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EO Explained: EO Transaction Distributions

Wed, 25 Mar 2026 18:39:03 GMT

Continuing our series of articles explaining Employee Ownership (EO) our guest authors provide legal and tax clarity on transaction distributions post October 2024.

Distributions from companies owned by an Employee Ownership Trust (EOT) are a familiar feature of many EO structures. In practice, however, recent changes and ongoing misunderstandings mean distributions are an area where tax, legal and governance issues are increasingly being missed –both for new and longer-established EOTs.

This article aims to highlight some of the key points that trustees and boards should be alive to.

Tax relief on distributions is not always automatic

A typical EOT sale will usually involve the EOT acquiring shares from the shareholders (“the Vendors”) in the trading company (“the Company”) in return for cash and deferred consideration.

As the EOT is often established by the Company, it will not typically have any funds of its own at the point of acquisition. Common practice has therefore been for EOTs to be funded by voluntary contributions from the Company around completion, with the EOT using those funds to discharge any initial consideration (and then any deferred consideration) owed to the Vendors. The safest course of action may be to treat such contributions as distributions (see below).

Outside of an EOT context, a contribution of funds from a company to its shareholder, without anything given in return, would ordinarily be treated as a dividend in the hands of the shareholder. Without any special rules for EOTs, this created the risk that the EOT trustees, as shareholders, would be subject to income tax on a dividend at up to 39.35%. That outcome would have been extremely damaging to the EOT model.

Accordingly, prior to 30 October 2024, many EOTs were routinely established on the basis that HM Revenue & Customs (“HMRC”) agreed that contributions to an EOT were not taxable and this was often supported by transaction structuring. In many cases, a non-statutory clearance was sought and obtained from HMRC to confirm this treatment.

Changes introduced at the 30 October 2024 Budget placed this position on a statutory footing by introducing a formal relief. Under the new rules, certain distributions (broadly, payments made in relation to the sale to the EOT) made by the Company to the EOT on or after 30 October 2024 are not taxable in the hands of the EOT provided a valid relief claim is made by the trustees. Trustees should carefully review any proposed or actual distributions and take advice on whether relief can be claimed.

Whilst care is needed, the change in rules to introduce a statutory relief was widely welcomed. Legislating for relief reduced the risk of HMRC challenge and, for EOTs established on or after 30 October 2024 , the need to make relief claims is clear.

However, the new rules do create a practical risk for EOTs established before 30 October 2024 , where trustees often assume that:

distributions paid up from the Company to the EOT are automatically tax-neutral;
responsibility for dealing with the tax position sits entirely with the Company or its accountants; or
a historic non-statutory clearance from HMRC removes the need to make a relief claim.

These assumptions are not correct. In particular, HMRC guidance does not fully align with the statutory position. As a result, the most prudent approach is for all EOTs to consider making relief claims in respect of distributions received after 30 October 2024 , regardless of when they were established.

Where a required claim is not made, the result can be unexpected tax leakage at the trust level, which is often only identified after distributions have already been paid. This can be expensive for the trust and ultimately the Company that would usually need to fund this.

For example, if the Company distributes £1 million to its EOT without a valid relief claim, who then repays £1m of vendor debt, the EOT would be subject to income tax at up to 39.35% (£393,500) but would not usually have the funds to pay this. Funding that tax liability would typically require a further distribution from the Company, which may itself not qualify for relief. To fund the trustee’s tax bill might therefore require a further dividend of £648,805 (being £393,500 x 100 / (100 - 39.35)). In practice, this could mean that the Company is having to find £1.65m to make a £1m repayment to the vendor via the EOT.

This is an area where the requirements for practical application are distinct and separate from the transaction itself.

How relief is claimed

Relief is not automatic and must be claimed by the trustees. In practice, claims may be made through the trust’s tax reporting or by separate submission to HMRC.

The appropriate approach will depend on the specific circumstances of the EOT and should be considered carefully.

Company law: are there sufficient distributable reserves?

Separate from the tax position, under company law any distribution must be supported by sufficient distributable reserves, determined by reference to the Company’s relevant accounts.

Distributable reserves are defined as a company’s:

“accumulated, realised profits, so far as not previously utilised by distribution or capitalisation, less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of capital duly made.”

In practice, the starting point will usually be the Company’s most recent statutory accounts. However, where there have been material changes since those accounts were prepared - for example, a significant transaction, restructuring or exceptional movement in profits - reliance on historic accounts alone may not be sufficient. In such cases, properly prepared interim accounts may be required to demonstrate that sufficient distributable reserves exist at the time the distribution is made.

A number of additional points are frequently overlooked:

historic transactions - including the original EO transaction, debt structuring or group reorganisations - can materially affect the level of distributable reserves;
the existence of cash, even in significant amounts, does not of itself mean a lawful distribution can be made;
the profit and loss reserve shown on the balance sheet is not necessarily equal to distributable reserves, as it may include unrealised profits or exclude amounts held elsewhere within equity, and;
the need for Board minutes to reflect that the directors have considered whether there are sufficient distributable reserves by reference to relevant accounts.

If the latest statutory accounts show reserves that are materially lower than the current cash position, properly prepared interim accounts will often be required to demonstrate that sufficient distributable reserves exist at the time the distribution is made. These do not need to be formal, and in some cases management accounts may suffice, but due consideration must be given to any accounting adjustments that might affect distributable reserves and an audit trail preserved.

By way of illustration, the Company might receive a substantial inflow of cash from an exceptional transaction, significantly increasing its cash balance. That cash will not automatically represent distributable reserves for company law purposes. In particular, if the transaction is not reflected in the Company’s relevant accounts, it may not be possible to rely on that cash to support a lawful distribution. In such circumstances, interim accounts may be required to demonstrate that sufficient reserves exist for distributions to the EOT to enable , for example, repayment of some or all of its outstanding vendor debt.

Where distributions are made without sufficient distributable reserves, the consequences can include:

the payment being considered void;
obligations on shareholders or trustees to repay the distribution;
potential personal exposure for directors; and
further, often unexpected, tax consequences.

If nothing else, it may result in unwelcome questions or reviews from HMRC which, even if no issues are found, does impact on resources and creates unnecessary anxiety.

Why this matters

Distributions are sometimes viewed as a routine post-transition matter. In reality, they are one of the most common areas where EO structures experience avoidable friction - particularly as legislation evolves and EOTs mature.

Trustees and boards should treat distributions as a multi-disciplinary issue, rather than a purely mechanical one, because they sit at the intersection of:

corporate law (board decisions and reserves);
trust taxation, and;
trustee governance.

Problems often arise where:

the Company assumes the trustees have dealt with the tax position, and vice versa;
the Company and trustees assume the Company’s advisers have covered everything; or
no one has clearly documented who is responsible for what, or what is required.

From a governance perspective, trustees and boards should be comfortable that:

they understand the basis on which distributions are being made;
they are satisfied that distributions do not adversely impact the business and its employees;
any required claims or filings have been identified and addressed; and
advice has been taken where the position is unclear.

As with anything, clarity of the detail, clearly documented process and audit trails of actions can avoid unintended consequences being crystallised.

This article was written by Steven Tebbutt, a tax adviser at MHA ( MHA | Steven Tebbutt ), and Andrew Evans a legal and tax adviser at Geldards ( Andrew Evans Partner Lawyer/Solicitor | Geldards Law Firm ), with input from IDT.

Although both authors are EO experts this article is intended as a general overview only and does not constitute tax or legal advice. Individual circumstances will differ. If you would like to discuss your specific scenario with an expert, please follow the links to speak directly with Steven or Andrew.

Measuring Employee Ownership

Wed, 18 Mar 2026 18:22:32 GMT

The EO advantage is difficult to encapsulate through internal metrics but shouldn't be avoided as a result.

Employee-owned businesses should, in principle, have a powerful advantage but realising that advantage depends on whether collective ownership is meaningfully embedded and leveraged, not simply whether employees feel more satisfied, engaged or positive about the organisation.

This is where reliance on traditional measures such as satisfaction, engagement or sentiment scores can mislead. While useful in their own right, they can risk overstating the strength of employee ownership by conflating how people feel with how ownership actually functions.

ownership goes beyond sentiment, it is evidenced through actions, not just feelings or language;

the depth of ownership within an organisation cannot therefore be understood through measures of perception alone;

in fact, sentiment indicators can be unreliable when employees are asked to assess their levels of awareness, influence or inclusion without any shared reference point for what ownership means;

as a result, bottom-up measures on their own rarely provide a full or accurate picture.

A more fundamental judgement is philosophical as much as practical: would leadership and board discussions or decisions have been different if employee insight had been present?

However, this shifts focus squarely onto leadership teams who are responsible for enabling ownership and accountable to the trustee for leveraging it effectively to the company’s benefit.

The most meaningful performance indicators are therefore not about how strongly ownership is encouraged, but about how consistently, boldly and skillfully it is utilised and exploited.

That might include:

the number and sorts of issues where employee insight has been called for, whether as a whole or through focused groups;

the number and types of strategic or operational issues that have been informed by employee input before the leadership’s position on the subject has been formed;

the number of examples of organisational value being created, protected, or improved as a direct result of employee involvement in shared ownership of the issue;

Viewed this way, employee ownership is not an end in itself, it is a doctrine for improving company performance, and the ultimate metrics are how that is judged in context and over time.

Employee satisfaction, ability to engage with internal communications and the existence of avenues to present ideas or feedback are often treated as markers rather than enablers of employee ownership. They all matter, but the real step change comes when collective insight is regularly translated into better decisions and outcomes, and when that level of capability becomes a sustained source of competitive advantage.

This article was written by Simon Carter an experienced IDT independent trustee with content crafted from his own experiences within and outside Employee Owned companies.

What is a Successor Trustee?

Wed, 11 Mar 2026 18:50:09 GMT

Changing your Independent Trustee should be seen as an opportunity to review, refresh and focus forwards.

You already have a trustee appointed, but they are coming to the end of their term, or a change is needed. Appointing the next trustee is when you are appointing a successor trustee. But how do you go about this, and how is it different from the first time you appointed an independent trustee?

When?

What is driving the need for a successor trustee?

Has your current independent trustee resigned, or come to the end of their tenure?

Don’t see this as a negative, see it as an opportunity to bring in new ideas and opportunities to have slightly different conversations within the boundaries of the role of the trust.

In most cases, that transfer of responsibility from one independent trustee to another is moving from one professional to another.

In some cases, the move is driven by the trust, and/or the company, seeking a different individual or different skills. If your first appointee was a transaction expert, do they also have the experience to contribute when the transaction has passed, and EO within the company is evolving beyond the financial and legal framework?

Equally, you may have appointed an EO expert with clear guiding principles of what EO should be. Once these have been understood and adjusted to your company and trust, are you looking for more flexible and bespoke knowledge to support your continued evolution?

Why?

Why is appointing a successor trustee different to appointing your first independent trustee?

Firstly, you will have become more confident in your position as an employee owned business. This is both through the company and its employees understanding more, researching and networking. Even if this hasn’t happened, having distance from the transaction and its implementation has allowed breathing space for stability to have returned.

Secondly, you will have received the benefit of the expertise, experience and knowledge of your current independent trustee.

Both of these factors mean that you are appointing from a position of knowledge and experience. Hence, you are looking to build on what is already in place, not replicate it.

How?

Appointing your next trustee is an opportunity to reflect on their tenure of appointment. How far you have come, what you have learnt, what insights have been provided? Take time to do this review, then consider what the next period of the company and the trust will look like.

Are there any milestones that are upcoming? Such as fully repaying your vendor loan, progressing leadership succession plans, rotating fellow internal trustees, launching new EO related initiatives. If so, do you want your current trustee to stay until that milestone, or are you looking for a new trustee to support before the milestone is reached.

Then consider what skills and experience your current trustee has provided. Do you want to replicate these? Are there other aspects or areas of knowledge that would be beneficial at your current stage?

Trustees appointed during the time of transition may grow and develop with the business as it evolves its EO, or they may not. Whilst the role of the independent trustee is fairly standard, incumbents vary considerably in terms of knowledge, experience but also behaviours, personality, attitude and availability. Consider what it is that you would value, and seek that in your next independent trustee.

Your Trust

Finally, as well as considering the individual, also consider your trust itself. Is it a passive shareholder, or a pro-active contributor to the activities of the business.

If it is more active, in what way does this get delivered? Is the independent trustee part of this, or a checking point for activities undertaken by internal trustees and others?

In practice most trusts fall between passive and pro-active. They are active when needed, have a rhythm of trust meetings and ad hoc connectivity between meetings.

The Practicalities

The appointment of a new independent trustee, is usually the responsibility of their fellow trustees, not the company board. However, you would expect both the trustee and the company board to agree on the final candidate to be appointed.

In practice, the process is often led by the trustees, with input or involvement of company directors.

It may also be delegated to in-house HR functions, if they are available. If so, ensure they understand the nuances of the role and how it is different to recruiting an employee.

In practical terms, once the individual is agreed, a trust board minute should evidence the resignation and appointment of both individuals. Companies House records (if the trust is constituted through a formal trust company) should be updated accordingly.

In most cases, the departing independent trustee should provide a handover to the new trustee. But the company and fellow trustees should also provide background information, copies of previous trust meeting minutes and a set of the relevant transaction documents. They should also share their perspectives on the next stages and why the appointed individual was the best fit for the role, their EO company, the trust and the future.

Concluding thoughts

Although any change can create uncertainty, appointing a new independent trustee should be seen as a positive opportunity.

Your EO company has matured, your trust has a rhythm of activity, and the mechanics of the transition transaction have been operationalised. Bringing a new perspective at this time can be invigorating and energizing, creating continued forward momentum and evolution.

IDT provides both initial and successor trustees to EO companies. If you would like to discuss this topic or find out more, contact us to arrange a confidential chat at i nfo@directorsandtrustees.co.uk

Ownership Responsibility

Tue, 24 Feb 2026 10:22:16 GMT

EO ownership includes a responsibility for the longer term, not just near term benefits.

Long-term company sustainability and success should be a responsibility of all employees, but different drivers, views and experience can result in a mismatch across individuals within an organisation.

Business founders have a vested interest in both the short and longer term. Employee ownership however is a more diffuse paradigm: the immediate effects of operational decisions are felt by all, but the benefits of long-term investment in innovation, growth, and succession may only be by future employees.

The unintended consequence can be that horizons are foreshortened, and fairness, sustainability, and responsibility over the longer-term need to be actively preserved:

business owners have a natural incentive to balance short and long-term priorities, because they feel directly the cost of under-investment or lack of vision downstream – right up to their eventual exit;
but the people in an employee-owned business, at any level, are invested differently and short-term benefits are real but those that will only be seen by future beneficiaries are abstract.

In practice, this can create tensions between short- and long-termism, requiring a strong culture and systems to maintain balance.

While responsibility for the future can be placed on to the leadership, many factors can distract them from longer-term thinking — including their experience, vision, diversity of thought, personal motivations, attitude to risk, or simply the demands of operational delivery and survival.

Employees may have a newfound voice, but they are expected to consider both their individual and collective legacy when exercising it, looking beyond a natural focus on near-term benefits.

And while the role of the trustee is inherently intergenerational through its specific duty to consider current and future beneficiaries, that in itself may not mitigate the inevitable personal conflicts or relative strategic inexperience that can exist within a typical trustee board.

Hence, responsibility sits with all, but that makes accountability harder to establish.

When a founder sells to an employee ownership trust, they may hand over control to an individual or leadership team, but responsibility for the long-term future and tomorrow’s beneficiaries disperses to a group of individuals with very different individual perspectives.

The questions that will almost certainly weigh on an independent trustee’s mind as they look from the outside in, are who is ultimately picking up that responsibility? and how is it being incorporated into decision-making and company actions?

This article was written by Simon Carter, one of IDTs most experienced independent trustees, drawing on his EO and wider business experience.

EO Explained: EO Bonus vs Trust Distribution

Thu, 12 Feb 2026 10:47:05 GMT

Continuing our series of articles explaining Employee Ownership (EO) we explain the difference between the EO Bonus (Profit Share) and Trust Distributions.

It is often assumed that the EO Bonus that benefits from tax free payment up to (currently) £3,600 to all employees is a trust distribution. In practice, this is a share of the profit from the company to employees as a result of being employee owned. It is not a distribution of the trust limited to beneficiaries.

Here we explain a few of the underlying principles.

Principles of EO Distributions to Employees

One of the recognised benefits of being an EO company is that profit share distributions can be made with a tax free element – currently £3,600 can be paid to employees free of any tax payment by the individual and the company (NI still has to be paid).

However, this profit distribution is not the same as a distribution by the EOT to Beneficiaries of the trust. Too frequently the payment of each are confused.

Profit Distribution

As long as a company profit has been made, this is available for distribution to employees whether or not any deferred consideration (or other payments due under the EO transaction) have been paid in full. Hence, an EO can pay out profits to employees alongside the repayment of the deferred consideration (which is also paid out of profits).

The profit distribution to employees is often referred to as a profit share, rather than an EO bonus. This ensures that it is not confused with any other bonus schemes in place in the company (such as sales bonuses or performance bonuses). The term profit share also then clearly aligns receipt by employees with their contribution to the profit of their business.

Calculation of the amount of profit to be shared with the employees should be balanced with other financial commitments of the company (current, future and potential), such as tax, investment, strategic spend, etc. The company should not be put in financial jeopardy to pay employees a cash amount.

Company Dividends

There is no profit distribution, or dividend, payable to the Trust Company as shareholder. Under the terms of the EO transaction it will have waived its rights to a dividend.

If there is a minority shareholder, a dividend may be paid to them based on their quantum of shares held. The amount may be similar to the amount payable as a EO bonus, but is not an equivalent payment and the EO bonus should not be confused with, or termed as, a company dividend,

Trust Distribution

The only distribution to Beneficiaries of the trust is on the sale of any assets held by the trust company, ie on sale of all or some of the shares.

It should be noted that on the sale, any residual Capital Gains Tax (CGT) will need to be paid, either by the original vendors or the trust, depending on time of the transaction and period since the original sale. Tax is also payable on any Tax Distribution by the Company and the individuals in receipt of funds.

Recipients

In order to meet the equality principles of EO legislation all employees must participate in an EO bonus scheme. Exclusions can only be made for:

New employees up to 12 months;
Those under a disciplinary hearing, until the outcome is known and, if the claim is dismissed, their EO bonus is then payable;
Those employees who have resigned and are working their notice
Directors of the company.

Any exclusions must be incorporated into the written scheme terms.

Trust distributions are limited to trust beneficiaries as defined in the Trust Deed, and may include employees who have recently left the business. Beneficiaries will exclude those related to the original vendors or with direct shareholdings over 5%.

Frequency

EO bonus payments are made during each employment tax year (April onwards) aligned to profit from the previous financial year of the company.

Multiple payments may be made during the year either as and when profit is realised, or to stagger the impact on the balance sheet. However, care should be taken to not put the business at financial risk as a result of one off large bonus payments or as a result of staggered in-year payments.

Trust distributions are made only on the sale of shares, with no staggered distribution to beneficiaries.

Requirements

The terms of an EO bonus scheme must be documented, although it can be flexible enough to be adjusted year-on-year.

There is no requirement for a long detailed bonus policy, but written evidence of its existence must be available if payments are ever challenged for example by HMRC.

Any trust distribution, which by its nature is likely to be significantly more than an EO bonus distribution, should be:

Backed by professional external advice;
decided by the trustees, not the Company, and
Clearly documented to evidence alignment to EO legislation, principles of equality distribution and trustee discussion.

Further Thoughts

An EO Company may have additional bonus or incentive schemes sitting alongside the EO Profit Share, however, they should be clearly defined as separate schemes.

The terms of an EO distribution, whether it is an EO Profit Share or a Beneficiary Distribution, should follow the legislative guidelines in terms of equality.

This means that distributions should be made to all eligible recipients on an equal basis.

The calculation can only be made based on the same amount given to all, or a combination of one or more of the following calculated on a points basis:

Length of service
Hours worked
Salary.

Care should be given to ensure that certain teams or groups of individuals do not unfairly benefit from the distribution methodology to the detriment of others. The equality principle is a core principle of EO that should be front and centre in all calculations.

Conclusion

Too often employees associate the only benefit of EO as being the profit share. It isn’t and future EO Explained will delve into this topic further. But as a tangible, cash in hand benefit, it is very visible. As such, care should be taken to apply the legislation correctly.

Communicating EO bonus distributions as a share of the profit made by all employee contribution, can reinforce the benefit that all individuals get through their own, and their colleagues, hard work. It can form the basis of greater employee engagement and participation when calculated and communicated well.

All IDTs members have access to the IDT Toolkit which includes bonus distribution calculation tools available through them to our EO clients. If you would like to discuss this topic further, do get in touch with one of our trustees or contact us at info@directorsandtrustees.co.uk

Succession - An independent trustee view

Wed, 21 Jan 2026 11:35:27 GMT

Not just a tv series, or limited to leaders, succession should be seen throughout an organisation

Good succession planning is a key business differentiator, helping organisations mitigate the risk of disruption when key individuals inevitably move on.

While the sale to an employee ownership trust and a founder's exit are often called succession, they are only part of the picture and relatively near-term.

Trustees, who have a responsibility to protect the interests of both current and future beneficiaries, seek more—ensuring the company is not just managing the transition from owner-led to manager-led, but is also effectively overseeing a broader, strategic approach to succession.

Owner-led to Manager-led:

The process of founder succession is the opportunity to replace reliance on one leader with a broader leadership team, institutionalising diversity of thought and resilience.

It is a shift that can commence long before transition day, whether as natural growth and evolution, or in direct preparation for a founder’s exit.

Conversely, focusing on identifying one individual to take over when the founder steps back may simply transfer dependency from one person to another, and introduces a whole set of new challenges around personal incentives, permanence, connection and delivery for that and each subsequent appointment.

Strategic succession planning:

Hence strategic succession planning should be a continuous, rather than a reactive, process:

it identifies the competences required in key positions and spots early talent that can be developed and nurtured to create a pipeline of ready internal candidates well in advance of vacancies appearing, whilst also highlighting those likely to adapt quickly if new requirements emerge;
it requires team leaders and managers at all levels to recognise potential, supported by a culture that readily devotes time and effort into developing people as a matter of strategic investment;
it depends on a clear understanding of both the competencies and personal attributes needed in key roles, including technical or specialist positions, and how they are evidenced;

and, crucially, it creates choice when positions need to be filled – succession planning without choice is merely contingency planning.

From a trustee perspective, employee-ownership comes with an expectation of effective succession planning that, if not already embedded, is championed early as integral to the long-term stability, adaptability and prosperity of the business, and to its credibility as an employer where aspiration is actively encouraged and enabled to flourish.

