Revitalising your governance at key stages of being an EO business
Is your EO business set up to withstand tough times? Checking in on your governance might not be top of your ‘to do’ list right now, but revitalising it will strengthen your commercial resilience for the months ahead.
Just ask Lisa Fryer, JGA’s Operations Manager and governance ‘pro’.
‘Governance might have a reputation for being a bit dull,’ she concedes, ‘but it’s simply good organisation. It’s about having sound structures in place to ensure your business can do what it needs to do.’
In uncertain times, ensuring your governance is strong provides reassurance and stability, while safeguarding your reputation. It also creates opportunities to connect more deeply with clients and employees.
So how do you revitalise your governance at key stages of being an EO business?
Lisa shares her practical tips here…
Stage 1 – Revitalising your governance during EO transition
During EO transition, you’ll be preparing the ground for your legal and financial transaction and ensuring that your business, leaders and employees are ready for your company’s sale to an EOT (Employee Ownership Trust).
Your Board
You may already have an Executive Board, but does your senior team have the capability, experience and skills to lead your organisation through its EO transition and support employees through an extended period of change? Undertaking a Board diagnosis could give you invaluable insight and options through external appointments, internal promotions and NEDs for permanent or interim roles.
Your Employee Forum / Council
If you already have an employee forum or council, do they have a role to play during your EO transaction? Very few will be a formal part of your governance structure, with decision-making powers, so this may be the time to review whether your current set-up is the right one for your employee-owned future. It’s also worth supporting your forum members’ understanding of what employee ownership is (and what it isn’t), as well as consulting and involving them in the transition if you can.
Your EOT
If you’re setting up an EOT (Employee Owned Trust), how is the trust being supported in its duties from the outset? Do its members have access to effective independent advice in addition to training on fiduciary responsibilities? Are they appropriately insured and have they considered how they would like to operate?
If you’re appointing an Independent Trustee, how will you do this? Using your network may not ensure you secure the diversity of thought and experience your trust needs to be truly effective in the longer term. Consider the value of appointing an Independent Trustee with experience of leading in an EO organisation in the early stages, as this is when your employees’ experiences of EO will start to be formed.
Stage 2 – Revitalising your governance in the early years of being EO
Post-transition, the focus shifts to embedding your employee ownership: putting down foundations, educating employees about their ‘new’ business, launching (or strengthening) employee representation and establishing sound structures and routines.
1. Take your time, don’t set unrealistic targets and continue to access specialist advisors. Use their wealth of knowledge to provide options, and consult with co-owners on what and how they expect to be involved. The clue is in the name: you’re employee-owned!
2. Do your research and don’t be swept up by what look like ‘perfect solutions’. EO is a diverse and growing sector, so there’s no one size fits all. Beware rushing to get things ‘nailed down’ or creating something so rigid that it can’t be easily adapted further down the line.
3. Whatever you establish, allocate time to review and adapt. After meetings or presentations, check in and make sure you celebrate what worked well and pick up any challenges or frustrations.
4. Invest in developing your Executive Board and other leaders to enhance their ability to support and empower your new co-owners.
5. Support your Trust Board to become truly effective. Although its key focus at this stage is to ensure the debt repayment is fulfilled, its job isn’t quite as simple as that. The Trust Board will be busy developing their relationships and skills while acting as a ‘critical friend’ – particularly on matters impacting employees’ experiences – to your Executive Board.
Stage 3 – Revitalising your governance as an established EO business
Now comes the ‘accelerate’ stage, when things have clicked into place, most employees and leaders understand (and value) the EO model and you have a clear vision or purpose in place. Things seem to work smoothly and there’s strong collaboration across the company.
This is the time when everyone feels ready to build up speed, but you’ll still need some support to keep your high performance vehicle running smoothly.
‘In uncertain times, ensuring your governance is strong provides reassurance and stability, while safeguarding your reputation’
Lisa Fryer, JGA Operations Manager and governance pro
1. Make sure you’ve always got the right team in place. Things move on, different skills are developed or needed, and some might decide it’s time for a change.
2. Manage your succession, particularly at Executive and Trust Board level. Have a plan and agreed processes and stick to them. Appointing senior leaders should be done with transparency so everyone has confidence in the decision and the candidate gets the best start to their role.
3. Apply the same approach to the Trust Board. Make sure your Trustees have the right mixture of skills and that relationships aren’t too ‘cosy’. If it starts to feel like this, or you’re a new Trustee joining an established Board, ask again about the processes and routines. If it sounds as though a lot goes through ‘on the nod’, you may not be as effective as you could be.
4. By now, your organisation should have developed effective tools or processes to gather employee input and feedback. Make sure your Trust Board is aware of these and ask what the Executive Board does with this information. There’s no point gathering opinion if you’re not prepared to listen to what is said.
Want to know how our Transition, People and Governance services can support your employee-owned business? Get in touch to arrange a no obligation meeting now.
Governance – 5 things every EO business should know
Sound governance is the foundation of every well-run business, not just legally but commercially too. In unstable times it acts as a trusted bedrock for the way things are set up, accounted for and done.
But when you’re employee-owned – or transitioning to it – there’s a ‘double layer’ of governance to bear in mind. This is because of the additional checks and balances that employee ownership will bring.
So, as a founder / owner, what are the 5 things you need to know about governance if you want to equip your boards with the right framework of authority and accountability to be successful, both before – and after – your business becomes employee-owned?
Our ‘governance pro’ Associate Lisa Fryer shares her insight below.
1. The size of your board matters
Leading employee owners is different, so your executive / operational board should be well-prepared and structured to make the most of this opportunity – ahead of your EO transition. It must be agile enough, in size and nature, to support your company’s needs.
