I am Chairman of the Arup Group and in this role...
Connectivity / A strong advertisement for employee-ownership
The financial storms battering the global economy over the past few years have done some serious damage. The crisis in the banking system has left a stream of economic turmoil in its wake.
The impact has left several countries facing a sovereign debt crisis and undermined confidence in the very fabric of the global economic system.
As a result, we are now witnessing a debate about this ‘crisis in capitalism’ at every level as commentators ask how we avoid the mistakes of the past and strengthen our institutions to meet the challenges of the future.
In the midst of all this analysis, one topic that keeps cropping up is the role of employee ownership as a means of balancing profit with fairness and curbing the worst excesses of the capitalist system.
Several commentators have cited Arup as an exemplar of employee-ownership, alongside other groups such as the John Lewis Partnership. All of which has prompted a lively internal discussion about our own origins and whether we can provide the model for more stable, successful and equitable businesses across society.
The simpler question to answer is “how did we get here?” The short version is that in 1964 Ove and his then partners took a very far-sighted, and some would say altruistic, decision to put the firm into a Trust for the benefit of all employees, past, present and future.
This gift was very much in keeping with the philosophy of a firm that set “reasonable prosperity” as the final guiding value to underpin the firm’s focus on ‘quality of work’, conducting ‘straight and honourable dealings’ and ‘social usefulness’.
The far tougher question to answer is whether employee-ownership delivers successful results in a fairer way for owners and employees.
On the face of it, there is evidence for an upside in terms of productivity and engagement, (see research from Cass Business School by Lampel, Bhalla and Jha, for example). At the same time, there seem to be few drawbacks to employee ownership.
And if you ask around, most people would say that Arup’s ownership model has served the firm well – consistent organic growth over several decades, strong financial independence, and the advantage of being able to take a long-term view that allows us to pursue innovation, creativity and technical excellence, without compromising our principles.
That’s backed up by the latest staff survey, which shows 89% of Arup personnel around the world “feel proud to work for Arup” while 87% “would recommend Arup as a place to work”.
So that’s a fairly strong advertisement for employee-ownership.
However, I can’t help but agree with Charlie Mayfield, Chairman of the John Lewis Partnership, who said recently, “I think that a more plural approach to ownership could play an important part in a vibrant and prosperous economy. But I don’t believe the John Lewis model is a panacea.”
The advantages are clear. A sense of ownership encourages greater engagement and fosters closer teamwork. There tends to be a heightened sense of pride and accountability as everyone has a stake in enhancing productivity. Most models offer a more democratic voice for staff and the benefits of productivity tend to be shared more equally, which is why pay multiples between the highest and lowest tend to be lower in employee-owned businesses.
At the same time, we shouldn’t forget that good management, skilfully deployed, can deliver positive results for traditionally owned organisation too.
Equally, there is nothing to stop any organisation from giving their employees more of a voice in the running of the company if they wish by having employee representatives on the Board, for example.
Employee ownership seems to be on the rise. Certainly, it is worth considering for partnerships that want to leave a legacy. It can be suitable for management buy-outs. And it can be attractive for family firms who want to avoid fuelling family feuds in the future.
At the heart of it though, it can be invaluable for firms who want to create fairer organisations that share their returns equitably and have the independence to avoid short-termism and stay true to their guiding principles.
Overall then, employee ownership works extremely well for Arup and many others. It can certainly play an important part in resolving today’s ‘crisis in capitalism’, but it is probably not quite the ‘silver bullet’ that will fix the entire global economic system.
What do you think? Any perspectives to add about the advantages or disadvantages employee ownership, the alleged crisis in capitalism or how we might simply do better business better?