When in place, good succession planning represents a significant and reassuring step forwards on the journey from owner to manager-led. It invokes confidence that the company is really looking to its future through a people strategy that demonstrates clear career pathways and a systematic approach to developing successors as a priority rather than discretionary or reactive activity.

This article was written by Simon Carter an experienced IDT independent trustee with content crafted from his own experiences within and outside Employee Owned companies.

New Year, New Strategy?

Mon, 12 Jan 2026 11:35:30 GMT

Having a long-term view with strategic actions to deliver against it, creates a shared direction of travel for the whole company.

With the start of the new calendar year many companies are reviewing and refreshing their strategy and strategic goals, both for their near-term business plan and for the longer term.

With trustee meetings in full swing with our clients, it’s an opportune time to look at company strategy with an eye in EO companies.

Why a strategy
Why is a strategy needed if more of the same works?

Too frequently we hear that the strategic goal is to do more of the same.
In many circumstances this may be enough, as long as it can cover current and future costs, and their inevitable increases.

Plus, it also needs to be able to accommodate headwinds. Will revenue be maintained if your sector is hit by unavoidable challenges? What if your competition starts to take your market share? What if more of the same doesn’t engage your employees sufficiently to make them want to develop their career with you, so you start to have high levels of attrition and can’t deliver?

Having a strategy won’t avoid the risks, but it can identify opportunities to grow away from these risks or identify actions to take if they do appear.

Recognising that having a strategy is beneficial, here are a few themes that we’ve seen arising with our EO clients that are worth a bit of thought.

Business Plan vs Strategy
Is your strategy actually your short term business plan and budget dressed up as a long-term strategy?

Nothing wrong with this, but be honest with yourself, and those in the business, that the current focus is on delivering in the short-term..

If you’re identifying and delivering against near-term headwinds and/or opportunities, that’s fine. Just don’t assume that you can keep rolling this over each year and believe you have a long-term strategy to underpin your future sustainability.

Operational strategy
Is your strategy more than 50% focused on internal foundations? Your internal processes, procedures and operations.
If so, are you deluding yourselves, and those around you, that having good systems, clear organisational structure, up to date perfect policies and procedures will be game changing for your long-term growth.

Having a robust foundation is critical. But it doesn’t deliver the growth that is needed to deliver against rising costs. And in too many cases it exacerbates the rising costs by introducing higher or new costs, such as new systems, use of consultants, or focusing customer facing people away from revenue generation and into system and process reviews.

Whose job is strategy?
Don’t believe that being EO and getting employee participation means delegating setting strategy to employees.
Boards are responsible for setting strategy then communicating it in a way that is understandable. Identifying and delegating the initiatives and actions needed to deliver it become the actions encompassing the wider team.

Having input into, and using employee insights in, strategic discussions is invaluable and all boards should seek this, not just EO boards. But this doesn’t mean the delegation of setting the strategy itself.

Equally don’t push it to trustees. The trust is the shareholder. They’ll want to see and understand your strategy.
They’ll challenge the decision making behind it. They’ll seek reassurances that other ideas have been considered, that there is a plan behind it to deliver, and that metrics and oversight is in place to oversee its delivery. They may also have additional insights that may help to further evolve the strategy but they don’t set it in the first place.

If you have a non-executive director on your board they should definitely be part of setting the strategy. Assuming they are appointed for the external perspective they can bring to your board discussions, they can also bring a different, often sector knowledgeable, perspective and knowledge that is invaluable.

But, if the board doesn’t set the strategy, nobody else will, and the whole business will lack direction and purpose, with no aligned goals to deliver against.

Long term strategic goals
What do you want the business to look like in 5, 7, 10 years?

Vendor loan repaid?
Founders exited?
Higher revenue? To cover increasing costs, or as a result of expanding of the business
Greater profit (not the same as revenue) to re-invest, share, distribute?
More products, services, locations, employees

Whatever your future looks like, picture it now, then identify the actions you need to deliver to get you there. That is your long-term strategy

Enabling Flexibility
Your strategy shouldn’t be set in stone. It needs to be able to adapt to changing environments, unexpected headwinds, changes of direction. But it should remain aligned to company purpose and be stable enough to allow time for initiatives to be delivered and contribute.

Vendor Loan
Too many times we see the vendor loan (deferred consideration) sitting outside the financial element of the strategy.
Repayment of this should not be seen as only required in the good times.

Vendor repayment is for the value of the shares at the time of transition to EO. The cost repays the time, energy, risk taking and entrepreneurship that has been put into creating a business with sufficient substance to have been sold.

Hence repayment of the VL shouldn’t be seen as a current cost but an obligation based on past deliverables.

Too often we see new management seeking vendor loan repayment delay to offset a lack of strategic delivery. Vendors pockets, like redundancies, should be low on the list of options..

Risk appetite
What is the current attitude to risk? Does it allow for sufficient strategic opportunities, or does it restrict the business too much?

A transfer of ownership under EO may also mean the departure of the founders entrepreneurial spark. Without this, what strategic options are available that meet the current leadership team’s risk appetite whilst also delivering long-term growth without putting long-term sustainability in jeopardy?

Concluding thoughts
Whether your strategy is a long detailed document, or a brief direction of travel, ensure it is communicated to all employees to they can move forward together.

Ensure it has deliverables that are tracked to conclusion, don't create a log-list of actions without accountability of purpose and delivery.

Consider one or two strategic focus areas and deliver against them, rather than a long wish list with nothing delivered.

Finally, ensure that strategy is a discussion topic at all board meetings. Operational oversight is the easy bit, strategy setting is difficult and sits with the board. It’s the presence of a strategy and direction of travel that defines a good leadership team.

2025 EO Budget Update

Tue, 16 Dec 2025 11:48:07 GMT

The November 2025 budget included changes to the taxation of EOTs, specifically a reduction in the amount of CGT relief available. Whilst the practical implementation of the changes are still being discussed, here we provide our insights into potential impacts from a trustee perspective.

The November 2025 budget announced the implementation of a 50% CGT tax relief, up from the previous 0% for any transitions completed after the budget.

The changes sent a ripple through the EO sector where a level of complacency had set in given the governments’ vocal support of employee ownership and its positive impact on businesses, and the breadth of changes that had been implemented after the 2024 budget, despite the current need to raise revenues.

Articles on the recent changes have been published, including this one from the EOT team at Geldards which explains the changes from a tax perspective: Changes to CGT on sales to EOTs

Elsewhere, the Employee Ownership Association has published an article on the changes and the steps being taken to clarify how they’ll be implemented, including their own call for input and a recent meeting with the treasury to discuss practical application. Take a look here: C GT R elief on the EOT One Week On – Your Questions Answered

Uncertainty over the timing of the CGT payments remains the missing piece at the moment and may, until clarity is given, curtail transitions.

Acceptance

Once the dust had settled, most were in agreement that a 50% relief applied to the vendors was proportionate, given the lack of tax relief for other forms of exit.

Companies we are working with who had been planning an exit in the next few months have stepped back, considered and most are still proceeding with their plans as, whilst the 100% CGT relief was a positive, it wasn’t the only incentive for securing a long-term sustainable future for their business.

Anecdotally we do know of some transitions that won’t take place, but maybe these are the companies, and vendors, that may have been transitioning for tax reasons only, and the benefit of being EO would never have translated into their increased economic contribution or long term sustainability of the business.

Complexity of Implementation

As mentioned, there will be further discussion and disclosure about how this will be applied. Speculation largely focusses on its application, when the tax will be payable, whether when payment is made both at outset and beyond trough deferred consideration or a vendor loan, or in full on initial transfer. The difference could make a significant difference, although may also serve to provide clarity between the option of a structured vendor loan or flexible deferred consideration.

An initial article on potential payment structures for the CGT written by Doyle Clayton can be found here: Ch ang es to EOT CGT relief and options for payment of CGT - Doyle Clayton

What this will create is a greater need for clear record keeping of payments by the company and the vendor. It may also require greater consideration of the ability to repay the deferred consideration and a more detailed valuation and repayment schedule by valuers at the outset.

The EO sector has increasingly been seeing the provision of 3rd party providers of funding for the transition, negating the need for deferred consideration and a tail of repayment to the vendors. Some of these providers are niche specialist providers, some are large lenders. Will the changes impact on the availability of such funding for EO transitions? For further reading, our previous article on EO funding at transition and beyond can be found here .

Our insight so far is that the funding remains available to those companies with a good financial track record and an achievable valuation, but will this change just as the availability of funding has started to widen?

Flexibility of Repayment.

Over the years we have worked with EO companies post transition, we have seen many amend their repayment profiles through early, late, delayed payments, payment holidays and amended repayment schedules.

Whilst good valuations are able to incorporate potential up- and down-sides, both external and internal impacts may change over the repayment period, especially where this may be long term repayment period.

There is also the aspect of interest payable on the deferred consideration, which is often discussed post transition, especially where high interest applies. We have seen interest rate increases included in repayment schedules after a period to encourage early repayment, or to source external funding to repay the deferred consideration through 3rd party funding once the business has transitioned and stabilized from the initial reduction in cash holdings.

Part of the clarity needed is on how tax will be applied to deferred consideration interest and, if applicable, compound interest.

Hence, the detail of how the CGT is payable post transition may impact on the ability of EO companies to react flexibly to repayment and may result in more complex financial calculations needed for companies seeking to make changes.

The outcome - more future work for tax advisers, and greater complexity for the often small, and financially constrained as a result of the repayments, EO companies that it applies to.

Unintended Consequences

CGT was never 0%, it was only deferred until a future further sale of the shares.

As we’ve stated before, EOT transitions shouldn’t be the starting point for a planned future onward sale, but things change, and a future decision to sell to a 3rd party out of the EOT should not be discounted.

EOT owned companies are also not immune to the interest of potential buyers, whether trade buyers looking to consolidate or looking to extend their market reach, or PE firms seeing the value of an acquisition in a particular sector.

In such an event, those companies who have already paid 50% will have a lower CGT payment on sale than those at 100% relief.

Those EO companies transitioning after November 2025 will now have a more attractive price tag of acquirers, with 50% of the CGT tax already paid. The residual is paid by the trust, although practically costed into the acquisition price.

The government has pronounced its encouragement of EO companies and research evidences their benefit to the economy in terms of sustainability, growth and economic input. Despite this, a potential unintended consequence may be the potential for acquisition or sale of EO companies, taking them out of this sweet spot of positive economic contribution.

Good for Employees

On a sale of an EOT company that transitioned prior to November 2025, depending on the timing of the sale post transition, either the vendors or the trust, pays CGT at 100%. This is based on the valuation at sale since the last sale of shares prior to the transition, which in many EO scenarios is when the company was incorporated, so may be a significant sum.

If the trust is paying the CGT, this amount is deducted from the proceeds distributed to the beneficiaries, reducing the amount available for those employees that have contributed to the success of the company.

Hence, the 50% reduction in CGT relief means that the residual proceeds for distribution will be higher as a proportion of the CGT has already been paid. A potential win for the beneficiaries in the event of a sale, and a potential reason why some employees, and their leadership team, may be more inclined to welcome (or seek) a sale of their EO company.

If you want to read more about EO sales, check out our article on the topic: Selling an E mplo yee Owned Company

Concluding Thoughts

The changes will not decimate the EO sector and the benefit that employee ownership brings as an ownership model in the UK remains.

These benefits include providing a guaranteed buyer, flexibility for vendors to stay or reduce or go as they wish, less cost and stress in the transaction, preserving company culture, more engagement, more secure jobs, long term sustainability of the business, etc.

They should remain a very popular form of exit for SMEs for the foreseeable future. It is still the best business succession tax incentive out there, although more vendors may want to use bank debt to get a larger upfront payment.

However, several potential EO transitions may now not materialise. The impact over time could be more businesses falling into leveraged PE ownership, which can lead to value extraction behaviour from otherwise stable and people-serving businesses, and more economic fragility during downturn/headwind periods. More widely, increased PE ownership could impact competition and lead to higher prices for consumers.

Hence despite the inevitable emotion surrounding the rate change, the bigger picture is that the government offered CGT relief for the sale of a business to an EOT primarily to promote employee-owned businesses as a key economic component, and it continues to do so. The national agenda clearly still supports all that the intended culture of an employee-owned business brings and, from a company perspective, only 50% of the gain is now "held over" in the event of a share disposal or disqualifying event - so businesses transitioning from now will be in a better position than those before.

The opportunity for EO companies to thrive and the sector to continue to grow remains. Vendors still benefit from a beneficial CGT relief for selling their company into a robust ownership structure that has the potential to create long-term sustainability for their business whilst providing them with recompense for their input into its success.

As trustees, we welcome the changes, albeit that the details on practical implementation are needed as a priority to ensure that transitions don’t curtail just as the benefit and growth of the sector is increasing.

Further Reading

If you’d like to read the changes direct, they can be found on the government website here: Ca pital Gains Tax — Employee Ownership Trusts relief reduction - GOV.UK

If you want to contribute to the call for evidence from the Employee Ownership Association you can find details here: Ca ll fo r Evidence: Share Your Employee Ownership Experiences with Government

The evidenced based research on the benefit of EO companies can be found on the Ownership at Work website at: E O K nowledge Programme - Ownership at Work

This article was produced from the input of IDT’s independent trustees, providing their own perspective in light of their experiences in the EO sector. If you would like to know more about our trustees our article can be found here Who Are Our Trustees? , or contact us at info@directorsandtrustees.co.uk if you are considering the appointment of your first or a successor independent trustee.

EO Founder Succession

Tue, 09 Dec 2025 10:12:59 GMT

Having a plan for founder succession in an employee owned company can help to take the emotion out of a people and personality led process. Whilst doing it well can lead to all parties having a successful outcome.

Successful employee ownership (EO) succession requires balancing continuity with careful planning and preparation. The process should maintain business stability while gradually transitioning responsibilities. A clearly defined and communicated purpose, set of values, and ownership model can guide the organization through the change, ensuring alignment and clarity for both founders and new leaders.

Here we introduce some key themes, emerging developments and related actions to help navigate this process:

Key Themes

1. The Importance of a Common Purpose:

Define a guiding framework for the business:

Purpose: The overarching reason for the company’s existence.
Values: Core principles that drive decisions and behaviours.
Ownership Model: How employee ownership functions in the organization.

Document the company’s purpose, aspirations, and history to maintain continuity and preserve the legacy of founders. Video recordings can be a practical way to capture this.

2. Maintaining Continuity:

The succession process should aim to feel like “business as usual.” A rolling 5-year plan provides structure and flexibility to adapt as needed.
Customer relationships and operational stability must be prioritized during transitions to ensure minimal disruption.

3. Gradual Transition with a Long-Term Break:

A transitional phase that incorporates a long-term break of a few months allows founders to step back while remaining available to provide support.
During this period:

Some employees may step up without he Founders influence being in place;
Some employees may opt out of leadership roles, as not all staff may want or be suited for leadership.
Founders can still be available if needed but, crucially, should not step in unless requested;
Founders can start to practically envisage, and plan for, their future after they leave, building their personal enthusiasm for their own future outside the business.

4. Thorough Succession Planning:

Begin planning well before the transition, identifying gaps in roles such as sales, innovation, HR, admin, and regulatory tasks.
Recruitment and development should focus on filling these gaps and preparing the next generation of leaders.
The long-term break is an opportunity to test and refine the decision-making process and ensure new leaders are supported.

5. Founders’ Role Post-Succession:

Founders must prepare for life outside the business by identifying new pursuits or roles to transition into.
The transition is smoother when founders have a clear path forward, reducing the temptation to interfere in day-to-day operations.

6. Avoid Incentive Misalignment:

Avoid introducing new incentive plans that could complicate the succession process or undermine the purpose-driven ethos of EO;
If implementing leadership incentives, ensure they are aligned to clear deliverables, are flexible enough to incorporate new appointees, and don’t include those who are not in a leadership or significant role;
Ensure any historical favouritism is left behind on transition.

7. Preserving Culture and Legacy:

Record the history and stories of the company and its founders to maintain a sense of heritage and identity;
Identify the core values that define the company;
Don’t set it all in stone, elements of this need to be able to flex and change as the business evolves.

Emerging Developments

1. Balancing Leadership Expectations:

Succession plans must account for varying levels of interest and capability among employees, acknowledging that not all will aspire to leadership.

2. Founder Involvement as Advisors:

Founders can remain involved in non-operational capacities, such as chairing the trading board, whilst empowering the new leadership to run the business.

3. Pragmatic Planning:

Succession plans should address practical gaps, such as regulatory compliance or administrative tasks, which founders may have managed in an ad hoc manner.

4. Gap Filling:

Be prepared to fill gaps if employees loyal to the Founder choose to move on at the same time and take this as an opportunity to review and refresh the skills needed in the future business.

5. Vision Alignment:

Ensure that all employees are aligned with the company’s Common Purpose helps smooth the transition and fosters a shared sense of contribution and alignment to the future business.

EO succession is a logistical, cultural and personal transition. A clear Common Purpose, detailed planning, and phased implementation ensures continuity and stability. Founders must embrace a supportive but hands-off role, empowering new leaders while preserving their legacy. By prioritizing clarity, alignment, and gradual handover, businesses can navigate the complexities of succession with minimal disruption and long-term success.

Amongst our independent trustees we have founders who have successfully transitioned their businesses to employee ownership and now share their experiences through their activities as independent trustees. If you would like to benefit from the combined experience and knowledge of IDT and its members, through the appointment of an IDT independent trustee or if you would like to know more, please email info@directorsandtrustees.co.uk

EO Explained: The EO Trust Board

Thu, 23 Oct 2025 11:11:12 GMT

In the second of our series of articles explaining Employee Ownership (EO) we introduce the role of the trust board and share some best practices.

Understanding the role of the trust board, what it is responsible for and, sometimes more importantly what it is not responsible for, can enable an EO company to function well with supportive oversight from trustees without contention between company board members and trustees.

Too often, a lack of clarity or understanding by both company directors and trustees creates friction and distrust to the detriment of the company.

This article aims to provide the basics of the role and its responsibilities.

The Trust Board as Shareholder

In its purest sense, the trust board is the majority shareholder of an EO company with a requirement to protect the assets it holds (the shares of the company) for the benefit of the trust beneficiaries (the employees).

As a majority shareholder, there are certain reserved matters which are either defined in legislation or company specific. Company specific reserved matters usually replicate those reserved for vendors and are as defined in the shareholder agreement that was signed at the date of sales of the shares to the trust.

As a minimum, reserved matters and approval by trustees, should be documented as an audit trail for future reference. Their presentation to trustees should be for discussion, for approval or for ratification.

The trust as a collective is the shareholder and individual members should ensure that they are contributing their personal perspectives whilst being mindful of the collective requirement to represent the interests of all beneficiaries as a class.

Trust Board Membership

Depending on the size of the Company, trust board membership usually comprises a combination of:

A vendor trustee;
A management trustee;
An employee trustee; and
An independent trustee.

The number of each reflects the size of the organisation, as well as its maturity as an EO.

Membership may also change over time and companies setting out on their EO journey should seek to have an initial trust board that supports their transition, with flexibility embedded to evolve membership alongside the evolution of EO within the business.

Specific requirements for membership are usually, though not always, defined in the trust deed.

Trust membership often changes once the shares have been fully repaid, with the vendor trustee stepping down, additional manager or employee trustees being appointed. This is also often an opportune time to reflect of the activities of the trust.

The Trust Board in Practice

1. Frequency of Trust Meetings

The majority, though by no means all, trust boards meet on a quarterly basis. Specifically:

Trusts tended to align their meeting cycles to that of the company board, the majority of which meet quarterly.
Where a company board meets monthly, the trust board may meet quarterly, aligning the date of the trust meeting to enable use of recent quarterly or monthly metrics.
This also reinforces the oversight role of the trustees, in support of the company board and reflecting the fiduciary nature of the role.
For smaller organisations where all employees may already have insights and input into operational and strategic matters, trust meetings may be more infrequent, often semi-annually or annually.

For more infrequent meeting scenarios, the trustee meeting serves to elevate the oversight function to future direction, strategic priorities and non-operational matters.

Those companies that have infrequent trust meetings may instead supplement them with ad hoc meetings as and when required. Where ad hoc meetings become the norm, a review and reflection on the need for more regular standard meetings may be beneficial.

2. Extraordinary Trust Meetings

Also known as ad hoc meetings, these are usually held to cover a specific topic which is time sensitive so cannot be held over until the next formal trustee meeting.

They are frequently topics which are specific to the organisation, but as examples, are often held to:

review and consider the bonus distribution policy and the methodology of its calculation;
to appoint a new statutory board members to the company board;
to maintain a dialogue between the company board and trustees, to discuss and agree significant matters so that they can be progressed between trust meetings or to reinforce company board decisions;
Raise significant employee related changes that are to be implemented, which can then provide the company board with an avenue to seek challenge of their proposals, adjust them based on the discussions held with trustees and enable trustee support when it is communicated with all employees.

Ad hoc meetings relating to significant employee related changes can be particularly invaluable where there is not an employee forum in place, with the trustees, reflecting their fiduciary responsibility, reviewing matters on behalf of all employees as a collective rather than as individuals or teams.

3. Decisions and Casting Votes

In line with UK company law, the Articles of the trust company defines how decision making is applied. Articles for trust companies usually also specify whether the chair of trustees has the casting vote when decisions are made.

In practice, we have found it rare for decisions to be taken to the trustees in isolation and without a clear background, justification, or informed guidance. Hence, not only are trustee decisions themselves a rare event, a contested decision or one that requires a majority decision is even more rare.

Informing Trustees

Trustee information is rarely fully bespoke to the trustees, and is predominantly either the same, or a subset of, the information that is used at the company board level:

Company updates at trust meetings are the primary means of trustees maintaining oversight of the current health and future prospects of the business.

In most cases, this takes the form of bespoke reporting by the CEO/MD who joins the meeting for that section of the agenda.

Whilst, as mentioned, trustee meeting packs often replicate company board meeting packs, they deliberately lack the insights that personal input or an oversight focused overarching board report can provide. Specific operational matters should remain at the company board level, unless they are likely to have a significant impact on the health of the business.

Care should be taken that the trustee meeting, by receiving the same information as the company board, simply duplicates the discussions held at the company board meetings, without any differentiating benefit.

Duplicating company board packs at the outset provides a beneficial way for trustees to understand the drivers of the business, especially those trustees who may be new to company reporting, such as employee representatives. Once mastered, the specifics of oversight on behalf of beneficiaries can be incorporated and prioritised.

It is as this latter stage develops that the differentiation between company board meetings and those of the trustees start to become both clearer and more beneficial.

Trust Meeting Attendees

Having a representative of the company board present to the trustees often serves to avoid a duplication of discussion across these two forums.

