John Lewis

Ah, John Lewis. Just saying the name gives you a warm glow, conjuring up images of enthusiastic staff talking knowledgably about pocket-sprung mattresses whilst calling you “Sir” or “Madam”, a place where all is right with the world. Well, the Government clearly thinks so as it wants to encourage more companies to use the employee ownership structure famously adopted by John Lewis, where all staff have a stake in their business.

Why issue staff shares?

According to last year’s Nuttall Review of Employee Ownership, businesses with a significant proportion of their shares held by staff are more resilient in tough economic times and provide benefits to both employees and employers. However, the Review identified various barriers to greater employee ownership within the UK and the Government has been taking steps to break these down over recent months.

Forms of employee ownership

Employee ownership can take one of two basic forms: either it can be direct, with employees holding shares individually in their own names, or it can be indirect, with shares being held collectively on behalf of staff via an employee trust. One of the problems with the direct model is what happens when an employee leaves: if they retain their shares then, over time, the benefits of employee engagement will be lost as more and more shares end up in the hands of people no longer connected with the company. To avoid this, companies will often seek to buy-back the shares of a departing employee and, earlier this year, the statutory regime for such a buy-back was relaxed in order to make it easier for companies to ensure that their shares remain available to incentivise current staff.

To encourage more businesses to adopt the John Lewis structure, the Government has published Model Documentation and Guidance explaining how an appropriate constitution could be implemented in practice. This incorporates the indirect model of employee ownership, using an employee benefit trust, but also allows for shares to be held directly by staff giving companies greater flexibility on how they engage their workers in the long-term prospects of their business.

Will this business structure take off?

It remains to be seen how many companies will make the change to employee ownership, either utilising the new model documentation or via other more established methods such as share option schemes or long-term incentive plans. Is this something that would appeal to your business? Or do you already have some form of employee ownership scheme in place? If so, has this created any problems when members of that scheme have left?

It has to be remembered, however, that having an ownership structure like John Lewis won’t automatically bring with it the public confidence instilled in that famous brand. For some companies, a wider review of their business model and practices may be needed before we all look forward to spending our Saturday afternoons cocooned in their duvet of customer service.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.