If your board is small, it can be especially useful to seek particular expertise in the form of a high-calibre Non-Executive Director. The challenge and rigour these ‘critical friends’ bring will ensure your directors have the insight they need to make the best decisions – and avoid unproductive ‘group think’
2. You need the right capabilities in the right roles
Does your board have the collective capability to operate your business effectively once it becomes employee-owned? If board members are long-serving, you should ensure their skills are still relevant or can be developed to support the next stage of your company’s growth.
Pre-transition (then every two years) your business should do a thorough skills audit to identify your board’s strengths and gaps. This will highlight development opportunities and when external expertise should be brought in. Individuals might feel vulnerable, but often transitioning boards are already composed of very talented and inspiring leaders. It’s why your company is successful.
‘Do a thorough skills audit… Individuals might feel vulnerable, but often transitioning boards are already composed of very talented and inspiring leaders. It’s why your company is successful’
Lisa Fryer, Associate, JGA
3. Clarifying your Trust Board’s role and responsibilities is important
Your Trust Board provides a vital extra layer of governance for your employee-owned business. Both Independent and Employee Trustees (if you have them) should clearly understand their role and responsibilities – and it’s important that the rest of your company understands them too.
Your Trust Board is not usually a decision-making body; it is your ‘conscience’. Its value lies in the independent perspective, insight and challenge it brings as it ensures your board is operating in line with your purpose and ethos – and in the best interests of your beneficiaries.
4. Identifying your purpose, vision and values is fundamental to future success
As founder / owner, you should clarify what matters most about the way in which your business will operate once it becomes employee-owned, and ensure this is referred to in some way in your Trust Deed and Articles of Association.
What is non-negotiable in your purpose, mission and values? Where are your red lines? Remember that these legal documents will provide a clear reference point for your boards as they navigate the path ahead. Use them, therefore, to specify what’s most important without being restrictively detailed to avoid undermining your company’s ability to evolve and grow.
5. Rigorous organisation and record-keeping underpins sound governance
It might seem tedious, but establishing a clear administrative process and diligent record-keeping is integral to the smooth running of your employee-owned executive / operational and trust boards. Setting a clear agenda for meetings, where each director, NED or trustee understands their purpose and the information they must bear in mind, is good governance.
Maintaining accurate records ensures that, if challenged, both boards will be able to clearly demonstrate what was considered, explain the reasons they signed off a particular decision and provide the assurance they were acting in the best interests of your beneficiaries.
What should you do next?
JGA is the UK’s largest independent multi-service provider of commercial, cultural and engagement services to the employee-owned sector – with a successful track record of working with founders / owners at all stages of the transition process. We also provide ongoing and expert people and governance support.
To find out how we can support you or your organisation, please get in touch here.
Sale of a company by an EOT
Next in our guest blogs series, we ask Andrew Evans, Partner at Geldards LLP, to share with us what they found out when they were asked to research the implications of selling an EOT.
In this briefing we look at the tax consequences should an EOT decide to sell the trading company (and end the EOT). EOTs are normally set up to hold shares in the trading company on a long term basis. However, there may be circumstances where the trustees of the EOT decide to sell the shares in the trading company to a third party.
Sale to another EOT
The transfer of the shares to another EOT should not have any adverse tax consequences. The transfer will be treated as a gift of the shares to the EOT buyer and the shares will transfer on a no gain no loss basis. The selling EOT has to submit an election to HMRC to claim the relief from chargeable gains on the transfer of the shares. A transfer of shares in this way will mean that the employees of the selling EOT receive nothing for their indirect interest in the shares. The employees do obtain an indirect ownership in a larger group.
Tax consequences of selling the trading company and ending the EOT
We were asked to pitch for a piece of work advising the EOT trustees on the sale of the shares in the trading company after the management team received an attractive offer from a third party buyer. This caused us to look at more detail into the tax consequences of a sale of the shares and even we were surprised at the high amount of tax that would be payable.
The sellers are at risk of paying CGT on the sale if the EOT breaches the qualifying conditions by the end of the tax year following the tax year in which the disposal takes place (in simple terms, a maximum 2 year period). The sale of the shares held by the EOT would be a breach on the basis that the EOT no longer controlled the trading company.
Once the sellers’ risk period has ended, the CGT risk passes to the trustees of the EOT. The EOT is treated as taking over the base cost of the shares in the company from the sellers. In many cases this could be the nominal amount paid for the shares on incorporation of the company. On a sale of the shares by the EOT, the whole of the increase in value of the shares is taxed as a chargeable gain in hands of the trustee because the trustee is deemed to have sold and reacquired the shares at their current market value. No deduction is given for any deferred consideration due to the sellers. The current rate of CGT for a trust is 20%. The EOT will then be left with a cash lump sum from which it has to pay any deferred consideration. The balance of any money has to be paid to the beneficiaries (the employees) and the payment will be taxed in the same way as a cash bonus, so subject to income tax and National Insurance Contributions, a further 63.75% tax for the highest rate taxpayers. The effective rate of tax could be 71%, so for every £100 received on a sale up to £71 is paid in tax.
Example
A company is sold to an EOT 4 years ago, so the tax risk lies with the EOT trustee. The sellers are still owed £8m in deferred consideration. The management team (which includes some of the sellers) receive an offer of £12m for the company which they wish to accept and recommend to the EOT trustee.
The EOT trustee pays tax at 20% CGT on the £12m due to the deemed sale and reacquisition rule, so pays £2.4m in tax.
The sellers receive the £8m deferred consideration (still paid with no CGT).
