In this guest article, Jeremy Gadd, Coach, Trustee, Founder and Managing Director at Telos JGA shares his insight for businesses interested in working towards Employee Ownership and how they can prepare their governance framework.
Are you a founder/owner selling your business to an Employee Owned Trust (EOT)?
If so, working through the legal and financial aspects of the transaction will be top of your list.
But what about the governance structures your business will need as it becomes employee-owned?
A Company Board with the right experience and skills, an effective Trust Board, an engaged employee council – when and how should you start looking at those?
Cross-head: Preparing your governance structures for EO
Successfully transitioning your business to employee ownership is like any other major change project – it needs to be properly planned, timed and resourced.
This means it’s a good idea to review and strengthen your governance framework six months before you sell. Here’s what to look at first:
1. Your Company Board
Your business may already have an Executive or Company Board, but does your senior team have the capability, experience and skills to lead it through its employee ownership transition and support your people through change?
Undertaking a board diagnosis before you transition can provide invaluable insight and identify gaps.
It can highlight opportunities to strengthen your Company Board’s EO credentials in good time – through external appointments, internal promotions and NEDs for permanent or interim roles.
2. Your Employee Forum or Council
If your business already has an employee forum or council, does it have a role to play during the transition to employee ownership?
Very few employee representative bodies will be a formal part of your existing governance structure, with decision-making powers.
So this may be the time to review whether your current set-up is right for your company’s employee-owned future.
It’s also worth supporting your forum members’ understanding of what employee ownership is (and what it isn’t), as well as consulting and involving them in the transition to EO if you can.
3. Your Employee Owned Trust (EOT)
If you’re setting up an EOT (Employee Owned Trust), consider how the newly-created Trust Board will be supported from the start.
Updated requirements from HMRC (introduced in 2024) mean the EOT has a responsibility to confirm that the business has been appropriately valued and sign off the sale.
Do the Trust Board’s members, including any employee trustees, have access to effective independent advice and training on the fiduciary responsibilities they’re taking on?
This includes understanding that the Trust Board’s key responsibility is to ensurethat the business is being run in the best interest of the beneficiaries (usually the employee owners) and for the long-term sustainable success of the organisation as a whole.
To do this, the Trust Board must ensure that the Company Board – which is responsible for running the company and creating a strategy for the business to thrive – is legally compliant in all areas, acting in line with the Trust Deed and operating in a way that grows the business for the long term.
Ideally, the Trust Board should act as the Company Board’s ‘critical friend’ – able to offer a fresh perspective; be open and robust in its questions; and provide positive feedback and support.
It’s important to ensure the Trust Board is appropriately insured and has decided how it would like to operate too.
If you’re appointing an Independent Trustee to your EO Trust Board, consider how you will do this. Using your current network may not ensure you secure the fresh perspective, insight and experience your EOT needs to be truly effective in the longer term.
It’s useful to recognise the value an Independent Trustee with experience of leading in an EO organisation can bring in the early stages of your company’s transition – as this is when your employees’ experiences of employee ownership will start to form.
Cross-head: What should you do next?
As a founder/owner, the above can seem a lot to consider when you’re already busy preparing the ground for your legal and financial transaction.
But creating a strong governance framework before you transition to employee ownership will soon start to show results. It’s an essential step to unlocking the benefits that being employee-owned can bring.
At Telos JGA, we can help.
We bring a practical understanding of how to realise your business’s potential through employee ownership, founded on Telos Partners’ 25 years of global experience and JGA’s 10-plus years of supporting 100-plus transitions to EO.
Find out more on our website https://www.telospartners.com/employee-ownership and get in touch with us here https://www.telospartners.com/contact-us
Guest article: Jeremy Gadd – Founder, J Gadd Associates and Partner, Telos Partners
