If Covid-19 has taught us one thing it’s that all workers are key to our communities and the economy. There exists a once-in-a-generation opportunity to harness the energy of all, boost productivity and create a more equal society through employee ownership.
Walk down any street in the UK and chances are you’ll see one. Draped over fences, behind windows and pinned to front doors are rainbow banners thanking the country’s key workers for helping us during this terrible pandemic.
As the country begins to emerge from the health emergency, we face another crisis – an economic one. By all measures the UK will be entering into a very deep recession this year. Mass unemployment looms large and companies will be saddled with billions of pounds of debt they cannot afford to repay, according to economic estimates.
But those colourful signs and banners hold one very important answer to how we drive a sustainable recovery. They remind us that every worker is key to our society and our economy. We are asking those individuals to throw their energy into repairing the economy; we now need to harness that motivation into our recovery. If those employees are given a stake in the future success of their organisations this will help unlock the triple benefits of productivity, creativity and collective endeavour needed to help get the country back on track.
This crisis has underlined our interdependence. We can be in no doubt that the welfare and happiness of individuals in every corner of our society is manifestly critical to the success of the whole. Yet Covid-19 has also exposed uncomfortable truths about the uneven nature of both our economy and society.
Before the crisis struck we already knew that the richest 10 per cent of households own almost half the nation’s wealth (ONS); that overall our productivity has flatlined for a decade; and repeated surveys have told us many employees are unhappy at work, don’t feel listened to and don’t feel fairly rewarded for the effort they put in. We need a recovery plan that learns the lessons not just of the last three months but the last 30 years and gives us a global competitive advantage in the process.
There have been multiple calls to look again at the unspoken agreements on which our most important relationships are founded – the fundamental promises made between individuals, government, businesses, communities and civil society. To properly respect everyone’s contribution, we need a major re-investment in the importance of individuals in our economy.
The time has come for both private and public sectors to do more to recognise the value of their workforce and put a new deal on the table. Every employee should be offered a meaningful stake in their working future; the chance to share in more of the value they help to create and the voice to help shape how that happens. This will help redress some of the fundamental imbalances exposed by the current crisis and ensure our recovery is genuinely resilient.
The evidence already shows that broad-based employee ownership changes the deal for the ordinary worker and can unleash the productivity explosion we seek. By committing to share with employees a fair portion of the value they help to create, and wiring in opportunities for their voice to be heard, this approach has consistently unlocked a profound uplift in energy, commitment and passion in hundreds of businesses, large and small, across a wide range of sectors. Look at the data to see the potential: According to the Employee Ownership Association, the sector already contributes £30bn to the UK economy and pre-Covid was growing at 10% a year, drawing in household names like Aardman Animations, Riverford Organics and Lush to sit join longstanding employee-owned John Lewis Partnership.
So how can employee ownership principles help us drive a resilient recovery? New think tank Ownership at Work, supported by the Employee Ownership Association, is proposing a fresh take on two ideas currently under review as possible ways to protect good businesses from going under in the short-term: taking equity stakes in specific firms and creating new sovereign wealth funds to safeguard key sectors.
The shares-for-equity discussion has largely focused on external investors (financial institutions and the Government) taking temporary stakes in ‘growth businesses’ that might not be eligible for Covid bank loans because they are early stage or not yet profitable. It is welcome that an employee stake has been raised by some, but there is little sign that business owners are rushing to give up highly prized equity when many have been able to demand wage concessions from workers already in fear of redundancy, or have enforced them through furlough.
The only way this can succeed is through a scheme that aligns risk and reward for owners, employees and government, built on the principles of shared ownership. Ownership at Work is proposing a new Partnership Fund, modelled closely on the Government’s existing Future Fund.
The Partnership Fund idea invites employees to offer temporary wage concessions that would be matched in value by co-investment from the Government. Employees who can afford to accept a reduced income for a finite period save their jobs, the jobs of colleagues and potentially the whole company in exchange for a potential equity return. Owners get new cash into the business, a reduced cost base and two new shareholders: one essentially passive (the Government, through the British Business Bank) and the other a group of highly motivated employees throwing all their energy into recovery and future growth.
In turn the Government helps to protect jobs, prevents businesses going to the wall and promotes national recovery in a way that starts to address underlying fault lines around wealth inequality. Based on existing Treasury principles designed to reduce time to launch, this scheme could be put in place rapidly to support many firms faced with the challenge of tapering off furlough. Where its stake has increased in value, the Government could later choose to share its gain with those lower paid employees who couldn’t afford the original wage concessions, recognising the value of their effort and showing genuine reciprocity.
The parallel conversation about the potential to create new sovereign wealth funds or their privately-owned equivalents has similarly focused on the risk-reward dilemma for investors in exchange for collectively-held debt or equity. However, there is an opportunity here to weave the principles of employee ownership into this concept, aligning the interests of investors, employees and the Government and recognising the vested interest of society at large in maintaining the operation and productivity of certain key sectors.
Ownership at Work is proposing that new Key Worker Funds should be set up on the same principles as the Chancellor’s proposed Project Birch to address vital but vulnerable parts of our economy which are too important to fail but on which employ many low-paid employees rely: for instance social care; travel, retail, hospitality, leisure and tourism. The Funds could offer recapitalisation as well as growth capital to organisations in those sectors.
The Funds would also be attractive to institutional and private investors. The demand for investment opportunities which make an impact based on Environmental, Social & Governance (ESG) criteria is rising, estimated to be worth US$30 trillion globally, with reports of some ESG investment opportunities heavily oversubscribed.
The Funds would be run through arrangements that allow for the representation of management, unions and employees from the relevant sector alongside government. This would ensure that employee voice is heard in decisions made over the future of these vehicles and that employees share in any value they generate over time.
If there is a growth in the value of Fund-held assets then not only would investors get paid, but employees in firms where loans or equity were held by the Fund would also receive a pay-out. By inserting this principle of shared reward into the Funds, low-paid key workers would effectively hold a stake in the future of their labour and will be incentivised to throw their energy into ensuring their organisations survive and grow.
Covid-19 has turned the world on its head. As we get back to our feet, we have a unique opportunity to rebuild our economy and society on stronger and more sustainable foundations which deliver social impact. A resilient recovery must be built on collective effort in which every individual plays their part. To secure that effort and access the pot of productivity gold that lies at the end of all those rainbows we see on our streets, we must harness the energy and power of millions of employees by building the principle of shared effort means shared reward into what we do next.
A version of this article was first published on www.medium.com on 24 June 2020.
Campbell McDonald and Clayton Hirst are Trustees of Ownership at Work, an independent think tank for the employee owned sector. (From November 2020, Campbell McDonald has become the Chief Executive of Ownership at Work.)