Employee ownership (EO) is a business model whereby a proportion of an organisation’s shares are redistributed to its staff, granting them, according to the Employee Ownership Association, “a say and a stake in the company they work for.” It sounds simple enough – employees continue their work as usual with the added incentive of taking home a slice of the company’s earnings each year.
However, seeing employees as little more than passive shareholders is a costly mistake to make during an EO transition. In fact, you’ll struggle to find a stakeholder group better placed to both safeguard the company and drive its future growth. They’re the individuals who understand not just how the business is supposed to work, but how it actually operates day to day.
With this in mind, it’s crucial to instil the right ownership mindset among your workforce from day one, encouraging them to think like an employee-owner rather than just an employee with a stake. Through effective internal communications and an inclusive leadership strategy, this is absolutely achievable for any organisation joining the EO community.
Building EO literacy from day one
As the big EO announcement meeting concludes, you’re likely to see a mixture of reactions around the room. While some employees will leave buzzing with ideas, many others will find themselves quietly thinking ‘so what?’
This is where building a solid foundation of EO literacy becomes crucial. From the outset, leaders must help their staff understand the business inside out, as well as what their new ownership role truly means in practice. This may feel slightly contradictory to the participative and inclusive EO values that they’ve just committed to. However, as with any major organisational transformation, clarity and direction from the top remains important.
IT systems and cloud services company Enhanced learned this first-hand, finding that it’s a mistake to assume people simply get EO just because you’ve announced it. Their workforce needed things explained clearly and repeatedly in the early days, and that lesson shaped how they approached the transition going forward.
One practical way of building this clarity is by quickly establishing any new roles or committees that will form part of your EO structure. For example, who will sit on the EO board? Will there be an employee forum, and if so, how often will it meet? And will more informal, ad-hoc activities also be introduced alongside this?
With a clear picture of what to expect and how to participate, employees can start feeling the realities of EO rather than simply seeing it on paper. This kind of direct, structured communication is what drives an organisation-wide buy-in and keeps momentum going over time.
Connecting people with profit
The financial stake is the most tangible part of an employee’s new ‘ownership’ status, so it’s essential for them to understand exactly what it means and how it can benefit them.
Encouraging a culture of ‘ultimate transparency’ certainly helps here. Instead of deciding what information should be shared with their staff, many EO boards have introduced a more inclusive default, whereby they share everything unless there is a compelling reason not to. At Magenta, our EO board put this into practice through a series of financial literacy workshops, walking the whole team through the company’s financial structure and performance.
Ever since, we’ve all become more aware of how our everyday efforts translate into business success. We’re now able to have more in-depth and inclusive conversations around where our financial targets lie and how we might reach them together.
And this feels even more rewarding with the knowledge that the profits feed directly back into our own pockets. Reminding employees that when the company wins, they win too, reinforces the motivation to understand and contribute.
Beyond the financial stake
As encouraging as that new financial stake can be under an EO model, it’s important to ensure that profit doesn’t become the only priority. A solid understanding of the company’s purpose always acts as a natural barrier against this, making it another essential part of the employee-owner mentality.
A good example of this can be seen at CleanTEC Services, where a proposed cost-cutting measure was ultimately abandoned because of its likely impact on staff wellbeing. While the promise of improved short-term profit margins – and therefore an enhanced EO profit share – was tempting, the initiative ultimately went against the cleaning company’s core values. In the end, those values were lived and breathed enough to take the win over any short-term gains.
This was the case because CleanTEC’s purpose was tangible as well as visible. Their values were embedded into performance reviews, weekly meetings and internal awards. It allowed them to find the balance between profit and purpose that every EO business should strive for.
The EO mindset
Overall, the switch to employee-ownership demands the same level of communication and strategic intent as any major organisational transformation. Without encouraging the right ownership mindset among your employees, EO risks becoming nothing more than a title.
After becoming an EO in 2024, Magenta understands both the challenges and the possibilities that come with the transition.
Read more about our experiences and top tips in our EO guide.