It can also be a useful tool in enabling any director or manager level trustee to attend trustee meetings purely as a trustee, and not as a presenter of the information.

Widening the attendance to other company board members beyond the CEO/MD also serves as a reminder that their position on the company board is in respect of the whole company not just their area of responsibility.

Attendance at trust meeting by other employees, or external advisers, can also serve to provide a different perspective of specific topics, or reinforce the information that is being provided. This is particularly beneficial in relation to strategic deliverables.

Examples that work well include presentations on the marketing strategy by those responsible for delivery, or project leads explaining their current projects and the benefit to the business that successful project conclusion will bring.

Reserving time at the end of each meeting for just trustee attendees enables an opportunity to reflect on the discussions held in relation to the purpose of the trust and agree any responses or further information required. This is also an opportunity to support less experienced trustees to ask questions or query content in a supportive environment.

Conclusion

The role of the trust was explained in our first EO explained article on the three pillars of EO.

This article expanded on the practical application of the trust as shareholder and oversight body in support of a sustainable business.

Having a trust board with clear parameters and purpose, can ensure that the company can focus on delivering success, with supportive shareholders aligned to the same goals and purpose.

Where there is a mismatch in understanding, the trust and the company board may be hampered in fulfilling their roles effectively. It can also drain resources from daily delivery and long-term sustainability which creates an issue for all employees of the company.

Successful relationships between the trust board and the company board can be beneficial to all concerned with members of each forum benefiting from the insights of each, in undertaking and delivering in their role.

Within IDTs members we have independent trustees who have experience of working with EO companies where the relationship between the company board and the trust board has become contentious. If you are in this situation and would like to have a confidential discussion on options, contact us at info@directorsandtrustees.co.uk

The content of this article has been collated from IDTs experience with EO companies and beyond, as well as from the results of a short research survey undertaken by IDT in 2022 on behalf of Ownership at Work and the Employee Ownership Association. The original survey findings can be downloaded from the Ownership at Work website: OAW-IDT-EOTs-In-search-of-best-practice-28-March-2022.pdf (ownershipatwork.org)

Principles of Good Employee Ownership

Thu, 02 Oct 2025 07:20:23 GMT

Relevant to all organisations, these principles have a particular resonance for those that are employee owned.

Employee ownership, through the legal construct of an employee ownership trust (“EOT”), creates an organisation that should deliver greater benefit for all stakeholders, particularly employees as beneficiaries of the trust.

However, how is this benefit defined and what are the core ‘Principles of Good EO’?

The principles must incorporate the breadth of the organisation, without which there are no shares to own and no roles for employees to fulfill. Taking this as the foundation, the core principles of a good organisation must then be expanded to include the opportunities created by having employee beneficiaries engaged and participating in the business in a way that is often not evident in non-EO companies.

When incorporated into the day-to-day operational activities of an organisation, these principles can deliver greater opportunities for a successful business. One element of this success, financial profit, enables an organisation to have choices about how this profit can be distributed – to employees, as reinvestment, to support wider causes, issues, activities and initiatives aligned to company purpose and the expectations of its shareholders, the employees as beneficiaries.

Those wishing to map their organisation against principles of good EO should consider the following 3 principles, the subsets of these principles in action and their interactions:

1. Inspirational Leadership

2. Collective Mindset

3. Forward Vision

Interconnected by Structured Collaboration

Inspirational Leadership

The company should have a leadership team that is inspirational, communicative and transparent.

The company should be headed by an effective board which is collectively responsible for the future direction and long-term success of, and continuous innovation within, the company.

The board should consist of the correct balance of skills and experience to allow effective operation. A clear division of responsibilities should be in place to ensure that one individual, or a former founder, does not have excessive power over decision making.

The board should actively seek employee insights to inform their decision making and leadership.

There should be transparent communication of business critical data and information.

Collective Mindset

Every company should have a clear set of values, understood and evidenced by all employees, that underpin the organisation and align to all aspects of the company and its behaviours.

All employees should display an owner’s mindset, delivering within their role as an owner, whilst working collegiately and supportively for collective benefit.

Engaged participation and opportunities for individuals to contribute to business success should be evidenced, encouraged, maintained, and utilised.

Every employee should understand their personal contribution to the success of the business, and where this aligns to that of the wider organisation and their colleagues.

Forward Vision

A clear future direction for the business should be in evidence and communicated to all.

All employees should understand the forward vision, where and how they contribute, and the progress being made against forward looking objectives.

All employees should have a formal opportunity to contribute to, and participate in, the forward vision of the company and its related activities.

Succession plans should be in place for significant roles, and opportunities for personal development should be available across the company.

Structured Collaboration

There should be a clear and documented governance structure that adds value and company benefit. It should differentiate the roles, responsibilities, deliverables, and authorities of the various forums in evidence across the company.

There should be clarity of where, when, and how:

The board as leaders;
The trustees as shareholders (representing the beneficiaries); and
The employees in their contracted role;

can contribute to the success of the business.

Clear and effective communication, interaction and collaboration between, and delivery by, these 3 groups should be in evidence within the company.

The governance structure should be reviewed for its continued effectiveness and positive business contribution on a regular basis.

These Principles have been collated through the extensive work IDT undertakes with their EO clients, as well as the feedback collated through the Governance Survey IDT undertook with the Employee Ownership Association and Ownership@Work, and the wider work of our independent trustees with EO and non-EO companies.

EO Explained: The Three Pillars Every Company Should Know

Thu, 25 Sep 2025 10:50:51 GMT

In the first of a series of articles explaining Employee Ownership (EO) we introduce the concept of the 3 Pillars of EO – the Company Board, the Employees and the Trust as Shareholder.

Understanding this model is key to having a structure that works together, understanding where responsibility and authority lies, without confusion or conflict.

If applied well it is a powerful model that provides clarity aligning the interests of employees with the success of the company, and underpins the future sustainability for the benefit of all.

The Three Pillars of EO

The concept of EO is built on three fundamental pillars: The Company Board, The Trust Board, and The Employees. Each pillar plays a crucial role in ensuring the effective governance, success and sustainability of the company.

1. The Company Board

The Company Board is a critical pillar in the EO model. It is responsible for several key functions that ensure the company's smooth operation and strategic direction. These responsibilities include:

Setting Strategy: The Company Board is tasked with defining the long-term goals and objectives of the company. This involves setting the strategy, and its components to ensure delivery. Without this element of leadership, the company may struggle to maintain a common sense of purpose, and not benefit form a direction of travel that all employees can understand, be part of and contribute to.
Managing Risk : Identifying, assessing, and mitigating risks is a crucial function of the Company Board. This ensures that the company is prepared for potential challenges, can mitigate them and can navigate them effectively when they arise.
Making Critical Decisions: The board is responsible for making significant decisions that impact the company's future. This includes decisions related to investments, mergers, acquisitions, and other major corporate actions aligned to the strategic goals that they have identified.
Providing Day-to-Day Operational Oversight and Management: While the executive and operational teams handle daily operations, the Company Board provides oversight to ensure that these operations align with the company's strategic goals, comply with any regulatory requirements and fit together.

It should be noted that executive members of the Company Board will have wider responsibilities in relation to their functional role and its delivery. These are actions that are deliverable outside of their role as a board member that, whilst providing individuals’ with deeper insights and knowledge of their specialist topic, do not form a direct part of the boards remit.

2. The Trust Board

The Trust Board plays a vital role in overseeing the company's governance and ensuring that their interests as shareholders, as well as those of the beneficiaries of the trust, are protected. The key responsibilities of the Trust Board include:

Oversight of the Company and Its Board : The Trust Board monitors the actions and decisions of the Company Board to ensure they are in the best interests of all stakeholders. This includes evaluating the board's effectiveness and holding it accountable, but crucially excludes decision making on behalf of, or direction to, the Company Board.
Protecting Its Shareholder Interests and Trust Assets: The Trust Board acts as a guardian for the assets of the trust (the Company shares) on behalf of trust beneficiaries, ensuring that their rights and interests are safeguarded. This involves overseeing the distribution of profits and ensuring that the company's actions align with the trust deed and maintaining and protecting the value of the shares.
Challenging the Future Direction: The Trust Board has the responsibility to question and challenge the strategic direction proposed by the Company Board. This ensures that the company's long-term plans are robust, well-considered and, crucially, delivered.
Utilising Purpose and Values : The Trust Board should understand the purpose and values of the company as defined by the Company Board, and ensure that these remain core to decision making.
Encouraging Employee Participation: The Trust Board should encourage the Company Board to understand and welcome employee participation to support their decision making, whilst simultaneously encouraging employees to contribute in a way that is meaningful and beneficial to the success of the business.

In an EO company the trust is a majority shareholder but not always the sole shareholder. Where there is a minority shareholder the alignment between majority and minority shareholders should be clarified in terms of responsibilities, authority, oversight, escalation and involvement.

3. The Employees

Employees are at the heart of the EO model. This pillar emphasizes the importance of employee participation and engagement in the company's success, and the legislative requirement for employees to have a ‘significant and meaningful’ stake in the business. The key aspects are:

Terms of Employment: All employees act under their terms of employment. This means that their roles, responsibilities, and benefits are clearly defined and aligned with the company's goals and values.
Beneficiaries under the Trust Deed: Employees are also beneficiaries under the terms of the Trust Deed. This means that they have a stake in the company's success, are entitled to share in the profits and benefits generated by the company made through the contribution that they make as a collective.
Participation in Decision-Making: Employees are encouraged to provide insights to support decision-making processes. This involvement supports the business and its leadership, ensuring that employees' voices are heard and their contributions are valued. Crucially they are not the decision makers, instead contributing their knowledge through their perspectives in their role.
Alignment with Company Purpose and Values: The involvement of employees in the EO model ensures that their actions and decisions are aligned with the company's purpose and values. This alignment fosters a sense of ownership and commitment among employees, driving the company's long-term success and sustainability.

Having a forum for employee voice may be beneficial, especially in larger organisations, but is not a requirement of the legislation and, if not implemented well, can become a distraction or negative influence on the business. Meaningful employee contribution is invaluable for leadership decisions and setting the future direction, creating the avenue for this input that aligns to the needs of the business is bespoke to each company and may evolve over time.

The Three Pillars in Action

For the 3 pillars to work in concert, there must be clear and common understanding of the roles, responsibilities and authority of each. Conflict between any two, or all three, of the groups can detract from the purpose of the company, often creating a downwards spiral that drives internal conflict to the detriment of all.

Creating understanding of each works well through workshops and facilitated discussions. Asking questions and setting scenarios for consideration. Ensuring that participants understand both the theoretical concepts, as well as their practical application in their company.

There is often benefit from having combined workshops between groups. Company Board and Trust Board workshops are particularly beneficial both early on in EO, but also as refreshers later on in the company’s evolution. This ensures that any potential conflict or misunderstanding between these two forums is aired and resolved to enable each to be effective in their role.

If there is an employee forum or representative group, having its members workshop all three roles can be beneficial in their understanding and creating ways for their contributions to move beyond social, wellbeing and benefits (tea and toilets) into business beneficial contributions.

Conclusion

The three pillars of EO—The Company Board, The Trust Board, and The Employees—are essential components that ensure the success and sustainability of the company. By understanding, embracing and communicating these pillars, companies can create a more inclusive and engaged workforce, ultimately driving long-term success.

IDT can facilitate workshops of the 3 pillars for EO companies. If you are interested in finding out more contact us at info@directorsandtrustees.co.uk

Long Term EO Business Sustainability

Wed, 27 Aug 2025 09:22:07 GMT

EO strategy discussions shouldn’t shy away from a change in shareholder structure.

Many in the EO community believe that EO is a panacea for all businesses and their long-term success. The employees are engaged, the business will thrive, the future is rosy.

Evidence from administrators tells a different story.

There is nothing to stop an EO company from falling on hard times, and sometimes it is not possible to recover from these. The status of being employee owned does not stop any of the issues that befall unsuccessful companies. Businesses and EO experts would do well to be mindful of this.

‘EO is not there to make a profit’

In another example of a purist perspective, a well-known figure in the sector once included in their presentation that ‘ an EO company isn’t there to make a profit ’.

To be fair, many in the audience raised their eyebrows, and the speaker is unnamed here because (maybe) it was a provocation to the audience for a bit of self-reflection.

As we all know, trade without growth is a future failure.

Transitioning to EO, then believing that the company will magically continue to meet its obligations without leadership, entrepreneurial spirit or a growth plan is wishful thinking. This is why succession planning for the company, and for its leadership, is so important, to ensure that the skills are available and being developed for the future business, not just current operational delivery and efficiencies.

As a minimum, growth is needed to fuel increased costs. It is also needed to be able to deliver the benefits from being EO that employees expect … career progression, training, long-term employment in a sustainable business, a share of the profit, etc.

EO companies and their leaders ignore the requirement for growth at their cost.

And if they fail to communicate the need for growth to their employees, they are doing the employees a disservice when they then expect employees to participate and contribute to growth, innovation and business development without understanding why it is important for everybody.

Moving to Non-EO Ownership

Buried amongst the questions about employee ownership on the EOA website is the following question ‘ Do companies ever stop being EO after they’ve transitioned? ’

The answer in both its brevity and its content is quite telling of the EO sector as a whole being:

‘ It’s rare, but sometimes businesses will undertake an onward sale. A small number have done so in recent years, normally with significant financial benefits for all employees involved .’

Purists believe EO is for life, not just for transition, and that any future exit to become non-EO is against all principles of the model.

In practice, it is not that simple. Employee ownership is an ownership structure and, like any other business, the business has to be sustainable.

To cover its growing costs, to keep meaningful employment for its employees to have a sustainable future, the business needs to look to the future and ensure that it can continue to trade.

The friendly tone to the EOA’s answer belies tough trading conditions, shies away from opportunities from selling and quietly tries to ignore a growing trend that EO companies evolve and mature like any other company, and their evolution may include a change in ownership model.

Disappointingly, it also implies that, if there is an onward change in ownership and sale of the shares, the employees will gain a 'significant' financial benefit. This slots neatly into the poor transition communication to employees that ‘don’t worry, it’s a small change and, in the future, when the business is sold, you will benefit financially.’

Not so in all cases, and whilst we’re a big believer in all options being on the table for discussion, setting an expectation amongst employees that a sale can only give them a positive, and ‘significant’, financial outcome, is setting false expectations for the future. If nothing else, the costs of the sale transaction plus the CGT that would need to be paid on an onward sale and their own personal tax obligations, can heavily impact the residual financial benefit to employees as beneficiaries .

It also creates ongoing uncertainty. Gone are the uncertainties around an individual founders’ future succession, instead a future sale is definitely in the plans creating a new uncertainty … but it’ll be sweetened so don’t worry. The majority of individuals don’t like change, how has this message reduced the fear of future significant change?

EO Mergers

Increasingly we’re seeing EO companies, and their leadership team, looking at their longer-term future and including a shareholder exit into the possibilities. It is not that exit is the only plan, but it shouldn’t be off the table in strategic discussions.

Equally, we are expecting to see mergers of EO companies being more common. Having been assured that a merger of two EO companies would not crystallise the deferred CGT (under current tax rules) shouldn’t this also be on the table for discussion?

Frequently vendors sell to an EO having heard about the structure and its benefits from contacts in their sector. At what point do those conversations move into the next stage of what next as an EO? Is there an opportunity for us to harness the good of EO, by protecting the future and becoming a larger entity with a broader remit and reach as a merged company?

Anecdotally, we have heard of companies transitioning into EO to crystallise at least some of the value through initial payments to vendors, with a future merger already in the plans. If the CGT is not crystallised, there is no reason to wait for the end of the vendor clawback period at the end of the 4th tax year following transition.

A pre-planned EO merger does assume that it is in the best interests of the beneficiaries of both companies. And it should be noted that the decision to merge post transition, is no longer a decision by the former owner in isolation of others.

Beneficiary Interests

As trustees we have to encourage discussions on future company sustainability, with nothing off the table. We also have to be open to the potential outcome of those discussions and the impact it may have on the wider business, both positive and negative.

In a word of caution – this is at strategic leadership discussions, not all employee communications or all-staff awaydays. Creating uncertainty by communicating what is an option, but not a decision, may not be in the best interests of the company or its employees.

Equally, a fire sale of a business is in nobody’s best interests, but may be better than a slow decline into closure. At least the former may protect the future for the majority of employees, the latter is less likely to.

Having a change of ownership through sale or merger should be part of any high level forward thinking strategic discussion, whether driven by desire or need. When to raise the topic with trustees depends on its imminence, and the membership of the trust board. In our experience, it is often a conversation between the leadership team and the independent trustee as a first step to gauge views and discuss options.

Concluding Remarks

We’re not advocating for sales of EO companies to be the norm, or for transitioning companies to have a pre-agreement to merge in the future, but equally the topics shouldn’t be off the table.

The EO sector is evolving, whilst the headwinds affecting companies are growing. We expect to see more EO companies exiting their ownership structure or merging with other EO companies. Our existing experience of exiting an EO ownership structure has been positive, when part of wider strategic discussions and not forced by circumstances or external pressures.

For further reading, our article on selling an EO company can be found here: Selling an Employee Owned Company

We fully expect to be able to share a similar article on merging EO companies in the future.

If you would like to benefit from the combined experience and knowledge of IDT and its members, consider appointing one of our trustees as your independent trustee. Whatever stage of EO you are at, whether you are a large or small organisation, are seeking your first, or a new or additional, independent trustee, we are sure we have somebody who could work with you for the benefit of your EO business.

If you would like to know more, or would like to schedule a confidential, no strings, chat about your independent trustee requirements, please email info@directorsandtrustees.co.uk

The Power of Employee Voice

Wed, 27 Aug 2025 09:01:39 GMT

Given the benefits, why wouldn’t you engage with employees?

In today’s workplace, employee voice – the way individuals express their views, raise concerns, and contribute to decision making – is increasingly recognised as essential for creating an engaged and high-performing workplace.

But its potential extends beyond wellbeing or welfare – when embedded effectively, employee voice becomes a potent resource that can enhance innovation, boost resilience, and usefully inform strategic thinking.

A critical aspect is the flow of information between employees and leadership. In well-functioning organisations, this flow is a regular, dynamic exchange, not one-way, and where word from the bottom, where employees interact with customers, suppliers or processes, is actively sought and brought into strategic thinking – leading to agility and better informed decisions.

This approach can be transformative, as it shifts a traditional top-down structure into a more participatory and collaborative environment where employees and leaders become co-creators of the company’s future. In an employee-owned business, there is the added incentive of sharing directly in the company’s prosperity.

Communication

For employee voice to be truly effective, it requires more than just people speaking up or being left to generate ideas. Leaders must ensure communication from the top is meaningful and the pretext for it is clear – there could be many different reasons why people need to know something: is it to solicit feedback, to broaden awareness, to reassure, or to galvanise effort? There should always be a conscious purpose or desired effect as a result.

The conversation up and down the organisation needs to be in ways that are timely, accessible, understandable and useful so that people are inspired to think and engage. Excessive, irrelevant or ill-thought communication can be as harmful as too little, and it is only by leaders routinely opening up to share what is on their minds that employees can calibrate where they may have insight or ideas that might be relevant, information that might be important, or areas where they can help.

Leaders are sometimes reluctant to share difficult information, fearing it will create panic or disengagement. This presents a further problem if only good news is ever communicated, and then communications dry up. Withholding information can often lead to worse outcomes such as speculation, mistrust and anxiety – reinforcing a them and us scenario.

Concerns about leakage of bad news are also real, but again need to be rationalised. Difficult news, when shared openly can actually trigger resilience, creativity and problem solving among employees who all have the same vested interests in the company’s survival. It genuinely treats employees as partners and shows them to be valued, trusted and respected, and a supportive response can help lift some weight off leadership shoulders.

If sharing company specific news is difficult, share concerns as sector or market challenges. Seek employee insights, suggestions and ideas on how to withstand external pressure, or move out of downturns quicker than competitors. Take it away from being company specific and draw on employee expertise in a more generalised approach, preferably when the need for these insights isn't critical.

Harnessing Employee Voice

A common question when considering employee voice is whether a permanent employee council is necessary. Whilst they can be a consistent platform, an employee council may not be the best fit or agile enough for every organisation if only meeting quarterly or semi-annually. Equally, if they lack purpose, or their output isn't welcomed, they can become a dry talking shop with no purpose or business benefit.

In some cases, smaller, bespoke committees or working groups set up temporarily to focus on specific issues may be more effective, operating in parallel with an everyday rhythm of communications up and down the functional chain and allowing a broader range of individuals to engage with different aspects of the business as and when appropriate.

Regardless of the structure chosen, skilled chairing and facilitation are crucial for these forums to be productive. They need clear standing agendas and terms of reference, or specific questions to answer, and agreed timelines and deliverables.

In summary, employee voice should be seen an everyday, natural part of the fabric of an organisation, not just as listening to employees for the sake of engagement. Harnessed correctly, it generates a positive impact that becomes real business intelligence, agility and advantage.

When utilised positively, it can help businesses backfill the entrepreneurial and innovative spirit that often drove their founding success. As ownership shifts, it can help to drive continued growth, navigate change, and remain competitive.

In conclusion, employee voice is not an activity, it is a strategic resource.

This article was written by Simon Carter an experienced IDT independent trustee with content crafted from his own experiences and his attendance at sessions on the topic at the EOA Conference in 2024.

Life (and EO) is Relationships

Tue, 22 Jul 2025 15:08:50 GMT

"Life is relationships, and the rest is just details" so stated Gary Smalley in his book, the DNA of Relationships, when he was focusing on a fundamental of business.

When the author Gary Smalley famously stated in his book the DNA of Relationships that “Life is relationships, and the rest is just details” he was focusing on a fundamental element of every business that we overlook at a great cost.

The most recent Gallup poll on employee engagement, Gallup 2024, found that in the UK only 10% of employees say they feel engaged with their organisation.

The main reason they give is not to do with pay or conditions but to do with the fact they don’t feel listened to.

Yet when talking to people in the EO world it’s curious how often the focus is on the legal and financial rather than the value of this very basic human need that we all have to feel understood, whether that is an employee, a Senior Leader, a new CEO or crucially someone selling their business.

The consequences can be significant.

Not just in missing out on the benefits of engaged employees but also of the losses of value from such potentially broken relationships between outgoing owners and new management, between executive boards and EOT trust boards, and between employee representative groups and both the executive board and trustees.

So, what can be done about this? How do we go about building relationships within our organisations that add, rather than take away, value from the bottom line?

It all starts by building an ability to understand the needs of all these varied groups.

So, what exactly are these needs?

A productive place to start to answer this question is a framework developed by Tony Robbins, one of the world’s leading thinkers on personal development, who in turn, based his framework on the work of renowned psychologist Abraham Maslow and the conflict scholar John Burton.