The EOT trustee is left with £1.6m out of which it has to pay the costs of the sale (say £100,000), so £1,500,000 is left to be paid to the employees. If there are 50 employees, they would each receive £30,000 (gross). After basic rate tax and NICs, they would be left with around £15,400 each which is not a brilliant return on the sale of the shares for £12m.
Conclusion
The trustee of an EOT needs to carefully consider any sale and particularly the tax consequences where there is a substantial amount of deferred consideration outstanding. The trustee must also consider the wider interests of the beneficiaries to satisfy its fiduciary obligations and act in the best interests of the employees. Even if the EOT deed does not require a vote by the employees in favour of the sale, the trustee may wish to consider holding a vote to ensure consultation (and approval) by the beneficiaries, or in the last resort, obtain a ruling from the Chancery Division of the High Court (which decides on trust issues).
Any decision may be made easier, the larger the potential pay-out to the employees. A “lottery” sized pay-out, even after tax, may be sufficient compensation for the employees at risk of losing any job security. However, the trustee directors must ensure they satisfy their fiduciary duties in reaching any decision.
Geldards have an established track record advising owners and their companies on the transition to employee ownership via an Employee Ownership Trust (EOT). Their combination of Corporate and Tax expertise provides a seamless service when dealing with the technical requirements to qualify for the tax benefits of being EOT owned.
To explore your employee ownership needs contact Andrew Evans directly here
To find out more about how JGA can support your EO business with our Transition, People and Governance services, please get in touch here.
The value of the NED as a ‘critical friend’ on your Board
If there’s one thing about board development that Adrian Wheale is passionate about, it’s the role of the ‘critical friend’.
As JGA’s Associate, Executive Resourcing, he sees first-hand how the ‘dissenting voice’ of an Independent Trustee or Non-Executive Director can make a senior team more effective, through the independence and challenge it brings.
So do organisations understand the true value of the board-level ‘critical friend’?
Although the ‘critical friend’ is enshrined in UK Corporate Governance, Adrian’s experience is that some boards still seem to only pay ‘lip service’ to it.
This is despite recent high-profile organisational failures showing the damage that can occur when a ‘critical friend’ is absent at a senior level – or when their voice is discounted and goes unheard.
The value of rigour and challenge
‘Too often, not enough thought is put into the fundamental engineering of our top teams and, similarly, not enough credence given to the critical friend role,’ Adrian reveals. ‘We promote on competency and technical skill, but rarely on acumen and independence of thought or views.’
He also challenges the assumption that liberal, inclusive organisations (and their leadership) are any less prone to the risk of group think than other types – or models – of business.
‘The critical friend’s ability to ask ‘Why?’ – or ‘Why not?’ – at key moments brings invaluable rigour and challenge, ensuring that a fail-safe exists,’ he explains. ‘Engineering a board from a more diverse base will address the risks of group think, but it’s the critical friend who adds ‘steerage’ to the process.’
‘The critical friend’s ability to ask ‘Why?’ – or ‘Why not?’– at key moments brings invaluable rigour and challenge’
Adrian Wheale, Associate, Executive Resourcing
Strengthening board diversity of thought
Adrian’s appreciation of the role of the ‘critical friend’ in successful board development reflects his commitment to strengthening diversity of thought at senior levels – and ensuring that it is captured in a useful way.
Yet genuine diversity of thought doesn’t just happen. It starts with an organisation’s Constitution (or equivalent) and should run through its purpose, values, vision and goals. It must be revisited regularly to sustain its impact on leadership culture and supported to add value and grow.
‘Diversity of thought should be a separate agenda item,’ Adrian asserts. ‘If it isn’t called out it isn’t valued.’
Identifying the gaps an NED ‘critical friend’ could fill
Adrian’s executive resourcing experience has shown him why being able to assess a senior team’s psychological and values balance is fundamental to building stronger boards.
Psychometrics can be very useful when profiling their mental diversity and identifying the gaps that a ‘critical friend’ could fill.
‘Fixed-term tenure on boards is a good way to ensure things don’t get stale as well as appointing a truly independent Non-Executive Director, Trustee or Employee Rep to challenge your thinking as a critical friend.’
The right board directors in the right roles
The good news is that Adrian’s not alone in his appreciation of NEDs, as demonstrated by last weekend’s Sunday Times Non-Executive Director Awards where the winners were, he says, ‘exemplars of getting this right’.
So what should you do next?
At JGA, we have a track record of successfully supporting EO and values-led organisations with their board composition and development – including during and after EO transition. Our Executive Resourcing and Independent Trustee Resourcing services connect clients with the highest-calibre candidates for their senior roles. We also enable organisations to build Trust Board effectiveness.
To find out more
Diversity of thought - why it matters
Diversity of thought. You know when you hear it: views shift, minds stretch, ideas flow. There can be challenge – uncomfortable perhaps but useful, because this is how innovation grows.
Who wouldn’t want this kind of culture for their organisation? Particularly when building a stronger board or developing leaders for the tough conditions we all face today.
But saying you welcome diversity of thought isn’t the same as making it happen. So how do you it bring it to life?
Supporting diverse representation is the first step to tackling ‘group think’. But to unlock diversity of thought’s real value, an organisation must also foster an actively inclusive culture across the workplace as a whole.
Leading by example
In reality, this means not only recruiting candidates with differing backgrounds and life experiences in the first place, but enabling them to contribute fully once in their roles.
This is particularly important at Board and senior leadership level because of the impact of this group’s mindset and behaviour on a business’s culture and direction. Leaders are vital role models for emerging talent coming through from below.
Today’s International Women’s Day 2022 (8 March) challenges the specific bias that stunts women’s career progression and life chances (#BreakTheBias).
