News and Comment

Protecting organisational culture with employee ownership

Wednesday 16 March 2011

By the trustees of OPM’s Employee Share Ownership Trust (ESOT): Ricci Pleszkan, Leigh Johnston, Justin Kary, Sarah McDonell, Diane Beddoes

The Parfett family could have made a lot more money by selling their business to a large competitor.

Instead, they voluntarily took a 20 per cent cut and sold it to their employees. Why on earth did they do this?

First, a little background. As part of a recent Employee Ownership Association (OPM and Parfetts are members) event, OPM trustees visited the Parfetts head office to see how other companies put employee ownership into practice. Employee owned Parfetts is a cash and carry grocery supply company based in Stockport, near Manchester. Since its founding in 1980, Parfetts was a 100 per cent family-owned business. In 2008 the family sold 55 per cent to their employees. The family plans to sell their remaining 45 per cent to employees at a later date.

An uncertain future

Steve Parfett and his brother Robert are the second generation to run the company, following their father Alan. No family member appeared likely to continue running the business, so a few years ago the family looked into options for business succession.

The obvious choice was selling it to another business in the industry. But after researching many options, employee ownership arose as a very likely candidate.

Why employee ownership?

The overriding reason the Parfett family ultimately decided on employee ownership for the future of the company they worked so hard to create was because they wanted to do what was best for their employees. They wanted to retain the family-owned culture.

Directors and employees at Parfetts told us that the company is known for their excellent, friendly service. Although we didn’t talk to any customers, Parfetts sales figures suggest they must be doing something right with £290 million in turnover last year during a difficult and competitive climate.

If they had sold to a large conglomerate, the jobs of many employees, especially managers and senior executives, could have been at risk. As the Parfetts’ website says, selling to a competitor:

‘… would inevitably have left employees working in a very different organisation and vulnerable to any cuts or changes that a new owner might make. Therefore, the over-riding consideration was that the longer term interests and security of employees was taken into account. The family and board also wanted the company to remain a successful business where customers receive excellent levels of service and employees are treated with respect and rewarded for their contribution.’

The benefits of employee ownership

Moving to employee ownership can keep out external influences that might adversely affect an organisation. This is not to say that organisations should not seek external advice or ideas that may help it; indeed, this is often required. But external parties or new owners may not always have a full understanding of the customers, other relationships or nuanced reasons for doing things a certain way.

For Parfetts, if they had sold to an outside owner, the family culture may have been destroyed. Giving employees control of their organisation through ownership will help maintain the practices and culture of this successful company.

Employee ownership can also benefit employees by providing an incentive to increase productivity because they have a share in the results. One of the employee council representatives at Parfetts told us that while he does not have any hard data, anecdotally, he has seen improved employee performance and morale.

Many organisations, especially in the current climate, focus on short-term profits. So we are encouraged to see a private sector company like Parfetts take a long-term view of employee and customer benefits through employee ownership.

Some literature

If you would like some evidence for the benefits of employee ownership and examples of other organisations’ experiences, read our reports, New models of public service ownership and Shared ownership in practice.

For information on how to become an employee owned organisation read How to become an employee owned mutual – An action checklist for the public sector, written by the Baxi Partnership, Field Fisher Waterhouse, OPM and the Employee Ownership Association.