The number of landscape practices adopting an employee-ownership model is on the rise, so what are the potential benefits?
When LDA Design and Planit-IE both announced they were in the process of becoming employee-owned businesses in July, they were joining a growing movement.
According to the Employee Ownership Association, some 4% of UK GDP is delivered by employee-owned companies and the number of these companies is growing by 10% each year.
The association, which assists the majority of transitioning companies, says that employee owned businesses display higher productivity and better innovation, and have more engaged, fulfilled and less stressed workforces.
While not the first Government to support employee ownerships, the current administration boosted interest with £75m in capital gains tax relief announced by the Treasury in 2014 that applies to the sale of company shares to a newly established employee trust. At least 51% of the shares must be sold. Employees must have both a financial stake in the business and a say in how it is run. Some 30% of growth in employee-owned companies has happened since 2014.
Three main types of employee ownership
- Direct employee ownership — using one or more tax advantaged share plan, employees become registered individual shareholders of a majority of the shares in their company.
- Indirect employee ownership — shares are held collectively on behalf of employees, normally through an employee trust.
- Combined direct and indirect ownership — a combination of individual and collective share ownership.
Companies such as Arup Group and John Lewis were established as employee-owned structures and some may come about as a route out of insolvency or to aid growth and expansion. But the most typical scenario is that a private owner or owners decide to sell some or all of their shares to their employees to support business succession.
This was part of the driver for Manchester-headquartered Planit-IE, which has spent six months looking into the process and talking with other employee-owned built environment businesses, including AHMM and Arup. Its directors said the move would "see new generations at Planit-IE continuing to support existing clients, and develop new ones, long after the current directors have gone".
The idea emerged for LDA Design while it was developing a three-year plan last summer, as communications director Stella Bland puts it: "The ultimate expression of who we are."
Chair Andrew Harland adds: "We have always wanted LDA Design to not be about individual egos but the brilliance of the collective. That aim holds true and we want to see a future where all of our employees can help to shape our business. This will put us in an even stronger position and make succession planning easier."
For both practices, having access to a wider pool of talent for leadership roles is important. Employee ownership allows people to rise to senior positions without needing the funds to buy into the company.
Financial stake (source: UK Government)
- It is easier for companies limited by shares to set up employee ownership.
- Employees hold shares in the business through share schemes such as Share Incentive Plans (SIPs). They may pay less tax if it is an approved scheme.
- Other types of business (e.g. charities or sole traders) may have to change their legal structure so they can sell shares. Employee-owned firms may operate as co-operatives.
As Planit-IE, which stands for Planet Intelligent Environments, puts it: "Our practice is a people-centred business, and the directors believe it is vital that all team members feel a strong sense of value and belonging. Collective ownership and transparent development through employee ownership strongly reinforces this premise." The practice is made up of landscape architects, urban designers, visualisers, animators and graphic designers. It also has offices in London and Liverpool.
Bland says this will make LDA’s landscape-led practice of masterplanners, urban designers, landscape architects, ecologists and town and environmental planners more democratic. "It obviously affects opportunities for staff. Staff feel like it’s more their business. The more contributions there are, the better solutions that can be found," she explains.
"If you manage to develop a much more open and collaborative culture, that would be an absolutely massive advantage. The more ideas and the greater diversity you bring to a business such as ours, the stronger you are."
She says there is a sense that people who work for employee-owned organisations feel differently about their jobs from those who do not. "It’s more rewarding."
Benefits for business (source: Employee Ownership Association)
- The employee-owned business sector in the UK is growing because co-owned companies tend to be more successful, competitive, profitable and sustainable.
- Because they are co-owners, staff in employee-owned businesses tend to be more entrepreneurial and committed to the company and its success.
- Because they have high employment standards, involve staff and give everyone a stake, employee-owned businesses are better at recruiting and retaining talented, committed staff.
- Because they are run in an open way, employee-owned businesses tend to have a strong commitment to corporate social responsibility and involvement with the communities in which they operate.
- Independent research suggests that a combination of shared ownership and employee participation delivers superior business performance.
Employee owned companies are more innovative because managers go out of their way to consult, share information about the company and give staff responsibility. Landscape Institute chief executive Dan Cook agrees. "One of the benefits of going employee-owned is the empowerment of employees and democratisation of decision making," he points out.
"One of the challenges though for our sector will be the need to develop further both human and commercial skills, given design and natural environment education and training has limited inclusion of these skills in traditional programmes.