But IWD’s call for a world where difference is actively valued is equally relevant for the UK’s other eight legally ‘protected characteristics’ – which range from disability, age and sexual orientation to maternity, race and religion / belief.
When it comes to diverse thinking, everyone has a role to play.
Harnessing difference as a strength
As JGA Lead Associate Pip Meaden explains: ‘There’s no doubt that our personal experiences shape our values and how we view, think, feel and act – yet I’m not sure that in business we fully utilise this as a strength.
‘At JGA, we know from listening to our clients that an employer who encourages diversity of thought and opinion – and understands how to capture it effectively – is viewed by their workforce in a positive light.’
Are employee-owned businesses generally better placed to do this? In theory, yes.
‘Organisations that share responsibility across the workforce should already have mechanisms in place to channel employee voice and opinion into their core thinking and decision-making process,’ says Pip. ‘This can challenge leadership, but when it works well it can also play a key role in supporting positive outcomes.’
Practical steps to unlock diverse thinking
So how can you harness the power of diverse thinking in your organisation? Pip shares three practical steps.
Encourage your workforce to take an active interest in your business and provide the space for opinion and thought to be shared.
Ensure leadership has the capacity to listen.
Provide individual development for those who require more confidence to voice opinion and share – it’s not always easy.
‘We know that an employer who encourages diversity of thought and opinion – and understands how to capture it effectively – is viewed by their workforce in a positive light’
Pip Meaden, Lead Associate
The role of the ‘critical friend’
Sound advice – but that’s not all, because Adrian Wheale, JGA’s Associate, Executive Resourcing, reveals there’s another step that every Board should take to prevent senior-level ‘group think’ causing the kind of damage seen in recent headline-grabbling organisational failures: appoint an Independent Trustee, Non-Executive Director or similar independent figure to act as a ‘critical friend’.
As Adrian explains: ‘The ‘critical friend’ role is steeped in Company Law, Corporate Governance codes and normal UK practice. But, too often, not enough thought is put into the fundamental engineering of our top teams and, similarly, not enough credence given to the role. We promote on competency and technical skill, but rarely on acumen and independence of thought or views.
‘Engineering a board from a more diverse base will support diversity of thought and address the risks of group think, but it’s the ‘critical friend’ who adds steerage to the process,’ he concludes.
‘When an Independent Trustee, Employee Trustee or NED with real independence, rigour and challenge is present, then a fail-safe exists.’
JGA’s Independent Trustee Resourcing and Executive Resourcing Services can directly help organisations to achieve greater diversity of thought at a senior level. To find out more about these and our other Transition, People and Governance services, please get in touch.
Challenging, supportive, insightful – the value of an Independent Trustee
Challenging, rewarding and (yes, at times) surprising: that’s how MD Jeremy Gadd describes the experience of being an Independent Trustee.
And he should know. Not just because Jeremy and Lead Associate Pip Meaden are themselves Independent Trustee Directors at four successful EO businesses – but because, at JGA, we specialise in building Trust Board effectiveness and providing Independent Trustee Resourcing support.
So what value can an Independent Trustee bring to your Board? The clue is in the name.
The value of independence
As Jeremy explains: ‘A good Independent Trustee brings independence of thought, a fresh pair of eyes and the ability to ask the really simple questions that invite people to think in a different way.
‘You’re there to ensure the company is being run in the best interests of the beneficiaries - who are the employees - and that’s different to other Non-Executive Director roles.’
Pip agrees: ‘I get to ask the questions that some might view as naïve, but which often bring about the best conversations. It’s critical that, when appropriate, the challenge is there – being able to offer assurance that the right decisions are being made for the right reasons is key.’
The power of working together
Part of the role is to fill a gap by providing additional insight and skills – chairing, financial, EO or sector-specific. Jeremy cites the ability to listen and ask good questions, curiosity, empathy, commercial know-how and sound judgement as integral to being an Independent Trustee.
Working together is also important.
‘When you join a Trust Board, you must first collectively establish trust and define your purpose and culture,’ he says. Then, as an Independent Trustee, you’ll be able to call out the important things that might feel uncomfortable, and stand your ground.
‘You’re independent but you must be a team player, recognising that everyone in the room is playing their part.’
This approach extends to the relationship an Independent Trustee builds with any Employee Trustees the company might have – ‘a really important dynamic’, Jeremy says. ‘The Employee Trustee offers valuable insight into the experience of working within the organisation.’
As an Independent Trustee, you can also support the Employee Trustee to develop in their role as their business grows. ‘Employee Trustees take on a high level of responsibility and that can feel lonely,’ he points out. ’That’s why JGA launched Trustee Connect, our open forum for this vital group.’
‘A good Independent Trustee brings independence of thought, a fresh pair of eyes and the ability to ask the really simple questions that invite people to think in a different way’
Jeremy Gadd, MD and Independent Trustee
‘It’s critical that, when appropriate, the challenge is there – being able to offer assurance that the right decisions are being made for the right reasons is key’
Pip Meaden, Lead Associate and Independent Trustee
The challenge of ‘keeping close’
So what about Jeremy’s own experience as an Independent Trustee? He currently holds the role at two innovative EO businesses: multi award-winning animation company Aardman and design-led manufacturer and supplier The Rooflight Company?
‘I’m lucky to be on two very good, very diverse Trust Boards that operate in different ways and have strong relationships with two impressive executive teams,’ he agrees.
‘I’ve taken time to understand the different dynamic and business lifecycle of each, to ensure my judgements are well-informed and sound. It’s a privilege to play a small but important part in the success of a company when it’s making significant organisational changes or capital investments.’
