Guy Singh-Watson spent 15 years sitting on the decision to hand ownership of his successful vegetable box business, Riverford Organic Farmers, to employees. One year since he made the leap, the company, which delivered its first boxes of homegrown vegetables to families and friends in Devon in 1993, says it has recorded its best financial results.
Sales increased 10 per cent year on year to £65.9m with operating costs of £45.5m for the year ending April 2019, according to its unaudited accounts. This suggests the company enjoyed record profits of £3.7m, mainly through sales of organic vegetables grown at the company’s four farms and packed into 47,000 boxes a week.
Mr Singh-Watson says he feels lucky to be able to share the fruits of this success with 741 co-owners. In June 2018, he sold 74 per cent of shares in the company. These are now held in a trust to benefit all employees.
“I’m perfectly happy sitting around in my dinghy,” he says. “Some people want a super yacht. If you want a super yacht you’re going to spend the rest of your life taking Prozac. And if you really think that owning one of those will make you happier, you’re an idiot and there’s nothing much I can do to persuade that person that coming to work and seeing the sense of agency on people’s faces is absolutely priceless.”
Riverford is the 30th largest employee-owned company in the UK by number of workers, according to the Employee Ownership Association’s latest ranking. The top spot has long been occupied by John Lewis, the retailer, which with 83,900 employees is the poster business for the model.
The idea of employee ownership has increased in popularity since 2012, when the Nuttall review of the model gave additional credibility to broadening ownership of companies to make the UK economy more diverse and resilient in the aftermath of the financial crisis.
More than 60 per cent of company conversions to employee ownership have happened since 2014, according to data from the White Rose Centre for Employee Ownership. It also found that there are now 370 employee-owned businesses in the UK, comprising 200,000 employee-owners.
The UK sector could receive another boost in future: in September 2018, the Labour party pledged that companies with 250 or more employees will be expected to create an “inclusive ownership fund” to hand dividends to staff, should it win power.
Last year, Neil Palmer, partner at Fieldfisher LLP, a law firm specialising in employee ownership, advised Riverford and several other companies on changing their ownership structure. He says the practice is popular among architects, engineers, law firms and other professional services, rather than industrial or capital-intensive businesses: “One thing you need is patience, because if you want cash quick, then this isn’t the right thing for you.”
After an initial meeting with Stuart Hampson, the former chairman of John Lewis, Mr Singh-Watson spent more than a decade visiting employee-owned and co-operative businesses in the UK that do everything from farming oysters to manufacturing wire rope. “This is a forever decision,” he says. “It involves sitting on it for a while. I’m glad it took us 15 years.”
KPMG valued Riverford at £22.5m, but Mr Singh-Watson sold it for just £6m. “I sat down, thought about what I needed to support me and doubled it,” he says. “Clearly if I’d gone to a third party or trade sale I could have got more money, but I don’t think that would have made me happier and it wasn’t what I wanted to do.”
Though business owners may miss out on a big windfall from a sale, employee ownership conveys other benefits. Those who sell their business to an employee-owned trust do not pay capital gains tax provided they meet certain requirements, for example, and employee-owned companies can give staff bonuses of up to £3,600 a year
tax-free (though national insurance contributions still apply).
As Mr Palmer adds, it is not just about what you put in your pocket: “It’s a more enlightened way of doing business.”
Julian Richer, founder of UK audio and entertainment retailer Richer Sounds, made the decision to hand over the business to employees in May this year after turning 60, the same age at which his father died. “I didn’t want to sell it to a third party who might wreck it, and I didn’t have a child groomed to take over,” he says. “I thought the employees would make the best job of [it] . . . they would have the skills to take it on.”
Richer Sounds is now 60 per cent employee-owned. Mr Richer says he does not worry that employees will undo his decades of hard work. “It made no difference in the way the company is run,” he says. “We like to say our newest director has been there 25 years, so everyone understands our culture.”
Mr Singh-Watson says he has retained a 26 per cent stake to reassure staff and customers that he will still be involved in the business with which he has become so heavily associated. But the stake also gives him power to veto big decisions, such as no longer being organic or any proposed merger, though he does not expect to use this.
Regardless of the size of the employee’s stake, sharing ownership does not in itself signal a change in the way the company is run, he says: “Becoming employee-owned does not guarantee you are going to get more commitment from your staff. It has to be combined with cultural change.”
Rob Haward, who has been managing director of Riverford for eight years, agrees that employee ownership “doesn’t mean that much” on its own. During the transition, Riverford’s senior management team undertook training to learn how to make space for employees to work through challenges, rather than imposing solutions. Staff have, for example, changed the process to weed out toxic leaves that grow among the wild garlic. The previous method, which involved sorting leaves when they were in the packing system, slowed down the machinery and resulted in everyone working late. The team added a pre-grading step before packing. A week later, output had increased enough for everyone to resume normal hours.
“You do get more comfortable with it,” Mr Haward says. “Now, when I think something is drifting I can be open with my team and seek reassurance that we’re on track, but not to jump in.”
It may be too early to say whether Riverford’s results are linked to its ownership structure. The success of an internet food business is subject to numerous variables, including the weather, trade policies and consumer taste. But other, more subtle differences seem related: this year staff turnover reduced by 15 per cent, which Mr Haward believes is thanks in part to a staff council that consults on wellbeing and pay. Many of the lowest paid have already seen their pay increase as the company has worked to make the highest salary no more than nine times the lowest.
Employees who run into difficulties are supported to continue in their jobs. When Agnese Karavica, a former team leader, faced a personal tragedy, Riverford offered her the opportunity to work four days a week. She is now on an apprenticeship programme to move back up to team leader. “It’s important to me to get back where I was and get even better,” she says.
Mr Singh-Watson acknowledges that competition drives performance, but he refuses to believe that people come to work solely for their pay packet. His theory is supported by an employee-ownership index that compares the share price performance of companies that are more than 10 per cent employee-owned with the FTSE All-Shares. These companies have outperformed their FTSE peers by an average of 10 per cent annually since 1992.
“Money is a very poor way of getting the best out of people,” Mr Singh-Watson says. “Giving people more autonomy to make decisions locally gives them agency over their lives.”
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