Maslow famously talked about a hierarchy of human needs, starting with basic elements such as food, water and shelter and working up through safety, love/belonging and esteem to, at the pinnacle, self–actualisation. Burton and others challenged this, however, suggesting that human needs are simultaneous, not hierarchical.

Robbins synthesised the positions, arguing that everybody is driven by a need to fulfil one or more of six basic human needs. While everyone has elements of all six, as we are all unique, the value that someone places on each will always be specific to them. Indeed, the emphasis can often shift as we go through life.

Robbins' six basic needs

Certainty – to feel safe, comfortable and secure. That things will unfold as imagined

Uncertainty – that life will serve up its share of variety

Significance – the sense of being special or unique to a group or someone, feeling wanted and that people care about you. This includes achieving things, solving big problems & building things

Connection – the feeling of connection to someone or something beyond yourself

Growth – the feeling that we’re making progress intellectually, emotionally, financially, spiritually and even physically

Contribution – the feeling that we’re part of something bigger than ourselves. Looking beyond our own needs, giving to others with no expectation of gain, and leaving a legacy.

Having defined them how can they be used practically in the context of the relationships that exist within an employee owned business?

The answer lies in using them as a lens through which to understand and assess the new, and changing key relationships created in the transition and ongoing operation of an EO company.

As an owner selling your business it means reflecting both on your needs and the needs of the new management beyond financial benefit. For example, how will the change impact your need for significance and contribution that has been met historically by being the boss.

Likewise, how might the new management reflect on their needs and that of the changing needs of the owner who has sold them the business. For example, how happy might a manager who had their need for certainty fed by being a member of a solid team led by the owner be feeling about the increase in uncertainty that comes from the responsibility of being in charge.

Equally how might various employees feel about the opportunities open to them with the new ownership structures. Who might be interested in the chance for significance and contribution, and who wants the same certainty that they had before.

Immense value can be created by understanding the changing outlooks of everyone involved. By the same token, ignoring them has the potential to create all kinds of destructive conflict.

To paraphrase "Employee Ownership is relationships and the rest is just details". We ignore them at our cost.

The Author

Craig Carey is co-founder of Bubble Chamber https://www.bubblechamber.net/ a business consultancy working with businesses in the 4th sector to create positive change by balancing impact with financial sustainability. Skills that directly align to the positive impact he can bring to employee owned businesses across all sectors and specialisms when acting as an independent trustee.

EO Sector Statistics

Fri, 20 Jun 2025 12:15:14 GMT

New data published by the Employee Ownership Association and the White Rose Employee Ownership Centre reflect the growth of the number of UK companies owned by their employees.

As of 2025, the UK Employee Ownership (EO) sector comprises approximately 2,470 employee owned businesses, keeping their profit internally rather than shared with external investor or owners. Between them they collectively employ around 358,000 individuals who benefit from having greater involvement in their business, whilst knowing that profit is either reinvested in their company for business sustainability and ongoing success, or shared with them as a profit related bonus.

In 2024, 560 transitions were recorded, whilst 2025 has seen 118 transition in the year to date (although there is a 3-6 month lag in reporting).

Since 2014, when the current legislation was implemented, the sector has grown by 1640% in total business count. So far, the numbers continue to rise reflecting the continued support of this company ownership model by the UK government, as evidenced by the updates to the legislation enacted in the October 2024 budget.

The sector remains predominantly made up of small businesses, which account for 65% of all EO businesses. However, selling into employee ownership is not restricted to founder sellers, or SME's. The model may increasingly be seen as an attractive exit option for a wider pool of company owners, especially when compared to the alternatives in terms of due diligence, time to exit and simplicity of structure. It is particularly positive when compared to a management buy out given the purchase options through longer term repayment funded by future company profit rather than personal finances.

The most common sectors for employee ownership are:

Professional, scientific, and technical activities 28%
Manufacturing 15%
Construction 14%
Administrative and Support Services 14%
Wholesale/retail 11%

In recent years, the fastest growing SIC group has been Construction, growing by 6580% between 2014 and 2025.

Independent trustees from IDT are appointed to companies in all these sectors providing support, guidance and expertise in this unique shareholder role.

The above data published on Employee Ownership Daye, 20 June 2025, is from the EOA and the WRCEO, UK EO Business register, May 2025.

For more information, visit their websites at EOA and White Rose Employee Ownership Centre

Leading an Employee Owned Business

Thu, 19 Jun 2025 14:05:18 GMT

Culture really does matter ... in this article the author invites EO leaders to think about culture and explore it with their employees by asking 5 key questions.

This article, authored by Barry Matheson an IDT independent trustee, explores leadership in an EO company through the lens of the culture of the business.

In the early phase after transitioning to employee ownership, there is much for management to consider. Ensuring that governance arrangements are working between the Trust Board and executive, establishing communication channels between employees and management, and creating a sound financial basis on which the business will thrive while remaining on track to repay the former owner on time are all crucial.

As is managing early expectation of entitlement versus clarity on responsibilities amongst the new employee owners – it is a tricky equilibrium to achieve so that enthusiasm for a greater say in the business doesn't compromise business strategy.

Putting in place visible mechanisms common within EO businesses, such as Employee Councils and having an employee on the Trust Board, might create the impression that the employee engagement box is ticked. However, those structures around communication and involvement will not, in and of themselves, deliver the benefit of greater employee engagement over time.

In my experience of over 30 years in the John Lewis Partnership, it never ceased to amaze me how different business units with the same formalised structures refined over decades could achieve fundamentally different degrees of employee engagement and consequent business success. In nearly every case, the common denominator was culture.

Consider these five questions in terms of yourself and your organisation, you might be surprised by what you discover!

Does Your Business Have a Clear Purpose to Believe In?

EO organisations should have a head start here if the vision and purpose of the business was captured as part of the transition to employee ownership. In some cases, this may be hard-wired into the legal documentation, but this is only beneficial if employees know what is in that documentation and their role in fulfilling it.

Agree on a common set of values that are intuitively understood and against which everyone’s behaviour is judged, not just words on a poster in the canteen.

Communicate that purpose constantly, either directly or in the language that is used and the behaviours that are displayed. This should be the purpose, the North Star the business is heading for that helps you ride out the ups and downs that will inevitably be encountered.

Be prepared to have your decisions challenged if your employees think management decisions conflict with that purpose and the benefits of ownership they rightly expect.

Are You a Role Model?

Employees look to leaders for clues on how they are expected to behave.

Engagement with ownership and its responsibilities therefore needs to start with those at the top, often through symbolic actions that demonstrate you are always “walking the walk”.

Do you behave in a way that motivates and inspires by providing meaning, optimism, and enthusiasm for the benefits of employee ownership?

Or do the pressures of leadership get in the way of good intentions? Invite your leaders to hold the mirror up to themselves, as individuals and as a collective, to explore the same question. Then ask your employees to hold that mirror for you and see if you get the same answers.

Whatever your role or seniority in an organisation, use that mirror to reflect yourself, your actions and behaviours, as well as how others may perceive you, before leaping to challenge others.

To What Extent Do People Have the Right Skills to Deliver the Purpose and Live the Values?

Do your leaders have the skills to lead employees who also own the business? Do they empower and coach for success, or do they achieve success through control?

Many leaders in small businesses acquire their position because of their technical skills, but success in an EO business also requires confidence in skills such as setting clear direction, coaching, empowering, and giving and receiving feedback.

Employees will thrive as owners if they understand the business’s inner workings. Consider training sessions and workshops that enhance financial literacy and operational knowledge.

Explain the bigger picture of how an organisation works, how the cogs within it interact and rely on each other. Reinforce how the actions of a single person or team can make the difference between success and failure.

Do Your Business Processes Reinforce the Culture You Want?

Organisational structures, symbols of hierarchy, and even meetings are just some of the things that will typically impact the sense of ‘how things really are done around here’.

Even with the best of intentions, leaders will have blind spots to things that can greatly impact employees’ commitment to the business.

Only through powerful questioning and keen observation will a skilled leader truly understand the positive and negative things that impact company culture and make ownership come alive.

DO you, as a leader, seek insights from employees in all roles and at all levels? Are you confident enough to incorporate these insights into your decision making? Do you thank those individuals for sharing their views, and provide feedback on how it has been useful in shaping your decision making?

Do You Make Ownership Personal?

Or is employee ownership only felt through structures such as employee councils and trust boards?

Ensuring that commitment to developing the right skills and adopting the right behaviours should be recognised and rewarded at an individual level, not just through collective structures.

Consider performance management, reward, and recognition systems in particular to ensure employees engaged in business success are recognised ahead of those who go through the motions.

Whilst employee ownership can herald a collective share of profit through an EO bonus, failure to address an individuals short-comings or failure to work within the values of the organisation can very quickly undermine the positivity ta EO can create.

So share profit equitably, whilst addressing issues individually.

Barry Matheson had a successful 30-year career in the John Lewis Partnership before becoming a leadership consultant and non-executive director. An operational leader at heart, he has extensive experience of developing leadership teams and saw the difference it makes when leaders put culture and people ahead of process to deliver sustainable business success. He brings this expertise and experience to his role as an IDT independent trustee to employee owned organisations.

Trustee Perspective - Experiencing Transition

Wed, 21 May 2025 15:30:42 GMT

Introducing the perspective of one of our independent trustees on Employee Ownership (EO) in practice and EO more generally.

Through personal knowledge, the author, Ruth Baker , considers how her own journey into EO underpins her value as an independent trustee and shapes her perspective when working with those companies transitioning to Employee Ownership (EO) as they move into a new ownership model.

What is your professional background, and how does it inform your approach as a trustee?

I began my professional career in support functions, where I developed a strong foundation in business operations. My ambition led me to pursue a degree in Business Management, which opened opportunities to advance my career and work closely with a Board of Directors committed to transitioning to EO. Facilitating this transition gave me deep insight into the many facets of successful EO, enabling me to take a holistic approach to the role of trustee.

With a well-rounded perspective on business challenges from all angles, I am well-equipped to support and enhance the benefits of EO within an organisation. I have worked across locations, both in the UK and internationally, at all levels and enjoy the interactions I have with a diverse group of individuals..

What are some unique aspects of your approach that differentiate you from other trustees?

I’ve had the privilege of experiencing the transition to Employee Ownership from both a director’s and an employee’s perspective. Navigating the fine balance between making the right decisions for the business and ensuring the best outcomes for valued employees has given me a deep appreciation for both sides of the equation. This dual perspective enables me to take a thoughtful, balanced approach to my role as a Trustee, ensuring that both business sustainability and employee interests are carefully considered.

At which stage of the EO journey can you provide the greatest value?

My experience enables me to support transitioning organizations in building a strong foundation for their EO journey from the outset. As an independent trustee at this early stage I can utilise and share my experiences so that others can craft their own journey, and identify their own priorities, with my support.

Involving an Independent Trustee early in the process is essential for shaping governance, embedding a lasting EO culture, and fostering fair, effective decision-making and communication between leadership and employees. With the updated legislation requiring trustee validation of the financial valuation it is now even more important to have an experienced trustee as part of the early discussions.

I can help guide on priorities and alleviate stress and anxiety in sellers and leadership teams who are frequently overcome by the breadth of the challenge and opportunity they have taken on. As an external contact I can provide calm reassurance, especially at a time when the transaction may not be widely communicated and the sellers may be working in a bubble of discretion and confidentiality.

With an objective and balanced perspective, I provide strategic guidance while maintaining independence from executive management. As a critical friend to leaders, I offer valuable external insight, helping to navigate challenges and leverage opportunities that drive both business success and employee engagement. Having been through the transition process myself I can share experience and lessons learnt elsewhere with companies that have a wealth of experience in their business and sector but no EO knowledge or understanding. I can sit alongside the transaction advisers bringing practical experience of implementing the legal requirements.

I also recognise the growing demand for businesses to cultivate an environment where employees feel a true sense of purpose and have a meaningful voice in decision-making. A strong advocate for transparency in business, I believe a well-executed EO model can be a powerful force for good, aligning with the Social Value agenda and creating longevity for the business itself and lasting positive impact more widely.

The IDT Difference

IDT supports independent trustees to recognise, value, use and share their own unique personal experience and expertise in delivering in their role for clients.

Our in-house EO Toolkit supports our trustees by providing practical tools, materials and knowledge to enable them to be an invaluable partner on the trust boards to which they are appointed whilst ensuring that they have the EO knowledge needed to deliver in the role.

Our in-house trustee networking, centered around monthly knowledge sharing, enables our trustees to share their knowledge and challenges with each other to gain from the collective expertise available by being part of our network.

Ruth is one of our team working as independent trustee through IDT, bringing her unique perspective, experience, knowledge and personality to her appointments, as well as an ability to share her knowledge in an advisory and consultative manner. To find out more about the breadth of this knowledge, as well as that of our other independent trustees, read our article introducing our trustees: : https://www.independentdirectorsandtrustees.co.uk/who-are-our-trustees

The Author

Ruth Baker is a personable and supportive trustee with broad senior level experience of organisational functions, compliance and people development. She has recently left a large international architecture, master planner and heritage practice that successfully transitioned to employee ownership and she now uses this experience, and her wider business knowledge, in support of her IDT clients.

Leveraging EO for Commercial Success

Wed, 14 May 2025 14:58:06 GMT

Can being an employee owned business make a commercial difference, and if so, how? What are the key differentials and levers that can be pulled to benefit the business and its employees? How can it become more than just a logo?

This article, authored by Simon Carter an IDT independent trustee, provides a summary of the general impressions, themes, and ideas shared in a session entitled Leveraging Employee Ownership for Commercial Success.

It has been enhanced and expanded with additional insights gained from the experience of IDT with our own EO clients and our wider EO network.

Introduction

Consumers are more discerning than ever, they not only care about the quality and cost of products and services, they also want to know the values that underpin brands they choose to buy from. Employee-owned companies should have a natural edge in this area if perceived as ethical, transparent and committed to long-term relationships – moving from simply a profit-generating entity to a business with higher purpose and human connection.

At the same time, employee-ownership naturally brings a human element to the forefront of your business that could be powerful where an owner mindset translates into customer service, enthusiasm and a vested passion for the brand, company and its products or services. That pride and passion often translates into a more personal service for customers and shouldn’t be under-estimated in a world of online indifference and impersonality.

The Human Element

A direct stake in the company’s success can also create a level of pride and care that resonates with consumers looking for authenticity and a more personal touch (people buy from people), and it can create a level of collaborative spirit, initiative and problem-solving that translates into agility and customer service (people buy from companies that work with them to fill a need or solve a problem).

An owner mindset can subliminally create a positive experience for those who deal with a company - if employee-owners are prepared to ‘go the extra mile’ for each other to ensure business success in the course of their everyday activities, they are likely to do so for their customers as well.

When done well, employee-ownership encourages strong internal communication and awareness across all levels of the organisation, which in turn creates agility and unity of effort. It also empowers employees to identify and take opportunities or act. This can all combine into a competitive edge.

And because employee-owned businesses are not solely driven by shareholders and profit, they often stand out in their commitment to social responsibility – their view of success can often be more holistic and this shift in the dynamics of how the company thinks leads to more strategic decision-making as well as reassurance that the company will be around for the long haul.

In Summary

Employee ownership is not just a business model, it is a powerful way to shape a company’s culture and build a distinctive brand with a unique story.

The company is anchored in a mindset that everyone is an owner, in the way they think and interact with others and in their alignment with company success, which can translate into a powerful message, reassurance, and a strong customer experience.

And the same internal factors that are evidenced in above average performance can translate directly into differentiators in the marketplace.

With so many inherent advantages and everyone in the business on equal terms as a brand ambassador, it is surprising that more company’s aren’t explicit on why employee ownership is a differentiator – it’s more than just a logo on your website, and worth shouting about.

Final Impression

This informal breakout session was a useful reminder that when employee ownership works well it can underpin many parts of an organisation including customer interactions with employees. Processes and procedures won't bring it to life, but engaged enthusiastic, loyal and proud employees will.

These notes were produced by Simon Carter, an IDT independent trustee, from his attendance at a breakout session entitled ‘Leveraging Employee Ownership for Commercial Success’ at the Employee Ownership Association annual conference in November 2024.

Content gained from the session has been expanded to include knowledge that IDT has gained through working with over 50 employee owned businesses across a number of sectors, including large and small EO businesses, from transition through EO evolution to beyond financial freedom day.

Simon is a governance expert with a strong interest in employee ownership. He is appointed as the independent trustee to a number of EO companies across a diverse portfolio, as well as being a non-executive director on the board on non-EO companies.

Leveraging EO

Mon, 14 Apr 2025 09:54:49 GMT

Employee ownership can represent a transformative opportunity for businesses to align the interests of their workforce and leadership, fostering shared commitment and long-term stability whist delivering benefit for all.

Employee ownership can represent a transformative opportunity for businesses to align the interests of their workforce and leadership, fostering shared commitment and long-term stability. By prioritizing the principles of collaboration and mutual investment, companies can unlock tangible benefits that extend far beyond the financial.

To generate full benefit from EO there needs to be clarity of purpose and future direction, as well as an understanding across all employees of both the potential benefits as well as the expectation of their contribution.

Here we identify a few of the advantages of EO.

Driving Engagement and Commitment

One of the standout advantages of employee ownership is the way it empowers employees. When they hold a meaningful stake in the company, their day-to-day work directly contributes to its success, creating a stronger sense of accountability and purpose. This commitment often translates into higher engagement levels, as employees feel personally invested in achieving goals and driving innovation.

Key to delivering against this is explaining where and how each individual, and their role can, and does, make a difference.

Building Resilience for Economic Challenges

Employee-owned companies are uniquely positioned to navigate economic uncertainties. The shared ownership model fosters a collective spirit that can strengthen a business’s ability to adapt and endure. Resilience is built not just through financial stability, but through the unity and determination of a workforce working toward common objectives.

This resilience will not mean that tough decisions will not have to be made, but it should mean that such decisions are made from a wider perspective than pure financials. As such, these businesses are more likely to weather external impacts without resorting to lay-offs or shrinkage.

Attracting Talent and Retaining Expertise

In competitive industries, the promise of employee ownership can serve as a compelling incentive for recruitment and retention. Offering equity or ownership stakes sets businesses apart, providing a tangible demonstration of their commitment to employee welfare and growth.

For those seeking long-term career opportunities, employee ownership usually translates into offering in role development and investment in people, making it an attractive proposition.

Strategies for Effective Implementation

To make the most of employee ownership, businesses must focus on several key strategies:

Embedding a Collaborative Culture : Encouraging open dialogue and transparent communications reinforces the principles of ownership, driving both engagement and innovation.
Educating Employees : Ongoing education and training ensure employees are equipped to make meaningful contributions to the company’s performance, and commit to a long-term commitment to stay.
Strategic Goal Alignment : Clearly defined goals that align with business goals can help employees and leadership work harmoniously toward shared objectives.
Monitoring Performance : Using metrics to track the impact of employee ownership ensures businesses can refine their approach over time, identifying further opportunities and maximizing benefits for all.

A Model for Sustainable Success

Leveraging employee ownership is not just about reshaping company structures - it’s about fostering a new mindset, one that prioritizes collaboration, resilience, and shared prosperity. By embracing this model, businesses can position themselves as leaders in sustainable growth, innovation, and employee empowerment.

If you would like to know more, or would like to schedule a confidential, no strings, chat about your independent trustee requirements, please email info@directorsandtrustees.co.uk

Trustee Perspective - A Vendors View

Tue, 08 Apr 2025 08:29:11 GMT

Introducing the perspective of one of our independent trustees on Employee Ownership (EO) in practice and EO more generally.

Through personal knowledge, the author, Tony Marks , considers how his perspective as an entrepreneur and vendor of a business sold into employee ownership, shapes his perspective and his contribution as an independent trustee.

What is your professional background, and how does it inform your approach as a trustee?

I have 30 years of Board experience, working for organisations as large as BT PLC and as small as the two start-ups which I grew and subsequently sold - the most recent sale being to an Employee Ownership Trust. I have a commercial background with sales and marketing experience, as well as subject matter expertise in project management, including authoring and co-authoring books in this field. Academically I have an MBA, am Chartered Manager (CMgr) and a Fellow of both the Chartered Management Institute (FCMI) and The Association for Project Management (FAPM). This practical and theoretical knowledge and understanding supports my contributions to the trust boards on which I am appointed, as well as my interactions with the leadership teams in these EO companies.

Apart from understanding what it takes to start and build companies with multi-million-pound revenues, I have been through the EO journey successfully as a Vendor - obtaining the full market value of the company I and my co-founders created, whilst propelling the company into an exciting new phase of high growth that benefits all the employees now and in the future. Through this journey I gained an unrivalled understanding of the art of balancing the needs of vendors and the needs of employees. This can and needs to be a win-win equation, ensuring that the vendors get paid for the value they have created, whilst ensuring the long-term sustainability of the business and security of employment for the employees.

Where do you add most value to a trust board?

The Independent Trustee has a unique role in balancing the needs of the Vendors until they have been fully paid and ensuring the long-term sustainability of the business and employee engagement in the business they now own. This can and should be mutually beneficial. This role needs the experience of someone who has been on the full journey , understands the issues that can arise, and promotes the constructive and inclusive approach needed to complete the journey successfully.

My background and experience in governance roles, within businesses, EO Trusts and Academia, brings a unique insight to any EOT. Understanding the difference between governance and management responsibilities is key to guiding new Trustees in their role. By helping develop a positive and constructive spirit between vendors, management and employees working collaboratively , I bring a tangible additional value to any EOT as an Independent Trustee. My experience with several EOTs, alongside my membership of IDT, also ensures that the statutory responsibilities of the EOT and adherence to the Trust Deed and other relevant legal documents are maintained.

How do you view Employee Ownership?

Employee Ownership isn’t for everyone. I believe in ‘ Good EO ’ – doing it for the right reasons and for the benefit of all parties. This philosophy is fundamental to what I believe makes EO work successfully.

Put simply, employees who feel like they co-own the business they work in are more engaged in delivering within their business and making it great. This leads to improved efficiencies, greater commitment and an inclusive team-based approach to problem solving. Of course, management is still running the business but sharing the challenges and business strategy and linking this to individual and team contributions make an incredible difference to business performance.

Engaged employee owners will see gradually improving benefits, beyond the tax-free bonus permitted by HMRC, when the business is performing well. Vendors who believe in Good EO can unleash the full potential of the employee-owners by engaging them in the business mission. This can lead to early re-payment, improved terms and conditions and a stronger business into the future. EO is a unique environment where everyone can, and should, win.

The IDT Difference

IDT supports independent trustees to recognise, value, use and share their own unique personal experience and expertise in delivering in their role for clients.

