The employee ownership model remains strong, despite John Lewis' issues - Nimarta Cheema

When the John Lewis Partnership announced in March that it was considering diluting its partnership structure to raise between £1 billion and £2bn of new investment, it generated shockwaves through the employee ownership community.

The John Lewis Partnership is the largest employee-owned business in the UK, with total trading sales of over £12.3bn and a workforce of 80,000 employees or “partners”, and is often held up as paragon of the employee ownership model.

If anything, the recent announcement further supports this, as it demonstrates the flexibility employee ownership can offer. There are different potential employee ownership structures, and 100 per cent employee ownership is not always the most suitable.

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While any plans would first have to be approved by a partnership council formed of employees, a hybrid structure might allow John Lewis to secure external investment and continue to offer benefits to its employee partners. It’s also worth noting the sector-specific challenges John Lewis will be facing, with the cost of living crisis hitting retailers as they recover from the impact of the pandemic.

Nimarta Cheema is a Senior Associate, TLT LLP​​​​​​​Nimarta Cheema is a Senior Associate, TLT LLP​​​​​​​
Nimarta Cheema is a Senior Associate, TLT LLP​​​​​​​

There has been no indication the proposed changes are a result of any failings with the employee ownership structure and in fact, the decision to consider diluting the 100 per cent employee ownership has been met with negative criticism from employee partners and retail experts.

The John Lewis case demonstrates a lack of understanding about how employee ownership works. Few advisors have the knowledge and experience to guide business owners through the process, meaning it’s often left out of the conversation with founders about the best option for their company’s future.

So, with the employee ownership model holding strong, could it be an option for your business?

By considering employee ownership as an exit strategy, a founder could see their creation thrive and grow, rather than be lost amid an acquisition or merger. Employee ownership might not be the right option for a founder wanting to maximise a lump sum on the day the sale completes, but might yield the same or more after-tax cash as a longer-term option. Owners who sell more than 50 per cent of the company to employees directly, or to an employee ownership trust, receive valuable capital gains tax relief.

It's encouraging to see signs of increasing availability of specialist finance for the employee ownership model. Mainstream providers, like banks, are becoming more aware and supportive of the model and the alternative funding provider market is growing.

It’s important to remember employee ownership is not just for retiring owners or entrepreneurs with no heir. Founders can choose to step back gradually, remaining a director if appropriate, rather than making an abrupt departure. This is often welcomed by staff who might not have the experience to take immediate control over day-to-day decisions. With careful planning and proper support, management teams can rise to meet the challenge and assume leadership in inspiring ways.

Employee ownership can offer founders a way to preserve the ethos and values of their business, and reward those who have worked to make it a success. There is the potential added benefit to their brand as a whole. Demonstrating loyalty to employees, particularly if a business is embedded in the community it serves, will likely boost both customer and supplier support. A sale to trade could have the opposite effect, potentially resulting in job cuts or relocation away from its roots.

So, if you are interested in employee ownership as an option for your business, get advice from experts to consider the best model for you.

Nimarta Cheema is a Senior Associate, TLT LLP



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