As we mark Employee Ownership day, our Director of Learning & Influence Genevieve Maitland Hudson shares the first of our new miniseries of four blogs on shared ownership in business.
Today marks Employee Ownership Day 2019. For those not in the know, employee-owned businesses are entirely or significantly owned by their employees.
That ownership means more than a nice variety of legal forms on the national register, it can redistribute wealth more widely and to give workers a greater say in business decisions. Businesses with shared ownership structures also tend to offer better wages, training and progression. This also aligns with a finding from our own portfolio, that social businesses employ more workers by turnover than comparable private sector businesses. In short, for socially minded organisations, people matter more.
As capitalism and trickle down economics face significant critique, shared ownership and employee ownership are currently enjoying a resurgence. Despite that renewed vitality, the UK still has a long way to go compared with the rest of Europe. Just shy of 93% of registered organisations in the UK are private companies limited by shares, which will be run predominantly in favour of a small number of shareholders. In contrast, co-operatives make up about 0.2% of the total number. Even if we were to add into this number the small number of companies with limited share ownership schemes, we would still be looking at a steep climb towards reasonable representation of distributed ownership in the overall national business profile.
So how will we get to where we should be?
High street retail may offer one interesting opportunity, as an area which faces a specific set of difficulties and employs large numbers by turnover.
In July 2018 the UK government announced a new review into the future of the high street. This follows a previous review in 2011 conducted by entrepreneur Mary Portas that made a series of recommendations on regenerating Britain’s failing high streets that fell broadly into three categories: deregulation, planning changes, and developing local strategic approaches to redevelopment. The new review brings together a panel of experts to “diagnose issues that affect the health of our high streets and advise on the best practical measures to help them thrive”. The panel will be taking evidence from members of the public with a focus on the young, rather than stakeholders with experience and an interest in high street retail. It could be usefully bolstered by a sharper focus on the high street as an important employer.
The recent failures of large retail chains, notably in the hospitality sector with Jamie’s Italian the latest to fold, offer a spur to rethinking high street business models that respond to people’s willingness to spend locally for a good cup of coffee, or a pint, under the right set of circumstances.
The hospitality sector
The hospitality sector has a unique opportunity to respond to the economic challenges faced by large chains, to develop an approach that is more equitable, fairer to its low-skilled employees, offers development and progression alongside shared ownership, and is responsive to consumer demands for a more locally rooted, individual, and better quality service.
This is the case because of the unique problems that hospitality faces, the make-up of its workforce, and the relational benefits that can help to sustain it.
The hospitality workforce
The hospitality sector faces some key challenges in its recruitment and retention of a sufficiently valued workforce.
It does, however, also have a definite advantage in the context of the likely changes to employment that will come from the next wave of technological development. As a relational field requiring relatively little highly developed logical or algebraic reasoning that is simple to automate, it is likely to see sustained employment, and potentially even growth. People are necessary to effective food retailing.
Workers in low-skilled jobs are not always easy to retain, benefit from little training and development, and have few opportunities for progression. When these do exist, they may be reluctant to take them up. It is not only the pay cheque that matters, it is the opportunity offered by work to develop employees. This was a finding of both the Taylor Review on Modern Employment Practices, and the RSA’s #goodworkis campaign that ran alongside the review.
Developing workers is therefore a key factor in any successful strategy for employment in hospitality that exploits the opportunity for recruiting and retaining workers who may be restricted in their access to middle income jobs and, at one and the same time, aims to raise industry employment standards.
Hospitality has some distance to travel on improving its record in all these areas, but meeting that challenge may be its best safeguard against the current wave of closures.
The economy of local hospitality
Whilst absolute figures for hospitality look relatively healthy, this is a sector that has struggled to adapt its business models to the changing nature of consumer behaviour.
Chain models of hospitality have been the mainstay of the high street for 25 years, and saw a sustained period of growth between 2010 and 2016 during which large dining chains such as Jamie’s Italian, Byron, Strada, Prezzo, Nando’s, Pizza Express and others rapidly expanded their networks of restaurants around the country. This led to swift rent rises and an increasing saturation of the market. That in turn led to sharp reductions in the cost base, and inevitably, a loss of quality. Customers have taken their custom elsewhere.
The model is under increasing pressure with Jamie’s, Byron, Strada, Prezzo and Carluccio’s amongst others, restructuring and closing large numbers of their outlets.
In 2017, the government’s insolvency service reported a 20% rise in restaurant failures.
During the period in which restaurant chains were on the rise, and opening in multiple sites that had been vacated by the previous wave of failing high street retail, the UK’s pub trade was under sustained pressure, with 52 pubs closing by the week in 2009 at the height of the collapse that followed the smoking ban in 2007.
That longer period of pressure has forced pub chains and independent publicans to rethink their business models in order to attract and retain custom. Those that have survived in this climate have worked hard to embed themselves in their communities and develop an individual and authentic offer of high quality service and products.
This period has also seen the development of community-led approaches to managing pubs, with local groups taking on the lease, finance and in some cases also the day-to-day management of pubs in order to keep them open in the face of increasingly tight margins that make them unsustainable ventures for profit-driven pubcos and investors. This movement has been supported by the Plunkett Foundation, and latterly through a grants programme run by Power to Change in partnership with the Department for Housing, Communities and Local Government (formerly DCLG).
The pub experience offers a model that restaurants might be well advised to follow.
Whatever the form of the outlet, hospitality businesses face a set of common issues that put them at the crossroads of changing social attitudes, viable business models and healthy and happy communities.
The social need for local hospitality
Sustaining public-facing venues for casual exchange and communication has been shown to be essential for the healthy functioning of local communities.
Without this infrastructure, communities are depleted. They find it hard to coordinate, offer and receive support, and develop and sustain their economies.
New models that can sustain a local hospitality sector have a benefit beyond the economic, though these are important too both as a stimulant for cash flow in a local area and a form of employment. They provide an essential layer of infrastructure in areas of economic and social deprivation.
Taken together, these strands show that hospitality is an area of significant importance to local places, poorly served by existing models, and with many features that make it an excellent fit for a shared ownership model. It is these features that suggest that a shared ownership, at sufficient scale, may offer a workable alternative that develops the sector’s advantages and its potentially significant social benefits, without falling into the trap of large chains saturating struggling high streets.
This is of particular interest to us at SIB. We are keen to support the intersection of business, local economic development and workforce empowerment, and to explore the ways in which social investment is best placed to stimulate strong and resilient models that serve people more than a good cup of coffee.