Being an Independent Trustee has enhanced Jeremy’s personal development too, giving him the chance to meet (and learn from) people at all levels and across functions, including Employee Reps – something that gives him ‘a real buzz’.
‘What might surprise some is the range of issues we discuss,’ he adds. ‘The challenge for anyone in this role is to keep close enough to the organisation to sense how it’s being run internally. You don’t need to know the detail, but is it living its values? It’s important to get that balance right.’
Getting the right people in the right roles
For Pip, being an Independent Trustee offers the opportunity to apply her experience of working within EO at a different level, supporting people and cultural change. ‘It enables me and my fellow Trustee Directors to monitor, sense check and balance the way the businesses are being led,’ she explains.
‘With the employee ownership trust (EOT) the major shareholder, I enjoy my role as an independent voice. I can bring a degree of common sense and perspective which can be difficult for others to offer if they have an emotional attachment to an issue or thing.
‘the EO sector’s growth and the number of founder / family-led businesses choosing to transition is driving the demand for good Independent Trustees,’ concludes Pip. ‘My advice to any organisation is to be very clear about your requirements, seek expert support with the Independent Trustee Resourcing process and recruit accordingly.’
What should you do next?
At JGA, we connect high-calibre Independent Trustees with forward-thinking EO organisations through our EO Trustee Appointment Service (EOTAS) – in partnership with Russam. We also enable businesses to build Trust Boards that actively make a difference – with our Trust Board Effectiveness support.
Want to know more?
How Employee Representation can give your business the edge
It’s no secret: if you’re an owner/founder or senior team transitioning your business to employee ownership, your diary will be pretty full. The legal and financial steps involved in shifting your ownership model will (quite rightly) consume much of your time. So if employee representation isn’t a legal requirement for your future, why should it be on your radar at all?
Good question.
Employee representation is good EO practice, sound governance and can bolster your ESG: that much is clear.
But an effective Employee Representative Group (ERG) and/or Employee Trustees can also drive your commercial performance, with their ability to share knowledge, unlock innovation and ‘temperature check’ your business just three of their core strengths.
The value of influence
They can challenge your thinking. An ERG isn’t a decision-making body but it can exert a profound influence on your decisions, while the value of Employee Trustees lies in their ability to sense check that your board’s decisions are being taken in the best interests of everyone in the business.
Together, ERGs and Employee Trustees can sharpen an organisation’s performance by enabling leaders to engage effectively across all areas – strengthening accountability, relationships and results.
As Associate Libby Unsworth puts it: ‘You’re employee-owned – why wouldn’t you want to listen to your employees’ useful insight and use their good ideas to support your company’s growth?’ Why not indeed.
Putting representation on the radar
So where do you start when there’s no ‘one size fits all’ group or forum or framework for employee representation?
Although some organisations use an ERG to engage their employees right at the start of their journey into transition, for most founders/owners it may not be a top priority at this time.
At JGA, we understand this. That’s why we advise clients that it’s enough, at this busy stage, to include employee representation as an intention – then seek professional support from an experienced business later.
‘A company may think it can go from being owned to being employee-owned without any impact, and initially it might feel as if nothing has changed,’ Libby reveals. ‘But over time there will be a difference as owners focus on what transition means for them personally, their people and their business as a whole.’
This is the point at which JGA’s support can be particularly useful, as we enable clients to understand how EO feels in reality and to unlock the benefits employee representation can bring.
‘Seeing the energy, enthusiasm and pride as individual employee owners grow over time – in their new roles, alongside their business – is one of the things I enjoy most,’ says Libby.
‘A company may think it can go from being owned to being employee-owned without any impact… But over time there will be a difference as owners focus on what transition means for them personally, their people and their business as a whole’
Libby Unsworth, Associate
What should you do next?
Establishing effective representation requires time, vision and energy. Every business will do it in their own unique way.
Here, Libby shares the five practical steps leaders can take to get the ball rolling and build momentum on the road to success:
Be clear about your ERG’s role and responsibilities – what they are and what they’re not. Work with it, trust it and value the connection it provides with your employee owners.
Encourage your ERG to influence leadership decisions. It isn’t a decision-making body but ensure you listen to what it brings and, if you don’t agree, explain why.
Prioritise honest and transparent communication with your ERG. Share what can safely be shared about business decisions and finances (the good and the bad) in an accessible format to foster engagement.
Be ready for (appropriate and professional) challenge from your ERG. In elections, your Board may not get the ERG it ‘wants’ – this may feel uncomfortable but will ensure things are lively and make you think twice.
Be open to being held to account for your decisions by your ERG. Employee representation is about working together, challenging, influencing and asking questions. If you do this, you will be confident that your decisions are well thought-through, transparent and fair.
Want to know more about how JGA can support you to develop effective employee representation?
To find out more about employee representation, read our guest blog for Postlethwaite here.
ESG – why it should be on your radar in 2022
ESG. Whatever your sector, model or size, understanding what it is and what it could mean for your business is important as ESG moves ‘mainstream’ in 2022.
So what is it? ESG stands for Environmental, Social and Governance and refers to a set of standards for a company’s operations that socially-conscious consumers, investors and potential employees can use to screen decisions.
Often applied in sustainable or ethical investing, ESG has started to replace CSR as the go-to term for socially responsible business practices.
But there’s more to it than this, because ESG isn’t just relevant for those working in the ‘green economy’. As its profile grows, ESG is becoming a core feature of doing business, not an optional extra. It is CSR rebooted and should be on the radar of every values-driven company today.
Growing awareness – and the need to act
‘The idea that companies need to act as corporate citizens isn’t new,’ says Associate Lisa Fryer, ‘but the pressure to be aware, take steps and be transparent and honest about how your business is doing – including where you’re limited – has grown.