Tony is one of our vendors working as independent trustees through IDT, all bringing their unique perspective, experience, knowledge and personality to their appointments, as well as an ability to share their knowledge in an advisory and consultative manner. To find out more about the breadth of this knowledge, as well as that of our other independent trustees, read our article introducing our trustees: : https://www.independentdirectorsandtrustees.co.uk/who-are-our-trustees

The Author

Tony Marks is a project management expert, author of books on the topic and an experienced board member. He transitioned his own business to employee ownership in 2018 and is about to step down as a Founder Trustee. He works with IDT clients as their independent trustee across England and Scotland.

EO Legislation Update

Mon, 24 Mar 2025 14:54:15 GMT

With guidance on recent Employee Ownership legislation due to be published soon, now is a good time to recap the changes that were outlined in the October budget and that were largely supported by the EO sector. Here we republish an article written by one of our IDT independent trustees.

In its first budget announcement after its election victory in 2024, the Labour government increased the rates of capital gains tax (CGT) in relation to the sale of shares but has maintained CGT relief for sales to EOTs. This is good news for employees as well as business owners who will continue to benefit from tax free sale proceeds provided they comply with the qualifying conditions.

However, a number of changes were announced in relation to EOTs that are currently being finalised and, once confirmed, will be back-dated to take effect from 30 October 2024:

HMRC reporting requirements

Tax advisers for the selling shareholders are now required to include more information to claim CGT relief on the sale proceeds including the number of employees of the target company at the time of disposal and the purchase price payable.

Control of EOT

Selling shareholders (and persons connected to them) are now prevented from directly or indirectly controlling the EOT, either as chair or through a majority of members of the trust company. This is expected to result in the appointment of more independent trustees and employee representatives to trust company boards.

No similar restriction has been placed on the selling shareholders in respect of the trading company.

EOT tax residency

The trustees of the EOT must now reside in the UK at the time of disposal, so no offshore trusts permitted.

Market value

Trustees must take “all reasonable steps” to ensure that the purchase price paid for the target company is “no more than market value”. Independent valuations are therefore recommended, as is appointing trustees early in the process so they can properly consider and take appropriate actions. A second valuation for trustee validation may be beneficial in certain circumstances.

Tax treatment for EOT expenses

The government has confirmed that contributions made by the trading company to the Trust in order to pay the selling shareholder for their shares will not be treated as distributions for tax purposes. This would include associated Stamp Duty, any interest payable at a reasonable commercial rate and Trust expenses. This would only apply if the consideration paid by the trustees for the shares does not exceed the market value for those shares (see above).

Extension of “vendor clawback period”

The government has extended the period in which HMRC may withdraw CGT relief for the sale proceeds to the end of the fourth tax year following the end of the tax year of disposal of the target company if a “disqualifying event” takes place. In effect, any onward sale of the trading company during this restricted period will crystallise a CGT liability for the vendors.

Tax free bonuses

The government has confirmed that tax-free bonuses of up to £3,600 per employee may now be awarded to all participating employees without directors being included. This ensures that non-payment of company bonuses to vendors who remain as a company director will no longer breach the equality requirements.

This is the only measure included that is applicable to EOTs that were in place prior to 30 October 2024.

Conclusion

The previous government consulted on many of these changes so they were not unexpected, but it is important to fully understand the proposed changes to avoid a disqualifying event which may lead to withdrawal of your CGT relief.

These changes do provide clarity on Employee Ownership as a viable exit solution with preferential tax treatment compared to a trade sale or private equity investment. However, sales to EOTs are not a solution for a company already in financial distress.

A version of this article was originally published in November 2024 by Keystone Law https://www.keystonelaw.com/keynotes/what-changes-are-being-introduced-for-employee-ownership-trusts .

The author, Andrew Bretherton, is a corporate lawyer with Keystone Law, and an independent trustee with IDT.

Trustee Perspective - Effective Conversations

Fri, 14 Mar 2025 10:32:48 GMT

Introducing the perspective of one of our independent trustees on Employee Ownership (EO) in practice and EO more generally.

The author, Craig Carey , reflects on his career experience and how communication in any organisation, and particularly an employee owned business, can underpin success and achieve sustainable impact.

What is your professional background, and how does it inform your approach as a trustee?

The 28 years spent working in a wide range of sectors as a coach and consultant – financial services, small business, international development, charity, social enterprise and employee-owned businesses - have led me to the conclusion that behind all the best decisions lies a clarity of purpose and values.

This means always focusing on defining the why – not just of the organisation but also how that relates to the purpose of the particular situation. Then once this is agreed, applying a clear set of behaviours or values to every conversation. It offers a consistent framework for all debate, improves decision making and saves so much time and energy wasted over confusion and disagreement.

A clear purpose and set of values are especially helpful when facilitating the relationship between employee owners and the leadership actively looking to engage employees in the ongoing sustainable growth of their business.

As an example, my approach as an independent trustee will always be grounded in my purpose to enable leaders to have the clarity they need to achieve sustainable impact and 4 fundamental values that drive my own business and its decision making – passion, challenge, collaboration and creativity.

Passion – for its leaders and people to make a real difference and impact
Challenge – to maximise the positive potential of the situation for all
Collaboration – firmly believing that businesses are more effective when they collaborate
Creativity – to work hard to remain open to different ideas and commit to take personal responsibility to finding new effective solutions to problems

What are some unique aspects of your approach that differentiate you from other trustees?

As a business coach and trained mediator, I very much believe in the quote from the American Author Gary Smalley:

“ Life is relationships; the rest is just details ”

This means that rather than seeing organisations through a traditional organisational chart, I picture them as an active network of hundreds of relationships between people. Put simply, the more positive and productive those relationships, the more value they create for both parties, as well as the organisation.

On that basis my approach to being a trustee focuses more on how to enable people to have better, more effective, conversations than perhaps someone who comes from more traditional corporate background.

Fundamental to all of this is developing and applying the principle of ‘ understand first ’ … spending time to focus on the needs of the employees in the context of the strategic plan before challenging or seeking to be understood.

This is especially important when it comes to highlighting the sources of conflict that it is crucial to resolve, and even transforming them into value for an organisation. Coupled with my role as a trained mediator, I support organisations either directly or training people to manage and resolve conflict when it occurs. Conflict can be big or small – but always comes down to this definition of conflict when - “ people perceive, correctly or not, that something they care about is being threatened or denied. ”

At an employee owned organisation this can be due to big things such as the move to EO, or founders not letting go, or something small (dare I say it, a lack of biscuits!). Regardless, apply the tools that can get to the source of it and teaching others to do so, can be invaluable within the arsenal of a Trust Board and an employee owned business.

Why is the need for effective conversations so important in making EO work an organisation?

As an independent trustee I believe that alongside ensuring compliance of the EOT, my role is to support/challenge 3 key sets of relationships that can often cause unhelpful friction in any new or existing EO organisation:

Between an owner selling and the new leadership
Leadership engaging employees effectively in an EO culture
Building an effective relationship between the Trust and the Company Board

All three will benefit from every party being able to build strong relationships by having constructive and effective conversations. To understand the “other”, to be able to challenge that understanding without judgement and conflict, and be able to feel understood with ease.

That’s where a conscious focus on learning and applying the skills of Effective Conversation can be so beneficial and effective. Creating a dialogue between the transitioning owners and the new leadership, highlighting how to focus on the needs of employees can be more productive than simply broadcasting to them and, finally, building the confidence of employees to engage senior people on a one-to-one basis.

Simple conversations can be very powerful stuff.

The IDT Difference

IDT supports independent trustees to recognise, value, use and share their own unique personal experience and expertise in delivering in their role for clients.

Craig is one of over 20 independent trustees working through IDT, all bringing different perspectives, experiences, knowledge and personality to their appointments. To find out more about the breadth of this knowledge read our article introducing our trustees: https://www.independentdirectorsandtrustees.co.uk/who-are-our-trustees

The Author

Company Values

Sun, 02 Mar 2025 00:00:00 GMT

Why defining the values of your organisation can be beneficial, and how they can underpin positive EO culture

There is frequent commentary on the culture and ethos of an organisation. However, these are often intangible and difficult to define or identify in a way that adds meaning. Considering and agreeing defined values can underpin and define the culture, as well as setting clear behaviours that can feed through everything that makes an organisation great.

What are values?

Company values are usually a set group of behaviours that are defined to underpin the organisation and those that work within it.

Often they describe behaviours that there is an expectation that all individuals showcase, or that bind all employees together. But when aligned to the wider organisation, the actions taken by teams and individuals aligned to collective values can create a powerful cohesion.

Values and Employee Ownership

In an EO company, values can play an important part in defining and guiding the business.

As founders depart, their legacy, evidenced by the values, can be a core part of creating stability for the business and its employees through this period of a change in ownership. As the business then continues to evolve, the values can be a core connection to the past and a stable springboard for the future.

Post transition, values based decision making can maintain this stability as well as enhance the effectiveness of the communication, implementation and outcome of decisions.

For example, if an increased investment in learning and development is identified as an agreed decision, this can be seen as a positive if that company has career development and personal learning as a value, even though it may impact on the availability of profit to share. There is a perceived greater good from the decision to invest in learning, aligned to actions that encourage all employees to develop. There is also a tangible benefit to increased revenue in the future due to the higher level of skills of those who have benefited from the training, thus supporting future profit.

LIFELONG LEARNING as a company value in action can encourage individual development, team collaboration, knowledge sharing and a company-wide focus on identifying the multiple ways that individuals at all levels can continue to challenge themselves, expand their knowledge and develop their skills through formal and unstructured learning.

How can Values help an Organisation?

If values correctly reflect the expectations of individuals within an organisation, they can touch a number of areas.

Recruitment processes can utilise values to assess candidates own values, identifying those with aligned personal values to the organisation. By doing this, the individual is more likely to feel included in the organisation, and will thus thrive and be successful. Behaviours are inevitably more difficult to change than actions and application of processes.

Role deliverables can be aligned to the values, ensuring that each individual has a clear connection to the values through the activities that they undertake in their role. In some organisations values and their positive application is a defined requirement in career development, development plans and personal appraisals.

Leadership decision making can, and should, be based on the values of the organisation. Through this lens their decisions are more likely to be understood, accepted and supported by those who work to, and with, the values.

Cross company teamwork can be better undertaken, and have more opportunity to be successful, if consistent values and behaviours are showcased, despite individual teams having different deliverables or being at a different stage of the company delivery chain.

TEAMWORK as a company value, can be particularly powerful, both within delivery teams, and across the business. Implementation of working groups to enable employee participation in their business can create strong bonds across an organisation and can serve to reduce working silos whilst generating fresh ideas from different perspectives.

Individual vs Company Values

Aligning personal values to those of the organisation in which an individual works can be invaluable, for both the person and the company.

Similar behaviours, ethos and values can lead to a better enjoyment at work, thus a greater connection and delivery. Work becomes a pleasure not a chore.

But if they’re not aligned, work is just that “work” … rarely a positive and enjoyable experience.

INNOVATION as a company value, particularly in a creative environment, can generate opportunities, underpin initiatives, be woven through internal communications and external marketing, drive project creativity and underpin interactions with clients.

In a number of businesses we work with, workshops have been held to review and update values post transition, bringing employees into the discussion of whether the values are still appropriate in the new ownership structure. How these values are showcased in day-to-day activities and how they can underpin the future direction. Engagement in the discussion of what ‘ this is how we do things round here ’ means for each individual, and team, can create a better connectivity to ownership.

Different Companies, Different Values

Values across organisations are different, even if they’re working in the same sector. Different isn’t wrong, they merely reflect a different environment, leadership expectations, employee collective culture or may reflect the history of the business.

Whilst values may be set by a leadership team, it’s the individuals within the organisation that bring them to life. And it’s the values that underpin how any individual describes their organisation and their personal connection to that organisation.

SUSTAINABILITY as a company value in action can cross sectors but may be defined and applied in very different ways depending on the organisation and its approach. Is this sustainability of the company providing long-term employment, or sustainability reflected in environmental impact?

Frequently in EO companies we have seen peer pressure aligned to values as being a driver in an EO business. Whilst leadership showcasing values is critical, colleagues embracing and showcasing the values within their team has an equal positive impact.

What are your values and how do you bring them to your role in your organisation, and your interactions with your colleagues?

As independent trustees one of our roles with EO companies is to ensure that leadership teams understand the company values and reflect them in their actions and decision making. IDTs values are linked around Knowledge through 2-way knowledge sharing between colleagues and with our clients; Professionalism through all we do and how we work; and Respect by sharing our knowledge confidently whilst welcoming, encouraging and supporting the contribution of others.

This original version of this article was written for the in-house magazine of one of our clients.

How Much Information Should We Share?

Sun, 23 Feb 2025 14:00:48 GMT

O ne of the expectations within EO companies is that information will be more transparent and available to employees. But what information and how it should be shared is a highly debated topic and is individual to each company, its needs and its expectations.

This article, shared by Chris Pettitt an IDT independent trustee, provides a summary of the general impressions, themes, and developments shared in a seminar entitled How Much Information Should We Be Sharing (in an Employee-Owned Business)?

It has been enhanced and expanded with additional insights gained from the experience of IDT with our own EO clients.

Introduction

Sharing information in an employee-owned (EO) business requires careful balance. Transparency fosters trust, engagement, and understanding among employee-owners, but oversharing or mismanaging sensitive information can lead to confusion or tension.

The approach to sharing should always be tailored to the organization's unique context, maturity in its EO journey, employee needs, its purpose in sharing information and the expectations on recipients once they have received the information.

Financial isn’t the only information that should be shared. Numbers without context or the wider messaging, can miss the point of sharing and can mask key important themes and messages.

Consider why you are sharing information. Yes, the company is now indirectly owned by the employees. But what do you want employees to do with the information they are receiving, or is it purely to provide information?

There are many methods to share information. Be mindful of the ways that it can be received by all intended recipients, both practically as well as understanding. Those working in head office may have differing access to information being shared than those on site, travelling or working remotely. Equally individuals who are party to the information through their day-job will receive and digest the information in a different way to those for whom this is new information. Ensure that all views and perspectives are catered for as mush as possible.

Key Themes

The key themes of sharing information in any organisation, but particularly one where the employees are also indirect owners, can be grouped into a number of topics.

1. Tailoring Information Sharing:

The amount and type of information shared should align with the business's stage in its EO journey.
What is "right" for one company may not be appropriate for another.
Consider a dashboard of key metrics that can be shared regularly to indicate progress being made.
Align information to future plans and strategic initiatives that employees are involved in showcasing both the business benefit of their delivery, as well as individual contribution.

2. Transparency Builds Trust:

Sharing financial and operational data, such as profit-sharing metrics and business updates, strengthens trust and understanding within the team.
Examples of sharing structured reports e.g., weekly cash flows or monthly dashboards showcase effective transparency.
Transparency must be linked with consistency of sharing information, so be prepared to build on information sharing. Don’t overshare at the outset then fail to share in the future.

3. Managing Sensitive Information:

Be cautious with sensitive topics like salary information or director earnings to avoid creating tension.
Salary benchmarking and banding can help maintain fairness and clarity while respecting confidentiality.
Be conscious of bias towards over-sharing or under-sharing. Ask why this information should not be shared? Alternatively ask what benefit is there from sharing this information?
Consider what is the upside /downside of sharing / not sharing specific information?
Treat the recipients as the adults that they are.

4. Balancing Transparency and Simplicity:

Provide clear, simple metrics to avoid overwhelming employees.
Use forums for questions and explanations to maintain clarity and alignment.
Avoid the temptation to overshare or overload employees with unnecessary details.

5. Handling Difficult News:

Don’t only share good news. Early stage intimations of not-so-good news reflects the reality of business.
For bad news, it is essential to communicate transparently, help employees understand the context, and manage expectations to avoid surprises.
Nothing travels faster, or stifles positivity more, than negative rumours, so don’t wait for the information to be perfect before opening up on the topic.
Consider early stage briefings on the situation or reasons, before providing greater clarity on the outcome once it is known.

6. Gradual Increase in Information:

EO companies may have traditionally shared a wide amount of information, or none at all. The potential of moving from a position of reticent sharing, to openness and transparency, should be seen as a gradual evolution creating understanding and benefit along the way.
Supply more detailed information over time as the organization grows in its EO structure and as employees develop financial literacy.
Consider linking information between activities and across teams, such as the end-to-end lifecycle of a company product or service, to showcase each element and team involved in its creation.

7. Employee Engagement and Feedback:

Regular surveys and feedback loops ensure that the information shared aligns with employee needs and improves engagement metrics over time.
Consider working groups to take particular topics and develop their meaning, importance and related activities and initiatives.

8. Learning and Development:

Providing financial education, such as learning lunches or workshops, empowers employees to interpret and engage with the information shared.
Incorporate financial literacy and other company focused knowledge within personal development plans, or wider company training programmes as the more employees understand company metrics, the more empowered they are to contribute in a way that is meaningful.
Cascading information through managers and team leaders can make the process more personal or enable it to resonate better within each team. But be mindful of consistency.

9. Company Benefit:

Sharing information is not solely to educate, enlighten or inform employees.
What does the company want employees to do with the information? A frequent answer is for each individual to understand where their role and contribution adds to the benefit of the company as a whole, whatever their touch point is within the company

Key Areas of Focus

The following highlight specific categories of information that are often shared in EO businesses:

1. Company Information:

Future plans, current market position, product/service developments
Planned changes, company announcements
Non-financial information such as geographical spread, customer concentration, new starters / leavers, primary business risks and the mitigations in place to lessen their impact.

2. Financial Information:

Budgets, cash flow updates, revenue pipeline, profit-sharing metrics, and quarterly financial reports.
Consider presenting in non-accounting language making use of graphics and pictograms, especially if the workforce is not financially astute.
Show the evolution of the numbers and the context of their alignment and importance in the business and monitoring its success.

3. Employee Specific:

Forums, updates, and surveys to maintain clarity and alignment.
Sharing information then gathering feedback on specific topics.
Benefits reviews, enhancements, updates.
Salary banding within job descriptions and salary benchmarking.

4. Final Freedom Day Visibility:

Progress updates on achieving the company’s financial independence.
Timeline, plans and activities aligned to repaying the vendors.
Succession plans and business sustainability.

5. Learning and Development:

Regular one-to-one meetings, training, and resources to improve understanding.
Incorporation of knowledge in new employee induction programmes.
Inclusion of topics in personal development plans, and career opportunities.

Emerging Developments

1. Structured Sharing Practices:

Companies have developed structured practices for information sharing, which include regular reports, dashboards, and communication tools.
Consider whether technology can make it easier to share information, potentially on a real-time basis.
Be mindful of employee access to shared information, office based staff may have different opportunities to receive information than those who are project, site or home based.

2. Adapting Over Time:

EO businesses benefit from gradually increasing transparency as employees and the organization mature in their understanding and needs.
Reassess the information being shared on a regular basis, from all perspectives, not just those sharing the information.
Add information as technology, processes and systems provide more information but don’t share information just because it is available, and don’t strive to create information of it is difficult to obtain.
Enable individual development through widening the pool of individuals who share information.

3. Proactive Communication:

Regular updates and opportunities for questions reduce uncertainty and foster a collaborative culture.
Incorporate sharing information with other activities and initiatives, for example as part of an all staff awayday, or themed lunch and learns.
Share good news widely and don’t assume that all employees have access to the same information as leaders.
Cascade through teams via managers and team leaders, enabling them to align the process of sharing the information to team activities, initiatives, priorities or language.

Final Impression

The seminar underscored that information sharing in EO businesses is a strategic process. The goal is to strike a balance between transparency and simplicity, fostering trust while avoiding overload. By tailoring the approach to their specific context and engaging employees in the process, EO businesses can create a more informed, empowered, and collaborative workforce.

These notes were crafted by Chris Pettit, an IDT independent trustee from his attendance at a seminar entitled ‘How Much Information Should We Be Sharing’ hosted by Sapphire Accounting and Rubicon People Partnership at the Employee Ownership Association annual conference in November 2024.

Content gained from the seminar has been expanded to include knowledge that IDT has gained through working with over 50 employee owned businesses across a number of sectors, including large and small EO businesses, from transition through EO evolution to beyond financial freedom day.

Chris Pettit is an accountant by training, has his own finance practice, and is appointed as the independent trustee to a number of IDT clients both pre- and post- EO implementation, including an FCA authorised company.

Trustee Perspective - Boosting Financial Acumen

Sun, 23 Feb 2025 13:11:45 GMT

Introducing the perspective of one of our independent trustees on Employee Ownership (EO) in practice and EO more generally.

Through personal knowledge, the author, Alistair Aird , shares how his experience and expertise in finance and supporting SME business leaders underpins his role as an independent trustee.

What is your professional background, and how does it inform your approach as a trustee?

My professional background is in SME M&A and banking. I see that as essentially supporting SMEs from a financial point of view, normally at key points in their evolution – for example, when they are financing rapid growth, exiting, or buying other businesses.

An employee owned business, whatever its size or maturity, faces similar financial considerations in terms of business funding, managing cashflow, balancing risks and evolving for the future.

In terms of how it informs my approach as a trustee, I understand how the finances are the essential lifeblood of any business, and I bring that expertise and understanding to the trust board. For example, key areas at the point of transition are the valuation and repayment profile of a transaction, where my experience can be especially valuable. Thereafter, where there may be considerations for altering the repayment profile, whether in terms of tenor, applied interest (if any) or financial quantum, my knowledge and experience can add a neutral perspective and experience to discussions.

I also share my financial literacy with fellow trustees to enhance their understanding of both the financial information that is being provided to them, as well as the impacts that financial decisions will have on the business. This is particularly relevant where there may be employee trustees appointed who may not have previously been provided with in-depth financial company information, or may not have had to digest it from the position of a shareholder.

What are some unique aspects of your approach that differentiate you from other trustees?

Whilst finances, and specifically cashflow, are the lifeblood of the business, I have learned that the individuals are the most important area to understand.

I focus on ensuring I understand the individual priorities and ambitions of exiting shareholders in particular as that can significantly impact the business in its early stage as it evolves its succession plans and moves towards financial freedom. On a personal level, I know how stressful it can be at these times in a business-owners life and I can help owners navigate the change away from personal ownership into employee ownership, and beyond.

In terms of my approach as a trustee, I set out to have a light hand on the rudder during plain business sailing as I believe the leadership team are best placed to run the business. But I am prepared to get a firmer grip should there be issues that need addressing at trust level. This is not solely in terms of financial matters, given the trust in its role as shareholder has a wider remit in respect of the whole business. Whilst my background is finance, my experience is much wider, so my contribution in all topics comes from one of broad business knowledge.

