Succession planning – could employee ownership be right for your family business?
Five million. That’s how many family businesses there are in the UK today, employing more than 12 million people between them.
These are big numbers, by any measure.
Yet equally big is the economic contribution they make and the positive role many continue to play in communities up and down the country today.
So what happens when it comes to succession planning if you’re a family business?
What if the next generation wants something different – and a trade sale or MBO just doesn’t feel right?
Transitioning to employee ownership (EO) is one option family businesses can explore.
Exploring employee ownership as a succession option
Companies who’ve chosen EO to secure sustainable success in the last 10 years range from household names Riverford Organics and Go Ape to eighth-generation family business Lodge Brothers, which JGA supported to transition in January 2024
The EO sector is dynamic and growing, with more than 1,650 employee-owned businesses around the country, according to the latest figures from the eoa.
Companies who’ve chosen EO as the way to secure sustainable success in the last 10 years range from household names Riverford Organics and Go Ape to eighth-generation family business Lodge Brothers, which JGA supported to transition in January 2024.
So what is employee ownership? The eoa describes EO as when employees have a say and a stake in the company they work for.
Ownership can take a variety of forms – from employees directly owning shares in the company, to having shares held on their behalf in an Employee Ownership Trust (EOT). The EOT model is the most common in the UK.
Creating sustainable success for your family business
Telos's Alex Bloom (seated, first from right) with some of our team
So why is EO worth considering for your family business?
JGA and our Telos Partners colleagues have a sound track record of supporting founder/owners and their businesses with the leadership, governance and employee engagement aspects of transitioning to EO.
We also work with existing EO businesses to embed and accelerate the commercial and cultural benefits of being employee-owned.
‘Transitioning to employee ownership can safeguard the founder’s legacy while freeing the company to shape its own path,’ says Telos Partner Alex Bloom.
‘It puts the business into the hands of the people who know it best and who, hopefully, also care passionately about securing its sustainable success.
‘Becoming employee-owned is one way a family business can retain and strengthen its culture even when family members are no longer around.’
Empowering the next generation to lead
Alex with JGA's Corrine Thomas at a recent eoa event
Having previously worked in and then led his own fourth-generation family business, Alex finds supporting others to explore EO – and achieve a smooth handover of the reins – particularly fulfilling. ‘I genuinely love it,’ he confirms.
‘I’ve seen the impact of succession through my own family business as it passed from my grandfather and his brother to the next generation.
‘I’ve seen how a family business can be evolved and strengthened as new generations come on board – and I’ve seen the impact when some family members aren’t motivated to be involved. I’ve also seen the benefit that non-family members can bring.
‘With employee ownership, it can be very empowering for the next generation (whether family or not) to understand there’s a future for them, with the opportunity to contribute to the direction of the business they now own.’
Commercially, EO businesses have been shown to be more productive. They also invest more in supporting employee health and wellbeing, on-the-job training and critical benefits like flexible working, according to the findings of the eoa’s Knowledge Programme which was published in 2023.
Making the right decision for your family business
JGA's Lisa Fryer (top right) supported Pym & Wildsmith's EO transition in 2021
EO’s benefits are good to know, but EO won’t be the right path for every family business.
It takes time, energy and research to make such an important decision – and, if you do choose EO, just as much focused effort to ensure the transition process runs smoothly for all involved.
As Sarah Pym-Eaton – one of the previous family owners (now Finance Director) of metal finishers Pym & Wildsmith, whose EO transition JGA supported in 2021 – recalls: ‘We invested a lot of thought and care because we wanted to get it as right as we could without constraining the team moving forward.
‘Our employees are the heartbeat of our company, both past and present, so to be able to transition in the right way was really important to us all.’
So if you’re a founder/owner who’d like to explore employee ownership as a succession option, what should you do next?
What should you do next?
Here are 4 practical steps to get things started:
Do your research – the eoa website is a good place to start, as is connecting with other employee-owned businesses to learn from any insight they can share.
Equip yourself with the facts so you’re clear about what EO is – and what it isn’t. JGA’s founder and MD Jeremy Gadd helpfully busts 5 common myths about EO here
Seek expert legal and financial advice on the transition process from a trusted professional with EO-specific experience – there are several out there with a sound track record of steering family business clients through this phase to success, including JGA’s trusted partners.
Get in touch with us today to find out more about the support Telos and JGA can provide to prepare you and your business for a smooth transition – working with you to shape, embed and accelerate the benefits of being employee-owned.
A version of this blog was first published as a guest blog on the Family Business United website in September 2024.
Want to know how JGA and Telos Partners can support your family business to explore employee ownership as a succession option? Get in touch today.