‘ESG is more than an add-on to your company report. The best values-driven companies are integrating it with their operations. They understand that ‘greenwash’ won’t wash in a social media age.’
Indeed, while the power of social media can be divisive, it has also raised public, political and business awareness of genuine prejudice and discrimination. By highlighting bias, it’s shone a light on differences in the treatment and experiences of others that are reshaping many workplaces, as well as the lives we lead.
Different approaches for different sectors
At J Gadd Associates, we’ve noticed a growing awareness of ESG among many of our existing and former clients, and are excited at the way in which some – such as Riverford Organic Farmers – are leading the way. Environmental consultancy LUC is another example of a client that has taken a strong public environmental stance.
‘Many organisations have been conscious of ESG for some time, but there’s a sharper focus on it now – its profile has risen,’ Lisa confirms.
‘Those with an environmentally-driven customer base are already ahead: ESG matches their values and they are openly sharing information with those who work and shop with them. It’s key to maintaining trust.’
For others, it’s about clarifying their intentions, setting practical goals and being realistic about where – and how – they can strengthen their approach to Environmental, Social and Governance in a way that supports their reputation and commercial success.
Each company’s stance will be different depending on their sector, product and services. Some face a bigger challenge. There is no one size fits all.
‘As its profile grows, ESG is becoming a core feature of doing business, not an optional extra’
Setting realistic ESG goals
So what about us?
At J Gadd Associates, the way we work with employee-owned and other values-driven businesses is shaped by our values – Trust, Integrity and Clarity. We are clear in all that we do.
That means that this year, like many other companies, we will be clarifying and applying our own ESG standards to align with our values, so we can be transparent when sharing information with our clients, trusted partners and wider networks about our progress towards realistic goals.
But we’re not starting from scratch.
The nature of JGA’s Transition, People and Governance services – and the way in which our Associates design and deliver them – means that much of what we do is already connected to strengthening our clients’ ESG.
Moving forward in the right direction
How so? As a business working with the employee ownership sector, our support is geared around the ‘S (Social) element. We enable employee-owned organisations to unlock the potential of their people and bring their employee ownership to life.
Alongside this, our experience in supporting clients to establish sound governance with fit-for-purpose structures and processes – and the right people in the right roles – doesn’t just ensure they are legally compliant. It also strengthens their commercial resilience and ability to grow.
As Lisa points out: ‘If your organisation embeds good governance, you, your people and customers will know that the E and S of ESG are being taken seriously and that any decisions are being taken appropriately. At JGA, we see this in action through our work on developing trust board effectiveness and building a stronger board.’
‘When you have a clear vision, strong values and the right people in the right roles, good governance keeps everything moving forward in the right direction.’
‘An important part of JGA’s employee ownership work relates to enabling our clients to define their purpose. Achieving ESG goals is a lot easier when an organisation understands what it values and why.’
Meeting your customers’ expectations
Lisa is excited to see how many companies are now ‘stepping up’ when it comes to ESG. ‘As a business, they feel it’s the right and responsible thing to do,’ she explains.
‘And it’s what their employees are asking them to do. The pandemic has prompted many people to reassess what matters, raising employees’ expectations. The shift to hybrid working hasn’t limited access to talent, so talent can be more demanding about where they want to build their career – and how.’
‘At JGA, we’re working with a generation of leaders whose approach is being influenced by their children. The younger generation is challenging them to be more conscious of factors such as the environment.’
The Employee Ownership Association has recognised this shift too. Last year it ran a webinar series on ESG, which Lisa followed.
‘One of the many points the EOA webinars made was that all eyes need to be on the ball. Even if you’re an organisation supplying services or products to other organisations, those clients have reputations and customers at the end of the chain who are expecting them to take the right decisions,’ she says.
‘This focus is consumer-driven. In the past, having a stance on ESG was a nice to have – now it’s a must-have. If you haven’t started yet, you’re behind the curve. The business perspective has changed.’
‘Each company’s stance on ESG will be different depending on their sector, product and services. There is no one size fits all’
Next steps
At JGA, our Transition, People and Governance services can help clients gain clarity and take practical steps towards achieving their ESG goals.
To find out more about how we could support you
Want to build Trust Board effectiveness? Support your Employee Trustees
It’s not easy being an Employee Trustee. And why would it be? The role is unique, with its own distinct issues and opportunities, including the full legal responsibilities of a board-level post. It can be lonely, with limited access to specialist training or time to develop the skills to contribute effectively. It can feel tough.
These are all challenges that JGA Associate Kathie Robb recognises from her work supporting Employee Trustees and building Trust Board effectiveness. And they are what led to last year’s launch of JGA’s new open forum, Trustee Connect.
Free to JGA clients, Trustee Connect enables Employee Trustees to network and share best practice with those doing the same role in diverse employee-owned businesses – in a safe, confidential space.
An insightful and supportive network
‘We created Trustee Connect to bring new and more experienced Employee Trustees together in a relaxed conversation, offering the chance for mutual support, insight and networking,’ says Kathie. ‘Trustee Connect enables Employee Trustees to deepen their understanding and confidence so they can be more effective in the role.’
And that’s important, because Employee Trustees are usually elected/selected by their colleagues or appointed by the leadership team just as their organisation transitions to employee ownership.
‘Often, if a business has recently become EO, neither the leaders or the electorate fully understand what being an Employee Trustee involves,’ says Kathie. ‘And why would they? It’s new to everybody. They probably get the basics of the role, but then what? How do Employee Trustees work with their Trustee and work colleagues? What do they talk about? What about their responsibilities?’
Employee Trustees can also be new to the board environment.
