Employee Ownership – The legacy option for selling a business

 

Val King – Managing Director

How it all began

It was 1989 Peter King – an architect – couldn’t find the product he needed for his clients in Hampstead Garden Suburb, London. They wanted to convert their attics, but strict planning conditions applied, and the only option for light and ventilation was a cast-iron rooflight based on a Victorian design. Peter knew his clients would not be very happy with a product that was draughty and would potentially leak, so he decided to design and produce one himself to meet modern standards; and the Conservation Rooflight® was born

I came from the corporate world having worked mainly in Europe, knowing nothing about rooflights, but loving the idea of having more freedom in my job. Don’t get me wrong, I enjoyed my job and all the travelling, and had learnt a lot from being exposed to colleagues and customers from all over the world, but it felt the right time to hang up my passport and knuckle down to growing our own business.

Growth
Fortunately for us, thousands of other architects had the same problem as Peter, and over the past 30 years have specified the product for residential projects and landmark buildings like Somerset House and the Natural History Museum. Fast-track to 2019, and the Rooflight Company now has 70 people, 6 different product ranges and a bespoke design service. We seem to have had a knack for spotting a gap in the market and innovation has been our trademark.

People
While we’re passionate about product design and producing great products, it’s the people who make our business different – sounds obvious I know. I have a strong conviction that business can be a force for good in the world, and as the business leader it’s down to me and the top team to create and encourage a culture where people can flourish and grow.
This may sound a bit airy-fairy to some, but business schools have been promoting the idea of developing people to their full potential for decades.

 

Options for selling the business
Like all SME owners Pete and I came to the point when we had to consider our exit plan; here are the options we considered:

1. Trade Sale – we were approached by a competitor, and strategically for them an acquisition made good sense; they seemed like decent people, but we knew that the sale would result in the majority of our people losing their jobs and an end to the values-led and innovation-based culture we had built up.
2. MBO – the majority of management buy-outs I’ve heard about have ended badly – the owner gets the money, but at a high cost to the people involved. VCs or other lenders put such pressure on the new top team that the company and all the employees suffer, and in some cases the company fails in a short space of time.
3. Passing on to Family – our daughter and son have just finished studying – neither of them are interested in business – their paths lead elsewhere.

Our Legacy
The 4th option was employee ownership, as it was the only option that would allow us to leave a meaningful legacy. It didn’t take us long to decide what that legacy was – it can be summed up in 3 Guiding Principles – Values-led culture, Innovation and Long-term sustainability.

 

Values-led culture
Our values of Integrity, Care, Empowered and Unity and their associated behaviours provide the clarity and a framework for the way we decide and do things here. Our values are not a silver bullet for all problems and negative behaviour, but enough of our people believe in them enough of the time to make a difference.

Innovation
Right from the start, with Peter’s design for the Conservation Rooflight, we have come up with products that no one else has thought of; so innovation is at the heart of our success and is key to staying ahead of our competitors and delivering value and quality for our customers – so this is our second Guiding Principle.

Sustainability
We have always taken the long view in our strategic thinking, avoiding quick-win, short-term solutions. And we believe it’s our responsibility to play our part in mitigating climate change and have an ambitious target of achieving zero waste to landfill and being carbon neutral by 2024.

Business as a Force for Good
Experience has shown me that business can be a Force for Good – and can also be the opposite of that! It is now our Vision to be that Force for Good, and we will achieve this through living out our Guiding Principles. We believe that the world can be a better place if we walk the walk and show others by our example that good business is about creating and sharing wealth, rather than extracting wealth. It has occurred to me recently that when you’re buying or selling a business, in a way you’re actually buying and selling people. If you fail to take that responsibility seriously, you’re in danger of exploiting people in the process. Employee ownership provides a model which has people at its heart, where people feel like an owner of the business.

Employee Ownership Trust – how it works

There are many options when selling your business to employees – we decided on the Employee Ownership Trust model, (similar to John Lewis), so Pete and I sold 60% of our shares to a newly formed company called Rooflight Trustees Ltd; this is the legal mechanism through which the Trust is operated. Following the independent valuation of the company, we agreed on a repayment plan over 8 years to be paid from reserves and future profits. We then had to set up a Board of Trustees and chose 3 independent trustees – 3 people who we knew we could trust and who brought different skills and experience. The 4th Trustee is Pete and the final two will come from employees (or Co-owners as we now call them). Voting for the Co-owner Trustees will happen in September. To find out more about the options visit https://employeeownership.co.uk/

Leadership
It’s important to state that employee-owned companies do not hand over leadership and management to employees; it is still very much the job of the Board of Directors or Leadership Team, and management is still in the hands of managers. The main difference is that the Board of Directors (myself included) now report to the Board of Trustees; we do this once a quarter. It’s the job of the Board of Trustees to hold me to account on strategy, the long-term financial health of the company and to make sure I’m adhering to the Guiding Principles. And they do have the power to sack me! Embedding a co-ownership culture will take some time, and it will be my successor’s job to carry on the work when they take over early 2021.

Certainty for the future and a Say in the Business
A few months after transition to employee ownership I was in a meeting with our managers and this question was posed: “What has changed since becoming employee-owned in March?” One manager, Simon said there was now a feeling of certainty for the future and another, Kathryn said there was a feeling that we will have a greater say in the business.

Having a say in the business is crucial to employee ownership, so in addition to having the two Co-owner Trustees, 5 new ‘Voice Groups’ will be formed before the end of this year. Both the Co-owner Trustees and representatives of the Voice Groups will be voted for by their colleagues. These representatives will be involved in meetings with the Leadership Team and the Board of Trustees and will present and discuss important aspects of how the business is run from their point of view.

Being part of a positive community
What I didn’t realise before becoming employee-owned was that we’d be joining a whole community of 370 businesses who are happy to share their own experiences – good and bad. And we’re part of a growing club with some well-known names such as Richer Sounds, Aardman Animations and Cambridge Weight plan. We have already learnt a great deal by sharing experiences at Employee Ownership events, and this learning and growing will continue into the future.

I’m happy to share our experiences with you if you’re considering employee ownership. And if you’re already employee-owned, it would great to hear from you to learn from your experiences. Just contact me on val.king@therooflightcompany.co.uk

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