"Many heads of practice and those who have created their own businesses in the landscape sector have indicated to me that the transition from undertaking landscape work to running a business required development of new skills."
Moving towards employee ownership is definitely a trend, says Bland, who adds that 15 of the top 100 architecture practices are going through the process. Cook adds: "it is not surprising to see firms start to rethink organisational design, though this shift to employee-owned seems to be a relatively new trend to watch."
"From my work at RICS [the Royal Institution of Chartered Surveyors] on their 'Futures' programme, and since starting in my current Landscape Institute role as chief executive, I have seen many firms taking steps to do a range of employee-friendly initiatives such as more flexible working arrangements, co-investing in employee initiatives and giving employees time for volunteering."
Like other sectors in landscape and horticulture, landscape architecture is deep in a skills crisis. The Landscape Institute's 2017 talent survey shows that 40% of leaders in the sector have skills shortages.
Bland says this is the big issue for LDA Design. "It’s really hard for all of us. We’re having to work at it 24/7. This, we are hoping, is going to be a massive advantage. The people who we are recruiting have been really interested in it. We’re hoping that is going to give us an advantage in the market as well. People do really like the idea of having a stronger sense of ownership in the company."
According to a YouGov survey of British adults, 44% are more likely to apply for a job at an employee-owned company and 53% think it would be better for the economy if more businesses were employee-owned. This is a trend that will only grow, according to Cook. "Future generations will have different expectations from their employers," he says.
Employee ownership is not for all and the firm has to be able to raise the money to buy the shares, but this gives companies an added incentive to be as profitable as possible, Bland points out. London-based LDA Design, which also has studios in Glasgow, Exeter, Oxford and Peterborough, has put in place an expansion plan with the intention to open three more offices — in Bristol, Cambridge and Manchester — to increase profits with a view to share transfer in 2020. However, it will depend on whether funds are available by then.
Employee-owned companies can have a variety of different structures. LDA is looking at a board of directors with a second board of trustee directors appointed to hold the board to account and ensure it is acting in the best interests of the trustees. It is also considering a system where staff can borrow money to buy shares and may not need to pay it back until they leave and need to sell their shares, so they remain within the company.
Employee engagement (source: UK Government)
Engagement types vary for different businesses, but can include:
- An employees’ council, or other consultation group.
- A constitution defining the company’s values and its relationship with employees.
- Employee directors on the board, with the same responsibilities as other directors.
When it comes to financial rewards, there are also various models. Trustees can draw down more than £3,600 a year tax free. "This is something we have to work through," says Bland. "Some give everyone the same bonuses, some give a percentage of salary. It’s quite complicated and we talked to loads of people. There seem to be lots of different ways of doing it."
While some of LDA’s owners are nearing retirement, this is not the case for all of them. Bland says the tax aspect is a bonus but moving to employee ownership should be about moving the company in "an exciting new direction".
Since being established by Ove Arup as a company with shares held by an employee-owned trust in 1946, Arup has grown to a £1.2bn-turnover company with an 80-strong landscape team and 14,000 employees in total across 34 countries. Being an employee-owned company "ensures that Arup retains its independent spirit and remains a learning organisation", says the company. "By delighting our clients, being true to our principles and putting our skills to work for a positive social impact, Arup continues to shape a better world."
Cook maintains that the firm’s values do make a difference. "Arup’s commitment to foresight, insight, innovation and research-led work sets it apart from other organisations by taking a longer-term view, based around very clear values. I have been impressed over many years by their commitment to thought leadership and helping the built environment sector change for the better."
But this is not the kind of change that can happen overnight, says Bland. "It’s really important to work at getting the culture right. That’s something we decided to start working on right from the beginning. Unless you put the groundwork in right from the off, don’t expect it’s going to happen. It’s better to start now. Staff are really interested and enthusiastic, and we hope that’s only going to grow. It’s been 100% positive."
Guidance and documentation
- The Government has guidance and model documentation for more information about types of ownership and engagement.
- There is a separate guide for employees who want to request a move to employee ownership.
- Guidance on the tax issues around employee share trusts and when employees sell their shares.
- The Employee Ownership Association website has a wealth of information, including advice, frequently asked questions, case studies, a member directory and ranking of the top 50 employee-owned businesses in the UK. It welcomes inquiries about the process from companies and employees.