How do you think the October 2024 UK budget changes have impacted you and your role?

One of the most significant changes announced, from a trustee perspective, was the requirement for trustees to validate the valuation of the company prior to its transition to EO.

My job in M&A has meant I have done many valuations for businesses transitioning to EOTs. Understanding such valuations, repayment profiles and other financial matters related to ensuring a successful transaction is a particular area of expertise.

I have used this to work with colleagues at IDT to develop a trustee checklist for valuation validations focused on four key areas:

Independence of the valuation provider;
Valuation methodology;
Affordability of both the principal payment and the deferred consideration; and
Documenting the trustee process being undertaken.

I continue to offer my knowledge, experience and advice to my colleagues, as well as my EO clients, to enhance their own understanding.

Alistair’s knowledge and experience, particularly in terms of finance in SMEs, is invaluable to EO clients, particularly those seeking to enhance financial confidence in new leadership teams, in fellow trustees and more widely in the business. He has sat with clients as they move through periods of financial uncertainty and significant decision making, and his experience provides a beneficial sounding board and trusted confidante in discussions.

The IDT Difference

IDT supports independent trustees to recognise, value, use and share their own unique personal experience and expertise in delivering in their role for clients.

Alistair is one of over 20 independent trustees working through IDT, all bringing different perspectives, experiences, knowledge and personality to their appointments. To find out more about the breadth of this knowledge read our article introducing our trustees: https://www.independentdirectorsandtrustees.co.uk/who-are-our-trustees

The Author

Alistair Aird is a corporate finance director at Carpenter Box, a chartered accountant, tax and business advisory practice based in the South of England. He also supports IDTs business development through his connections with professional advisers and acts as the independent trustee for clients of IDT.

External Funding for Employee Owned Businesses

Mon, 03 Feb 2025 11:19:06 GMT

With the number of Employee Owned (EO) businesses increasing, more are turning to third-party funding to support their business at key stages in their evolution.

With interest rates falling, and employee ownership increasing, we have seen more opportunities for EO companies to utilise third-party funding both to support the transition to EO, to repay their deferred consideration early, to provide financial support, or to enable ambitions for growth and expansion.

In this article we reflect back on a session at the 2023 Employee Ownership Association annual conference, when Sue Lawrence facilitated a session on funding for employee owned companies.

Here we share a few key messages and tips that came from the discussions with panelists Oliver Wilson from Shawbrook Bank, Mike Dinnell from ThinCats and Gaynor Dykes from the British Business Bank, as well as observations from our experience with EO companies.

Funding the Transition to EO

As employee ownership becomes more prevalent as an ownership structure in the UK, and more founders are utilising it for their succession plans, lenders are becoming more available.

As with any lending, having a good financial plan, evidence of past trading and cashflow is part of the requirements for funding. EO lenders note that lending to EO from their perspective, has the same criteria around feasibility and future borrowing.

What has been found is that companies transitioning to EO may not have previously accessed funding, other than overdraft facilities. As a result, they may be unprepared for the level of financial transparency that is required to underpin their application. This is a different conversation to that held with banks providing a current account. It is more strategic, focused not just on day-to-day activity, but also plans for the future - maintaining and developing a healthy cashflow to fund the repayments, whilst continuing to develop and grow the business.

Those that have accessed 3rd party funding before may have relied on personal guarantees from the founders. These guarantees may no longer be available once the founder has sold their shares into the EOT, or may have reduced benefit if the guarantor is now a minority shareholder, or is increasingly having a reduced influence on the business. Plus, the founder themselves should consider carefully whether providing a guarantee is in their own best interests as they seek to reduce their connection to the business. It may also not be in the best interests of the business to have an additional reliance on an exited founder.

Funders also note that the options around equity lending are also constrained under an EO structure, where the trust is the majority owner, and minority shareholder interests may be diluted in terms of priority. Certainly, having a lender in a senior position in any waterfall repayment schedules may create a complex equity model. It should be noted that there are EO specific lenders who support transitions financially by taking a minority shareholding.

Lenders also note that the financial modelling on any lending will be robust. Seeking 3rd party funding is not a route to save a drowning business.

Funding Beyond Transition

One standout was that funding isn’t just for the transition to EO. As with any business, 3rd party funding is often sought to enable and facilitate growth. With a new leadership team, who don’t have the history of setting up the business and the risks involved at early stage evolution, there is often a different attitude to risk and opportunity, with external funding seen as a cost of doing business not a risk of personal loss.

The lenders on the panel were clear that they look at both the financials, as well as the new leadership team when funding employee owned businesses, taking a more collaborative approach and seeking to understand the drivers and opportunities as a whole, not simply the ability to repay.

Not all funders are the same, so it is worth looking beyond your usual banking relationships if you’re an EO business looking to grow.

From the borrowers’ perspective it is important to consider the increased oversight that will come with the borrowing, as well as the ability to repay. All lenders, to any company, will be seeking reassurance that the business is continuing to trade well, and has sufficient cash flow and reserves to maintain the business whilst repaying the debt. This reassurance will come with covenants and expectations of regular financial reporting to the lender.

Funding to Repay Deferred Consideration

As interest rates have fallen, EO companies with residual deferred consideration to pay, especially those that have high interest rates attached to that repayment, may consider replacing the deferred consideration with a bank loan or other third party funding structure.

The benefit of this is that it gives a neutral lender with no personal history or emotional ties with the business. It may provide lower repayment rates, more flexible terms or a guaranteed repayment schedule. Or it may come with wider business related ladening such as asset financing, or revolving credit.

The downside may be increased reporting and due diligence, but both of these aspects may be easier to provide after a few years of transparency in reporting to employees.

Often this route is an opportunity for owner vendors to exit the business more quickly, potentially driven by personal circumstances that have altered since the move to EO.

It is also an opportunity for the new leadership team to take ownership of the running of the business without vendor reserved matters, which would fall away when the EO sale terms are fulfilled. This may also be an opportunity to revie the membership of the trust board given the vendor would no longer have a financial interest in the business.

In many cases, it is simply that third-party lending is a cheaper option.

Lender Compliance Processes

One area that can be both time consuming and frustrating for EO borrowers is that the understanding of the ownership structure may not fit into the rigid bank KYC processes and on-boarding procedures. There is rarely a box to tick on the ownership structure that accurately explains the trust structure with beneficiaries being the employees.

We have seen lenders seeking copies of the trust deed, or a list of named beneficiaries of the trust for clarification. As a borrower, beware if your bank lender asks for details of all beneficiaries, it is often an indication that the EO ownership structure is not understood by the banks compliance team. In these scenarios it may be easier to speak with your relationship manager, escalate the issue, or consider an alternative EO friendly lender.

IDT has an explanation sheet for their EO clients that can be shared with lenders which explains EO in legal and practical terms so that they can understand that EO structures are supported by legislation and the UK government, and have a recognised legal structure.

Concluding Remarks

If you’re an EO company still paying back the deferred consideration, remember that when this is finished, there will be more cash in the business that could potentially support current borrowing. Speak to the EO experienced lenders about tailoring your repayment schedules around your repayment dates.

If you are post-deferred consideration, borrowing under an EO structure may require a bit more explanation of your legal structure, but should be considered as part of your general business and financial reviews.

External funding can release opportunities for growth or expansion of the business, or can relieve short-term financial pressures. It is an option that is increasingly readily accessible for EO companies as understanding of the legal structure increases.

If you’re considering seeking external funding as an SME, a good starting place is the British Business Bank Finance hub: https://www.british-business-bank.co.uk/business-guidance

IDT and its members are not financial advisers, or experts in financial matters, and nothing in this article should be read as providing funding or financial advice. Companies should seek the advice of financial and funding experts when considering their borrowing opportunities.

Founders Perspective - Nigel Thornton, Agulhas Applied Knowledge

Wed, 22 Jan 2025 13:07:29 GMT

Introducing the perspective of a business founder who, alongside his fellow founders, sold their business into employee ownership.

Agulhas Applied Knowledge was founded in January 2003 and became employee owned in December 2020. Here Nigel Thornton , one of the 3 founder vendors, kindly shares his journey to making the decision to sell to an EOT, and beyond to its current position as an EOT, B-Corp certified company with the founders stepping back and a new leadership team in place.

Why did you originally decide to sell to an EOT, and do you now believe that it was the right decision?

I haven't regretted the choice to sell Agulhas to an EOT for one minute.

Many years before we made the decision, we had talked to other founders of companies similar to ours, and heard how they were all struggling with the challenge of transition.

I knew for a long time that we would have to come to a point where we did sell.

We had three choices; the first was to wind the company down. The second was to look for a buyer, probably to a much larger company. And the third, thanks to the 2014 act, was the option to sell to the employees through the mechanism of an EOT. After living and breathing Agulhas for many years, the idea of winding down just didn't seem right, so we looked at the second two options more carefully.

Once the three founders talked to others about selling out to a larger company (and we’d had some interest), or getting a venture capital injection, we realized it wasn’t an attractive option for us. We would end up doing the bidding of the buyer through the workout period, being vulnerable, really, to the new owners’ whims. A buyer would likely fire most of the staff, retaining only the seniors, and the company would be gone. From companies that had got venture capital funds we’d seen we’d be forced to grow rapidly to meet an investor’s requirements and become driven by the bottom line. In both these cases, what we'd created that was unique about Agulhas would be lost. We didn't want that to happen.

So it became clear fairly quickly that the choice to sell to an EOT seemed best. It meant that the company could work effectively on the kind of things that we've always thought important. The culture of the company would be maintained. We could evolve from where we were rather than be forced to change.

And actually it was better than that. It wasn’t the best worst option, quite the reverse. Soon after we made the choice to go for an EOT, and began working through what it meant, we realised that doing so was indeed consistent with our values. It was an expression of who we already were and the founders’ beliefs. And, as its worked out, I think we’ve found that for Agulhas, becoming an EOT was not as great a step as it might have been culturally, or practically.

What stage is the Company at now, and what is your ongoing involvement, if any?

We’re four years into our EOT life, and about halfway through the payoff of the deferred consideration. It’s gone slower that we’d hoped as our main client is the UK Government and there’s been a lot of disruption to our expected cashflow since December 2020 when we became an EOT.

I've handed over being the CEO to Lauren Pett who had been our Chief Operating Officer. We did it in a very Agulhas way, evolving and having a phased process of her taking over. Since we became an EOT, the role of the staff has been strengthened through what we call the Co-Owners Forum (COF). This is still evolving, with informal and more formal working groups aligned to both areas of strategic priority for the company, and themes important to the staff. And the EOT has driven us to put in place more structured governance. We’re in the process of further developing the leadership roles in the company - what the oversight of the company board and the Trust Board means in practice - to ensure that there is a robust architecture to go forward towards and beyond Freedom Day.

That’s meant a structured change to the roles that the three founders have, with us more clearly taking an oversight role through the board of Directors and the Trust Board, rather than day to day running of the company. Together with one of the other co-founders, Catherine Cameron, I’ve gone down to a four-day week. That’s for the good of us and the company, and is a deliberate internal and external signal.

Beyond the CEO functions, one of the things that has enabled me to step back is the fact that we've employed people who can take on key tasks I used to do, for instance, finance and IT. I think its not unusual that if a company has grown around you, a founder ends up being a Jack or Jill of all trades. And a key thing for me is I’ve stepped out of managing our biggest client, which I’d done for over a decade.

Such stepping back is the right thing to do, although doing so can be hard, it is important. When somebody asks me to do something, I’m finding myself saying, well, actually, that's not my problem anymore, go and ask so and so, it’s their job. It takes a while to get people used to that (and people still find it difficult sometimes) but, as a founder, you’ve been the last person that everybody looks to for so long it’s a hard habit for everyone to break.

What have been the challenges since the transition, from your perspective as a Founder?

I think when you have spent many, many years being where the buck stops, it's hard then not to think of you yourself in that role anymore. Just because it's habit, you think you are responsible for solving things because, actually, you have been responsible for solving things! You've woken up at three o'clock in the morning because it has been your responsibility to worry about whatever the company is facing, be it a cash flow issue or a delivery issue or a sticky relationship with a key client. So the first thing you've got to do is actually change where your head is at. And that's been a challenge for me. So I’ve needed to change my headspace, and also my actions.

It also takes time for people to believe you when you say you aren’t going to be around forever and that you do want to step back.

I think it's also a difficulty, or certainly one that I've had, which is to know when to say something and when not to say something, when to intervene and when not to intervene. You've got to let the new leadership take the decisions. And sometimes those decisions are not going to be the same as that you would have made, and sometimes there are going to be mistakes that you might see coming and you might warn people about, but actually they've got to go through and learn from the experience in the same way that I've learned over many years. And the best teacher is, in the end, experience. So it's important to calibrate when to keep your mouth shut, and crucially to be available to the new leadership if they want to ask you a question, ask what you think, to be helpful and supportive, so that they know that you have got their back if necessary. It’s delicate and I haven’t always got it right.

The key issue for me is knowing that the company is safe; and that’s essentially about knowing that the beliefs, people and systems are sound, and that as far as possible there’s a secure commercial outlook.

What have been the positive highlights that you can share with others?

At each of the last three company away days, I've said a version of the same thing which is that 20 plus years ago, when we founded the company, if you had told me that Agulhas Applied Knowledge would have the number of staff we have, our diversity, the level of energy and interest they show in the work, and that we would have a portfolio that is as wide and interesting (and if I may say as influential) as we have, I probably wouldn't have believed you.

We founded Agulhas because (apart from probably being unemployable by anyone else!) we wanted to do interesting and impactful work. We never set out as the founders to create a company that Agulhas has become. A lot of the recent change is down to the energy of our CEO, Lauren, along with the rest of our team, and the energy and creativity that being an EOT engenders. They and us have built on the foundations we created. And Agulhas has become something bigger than me or the founders; it's beyond us, and that is fantastic. The employee ownership trust creates a whole new dynamism and crystallizes the company as no longer about who we are, but about the collective energy and commitment of the entire workforce of Agulhas, our beliefs, values and its culture. And that is amazing. Truly amazing!

As a Founder, and Seller, what advice would you give to leadership teams of an EO business?

Firstly, don't rush. Set a clear direction, but realise the wheel can take time to turn. All the change, all the all the evolution of your company to be a fully fledged EOT is not going to happen overnight, and different parts of it will grow at different paces. There will be hiccups along the way.

Which leads to the second point, its important therefore to start the process early and allow things to work through! My guess is that many founders start too late, often perhaps too close to the time when they should be moving on.

Thirdly, don't be greedy. If you're greedy, if you want your payout early, if you want a lot of money, that's probably not a good thing. We had to slow down our deferred consideration repayment because our expected cashflow was heavily impacted, first by COVID and then by political machinations in the UK. We had to manage our payoff at a slower phase than we expected. I think those who look for too much money or want it too quickly run into trouble.

Fourthly I think it's very important to be clear about the beliefs and values of the company; for us that was easy because our job has always been very clearly value driven. It's very important to get a sense of who you are as a company, your values, your culture, so that that can be shared amongst everybody. And if somebody comes into your company, its clear they're buying into that – and being an EOT is now who we are. Very soon after becoming an EOT we also applied for and became B-Corp certified (with a very high score I might say!). That was very good for us as the combination of both EOT and B Corp was a clear public declaration of what we stand for and communicated the identity of Agulhas internally and externally.

Fifthly, get the governance right. That took us a bit, but we are well on the way. A long time ago as a young management consultant in one of the Big Four, I realised that most organisational problems boil down to two issues; role clarity and effective communication. Get those both right through the transition from a company that relies on the founders to one that is mature and no longer dependent on you, and you’ll not go far wrong.

Agulhas Applied Knowledge was founded in January 2003 and became employee owned in December 2020. A research, evaluation, and consultancy specializing in international development and social policy, Agulhas is based in the UK working across the world with a variety of clients including governments, UN Agencies, NGOs, and international organizations. www.agulhas.co.uk

Agulhas Applied Knowledge Trustee Limited has had an IDT independent trustee appointed to their trust board since July 2022.

Trustee Perspective - A Business First Approach

Wed, 22 Jan 2025 13:06:30 GMT

Introducing the perspective of one of our independent trustees on Employee Ownership (EO) in practice and EO more generally.

Through personal knowledge, the author, Shaun Goodwin , shares his career experience in business and the military, and how this informs him in his role as an independent trustee.

What is your professional background, and how does it inform your approach as a trustee?

My background is in business performance management across multiple industries in the UK & USA.

Having worked for, managed and grown businesses in two very different business climates, I have seen alternative and opposite management approaches, to risk and to employees, succeed and fail on both sides. This has given me the experience to understand the needs of both a business and its people, which informs my approach to the role of an independent trustee.

My current role as MD of an employee owned business (before and since the transition) has allowed me to consolidate this experience and navigate the conflicts between what is best for the employees and what is best for the business, and appropriately align these.

My main philosophies are that:

Our primary moral responsibility to our employees is job security and this should weigh heavily in all decisions.

In order for a business to work for its people, firstly the business itself needs to work.

My own personal concerns about post-EO executive decision-making authority being diluted were not realised. With the right trustees backing me I have a source of valued and alternate perspectives from outside of my emotional attachment to my “grand” strategic plans.

As an independent trustee, I am able to take this forward to assist in ensuring the same balanced approach is provided to other employee owned businesses and their leaders.

What are some unique aspects of your approach that differentiate you from other trustees?

My experience from my time in the EO space is that there is (rightly) a lot of focus on the benefits to employees. I fully support this, but the business needs to perform in order to realise and fund rewards. As such, I believe the business naturally comes first.

I understand that without a functioning business, there can be none of the second-order benefits we want to give our employees after the transition to EO. Success incentivised by reward, rather than a reward first approach, drives my input to business decisions. Hence, I consider myself an ally to a commercially-minded management board thus, by default, to the employees who ultimately benefit from the success of their business.

How does business performance management align to EO in general?

My ability to draw on career experience and understand the motivations of the executive board removes any potential friction and allows us to work together to grow the business and share the rewards appropriately for an Employee-Owned Business.

Businesses need innovators and visionaries to continue thriving after the transition to EO. Too often this innovation leaves when the founder vendor exits the business. My approach as an independent trustee is that of the supporting partner who understands what it is like to run a business, encouraging growth and appropriate risk taking with a view to how this benefits all of the team.

I have seen in my own managerial role that the excitement of success is better shared by employees when they have a more-personal stake in the performance of the business. A personal stake that can be evidenced in an EO company.

Shaun’s focus on business interests and priorities is balanced by his military background, where the values of dedication and duty to teammates were deeply embedded into his worldview and inform his approach to business management. He is naturally inclined to seek solutions that create an environment in which everybody wins .

The IDT Difference

IDT supports independent trustees to recognise, value, use and share their own unique personal experience and expertise in delivering in their role for clients.

Shaun is one of over 20 independent trustees working through IDT, all bringing different perspectives, experiences, knowledge and personality to their appointments. To find out more about the breadth of this knowledge read our article introducing our trustees: https://www.independentdirectorsandtrustees.co.uk/who-are-our-trustees

The Author

Shaun Goodwin is the Managing Director of Barton Fabrications, the UK leader in design, manufacture, installation and servicing aluminium and stainless steel build storage silos in the UK and internationally. The company transitioned to employee ownership in December 2020 and Shaun balances his trustee commitments with leading the company and its employees.

Governance Tips for EO Companies

Thu, 16 Jan 2025 05:13:20 GMT

Getting the governance model of your employee owned company right can be invaluable in gaining understanding and using resources effectively. Here we provide a few tips on EO governance models.

Let’s start at the beginning – What is Governance?

The Chartered Governance Institute (ICSA) defines governance as:

‘Governance is a system that provides a framework for managing organisations. It identifies who can make decisions, who has the authority to act on behalf of the organisation and who is accountable for how an organisation and its people behave and perform.’

Taking this one step further, the governance of an organisation can be equated to being its skeleton – a core part of its functioning but, when working smoothly, it shouldn’t be seen. Without it the body of the organisation cannot function, it falls apart and is disconnected with time spent shoring up areas that, if connected to a robust structure, wouldn’t take so much time and resource away from creating a successful business, however that is defined.

Governance in Practice

All good so far, but what does that mean in practice?

Governance isn’t just administration or support, it is evidenced by a board, a leadership team and forums where decisions are made, not just those related to operations but also the strategic direction of the organisation.

So starting with the above definition and the wider view, who makes the decisions? Who has the authority to act?

Usually this would be the board of directors. In smaller companies it may be the founder, or a small group of senior leaders, whether appointed as statutory directors or not. In larger companies it will be the executive directors, with the board including non-executive directors discussing, challenging, agreeing and making significant decisions, whether they are operational or strategic.

In an employee owned company it is still the operating board that makes the decisions … not the trustees or the employee body, which is often a misconception in companies that have recently transitioned to ownership through an employee ownership trust.

It is the group of executives who lead operations, have oversight of all the functions and ensure the business runs smoothly that are the visible leaders of any company. They also set the future direction of the business, through the near term budget setting and business plans, and agreeing the longer term strategy. In effect, they ensure that the company is working effectively, is placing its resources in the right place, has an eye on the future and is fit for purpose.

IDT Tip: Ensure your board as a collectively group have the skills to fulfil their roles and responsibilities. Consider board evaluations. Don’t be afraid to welcome in a Non-Executive Director to bolster your boards’ expertise or bring a broader perspective, it may be more effective and cheaper than a raft of subject matter expert consultants.

The Role of the EO Trustees

So far so good with an operating board and shareholders outside of the day-to-day operations of the organisation. But what about EO companies, where the shareholders are the employees, represented by the trust board?

In the majority of EO companies, though not all, the employees are represented by a trust company, with a board of directors who act as the trustees. These trustees are usually a combination of any of the following: founders, management, employees, former employees, company advisers and independent trustees with no former connection to the company.

The composition of the trust board is many and varied and often unique to each organisation.

What should unite them is a having a clear purpose – acting as the representative of the employees as owners.

They should also be united by having a responsibility for three things:

Oversight of the current health of the organisation;
Understanding of, and supportive challenge on, the future direction of the organisation; and
Oversight of the effectiveness of the operating board in delivering (1) and (2).

Aligned to this, trustees should ensure that the Company is run aligned to its purpose and values, and that employees have an opportunity to participate in a meaningful way.

Too frequently trustees, whether on their own volition, as a result of their differing roles and conflicts, or at the behest of an operating board, stray into the operational decision making and strategy setting that sits with the board. The result is that the differing roles and responsibilities for these two forums becomes confused, both for their members and for the employees.

The outcome is that both forums spend precious time overlapping in their discussions of the same topics, duplicating effort and potentially getting mired in a lack of forward momentum as the ultimate decision maker is not clearly identified.

