an employee-owned business in January after the previous owner retired. Founded in 1994 and based in East Kilbride, the company produces sophisticated material-handling solutions for forges, foundries, steelworks and waste management. Its client list includes leading manufacturers such as Volvo and Fiat.
It was felt that selling the company would have too negative an impact on the local job pool, talent and technological developments. Instead, the management decided that the best way forward was to instigate an employee buyout to keep the business in the area.
Derek Muir, technical director, says the initial reaction to the buyout was good, with over 90% of staff investing money into the business. While it is still early days, he is confident that the firm will have a strong future. Muir says he would advise other companies to go down the EBO route.
“As everybody is part owner, hopefully it makes people work that little bit harder to change things where things need to be changed and to promote a good working atmosphere and a positive business,” he says.
“Going EBO, in general, gets a good response. The principle is good and if you have people who are already connected with the business and are keen, hardworking and enthusiastic, it gives more to the company.”
It seems more engineering firms are pursuing employee ownership and doing it quite successfully. It is heartening to know that selling up, or shutting up, are no longer the only options for businesses in desperate need of a lifeline.
Caution ahead
For those companies considering employee ownership there are some factors that need to be noted. While there are clearly many positives to an employee-owned business, there are some drawbacks too.
Business help: Carole LeslieFirstly, it is important to realise that once the EBO is complete not much at the company actually changes. Baxendale’s Carole Leslie says that the only difference between an employee-owned company and a traditional firm is change of shareholder. Everything else stays the same. The management team, the job description, even the terms and conditions, stay the same.
“Sometimes expectations can be high, that once you do the completion of the business transfer, the next day everything is different. And it’s not,” she says. “People come in and they’re doing the same job. There is not, in real terms or in operational day-to-day terms, a major change. That can be a bit deflating.”
It is also important to remember that there is a required level of responsibility for each employee to try to understand how the business is being run. While some workers may be interested and take a more proactive role, others may not.
On with the show: Woollard & Henry workersWoollard & Henry’s Stuart Robertson says: “You are taking people who are working for a living and then thrusting a certain amount of business responsibility on their shoulders, or at least a level of understanding. Technically, it’s our business,” he adds. “That’s how you have to try to perceive it. It’s not just a place of work. It is our business that we are working for. And that’s a mindset change for some people.”
Another factor is that the cost of the business transfer, including legal fees, is similar to any business transfer process, such as a trade sale or MBO, with the cost ranging from £15,000 to £40,000. That can vary depending on the complexity of the company, such as if it has multiple shareholders and multiple locations in the UK or overseas.
The length of the implementation process may also vary. It can be very quick and completed in a matter of weeks. If done properly, however, it should take three to six months, says Leslie. If companies want to spend time researching, exploring options and speaking to like-minded enterprises, it can take one or two years.
Staff at Clansman DynamicsLeslie advises any company considering an EBO to first meet with a business that specialises in the process and learn more about employee ownership, then explore the options and talk to other people who have been through it.
“Any business transfer is fraught with difficulty,” she says. “It can be an eye-wateringly expensive process but if you get the right advice upfront about taking this route, then you can minimise all that and make it as smooth as possible.”