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19 Nov 2014

By Alan Spence

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Employee ownership board room

An oil and gas perspective on Employee Ownership 

The oil and gas industry is always striving for improvement.  Each company has its own business model.  Start-ups are founded on the belief that they are doing something better.

Plenty of organisations shout about the things they do that are different but what if your entire business is run in a genuinely alternate way from its industry rivals?  Is this advantageous, can it make a real difference?

Accord Energy Solutions became the first employee owned company from start-up in Scotland when it was founded four years ago.  It has now hit and significantly exceeded its five year turnover targets a year early and by any measure can be considered a financial success.  But, the founders’ motivation to be an employee owned company was not purely financial.  It was to create a culture of improvement, team growth and sustainability across all aspects of the business.

Leading by example

Employee ownership is fast becoming a popular business option.  These companies are growing as a result of their engagement with employees by giving them a financial and moral stake in the business.  They care.

Research by the Employee Ownership Association (EOA) recently showed that workers in employee owned companies have higher levels of job satisfaction and greater wellbeing than those in mainstream companies.  Four out of five workers experienced a sense of achievement from their jobs and nearly 80 percent were happy to recommend their organisation as a place to work.

Employee ownership generally works by distributing shares in the company directly through a Share Incentive Plan or indirectly through an Employee Ownership Trust or a combination of both.  Employees gain a controlling stake in the business and can influence key decisions about its future.  Tangible benefits include higher productivity and better financial results.  However, it’s in attitudes towards the company where further advantages are seen.  Companies can attract the best people and staff retention can be significantly better.  At Accord only two people have left as the workforce has grown to over 30 people in four years.

 A model for more

The EOA believes the current decade is on course to be one in which many more businesses make the switch to employee ownership.  Events such as the UK Employee Ownership Day 2014 earlier this year have helped to increase the profile of employee ownership.  It is now in the minds of decision makers in both business and political spheres.  The UK currently has more than 180 employee owned companies and the EOA forecasts that this will grow.

Accord believes oil and gas companies are well-placed to use this model.  There are currently fewer than 50 employee owned businesses in Scotland, but they are thriving according to a recent study.   Together, the Scotland headquartered firms employee 2500 people.   Edinburgh, St Andrews and Stirling universities conducted research in this area and found that these companies performed better than traditionally structured ones in areas including employment, sales and productivity.

EOA records show that the number of employee owned businesses in the UK is growing at an annual rate of 9 per cent.  In turn the productivity of these businesses is increasing at an average of 4.5 per cent and the annual profitability of 7 per cent is outstripping that of externally owned companies.

Team spirit

Accord has seen the business model work as an SME in the highly competitive oil and gas supply chain.  It is a true company differentiator and influences every aspect of its business.  The team is working for the long-term and to date has hit key targets.  Five year financial objectives were met a year early and the company will continue to thrive due to an effective board structure which includes two employee directors.  Employee ownership creates strength in the business and the knowledge that it will always be in good hands.

Of course Accord is not the only company that prefers this way of operating.  It is quickly being recognised as a sustainable approach which encourages creativity and a positive corporate culture.  Public body Co-operative Development Scotland (CDS) supports the development of co-operative and employee owned enterprises across Scotland.  It has found that employee owned businesses in Scotland create a combined annual turnover of nearly £1 billion.  The CDS is also targeting a 10 per cent increase in the number of employee owned businesses every year for the next 10 years.

There is a perception that it tends to be more challenging to become employee owned from start-up rather than beginning with the foundations of an established firm but this is not necessarily the case.  Whilst there is no ready-made structure, there is also no baggage and no need for the upheaval that comes with organisational culture changes.

But it is a model that suits small to medium sized firms and the largest area of adoption is currently within family owned companies.  It can be particularly attractive for them if there are succession issues.  Often these types of business are rooted in the community and the owners are keen to maintain that status.  A trade sale can result in the business being broken up with devastating effects on the local community.   A sale to employees can ensure that the company stays local and is owned and operated by the people who know and understand it best.

Service providers and consultancies also find the challenge easier to navigate than those in manufacturing or construction.  The latter group normally requires large initial outlays on equipment and facilities.  These could be more inclined to seek investors to back their business.

The remaining years of this decade are likely to see others in the oil and gas industry challenging the status quo and making this model work for them.  This will be welcomed by other employee owned companies and hopefully the wider business community.  It is a competitive marketplace and employee ownership might just give them the extra input from their staff to meet their objectives sooner, more efficiently and more profitably.

This article was published in the November issue of the Oil and Gas Connect Magazine