Is PR ready to share? The employee ownership alternative to the agency model

Despite having some flagship proponents (John Lewis have been flying the flag since 1929), employee ownership uptake has, generally, remained confined to a few core sectors - notably professional services.

Employee ownership can engender a communal approach and the tax breaks aren't bad either, argues Matthew Rowbotham
Employee ownership can engender a communal approach and the tax breaks aren't bad either, argues Matthew Rowbotham

PR has not – it’s fair to say – been at the forefront. However, a trickle of recent conversions mean that more agencies are now looking into it.

There’s a well-trodden path for independent agencies - they are owned by the key people who run the business (often founders); there may be a share option scheme for a few senior managers, but not for the rank-and-file.

It’s a structure with a good track record, but it’s not the only way.

Employee ownership describes a variety of business structures where substantially all employees have a meaningful stake in the business.

Tangerine founder puts majority stake in staff hands with employee trust

The concept is simple; do this, and everyone will work together for shared success.

Very often, it means a much more direct connection between the success of the business and what everyone gets paid.

For example, all employees of the John Lewis Partnership are paid a bonus, being a universal fixed percentage of salary, based on business performance.

Employee ownership take-up is helped by the Finance Act 2014, which introduced a new structure - the Employee Ownership Trust (EOT), which offers significant tax benefits for owners and employees – but there are both cultural and strategic advantages, too.

Starting with culture, employee ownership can engender a communal approach, which can be a real boon for a business.

It can help to dissolve the barriers between different groups or teams, and encourage a more collaborative approach.

Hopefully it will lead to all employees taking personal pride in the work that everyone is doing, actively engaging with the business, and striving to make it better.

Employee ownership will generally encourage employees to take care of the business’ money in the same way as their own.

But it’s not all sunshine and lollipops; employee owners might be less inclined to sympathise with, or shelter, underperformers.

Strategically, employee ownership is an attractive option for company owners who are looking to revitalise the management of their company or reduce their personal involvement, but who don’t want to sell to a third party.

A typical employee ownership conversion will involve selling a stake into some kind of employee ownership vehicle, like an EOT, allowing owners to liquidate some of their shareholding and take out some hard-earned value.

For those looking specifically at EOT structures, the tax breaks don’t hurt either.

There remain challenges of course, and lots of decisions to be made in terms of structure, including:

* How much of the business should be under employee ownership

* How the management structures of the business might need to change

* How to fund it all

The biggest challenge, though, is probably psychological.

It can take a mental shift for some owners to start thinking about all of their employees as potential owners, and surrendering some of their control over how the business is run.

What is certain is that employee ownership can help embed a more positive culture, and offers an alignment of the interests of shareholders and employees, as well as bringing significant tax advantages.

With such a range of benefits on offer, we may well see the employee ownership trickle in PR become a flood as agencies seek a fresh perspective on their operations.

Matthew Rowbotham is a partner and head of tax, reward & incentives at Lewis Silkin LLP

Thumbnail image @GettyImages

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