‘While Independent Trustee Directors often come from other board-level situations, Employee Trustees might come straight from the ‘shop floor’, with no experience of sitting at a table discussing financial and legal business matters,’ she says. ‘That can feel quite daunting, without the right support.’
‘Often, if a business has recently become EO, neither the leaders or the electorate fully understand what being an Employee involves. And why would they? It’s new to everybody’
Kathie Robb
The opportunity to grow
Yet becoming an Employee Trustee is, she confirms, a great opportunity to grow.
‘Employee Trustees are usually energetic, inspirational and capable people who already have the eyes, ears and trust of their colleagues. In this role, they now also have the chance to address and influence senior leaders who are actively seeking their insight.
‘They’ll be questioning, challenging and holding management to account, making a difference in a way that’s recognised by others on the Trust Board. I’ve watched people blossom and move their careers forward as a result – and that’s exciting.’
Sharing best practice
JGA launched Trustee Connect in 2021, with three 90-minute quarterly meetings held so far. Feedback has been very positive and Kathie is looking forward to facilitating another ‘insightful, interactive and lively conversation’ at the next Trustee Connect on Wednesday 19 January.
What common themes have emerged so far?
‘The role’s isolation and lack of time. The gap in understanding of what’s involved, especially by the rest of the business – we talk about that quite a lot,’ she reveals. ‘You’re an Employee Trustee: how do you fulfil your role?
‘We’ve also looked at how being an Employee Trustee differs from being an Employee Representative, and shared best practice around engaging other employee owners to help bring employee ownership to life.
‘Trustee Connect enables Employee Trustees to deepen their understanding and confidence so they can be more effective in the role’
Kathie Robb
Practical tips to strengthen Trust Boards
Most newly-EO businesses will have engaged professional support with the legal and financial process, with a transition ‘tick list’ that includes appointing Employee Trustees and establishing employee representation.
They will get the job done – mission ‘complete’. But what happens now?
As a newly-EO business, how do you ensure these key parts of your governance structure can function effectively? Here, Kathie shares her top three practical tips.
Invest the time and energy to build relationships as a Trust Board. Focus on how you work together as a team to ensure each member can strengthen Trust Board effectiveness.
Equip your Employee Trustees with the understanding and skills to fulfil their role and its legal and fiduciary responsibilities. Support them to learn from best practice and network – if a JGA client, through Trustee Connect.
Ensure the rest of your organisation understands what your Trust Board and Employee Trustees do. Engage your employee owners to share their insight and create value for the business you own.
Next steps
At JGA, we enable Employee Trustees to contribute more effectively and strengthen Trust Board effectiveness through our Governance support. Please get in touch if you would like to know more.
Trustee Connect is free and open to Employee Trustees of current and previous JGA clients, with no subscription or minimum attendance required. If you would like to join the next quarterly meeting on Wednesday 19 January (11am to 12.30pm), please request a place here.
Succession planning and EO
Why focusing on your EO board’s development is the best investment you’ll make
So you’re employee-owned – or transitioning to it. Perhaps you’re already three, six, 18 months in and sense that your executive team could be more effective. You know your leaders (some with no previous board experience) are struggling with the reality of what being a director of an employee-owned organisation involves – are they it for purpose? What if you’re overlooking the talent you already have?
This is a challenge that Associate Adrian Wheale recognises from the support he provides to employee-owned (EO) organisations through JGA’s Executive Resourcing and Building a stronger board services.
The key, he explains, is to understand that executive resourcing is as much about ‘context’ as it is about ‘content’, because not one but multiple commercial, cultural and personal transitions are set in train when a business becomes EO.
Resourcing for change during change
That’s why Adrian doesn’t just focus on securing high-calibre candidates for pivotal posts such as MD or FD – he also supports ongoing EO board development and delivery as a whole.
‘At JGA, we are recruiting for change during change,’ he says. ‘I’ve always found this exciting because it’s a moving feast.’
His resourcing support enhances the board’s performance, strengthening governance and best practice. Front of mind is securing external or mentoring internal candidates with the right fit for the organisation’s culture, and a clear grasp of a director’s responsibility to comply with all relevant laws. He successfully mentors internal candidates to compete equally and step up to senior level.
As he points out: ‘EO doesn’t work in a vacuum away from the law. Yet, after transition, an EO board might for the first time be managing somebody else’s money (the employee owners’) as legal directors. There can be a gap in knowledge of those who step up.’
Understanding the bigger picture
‘In addition, the company itself is often moving from being product-driven to market-led, so it’s important to know where it is in the business cycle, where its structure is in its EO transition,’ explains Adrian. ‘It’s about the succession plan of individuals and the make-up and upskilling of that senior team. At JGA, we simplify the complexity of recruiting during the ongoing transition stages of EO.’
So where does Adrian start? By clarifying the context. ‘To get the right ‘fit’, I must first understand the bigger picture and where that company is going,’ he says.
‘Knowing that, I can provide an accurate diagnostic to set the scene for resourcing and development. By taking time, I can create the right resourcing ‘recipe’. I identify the ingredients to put in the pot.’
Identifying the right experience – and mindset
Frequently, this requires drawing up a role profile and, beyond that, a job description, taking account of the structural context of the senior team. Adrian will then shortlist candidates with the right mix of skills, experience, character and values to work inclusively and in line with the legal responsibilities of the role.
Psychometric tools help to spotlight leaders who will add value and diversity of thought to the team. ‘I’m looking for executives who can execute,’ he reveals. ‘They must be incisive and make decisions in a way that takes people with them, while respecting the other issues and interests at stake.’
Drive, empathy, IQ, EQ, professional qualifications, technical knowledge and sectoral understanding also usually feature on his list.
