More profit for employee-owned businesses

Businesses owned by their employees have proved more resilient than other companies in the downturn, according to new research by Cass Business School, London.

The study also reveals that employee owned businesses (EOBs) tend to create new jobs more quickly and typically outperform those companies in which employees do not have an ownership stake.

The research was conducted by Joseph Lampel, Professor of Strategy and Entrepreneurship, and Dr Ajay Bhalla, senior lecturer in Information and Knowledge Management, at Cass Business School. The findings were based on a survey of more than 60 senior executives, and financial data from more than 250 firms.

“The advantage for EOBs comes from taking a stakeholder rather than a shareholder view of management. Employees who have a stake in the company they work for are more committed to delivering quality and more flexible in responding to the needs of the business,” said Dr Bhalla.

The new research also reveals some key barriers to the growth of employee-owned companies, including how to retain the advantage of a potentially more committed workforce, as the business grows bigger and more complex.

The report also finds that some EOBs have difficulties obtaining favourable financing from institutions that are more accustomed to dealing with listed companies, and that they also face more regulatory and policy challenges than businesses with other ownership structures.

Despite these challenges, in the wake of the financial crisis the study suggests that the strengths of the employee-ownership model – such as accountable management, a happier workforce, closer alignment of risk and reward and a fairer distribution of profit – could help to build a fairer form of capitalism with a greater culture of responsibility and trust.

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