For clarity, from a governance perspective, the trustees should be the back-stop. The forum for supportive challenge of board decisions and how those decisions have been made. The group that, once feedback from that challenge has been accepted and, if appropriate, acted upon by the operating board, will support the communication of the decision made and communicated by the board.

There is a need to ensure that trustee actions and communications don’t undermine the operating board, particularly where that board may be recently constituted as a result of conversion to EO. The trustee role as one of oversight is less action driven than that of the board. Actions are taken when necessary, but not as a regular occurrence, and not as part of the day-to-day operations of the organisation.

Trustees should always be cognisant to not communicate in a way that confuses their role, overlaps with that of the operating board, or undermines the leadership team of the organisation.

The trust should have a clear and specific role in representing the employees, both current and future, as beneficiaries of the trust (the beneficial owners), and this distinction should be at the heart of all their discussions and communications with employees.

IDT Tip: Have a standard agenda for your trustee meetings that reflects the 3 areas of responsibility – current health, future direction, effectiveness of the board – discussing each of these topics in depth as and when required, not equally at all meetings.

Implementing or Reviewing EO Governance

It may sound counter-intuitive to the proposition of IDT as a collective of independent trustees, but we would recommend that all companies consider their governance structure before they appoint an independent trustee, or at least when they are considering changing the composition of the trustee board.

Why? Because until you are clear on the roles and responsibilities of the various forums, you don’t know what skills you will need, what contribution you are expecting and what deliverables you expect from your trustees.

Your legal documentation will only take you so far in identifying what these various roles and responsibilities are. What it won’t do is provide the practical application of the legal framework. Often the legal documentation requires the appointment of an independent trustee. If so, make sure that one of your first tasks as a trustee board is to understand what the role of the trustee is. An experienced independent trustee will be invaluable in creating this understanding.

Working through where the decision making sits, who sets the strategy, what should be referred to trustees (and critically what shouldn’t), how the employee voice will be captured, are all key questions.

Recently transitioned EO companies, or those that are in the planning stage, should consider what they already have in place, particularly what works effectively already. Good EO governance should take this and layer EO on top of this existing robust foundation.

Too frequently, companies transition into EO and believe they have to change everything. But being in a position that is strong enough to move into ownership by employees means that something is working well. Why would you stop doing this?

We frequently work with EO companies to review, create, assess or document their governance structure, either as an independent trustee or as a consultant. It may seem a dry topic that isn’t a priority, but once it is in place and communicated to all employees, it can be used effectively and should help to avoid misunderstanding, duplication and resource stretch. In fact, by communicating it to all employees, with the full understanding of the management team and the appointed trustees, it can help to create a true understanding of what employee ownership means.

As a hint, governance reviews look at the roles, responsibilities and communications between the three main forums within an employee organisation – the operating board, the trustees and the employees.

IDT Tip: Review your governance framework occasionally, and be clear where roles, responsibilities and decision making rests … and communicate this with all employees. If you’re newly transitioned, go through this exercise and communicate it widely. If your EO is more mature, consider reviewing this occasionally to ensure it remains fit for purpose and is supporting, not hindering, the business. Consider incorporating it into your employee handbook and induction process.

Conflicts in Governance

The role of the trustee is complex, especially when its members frequently have two hats to wear:

founder/ recipient of outstanding consideration / trustee
director / manager / trustee;
employee / trustee;
former employee / company pensioner / trustee;
company adviser (lawyer, accountant, etc) / trustee.

As trustees representing the employees as beneficiaries., internal trustees often have to learn the difference in their role between being an employee and being an employee trustee. Crucially, their trustee role is to represent all employees equally, not just the subset that an internal trustee, whether a director, management or employee trustee, works alongside, or is responsible for.

For a semi-independent trustee , such as a company adviser, their benefit to fellow trustees is from their expertise as a lawyer, accountant or as a knowledgeable ‘friend’ of the company, with an existing knowledge and understanding of the business. However, this existing knowledge also means that they may have a conflict in their role, especially if they continue as an adviser to the company or they maintain a close relationship with a former owner. It is this conflict that may result in them acting as if the company had not transferred into employee ownership. In some cases, they may also not have any wider experience of employee owned companies or acting as a trustee. This is not always the case, and there are many semi-independent trustees who fulfil the role excellently, but this conflict is one that should be considered at some point during their term.

The only trustee truly not conflicted is the independent trustee , who should be able to bring best practice through their personal knowledge of EO companies, trustee decision making, governance and related experience, employee communications and expertise from their wider career.

IDT Tip: Look at the composition of your trust board in relation to its purpose, roles and responsibilities. Does this forum have the combined skills to function effectively as representatives of the shareholders? Have you really identified the conflicts, been clear about these, and ensured that the beneficiaries as a whole are represented? And do this exercise on a regular basis.

The Employee Voice and Governance

The crucial part of being an EO company is that your employees should have a voice and this shouldn’t be lost in your governance framework.

Employees will already have opinions and ideas about how things could be done better. Your governance model needs to be able to work these into the decision making process, the discussions and the actions of the company.

But crucially, it needs to be clear that there is still a board that leads the business, that takes the tough decisions, that drives the direction of travel. The board has full knowledge, can connect the dots, can review from a position of knowledge of the whole company and how it inter-connects. It is not constrained by considering matters from a single functional perspective, or one team.

Employees should have a voice, certainly, but their key role is to understand their role in the company, how this fits into the company purpose and how, by working at their best, they are contributing to the collective success. Beyond this, their ideas are invaluable and should be encouraged, but every idea has its day and sometimes that day may not be today.

From a leadership perspective, encourage and welcome those ideas. Consider asking for employee contribution on subjects that the board is discussing. For example, if as a board you are struggling to recruit in a competitive market, ask your employees for their ideas and suggestions, their different viewpoint may identify excellent alternative solutions.

Don’t just refer employee, wellbeing, HR related and social matters to your employees. Share knowledge of the company by getting their input and feedback on business related matters. Through doing this your employees will gain a greater understanding of the challenges in place and the opportunities that your company provides to them.

Bring employees, whether directly, through a formal forum or topic based working groups, into your discussions. Engage with them and welcome input. But crucially, give feedback. If the time for one of their suggestions isn’t today, say why not, but keep it for future consideration.

IDT Tip: find a way to encourage and accept employee contributions that supports, enhances and fits in with the governance framework, whether this is via an employee council, working groups, performance reviews, workshops, ideas boxes, surveys or one of the other many means of engaging and getting feedback.

In conclusion , and reverting back to the analogy with the skeleton … be clear on how your skeleton fits together and understand what each part has responsibility for. As with a skeleton, if part of it breaks, for example if the board needs additional expertise, if a trustee resigns, if the employee voice is not being heard, mend it as soon as possible.

Long term issues not mended will remain and will gradually erode the effectiveness of the governance framework. They will also take more time and resource to mend in the future and could create an even greater issue if not addressed in a timely manner. Like a broken bone that hasn’t healed, the dull pain will eventually turn into a greater distraction that could compromise the whole organisation.

Having a robust, healthy governance skeleton will be an effective support for your organisation. Understanding and communicating your governance model, and putting it into practice, will enable your organisation to focus on the excitement and energy in making it even more successful as an employee owned company, with even greater contribution by all your employees.

Independent Directors and Trustees is a collective of experienced independent trustees who share their knowledge for their personal development, as well as for the benefit of their EO clients. If you would like to know more, read through our website or email us at info@directorsandtrustees.co.uk to arrange a no obligation chat.

Trustee Perspective - Communications and Engagement

Fri, 22 Nov 2024 12:19:50 GMT

Introducing the perspective of one of our independent trustees on Employee Ownership (EO) in practice and EO more generally.

Through personal knowledge, the author, Sam Moles , reflects and expands on one of the core expectations of EO – transparent communication and employee engagement.

What is your professional background, and how does it inform your approach as a trustee?

My professional background is rooted in marketing, where I initially trained and began my career in film production, eventually transitioning into digital marketing. This experience provided me with a deep understanding of strategic communication and audience engagement, both essential in my role today as an Independent Trustee.

I first entered the world of employee ownership as an elected employee trustee, serving a three-year term. This role allowed me to experience first-hand the responsibilities and complexities of representing employee interests. My involvement in this role evolved, eventually leading to the creation of a new position within the business: Trustee Representative on the Strategy Board. This progression reinforced my commitment to strengthening employee ownership models and empowered me to advocate for strategic decisions that serve the broader vision of the company.

I approach my current role as an Independent Trustee with a focus on being the objective voice in the room, bringing both a clear-sighted perspective and a sense of authority derived from experience. With a background that spans multiple roles: employee, employee-owner, employee trustee, and collaborator with leadership teams - I’m able to empathize with, and thoughtfully consider, diverse perspectives across the organisation. This vantage point allows me to bridge viewpoints and foster an inclusive, balanced dialogue that supports the business’s collective goals.

Above all, I am personally passionate about the transformative benefits that employee ownership can bring - not just to a business, but to all its colleagues and even the wider economy. When managed effectively, I believe employee ownership creates an environment where everyone has a stake in the success of the organisation, leading to greater alignment, shared purpose, and positive impact on a larger scale.

What are some unique aspects of your approach that differentiate you from other trustees?

Every Independent Trustee brings a unique blend of skills and experiences to their role, shaped by their background and personal perspective. While we each rely on a shared toolkit to uphold best practices and ensure consistency, the unique qualities I bring to this position are rooted in a few key areas:

my background in marketing and communications means I’m attuned to how people perceive information and respond to changes or challenges. This awareness makes me a helpful barometer, able to sense and flag both the delivery and the likely reception of information. I’m keenly aware of how messaging and presentation can shape people’s experiences of change, whether in response to new initiatives or in sustaining the status quo.
Coming from a creative environment, I also have a knack for “thinking outside the box” and challenging standard processes. I bring a perspective that stretches traditional boundaries, often leading to innovative solutions that feel fresh but are grounded in an understanding of human response.
I’m also highly analytical and outcome-driven, which balances my creative thinking. For me, creativity must serve a purpose, so I focus on supporting a business’s broader vision while identifying measurable milestones along the way. This balanced approach allows me to keep strategic goals front and centre, making sure that progress remains both tangible and accountable.
I’m naturally passionate and energetic—a quality I find essential in motivating teams and creating forward momentum. I’m a strong believer in the benefits of employee ownership, as well as other people-cantered practices that build a more purposeful and engaged workplace.

I see employee ownership as a foundational model for the future of business, where motivated, energised people are at the core of success. After all, business is ultimately about people, and when they feel valued and empowered, they consistently deliver more for the organisation over the long term.

How do you see the landscape of employee ownership evolving?

I see the landscape of employee ownership evolving along a steadily rising trajectory, with more businesses transitioning to this model as society shifts toward a more purpose-driven approach. As people increasingly seek out organisations that align with their values, I believe that employee ownership will become a natural choice for businesses looking to build engagement and loyalty within their workforce. The employee-owned model offers a way for businesses to cultivate purpose and accountability, responding to the changing needs and aspirations of both employees and society at large.

As the number of employee-owned businesses grows, I expect the infrastructure supporting these organisations will continue to expand and improve as well. With better resources, tools, and support networks available, employee-owned companies will have more opportunities to evolve and refine their models, creating increasingly effective systems for governance, employee engagement, and strategic growth. This maturation of support systems will make it easier for new and established employee-owned businesses alike to thrive, raising the overall standard of practice within the sector.

I also believe that early adopters of employee ownership will find themselves at a unique advantage. As pioneers, these businesses are ahead of the curve, benefiting from the early lessons of ownership culture and gaining a competitive edge by embedding purpose and collective commitment into their core. This advantage can help them stand out in their industries, attracting both top talent and loyal customers who value companies that put people at the heart of their operations.

The IDT Difference

IDT supports independent trustees to recognise, value, use and share their own unique personal experience and expertise in delivering in their role for clients.

Sam is one of over 20 independent trustees working through IDT, all bringing different perspectives, experiences, knowledge and personality to their appointments. To find out more about the breadth of this knowledge read our article introducing our trustees: https://www.independentdirectorsandtrustees.co.uk/who-are-our-trustees

The Author

Sam Moles has a full time role as a digital marketing manager in Stephens Scown, an employee owned law firm based in South West England. His employer actively supports and encourages his activities as an independent trustee with IDT.

Our EO Trustee Appointment Process

Fri, 11 Oct 2024 13:56:01 GMT

Our EO independent trustee appointment process has been designed to meet client deadlines, whether they’re needed in the next week, or there’s a longer planning process taking place.

With over 20 independent trustees across England, Scotland and Wales, and wide range of experience and expertise, we are sure to have an independent trustee to suit most employee owned companies. The process for choosing who could be your independent trustee, whether your first, or a successor trustee, couldn’t be simpler.

Here’s our step guide :

Contact IDT at info@directorsandtrustees.co.uk to discuss your specific requirements. Every EO company is different and have differing requirements from their independent trustee, so this contact is an opportunity to share what your specific needs are and ask any questions you may have about the role, the practicalities and EO in general;
Having understood your requirements, IDT contacts those trustees who are most suited to your role for them to confirm their interest in working with you;
We collate trustee feedback and share their cv’s with you for your consideration;
You e-meet those that resonate most with your requirements and expectations;
After these meetings, you choose which individual you would like to appoint;
IDT confirms this via our standard form services agreement (which has been reviewed by external legal counsel, and has been accepted by a wide range of EO legal advisers);
Once the IDT agreement is signed, you and your lawyers progress to appointing the individual as a director of your trust company;
Thereafter all interaction is direct with your named independent trustee.

It couldn’t be simpler and can take as little as a few days if you have a looming deadline to meet.

We also don't charge for this process as we see it as an opportunity to understand a bit more about your company and how we can help.

Backed by Experience

Our independent trustees are supported in their role through access to the EO Trustee Toolkit. This is a collection of materials, tools and guidance that explains and informs on all EO activities. These include trust specific agenda’s, minutes, role descriptions. They also include the wider organisation including employee trustee elections, board vs trust relationships, calculating profit share bonuses, and more. Relevant contents of the trustee toolkit are shared with clients when topics arise or in preparation for evolution of the trust or the business.

All our trustees are invited to a monthly networking session where our trustees share what they’re seeing in the EO space so we can be informed of the wider sector. This is also a forum to bring specific challenges or questions, on a no names basis, to get the collective insights of all attendees. Through this your independent trustee can bring a breadth of knowledge to inform your EO company and fellow trustees.

Trustees are also encouraged to contact each other directly on each other’s areas of expertise so that they can benefit from experiences with other EO clients and elsewhere through individual career paths.

See our article on who our trustees are to understand a more about the breadth of IDT experience that can be drawn from https://www.independentdirectorsandtrustees.co.uk/who-are-our-trustees

Our Commitments

As part of our proposition, we make the following commitments to our clients:

Our trustees will share our knowledge gained through our experience in a way that is pragmatic and beneficial, not overwhelming;
You will only be put in touch with our trustees who are keen to work with you, as we know having a committed trustee that can deliver for you is important;
We will work with you to create your trust rhythm that meets your needs; and we won’t try to push you into an active trust (or a passive trust) if it’s not right for you;
We will aim to meet your timelines and requirements wherever feasibly possible.

IDT is here to share our knowledge in supporting our independent trustees to be the best they can be, and enabling our clients to benefit from our collective knowledge in a way that is suited to them. Having an IDT independent trustee provides a combination of a wide range of EO knowledge combined with the specific expertise of the individual.

Our trustees are based across England Wales and Scotland. If you are looking to appoint an EO independent trustee, or just want to know more, contact us to arrange an informal chat at info@directorsandtrustees.co.uk

Who Are Our Trustees?

Mon, 05 Aug 2024 15:10:20 GMT

We are a trustee team numbering over 20 professionals (and growing) with a breadth of diverse experience and knowledge.

IDT doesn’t promote or name individual trustees because we don’t want our potential clients to be swayed by a glossy photo or a carefully crafted description. We also don’t want to put our trustees in the position of having to consider an appointment where they know they won’t be able to add value, just because a client is insistent that they are the one for them.

Instead, we want to understand each individual clients’ motivation for seeking an independent trustee, what they expect their appointee to bring to their discussions, and to challenge their preconceptions about what the individual can do. Often this latter is driven by misconceptions gained through desk top research, conversations with others who have (or often don’t have) direct experience of the role and its benefits, or who have a focus purely on cost not cost and benefit.

If you want to know more on our view, check out our article on the role of an independent trustee .

Suffice it to say, we believe each and every one of our trustees brings something unique to the role, backed by the collective wisdom of their fellow IDT trustees, and the practical tools held in the IDT Trustee Toolkit.

All our trustees have boardroom and governance experience. And each brings something slightly different and invaluable to IDT and our clients.

In addition, amongst our group we have:

Founders who have exited their own business through an EO sale;
Leaders who have been part of the team who crafted and delivered an EO exit;
Directors within small and large businesses covering all aspects from finance to sales and marketing, people management to operations, distribution and logistics and all activities in between;
Business Owners who have, and in some cases continue, to run their own business as an SME;
Non Executive Directors , who also act as an independent trustee and often straddle both roles in one organisation, recognising the difference and when to apply their skills to each;
Professionally qualified and trained lawyers, accountants, financiers, directors … and let’s not count the number of degrees, masters, and further professional qualifications within our team;
Mentors and coaches , especially of leaders and those stepping into a more senior role;
Experts in governance and organisational design who have, and can, help to craft an organisation structure that can make a real difference to business success in practical terms;
Marketing and communications experts who have, and continue, to enliven through communicating with style, energy and purpose.

As you can tell, their collective experience creates a pool of knowledge available to our clients that, if provided through a team of advisers, would add up to many many billable hours. No wonder we believe that our independent EO trustee proposition is second to none, and that it provides an invaluable resource that can stretch well beyond the core role of an independent trustee.

Whether you have a passive or an active trust, are a large or small organisation, are seeking your first, or your latest, independent trustee, we are sure we have an individual who could work with you for the benefit of your EO business.

If you would like to know more, or would like to schedule a confidential, no strings, chat about your independent trustee requirements or the role in general, please email info@directorsandtrustees.co.uk

Selling an Employee Owned Company

Wed, 29 May 2024 11:20:46 GMT

Based on our experience, an independent trustees' viewpoint on selling an employee owned company.

During 2023 IDT were the appointed independent trustee when 2 Employee Owned businesses were sold to 3rd parties – one to a trade sale, one to a PE firm. Here we share some of our experience.

2023 was an interesting year in terms of EO company sales. Often mentioned in passing, rarely discussed in detail, EO company sales do happen. To the purists of employee ownership they’re not acceptable. To the pragmatists, they’re a natural step for some companies as they either seek to expand and continue to grow, with their employees benefiting from this growth or they provide a route for salvation if things haven't progressed as planned.

As trustees, we recognise that, for the right companies, with the right purchaser, they can be the correct outcome for all parties, including the employees as beneficiaries. But we don’t see them as a primary driver for a company that is seeking to deliver long-term stability and employment for their current, and future, beneficiaries.

In the 2 scenarios we were appointed to, they were the right outcome and have enabled continued success.

In contrast, we have also been the independent trustee where a sale trade was proposed but, after being explained to all employees, was rejected by those employees, the founders and the leadership team as not being right for the business, its employees or its wider community.

Hence, we don’t believe that any company should be sold to an EOT as a planned steppingstone to further onward sale. However, there are scenarios where this is the right outcome for all concerned. In the 2 cases where the sales went through, the resultant businesses remain employee-centric, albeit with a different ownership structure.

The Role of the Trustees

As the independent trustee, alongside the other trustees, we all took our role incredibly seriously in relation to the beneficiaries of the trust, ie the employees.

Early stage discussions specifically focused on why the sale was even being considered. In neither case was it solely to pay off the former owners. Instead, they were to underpin significant growth opportunities for the business that would have been difficult to deliver, both financially and in terms of resources, without the 3rd party.

Secondary to this was an understanding of the due diligence being undertaken in relation to the purchaser. This was slightly different to standard due diligence processes that may have been undertaken, as there was an additional focus on employee centricity. Was this a firm we thought was a good fit for the business? Would the culture be maintained? Would employee centricity be respected and maintained?

As part of this, in the case of the PE sale, the leadership team met with other companies in the PE firms’ portfolio to validate what they were hearing. For the trade sale, numerous meetings with the purchaser, as well as a deep dive into their employee culture, was undertaken.

As an independent trustee it was important that we kept a neutral view throughout the process, that we challenged group think, and saw beyond the transaction itself. As the one individual who wouldn’t benefit from the transaction, we had a unique perspective.

This didn’t mean that we only looked for ways the transaction could fail, it meant that we challenged perceptions that bigger is always better, or new ownership is the right solution. It also meant that we checked that each trustee independently, and without pressure, believed it was the right outcome for the company and the beneficiaries.

Trust Distributions

Distributing the profit from the transaction to beneficiaries needed to follow the EO equality requirements whereby all beneficiaries receive the same amount, or calculations are based on individual application of hours worked, salary or tenure.

Unlike decisions made during employee ownership on EO company profit share payments, this decision was one for the trustees, not the trading company board, albeit that the boards’ views were a key part of the decision making.

The discussion by trustees on this topic was wide ranging and benefited not only from trustee involvement but also that of legal advisers. Competing views on distribution to long term members of staff who have supported the business to get to this stage, versus new hires who have been brought in as strategic hires, is one area of consideration.

Consideration of the impact on the business post transaction and ensuring that employees want to continue in their role also comes into play. If you hand a significant sum of money to individuals, where is their motivation to continue in the same employment? And in some cases, these were life adjusting amounts that were being shared.

Tax

A few points on tax to note.

At the transition to employee ownership, Capital Gains Tax isn’t waived, it’s deferred.

If the trust sells the shares within 2 years of the original transition, the original vendors pay the CGT owed.

If the trust subsequently sells the shares after this 2 year period, the trust pays the relevant level of CGT. This needs to be factored into the financial modelling of the offer.

It also impacts on the available amounts that can be distributed to employees as beneficiaries of the trust.

Equally, any receipts by employees will be subject to personal tax.

It’s not a free of tax distribution of the financial benefit, and in many cases the cost of this, plus transaction costs, can make the sale very unattractive for all parties. Indeed, in many cases, the profit share over a few years will provide greater payouts to beneficiaries than a one off payment on sale of the company.

Professional Advisers

The importance of professional advisers in both scenarios cannot be underestimated. The transaction documents, as well as the alignment to the trust and its purpose, were complex and detailed.

The trust had separate advisers to the trading company. These trust advisers provided both sale and trust experience and ensured that the trust were making decisions within their remit, and that the legal documentation reflected their role as seller.

The trustees were fully supported and ensured that decisions were documented, and an audit trail was maintained. Indemnities and their applicability were discussed and incorporated and a myriad of other considerations were discussed, agreed and actioned.

