The London-based electronics retailer Richer Sounds recently made headlines when its owner, Julian Richer, announced that he was selling a 60% stake in the company to its approximately 500 employees through an employee ownership trust similar to the one that owns the John Lewis Partnership retail conglomerate.
As part of the deal, £3.5 million—more than a third of the sale price—will be given as a one-time bonus to each worker equating to £1,000 per year served.
The workers at Richer Sounds are understandably delighted with their good fortune. But why should the benefits of worker ownership be limited merely to those lucky enough to work for a businessman whose commitment to social justice extends to funding campaigns against tax avoidance and precarious contracts? We should instead recognise the virtues of employee ownership and use the model to inform how we restructure the wider economy to be more equal and democratic.
Under the Labour Party’s plans to implement a “right to own,” many business owners would find themselves following in Richer’s footsteps. The party proposes that when a firm is put up for sale or closure, its workers would be given a right to be notified in advance and a right of first refusal. If they opt to pursue a purchase, they would have the right to match the price the third party was willing to pay and buy it themselves at that price.
A recent report I authored for The Next System Project at The Democracy Collaborative offers a model of how such a policy could be implemented. Central to the recommendations is a system that would encourage owners to approach their retirement or business sale as Richer has—working with employees to stage a transition to employee ownership that is as smooth as possible.
Workers would get a right of first refusal in any situation where the owner has not already made them an equal or more generous offer (and given them time to consider it). If they accept the sale, they would become worker-owners.
A key issue motivating the sale of companies to asset-stripping private equity firms is that while workers are more likely to be capable of running the business they intimately know, they are considerably less likely to have the cash on hand to perform a buyout. Workers need time and sources of capital for buyout transactions that would not load the company with expensive debt.
Creating new sources of public capital and using regulations to end the incentive to sell to private buyers who can pay right away, would not only encourage more sales to workers but also encourage owners to plan further ahead for succession, working with their staff to build support and knowledge about when and how a transition to employee ownership will happen. Technical, legal and financial assistance would be provided through a new “institutional ecosystem” that provides preferential support to worker ownership transitions – a new industrial policy focused on building a democratic economy in which profits are shared.
Of course, workers will not always want to buy out a company, nor should they; sometimes it will simply not make economic sense. Workers will choose a professional trustee (or have one nominated on their behalf by the government in certain cases) who will prepare a worker ownership buyout plan based on the agreed price, and workers will be given the ability to vote for or against it. The trustee will include a recommendation on which way she thinks they should vote in an information packet which will be given to workers.
Because the right of first refusal would exist as a backstop when companies have not already been offered up to workers, even owners who are not motivated by a strong commitment to workers’ rights and social justice would be encouraged to talk to their workers well in advance of their retirement. If Labour’s plans for ‘inclusive ownership funds’ also go ahead, every company with over 250 workers would already be part-owned by its workers, so many workers will have prior experience as a minority shareholder of their company, making them a preferred, experienced, and empowered buyer.
A sale to workers would thus be possible with little uncertainty. If it falls through even after the owners have made a generous offer, they would be able to take that offer to other buyers without waiting for the right of first refusal period to expire. Buyers would thus look for businesses that have already made an offer to their workers in order to save themselves time, hassle and uncertainty.
It is always great to hear when workers are given the opportunity to own their workplace. But at the moment, these stories are dependent either on the goodwill of individual business owners, or the granting of tax concessions that, while valuable, are paid from revenues that could be used on other public priorities. A right to own law would make worker buyouts the default model for business transitions. Knowing what we know about the benefits of worker ownership in terms of pay, employment, and health and wellbeing, we would be fools not to adopt it. Today, workers at Richer Sounds will get these benefits. Tomorrow, with the right policies, it could be millions more.