By William Davies | Telegraph
This year looks set to be the one when all three major political parties compete to be the standard-bearers of “responsible capitalism”.
Ed Miliband may have claimed this territory first, in his Labour Party conference speech distinguishing “producer” from “predatory” businesses. But the Conservatives and Liberal Democrats are now developing their own strategies for claiming this cause.
The ownership of businesses is a crucial element of this. Miliband used the example of Southern Cross (Berlin: 4SO.BE - news) , a care-home business bought out by a private equity fund, to illustrate “predatory” capitalism. David Cameron has talked about empowering plc shareholders in order to restrict executive pay. More responsible and engaged forms of ownership are rightly viewed as a basis for a more sustainable business culture.
Employee ownership can make a significant contribution in this respect. But it has largely figured in public-policy debate as a possible model for public-service delivery, not for private enterprise. It is odd that there has been so much talk of “John Lewises” in the public sector, and so little of “John Lewises” in the private sector, even though the latter are worth an estimated £30bn to the UK economy. There are also far more of these firms than the emphasis on John Lewis suggests, including Arup engineers, Make architects and Scott Bader chemical manufacturers.
The ownership model is particularly well suited to medium-sized enterprises, which often struggle with business succession when their founders retire. Many of these businesses face a choice between family ownership (which typically fails within two to three generations), private equity ownership or being gobbled up by a competitor.
As I argue in a new report published tomorrow by the Employee Ownership Association, All Of Our Business, there are two types of business value that will be crucial to the renewal of the British economy in the future. And both are integral to how employee-owned firms operate.
The first is greater emphasis on patience. The complaint that shareholder-owned firms are excessively short-termist has been around for many years. But the urgency of addressing this has grown as a result of the financial crisis. There is a sense that many businesses have become primarily geared around maximising the earnings of a small group of elites who run, advise and finance them. A relentless focus on short-term share-price fluctuations means financial strategy often predominates over long-term value creation.
How can firms resist this temptation to focus on immediate monetary returns, at the expense of longer-term productive purpose? Employee-ownership solves this problem, because the owners are engaged in the day-to-day workings of the business, at all levels from top to bottom. Employee-owners are rewarded with dividends, but they can see the benefit of investing for the long term and delayed gratification.
Committed for the long term, employee-owners will see the benefit of investment in research and development, to an extent that external shareholders and private equity funds typically don’t. Staff turnover is also lower. The entire orientation of the business culture is towards long-term horizons.
The second value which needs to be at the heart of responsible capitalism is well-being. Stress is now the single biggest cause of absence from work, having recently overtaken repetitive strain injury. The Government’s own research shows health-related absence from work now costs the UK economy a staggering £100bn a year, of which a third is related to unhappiness and stress.
Research conducted by Napier University Business School compared various indicators of well-being in employee-owned firms with existing data from businesses elsewhere. It found that well- being was higher in the employee-owned sector, by various measures, such as intention to change jobs and sick leave taken.
This chimes with everything else that is known about employee engagement and what makes work enjoyable. What makes for a good job is being recognised, being consulted and operating in a culture of fairness and openness. Giving people real voice and ownership is a crucial bargaining tool, if employers want to get the best out of people.
Responsible capitalism will not be achieved through employee-ownership alone. But there are ample opportunities for growth in this area, which the Government, business lobby and business schools ought to recognise and act on. If we want to move beyond the era of short-term earnings maximisation the Government needs to champion alternatives, if necessary through legislative and tax changes.
It is time that political and business leaders spoke up for a vision of business as something other than just a money-making vehicle.
William Davies is academic director of The Centre for Mutual and Employee-Owned Business, University of Oxford. All Of Our Business: Why Britain Needs More Private Sector Employee Ownership is published tomorrow by the Employee Ownership Association at www.employeeownershipassociation.co.uk
http://uk.finance.yahoo.com/news/john-lewis-vision-capitalism-195617070.html
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