Employee Participation

Should employees be asked their views on the sale?

As mentioned, we had one client who did ask their employees, but the reasoning for asking was more complicated that merely asking for employee input, and in some ways, it validated a decision already made by the leadership team and served to quash internal rumours.

For one of our successful transactions, employees were consulted for 2 main reasons. One was that a large proportion of the employees were part of a secondary equity related programme, so were part of the negotiations anyway. In addition, given the nature of their business, employees could grasp the financial concepts easily and understand both the opportunity and the potential consequences.

In the other, there was a more informal interaction and discussion with employees by the leadership team, rather than through a formal route by the trustees.

In both scenarios the timing of this interaction was key:

too soon and there’s not enough information to share or the deal may not progress, but it would leave a residual concern on the future of the business in the minds of the employees consulted; alternatively
too late, and the input and insights from the employees is irrelevant and they may be frustrated that they weren’t trusted or valued for their opinions, which could impact on future engagement.

In both cases, the approach to employees, and their input was appropriate to their culture, history and previous communications. It underpinned their positive attitude to employee engagement and transparency, and reinforced the importance of this in the future.

The Outcome

One of the companies that was sold, has gone on to significantly develop its international footprint, its client base and its employee numbers.

The other, although early days, is now the first footprint in Europe for a US entrepreneurial business, and a great place for its employees to be exposed to significant opportunities as they grow their own careers.

In both cases, employee beneficiaries also received significant sums as part of the distribution. In neither case has this resulted in wholesale departure of staff, in part perhaps because the distributions were aimed at being meaningful but also reflecting the benefits of remaining with a business where the culture is to share success.

The downside for us is that we no longer work with them as there’s no need for an independent trustee. But if we’ve helped them on their way, we’re happy with the outcome.

If you are considering exit options via sale for your employee owned business and would like to chat, contact us confidentially at info@directorsandtrustees.co.uk

Leadership Incentives in EO Companies

Wed, 27 Mar 2024 10:14:22 GMT

Creating effective incentivisation schemes across a business, including for leadership teams, whilst aligning profit sharing and benefit to employees, is a balancing act that is achievable with thought, preparation, and an eye on the future.

In March 2024, IDT hosted a webinar introducing the various leadership incentives schemes that are available, specifically in an Employee Owned company. Led by the PWC incentives team, the presentation gave background on the various schemes possible, and how these can be incorporated into a wider all employee profit share structure.

Why does this matter for trustees?

As trustees, our principal role is as shareholder, with an oversight to ensure that the company protects and increases the value of the shares of the company, however that value is defined, whether financial or otherwise. A large part of this is ensuring that the leadership team are effective in their role, and are incentivised to deliver benefit for all employees.

So isn’t developing a financially based leadership incentive scheme contrary to this profit share to all?

The key is to ensure that those with leadership incentives are also tasked with delivering greater value for the business that wouldn’t otherwise be available. Identifying what their expertise is, and what the aligned deliverables are. By encouraging this, all employees benefit through enhanced value and availability of profit to share. Critically, leadership incentives should not be in isolation of aligned employee benefit.

Key Questions to Ask

So what are the key questions that should be asked?

What are the deliverables and how will they be measured and monitored? Be clear on these, take the time to get them right, map them against potential good and bad times, ensure they are monitored, and don’t pay out if they’re not delivered.

How does this deliver more for all employees? Ensure the scheme’s alignment to the principles of employee ownership and benefit for all. Reinforce activities that are EO focused within the terms of the scheme, so that the principle of benefit for all, and employee participation, are incorporated.

How will the wider Employee group be incentivized? Ensure that all employees have an opportunity to share in profit, preferably in priority to any leadership incentives, or at least at the same time. As the quantum of the profit share pot is agreed, ensure a percentage of this pot is set aside for distribution to all employees.

Equity Based Schemes

Although the shares are held by the trustee as a majority shareholder, there are possibilities for an equity based scheme to be structured, as long as the trusts’ majority shareholding is protected.

Equity based schemes can be tax efficient ways of incentivizing leaders, whilst also ensuring that the cost to the business isn’t prohibitive. Their implementation and the relevant applicable taxation model comes with conditions largely based on company assets, size, number of employees and legal structure. Note that being employee owned is not a barrier to implementing an equity based scheme, but it does require specific considerations.

Trigger events, or exercise options, can be included prior to full payment of any vendor loan or deferred consideration. Whilst good leaver provisions can be incorporated to incentivise those with an expected shorter tenure, as can conditions aligned to long-term sustainable company growth.

Cash Based Schemes

Not all schemes have to be equity based, and within an EO company, it may be preferable to not dilute shares to multiple holders.

Cash based schemes provide a lot more flexibility and can easily incorporate bespoke performance conditions or payment dates. They also have the benefit of being easy to administer and can sit alongside other schemes in place, including EO profit sharing.

In an EO company still within its vendor loan repayment term, being able to incentivise through cash payments before repayment of the loan, with a greater distribution after the loan has been repaid, can help to even out the balance sheet, and encourage leaders to remain with the business after the vendor loan has been repaid.

If the business increases its profit above the original expectations under the repayment schedule, this may also encourage leaders to seek to repay the loan early thus freeing the vendors to their new life, reducing the cost of the financial repayments to the business, and directing profits to leadership and employees.

Scheme Purpose?

Be very clear on what the purpose of the scheme is and ensure this is incorporated into its terms.

Examples include incentivizing rising leaders of the future, using the scheme to incentivize leaders to develop their successors, or ensuring that staging points allow for new members to join. This can then be part of succession development of the next tier down in the organisation.

Where a leadership team may be of an age similar to that of the vendors, consider adding trigger points where members can take out from the scheme, for example as good leavers on retirement.

Scheme Timelines

Depending on the purpose of the scheme, various trigger points, or staging points, can be incorporated. These don’t have to be time based. They could instead be aligned to hitting identified profit margins and targets.

Be creative in a way that delivers for the business. But aim to be simple to monitor, easy to implement, and flexible enough to adjust for future known, and unknown, events, such as new joiners, expansion or contraction.

Complexity and Transparency

Wherever possible, keep the scheme simple – to administer, calculate and pay out.

The time and resource taken to administer, review and apply the scheme can become extensive if it is not well structured and documented at the outset - time that is better spent delivering for the business.

Also, consider any other incentivisation or contribution schemes may be in place. Review existing, or new, success fees, sales bonuses, and other incentivisation schemes across the business, not just employee profit sharing. Can the company afford all these schemes, has time created more complexity, how do they interact with each other, do any individuals get multiple benefit, and how will they be administered?

Too often post EO transition schemes are a continuation of what is already in place or deliver on a desire to compensate those individuals closest to the vendors, compensating them for their loyalty rather than future delivery under the new ownership structure. Care should be taken to ensure that all schemes deliver for the future, under its new EO ownership structure, and for the benefit of all employees. The transition to EO is a great opportunity to reflect, review and refresh what incentivisation at all levels looks like under the company’s new ownership.

If you would like to know more about EO incentivisation schemes, or to receive a copy of the webinar slides, contact IDT at info@directorsandtrustees.co.uk

Employee Ownership & the Role of the Independent Trustee

Fri, 26 Jan 2024 00:00:00 GMT

Employee Ownership is an increasingly popular business model in the UK. Here we answer questions on the role of the Independent Trustee.

Employee ownership of businesses in the UK is rapidly growing with benefits for both the selling shareholder in terms of succession planning and continued ethos of the business, as well as engagement from employees and a greater shared focus by all stakeholders post implementation. It also should not be forgotten that the UK government is supporting the development of the structure through tax benefits and a relatively simple implementation process to encourage this as a way to share ownership and success with employees of a business.

Post implementation the role of the trust board, its effectiveness and its composition are central to the formal trust structure. Within this the role of the independent trustee (IT) can be a key appointment both in the early stages of employee ownership, and thereafter as the company seeks to continue to provide employee engagement.

Here we answer some of the questions that we have been asked as an independent trustee to help to frame the role for EO companies and those considering transition into employee ownership.

Do you have to appoint an IT?

It should be noted that, unless your Trust Deed specifically states the need for an independent trustee as a member of your trustee board, there is no legal requirement to appoint an IT to your trustee board. It should be noted as well that here is no set requirement for the composition of the trustee board. It may have a majority of employee representatives, alternatively there may be an equal representation from management and employees. The vendor shareholder may join the trustee board to continue to share their expertise and knowledge, especially if they are exiting the operational business on transfer to EO. The more stakeholders that are represented on the trust board the more benefit may be seen from having an independent, and neutral, trustee as a member.

Any such appointment should be balanced with the needs of the company, the board of directors of the company, any other shareholders and the trustees. Consider whether you have sufficient breadth and depth of knowledge and experience in your trustee board. Could a neutral, knowledgeable person add value and support the trustee board in being more effective in their role?

Consider what the trustee board looks like with and without an independent trustee. Consider what skills, knowledge and attributes an IT could bring that would make your trustee board more balanced or effective.

Once you’ve decided that you would like an IT on your trustee board, then you need to consider how they would add value and whether there are any particular attributes you’d like them to bring.

Is an IT only beneficial for large companies?

It is a common misconception that only large companies benefit from the appointment of an IT, or that the cost of an IT is prohibitive to smaller EO companies. Setting the expectations from an IT and understanding where they add value can help companies understand whether an IT is right for them, no matter what their size.

A larger company, where there is greater support, potentially a more defined governance structure, and usually a breadth of existing advisers and consultants, will benefit from appointing an IT in terms of the specific role of the trust within this framework, and trust related activities, initiatives and discussions.

A smaller company, may seek to appoint an IT that brings additional skills, potentially as a board mentor, or strategic adviser, or employee ownership implementation support. The added benefit can, in these cases, far outweigh the costs, if they are acting in multiple roles and may negate some of the need for additional advisors or consultants (see below - Can the IT also provide non-IT services or are they conflicted?)

What added benefit can an IT bring to the EOT board?

Depending on the stage of your company in its EO journey, an IT can help to implement an effective trust board, helping to frame discussions, working out the roles and responsibilities of the trustees with their fellow appointees and bringing experience of acting on other boards and formal forums. They may also have experience in the role of being a trustee on an EO or other trust based organisation where the trustees have a fiduciary responsibility for the interests of the members or, as in the case of an EO, the employees as owners.

As a trust board member with no beneficial interest in the shareholding, they can ensure that discussions remain consistent across all employee shareholders, focusing on the employees as a class of shareholders without any knowledge of, or interest in, the variety of inter-company teams, divisions or nuances that are in place in any organisation.

They can also be a beneficial contributor or intermediary between the trading company board and the trust board on any confidential, difficult, or contentious matters, having no benefit in the outcome. If organisational change is proposed by the board as part of its strategy, the IT will not have the same personal interest that an employee representative will have. In these circumstances, the IT can also be a mentor for employee representative trustees who may have difficulty in separating their relationship with colleagues who may be directly affected and their role as a trustee, especially where confidential information may be shared.

One of the roles of the trustee board, as majority shareholder, should be to have oversight of the strategy of the company and its implementation. An IT can support the trustee board n this role by ensuring that discussions remain at the strategic level rather than taking the more natural route of focusing on the immediate impact on the day-to-day business. By being in a position of neutrality, the IT can ask the questions that those closer to the organisation may not be comfortable asking or may not recognise in relation to the current business.

With oversight of the company by the trustees, also comes oversight of the board and its effectiveness. Board evaluation, whether formal or informal, provides an invaluable insight into the effectiveness of a board and the interactions between its members. For employee and management trustees, this may create an awkward situation where they may be evaluating their senior managers and directors. The IT can be a beneficial point of contact for the managing director when they review their board composition, and could take a pro-active part in board evaluations, either in their role as a trustee or as an additional project.

Finally, the IT can be a beneficial coach and mentor to fellow trustees, especially those that are new to the role or who are new to taking a position of responsibility that may set them apart from their colleagues. This can be both in the meeting and outside on a confidential basis, or as part of a more formal training programme. They can also take a leading role when interviewing potential new trustees as and when trustees resign, reach the end of their term and additional or replacement trustees are appointed. If employee trustees are appointed by election, the IT can ensure that the role of the trustee is understood and can support the induction of new trustees.

Is the IT role the same as the employee trustees?

Yes. There are no additional or lesser roles and responsibilities expected of an IT. As mentioned, they may bring different knowledge, experience and skills, and contribute differently, but the role is effectively the same.

Does the IT chair the EOT board meetings?

The IT can chair the EOT board meetings, but it is not a prerequisite.

Many companies have individuals acting as trustees who are very effective as chairs, so the ITs role, along with the other trustees, is to support the chair in their role.

In other companies it is beneficial to have this neutral party chairing meetings. This may be particularly beneficial if multiple parties are represented by trustees where the chair needs to ensure that all attendees have equal opportunity to contribute.

Equally, whilst the IT may be the initial chair when a company first transitions to EO, over time the role may migrate to other trustees as the framework of the trust board gains more clarity.

Do the EO Trustees vote at company board meetings?

The EOT board is a majority shareholder in the business. Hence, wherever shareholder approval is required, the EOT would vote in the same way that shareholders vote at an AGM of a listed company.

Similar to listed company shareholders, they do not set the strategy or make operational decisions.

The Articles of the company should be checked to confirm if any decisions need shareholder approval. If they are, keeping an audit trail of the approval is also a key requirement and should be kept as part of the formal documentation of the company, and at the trust level.

Does the IT have the same voting rights as the other trustees in trustee meetings?

Unless the trust deed states otherwise, the IT will have the same voting rights as all other named trustees.

In some company structures, the chair may have the casting vote, and the IT may be the chair. This would be documented in the articles and/or the trust deed.

Can the IT also provide non-IT services or are they conflicted?

The IT can also provide other services.

Best practice is to document and recompense any additional services provided by the IT so there is an audit trail of the request as well as a clear description of the additional services so that it is differentiated from their role as trustee.

The most frequent additional services provided by an IT are related to the trust, such as coaching or mentoring new trustees, working with the board in a bridging role between the board and trustees, training, providing strategic advice or undertaking board reviews. However, this could be an endless list and is dependent on the company need as well as the skills of the individual IT.

One of the advantages of using the IT for additional projects is that they will already have access to confidential information and, in their role as trustee, will have gained knowledge of how the company acts and operates. Hence, they will be able to contribute without too long a lead time in gathering knowledge. Equally, for some additional services, this may be a detriment as they may have too much knowledge through their role as trustee or the additional services may put them in conflict with their trustee obligations.

In practice, each additional service proposition should be considered in isolation based on experience, ability, conflict and deliverables.

Is it better to have an IT that knows the company?

The benefit of an IT is that they bring something different to the trustee board and its meetings. The employee trustees, and management and vendor trustees if there are any, know the company in depth. Hence it may be better to have an IT that has no company connection so does bring diversity of thought and a fresh view, and is truly independent

Is it better to have an IT that knows the sector?

There are positives and negatives in knowing the sector.

Firstly, it’s important to understand how they know the sector. Have they worked in the business or at a competitors before? Or have they had a different connection to the sector, perhaps as a service provider?

Secondly, it is useful to consider what value having this knowledge will bring to their role as IT. Yes, they will understand the drivers of the company, what the specifics of the sector are and what the challenges that are faced. But equally, the trustee board is not setting strategy or running the company. Would this knowledge be better sitting as a non-executive director of the board of the company itself?

What about confidential information that the IT will receive?

As with any senior appointment, company confidential information will be shared in order for the role to be effectively discharged. Having a confidentiality clause in the appointment contract will cover the formality of its dissemination and use.

Can an IT be appointed to more than one EO board?

Yes. As long as you are clear on any conflicts of interest that may arise. As with any board appointment, identifying and accommodating conflicts is a key requirement. They are not necessarily a reason to not appoint somebody to the role if they are the best candidate.

Who Chooses the IT?

Unlike employee trustees, the IT is not elected by the employee owners. They are usually identified by, or at least short-listed by, the board of directors of the company or the vendor owners during the implementation process. Depending on the structure of the trust board, the appointment may also need approval by the trustees, or at least be ratified by them.

It should be remembered that the IT needs to work alongside the trustees and with the board, so must be able to communicate well with both forums.

Subsequent appointments of an IT, whether through resignation, replacement or in addition to an IT, can be led either by the board or the trustees, most commonly the chair of each forum would work collegiately in identifying the requirements and candidates.

How is the EO appointed?

At the implementation of the EO, it is often a combination of the selling vendors (especially if they will have a residual holding or role in the company after implementation) and the board of directors who appoint the initial IT. This could either be by the identification of a single suitable candidate or through meeting with a few candidates to identify an individual who would work well with the culture of the business. At the implementation of the EOT, the aim is to have a successful transition to EO so having an IT that can support and benefit this process is useful.

Subsequent appointments of an IT may be a combination of input from the board of directors and trustees based on the requirements at that time.

Who does the IT contract with?

The IT formally contracts with the trust company, however, the cost of the IT is invariably picked up by the company itself on behalf of the trust.

Having a formal contract between the company, the trust company and the IT themselves (whether as an individual or through a company) ensures that all three parties are aware of the content.

Who pays the IT?

Invariably the Company pays the costs and expenses of the trust, part of which is the cost of the IT.

How are the fees of the IT structured?

IT fees are most commonly structured as a fee for preparation, attendance and follow up at scheduled meetings. Any additional work outside of this formal schedule is then charged on an hour or day rate set at the outset.

Where additional services are provided these may be agreed separately, often on a day rate or base on delivery of the project.

How long should an IT be appointed for?

The trust deed should document the maximum term of all trustees. In some cases this document differentiates between the employee trustees and the IT, with different tenors for each. In others it is a standard expected period, most frequently 3 years, with an option to extend.

How many ITs should we appoint?

Once you’ve decided to appoint an IT, you should consider what attributes, experience and knowledge you would like them to bring to your trustee board. Consider which are required and which would bring an added benefit. If your core requirements are extensive, it may be beneficial to consider appointing more than one IT to ensure that you are getting what you need. However, if your core requirements are limited, or you are unsure of what the added benefits may be, having a single IT at the outset may be preferable, with flexibility to add additional Its in the future if ever needed.

Remember as well that the trust board can draw on expertise from outside their members, so the knowledge and experience of the trust board can be supplemented by outside contributors. This may be particularly beneficial if the requirements may be brief or limited in scope

Equally, remember that your IT is not there forever. They will be appointed for an initial term, usually 3 years, after which their term can be extended, or they could be replaced by somebody with the skills that are needed then, rather than 3 years previously.

You may be best suited to having one IT for the initial transition period whilst your EO scheme, your employees, trustees and board are all settling into the new structure. Your IT can be beneficial in supporting this transition period. Helping to reflect on the core roles of each forum, what the responsibilities are and, equally, what they are not. Thereafter you may want to keep the same IT, add a new additional appointee or a replacement. Equally, you may feel that you would prefer to not have an IT whilst the trustee board remains stable.

The primary considerations are what additional benefit you expect your IT(s) to provide, the cost and the flexibility.

Where can you find an IT?

Once you have decided that you would benefit from having an IT on your trustee board, and you have discussed what attributes you would like them to bring to the trustee board, you are ready to search for suitable candidates. This could be from your existing contacts, suggestions or introductions from your advisers, or from a provider such as Independent Director & Trustees Limited.

Wherever you source your IT from, ensure you have a clear expectation of their role and deliverables and a budget to cover their cost. Then it’s just a matter of finding an IT that meets your need and both the board and the trustees feel they can work with. Don’t worry that this has to be an exact description from the outset as both your trust board and the contribution of the IT will change over time as the trust board develops and matures.

This Q&A on the role of the Independent Trustee was written by Independent Directors and Trustees to assist in understanding the role. Readers are welcome to share it with their contacts and colleagues. If you would like to know more about IDTs independent trustee services, contact us at info@directorsandtrustees.co.uk

Planning an Employee Ownership Trust?

Mon, 20 Jun 2022 09:52:54 GMT

Once the decision is made to transition to an EOT, what are the steps needed for practical implementation?

Increasing numbers of business owners are reviewing their business options and succession plans, with a rapidly rising number of these opting for an exit via an Employee Ownership Trust (EOT). bbpMedia published a series of articles in their June 2022 Midlands edition on the routes to establishing an EOT. The following is one of those articles:

For those wishing to adopt this model, such as a retiring company owner seeking to protect the legacy of their business, an EOT has many advantages. This trust model is often chosen as it can create employee ownership without requiring finance from employees, provides a long-term ownership model and is straightforward to administer. It can also have a much shorter lead time and less disruption than a trade sale, whilst also providing a tax beneficial option for the sellers and the employees. Hence, as a solution, not only does an EOT provide an effective exit, it also rewards all employees for their contribution to the success of the business.

So far, so good, but once sold to the trust, what next? How do you energise the company under its new ownership structure to create benefit for the business and its employees?

Independent Directors & Trustees Ltd (IDT) is a team of individuals with extensive board level and leadership experience across a wide range of sectors. They bring their expertise and insights to enable their clients to develop solid foundations on which to build long term success as an EOT.

The key difference between IDT and many other advisors, or stand alone independent trustees, is that the team are able to share insights from a breadth of EOT organisations to enable their clients to indirectly learn from others. They can work with leadership teams to model their EOT organisational structure building on the existing strengths, whilst layering on top the requirements of an EOT. They can also act as the formally appointed independent trustee, chairing trust board meetings and coaching fellow trustees,

We [BPP Media] spoke to Sue Lawrence, founder of IDT, who is herself an independent trustee as well as the lead on EOT implementation and early-stage transition, about the crucial importance of having an effective organisational structure.

She said: “The real benefit of being an EOT is having a leadership team that can set the future direction of the company, with the added benefit of being informed by employee insights. An effective EOT has clear roles and responsibilities aligned to effective two-way communication that creates mutual trust and a breadth of participation. The legacy of the founder and the culture of the company needs to be maintained whilst building this greater participation and involvement. Through this an EOT organisation can start to build on the opportunities available from their new status.”

With IDT everything is about collaboration and support, working with client organisations to enhance the existing business through identifying opportunities available to them by being an EOT, through discussion, tailor-made workshops and providing EOT materials developed through experience. One workshop that is particularly well subscribed is the initial management vs trust roles and responsibilities, often used as the spring-board for the organisation shortly after their transition.

For more information on IDT and their services, get in touch by calling +44 (0)203 926 6000, emailing info@directorsandtrustees.co.uk or visit the web site: https://www.independentdirectorsandtrustees.co.uk/

This article was originally published by bbpMedia in The Business Post (Midlands edition, number 99) in June 2022. The published article, as well as other articles on employee ownership can be found via their website at: The Business Post Midlands Edition 99 (bbpmedia.co.uk)