Yet the pandemic has created a new challenge for resourcing: the ‘flight of talent’.
‘Everybody wants someone who can lead and drive their transition, especially after the upheaval of Covid,’ Adrian explains. ‘EO is a great social model but other forms of business are more flexible on senior reward, so scarcity of talent and competition, including from existing employers, is our greatest challenge.’
‘It’s about the succession plan of individuals and the make-up and upskilling of that senior team’
Adrian Wheale - Associate
Developing the board in the round
However, in a future-focused EO business, resourcing for pivotal senior roles is only the start of unlocking the benefits of their new ownership model – or at least it should be.
Adrian doesn’t mince his words. ‘The biggest investment most EO businesses make is tomorrow’s MD. The biggest investment they should make is developing their board in the round.’ And the biggest enhancement? ‘Having a critical friend on that board and a framework for board delivery.
‘Curiosity, excitement, urgency, fear – most clients will be feeling one or more of these about their current situation when they start working with us,’ he concludes. ‘We enable them to harness and contextualise each effectively to resource and develop the high-calibre leadership team every successful EO organisation needs.’
Next steps
Get in touch here
At JGA, we are EO specialists. Our Executive Resourcing Service and expertise in Building a stronger board draws on this insight to recruit, develop and build tomorrow’s EO board for you – today. Want to know more about how we can support you?
JGA guest blog for the Employee Ownership Association
At JGA we don’t just talk about governance
One of the many ways you can strengthen your governance is by appointing an Independent Trustee.
We were recently invited to share our thoughts on governance for the Employee Ownership Association guest blog. So we decided to outline the 5 ways we believe governance and Employee Ownership go hand in hand.
In preparing our thoughts we called upon the various elements of expertise we have within our team.
Jeremy and Philippa are both Independent Trustees for EO businesses, holding 2 appointments each. Garry and Lisa hold roles within school governance, as governors and Academy Trust Members. Lisa also works as a Governance Professional and supports training for new school clerks. Adrian is a Chartered Corporate Governor, supporting both new and established boards in understanding their responsibilities.
So governance isn’t just something we talk about, it’s something we’re involved in delivering across various organisations and we are passionate about the difference it can bring.
If you’re interested in our thoughts, you can read the blog here.
Employee Trustees - How they make a difference
Reflections on the first year as an employee trustee, by Lucy Wallwork
Find out how we can support your trust board
One year after becoming 100% employee owned, the employee trustees at LUC have been reflecting on their experiences so far.
Late January 2020, the newly formed Trustee Board for LUC met with JGA for a bespoke workshop focused on enabling them to establish effective relationships and meetings from the outset. Little did anyone realise just how valuable that day would be, when soon afterwards Coronavirus locked down the UK.
Fast forward through lockdowns, working from home and roadmaps, the employee trustees have been sharing what their year has been like, what being an employee trustee at LUC means, and a little about the sorts of things they’ve been involved with.
Follow the links to find out for yourself what the trustees have been sharing.
Listen in to this discussion
EOTAS - what's it all about?
Jeremy in conversation with Cathy Kay
Jeremy is an independent Trustee for Aardman Animation and The Rooflight Company
With the launch of our new service, a joint venture with Russam, and supported by the Employee Ownership Association, Jeremy caught up with Cathy Kay, Managing Partner - Commercial, Russam.
“As a Trustee Director myself, I know just how important it is to attract the right independent trustees to ensure the Trust Board carries out its responsibilities effectively, modelling the way in corporate governance standards.
We work with founders, owners and existing boards to support their Trustee recruitment needs. Attracting the right Trustee is an essential ingredient in ensuring the executive or leadership teams receive the right combination of critical support and independent oversight.
Our partnership with Russam has been founded on a shared desire to match the best people, ensuring the right fit for every boards’ needs.”
Employee Ownership Trustee Appointment Service
Why Independent Trustees are such valuable assets
Over half the transitions to employee ownership trusts have occurred since 2017, with the White Rose annual survey reporting on EO Day last June, that 100 new businesses had converted in the previous 12 months. There are an increasing number of founders and owners choosing the employee ownership model for their businesses. These choices often secure long term sustainable employment, rooted within communities and committed to demonstrating positive values.
There is a common requirement for an employee ownership trust to appoint a mixture of trustees, enabling strategic oversight on behalf of the beneficiaries, with at least one of these being independently appointed. Sometimes these needs can be fulfilled from within your current network, but that may not bring the diversity and perspective your trust board needs. With more transitions to EO and more boards maturing, actively succession planning and challenging their effectiveness, we believe the need for high quality independent trustees will continue to grow.
We recognise the value and importance of effective governance, and the assurances it can bring to organisations. We believe that with independence comes greater integrity, an asset to any organisation, ensuring that business values and purpose are effectively nurtured. We know how independent trustees can spark new conversations, generate discussion and transfer their knowledge to new boards and environments. In addition to their specific areas of expertise, we also believe that effective independent trustees bring the benefits of fresh perspectives, cultural challenge and occasionally a healthy scepticism.
Our joint venture with Russam is focused on supporting employee owned organisations to find the best match for their Trustee Board. Since opening for registrations at the start of this year, over 300 candidates have joined, seeking to share their expertise, spread best practice and promote good governance.
Whether you are a current trustee, have been a trustee previously or are looking to become one, why not take a look at the role and register to ensure you’re in the mix for future opportunities.
We’re very excited to be launching this service, and can’t wait to support employee owned organisations in finding the right trustee for them. Kathie, our lead associate for this service is available to send you further details and discuss your needs in more detail, so feel free to drop us a line if you’re interested.
