Will Hutton’s EOA Oakeshott Lecture 2016

Last Thursday political economist and writer Will Hutton took to the stage to deliver the 2016 Robert Oakeshott memorial lecture. What followed was an incisive and constructive critique of the short term behavior and motivation of much of UK enterprise. Will Hutton made a sound case as to why employee ownership is an important part of the future.

Below are three key points from his talk.

“Why do we not look at the structure of a firm, and ownership? The basic building block of the economy”

  •  Whilst profit will always be a critical goal, it isn’t enough on its own. The companies that thrive over the long term have a  greater purpose beyond profit. Employee ownership can underpin part of a company’s broader purpose, for      example being a fulfilling place to work, and foster the development of a larger purpose.

“Employee Ownership is often seen as an act of charity, but it’s about something much bigger than that. If you don’t discuss the ownership structure then you haven’t even reached the first hurdle”

“There is a wide feeling that this [prioritising shareholders] doesn’t generate value in the long term”

  •  Will observed that block shareholding in the UK is one of the lowest in the world, even worse than the US. This means that      there are fewer and fewer single shareholders owning a significant number of shares in any one company. Why is this important? Any underlying moral narrative (above) is diluted by hundreds if not thousands of shareholders, or financial intermediaries serving institutional investors where short-term gains are vital if they are to meet their quarterly performance targets and none of whom feel any responsibility for longer term ownership goals. The lack of block-holding makes takeovers more likely since institutional investors will sell their share to make a premium on them with complete disregard for the potential value creating potential of the company in the long term. An employee ownership trust can be an effective block shareholder that is likely to focus on the longer term.

“Exclusively maximising shareholder value has threatened customers, the supply chain and employees”

  • Moreover, institutional shareholders can easily diversify their portfolios and minimise risk. Employees and suppliers cannot. In this regard, there is an unbalanced equation. This means that company ‘owners’ are owners of shares with little to no reciprocal burden of obligation who can simply bail out if the going gets tough. What this means is that the value creation potential of a firm is reduced.  3% of U.K. companies are owned by pension funds, and 5% by institutional companies.  Who owns the rest? Overseas and sovereign wealth funds.  The implication of this is that it is the “kindness of strangers holding our currency” which is all that underpins our survival. With a looming threat of a Brexit, the ability of the UK to pay its way in the world is under scrutiny. On a positive note, employee ownership must become a real contender as a viable and compelling form of company structure if the UK is to be able to survive future challenges and pay its way in the world.

“High levels of employee involvement can lead to stronger long term performance, but isn’t valued by the market”

 Will Hutton’s comments regarding the direction of our economies were wide-ranging, touching on matters of banking, research and development, finance etc. He reflected on growing wealth inequality, stalled growth and low levels of innovation in the UK. However, from his diagnosis, employee ownership has the potential to play a significant role in steering the UK competitively into the future. Employee ownership is no silver bullet, but it is certainly a demonstrated and incontrovertible step forward for the UK economy and the future of capitalism. Employee Ownership’s financial and societal potential is undeniable with lower costs of capital, better performance, recruitment and retention of employees. In short, it works. For detailed facts and figures on employee ownership click here to visit the Employee Ownership Association’s website.

 “Put simply, it works”