The UK’s third Employee Ownership Day is fast approaching, falling on Friday 3 July 2015. Employee Ownership Day is intended to raise awareness of what employee ownership means, its benefits and successful employee share ownership models in a range of UK companies.
We take a look below at how a number of law firms are extending their ownership beyond the traditional partners.
- A recent high profile example is that of the national law firm, Gateley Plc, which has become the first UK law firm to have its shares dealt in on AIM. In 2014, Gateley took advantage of legislative changes to adopt an Alternative Business Structure (“ABS”) allowing non-lawyers to own, and invest in, law firms. It took the view that the combination of the ABS, the transition from an LLP to a PLC and the AIM listing would present, among other things:
- Greater opportunities to develop Gateley both organically and by selective acquisition
- Alignment, through share participation, of employees’ goals with those of the business, and aiding retention of staff
- A more flexible career structure
It is understood that, while 10% of the shares were sold to clients, 7% of the shares have been reserved for employees.
- Australian law firm Slater & Gordon became the first legal practice in the world to apply for a public listing of its shares when it launched on the Australian Stock Exchange in 2007. Since then, it has expanded into the UK legal market by the acquisition of firms such as Pannone and Russell Jones and Walker, and has launched an employee share purchase scheme which is open to all UK staff.
The firm made initial grants of shares to employees on a “matching offer” basis, doubling any shares bought by staff members up to a specified limit.
We understand that the firm also offers long-term share incentives for key staff, as well as the opportunity for employees to receive bonuses in the form of shares rather than cash.
The board of Slater & Gordon has stated that it views equity participation as a fundamental component of an effective executive and employee rewards strategy.
- Triton Global is a multidisciplinary professional business operating in the insurance sector. It adopted a corporate structure and became an ABS in 2013.
An initial tranche of free shares was offered to employees at the outset, and two tax-advantaged schemes are now operated for the benefit of employees. Triton reports that, in this way, it has managed to move away from a “them and us” culture, has achieved an excellent rate of employee retention and unwelcome predators have lost interest in the business.
- Here at Postlethwaite, we also have adopted employee ownership. Over the years advising clients, we have observed the extent of the positive impact which employee ownership can have on their financial performance, attractiveness as a place to work and long term success. We also felt it was well suited to our own firm, as we did not want to limit the ownership to only some of our full-time lawyers but preferred to extend it to all, recognising everyone’s contribution. We have chosen direct ownership by employees rather than indirect ownership through an employee trust, although we think the trust ownership model will often be the right approach for other firms.
Further details about the Postlethwaite model are contained in an article in the 30 June edition of Solicitors Journal which can be found by clicking here
Employee ownership will not be the answer for all professional firms, but it can be worth considering if it might offer advantages compared with a firm’s current ownership structure.
This might involve asking some of the following questions regarding, for example, a traditional partnership structure:
- Do you think more members of your team could make a greater contribution, and would be likely to do so if they had a stake in the outcome?
- Are there other people who add value apart from your partners?
- Are lawyers working part-time less likely to be partners?
- Are you concerned as to whether there is a willing next generation of people in your firm to take over the ownership and enable existing partners to retire?
- Would you like to retain more of your people for longer?
- Would you like to build some new foundations for your firm to help it feel a more positive place to work?
Government policy is now to encourage greater employee ownership across all business sectors. It believes that this has the potential to increase productivity, build more resilient businesses and foster greater wealth creation which is then shared among those who have helped create it. Academic evidence suggests a number of strong positive links between employee ownership and company performance.
To stimulate the growth of employee ownership, two new tax reliefs were introduced in 2014. One gives retiring company owners who sell a controlling interest to an employee ownership trust full relief against capital gains tax, while the other enables employees of a company controlled by an employee ownership trust to be paid income tax-free bonuses.
The number of employee-owned businesses in the UK is now reported to be growing by 10% per annum.
Looking outside the legal profession, some pioneering accountancy firms have now introduced employee share ownership plans, and Grant Thornton has announced plans to become a “shared enterprise”.
We plan to report periodically on further developments in the employee ownership arena, but, in the meantime, you can click on the following link to find out more about Employee Ownership Day on 3 July 2015