Protecting employees from a third-party sale - the biggest reason founders choose an EOT
Why do founders choose an EOT? New research gives a clear answer.
69.2% of the firms surveyed wanted to protect employees from the disruption of a third-party sale. Improving employee engagement (58%) and securing a founder's legacy (54%) were also strong motivations, alongside tax benefits (65%).
In other words, many founders are looking for continuity. The research suggests, though, that what follows isn't simply preservation.
Culture changes, whether you plan for it or not
The report is clear that culture transformation is a defining feature of the post-transition phase. Respondents described real positives: more employee participation, a longer-term outlook and greater alignment with the company's goals. They also described periods of uncertainty and adjustment, and in some firms a perception of slower decision-making and reduced "hunger".
The researchers' conclusion is that an EOT triggers a shift in organisational behaviour. It should be treated as an organisational development process, with behavioural change managed alongside the structural one.
The innovation question
Several respondents reported a move towards operational optimisation or consolidation at the expense of innovation. Others pointed to challenges in sustaining entrepreneurial drive without a central owner: reduced risk-taking, no single strategic driving force, and difficulty replicating a founder's vision and intensity.
The risk the report identifies is that EOTs prioritise stability over growth, particularly in the medium to long term. Avoiding that may require new leadership models and incentive structures for the management team.
At IDT, we frequently see new leaders of employee-owned businesses showing a lack of drive, innovation or appetite for change. This is where the independent trustee has a real part to play. One of the roles of the independent trustee is to encourage the new leadership team to take risks, or at least to consider them properly, and to think like a leader rather than an employee.
Performance gains aren't automatic
The survey asked whether firms had seen improvements since the transition. The responses were a spread, not a clear win:
- Productivity: 39% agreed there had been improvements, 38% were neutral and 23% disagreed.
- Financial performance: 27% agreed, 38% were neutral and 35% disagreed.
- Employee retention: 31% agreed, 46% were neutral and 23% disagreed.
These are respondents' perceptions rather than audited results, and the sample is small. But the message is consistent with the rest of the report: outcomes depend on what happens after completion, not on the ownership structure alone.
Questions worth asking
- Are decisions being made at the pace the business needs?
- Who now owns the strategy and the appetite for sensible risk?
- Do incentives reward innovation, or only stability?
- How would we know if entrepreneurial drive was fading?
Employee ownership can give a business stability, a long-term view and a workforce that's invested in its success. Keeping the spark alive is something boards need to plan for deliberately.
About the research: This blog draws on Employee Ownership Trusts: Beyond Completion – Post-Transition Realities, Risks and Implications by Dr Israa Kishk (University of Northampton), Tracy Evans (EMW) and Adrian Pryce DL (Be. Partners Ltd / IoD National Sustainability Group). The findings are based on survey responses from 26 UK EOT firms.
