Employee Ownership Expert Graeme Nuttall Speaks Out on Shares for Rights and Royal Mail IPO

Graeme Nuttall has been instrumental in convincing the UK government to promote employee ownership. The dual qualified solicitor and chartered tax adviser was appointed by the government as an independent adviser in February 2012 and has since authored the influential Sharing Success: The Nuttall Review of Employee Ownership report.

The review, commissioned by the Department for Business, Innovation & Skills, called on the government to introduce measures to evangelise over the John Lewis style ownership structure and implement attractive tax incentives to boost the business model's popularity.

The Field Fisher Waterhouse tax practice partner has won the politicians over. Following Nuttall's recommendations, the Business Secretary Vince Cable announced in July that the government is to annually commit £50m in tax breaks for employee owned companies from April 2014.

In addition, the government supported the UK's first Employee Ownership Day on 4 July, which highlighted, among other things, the achievements of the business model. To coincide with the celebration, the government launched a consultation into its proposal to introduce a new capital gains tax relief and income tax and national insurance contributions exemption for employee owned organisations.

The HM Treasury consultation closed just last week so IBTimes UK decided to speak to Nuttall about employee ownership, Royal Mail, the growing international popularity of the business model and the government's shares for rights scheme.

IBTimes UK: George Osborne's controversial Employee Shareholder Status scheme (known as shares for rights), which enables workers to swap some of their employment rights for at least £2,000 in their employer, has put share ownership back in the news.

Even though the initiative is different to employee ownership, are you frustrated that the policy is in contradiction to the rights boosting proposals you outlined in the Nuttall Review?

Graeme Nuttall: My vision for employee ownership sees workers having an enhanced status within the business with which they work, one in which employees add to their employment rights.

But I like the way that the shares for rights scheme has opened up the debate about what is the role of an employee in relation to a business. So, interestingly, the Chancellor's measure actually promoted and created great publicity for the Nuttall Review.

IBTimes UK: Employee ownership seems very attractive to workers. But what happens if the business in which the employee has their savings invested goes bust?

GN: In my experience employees can understand and deal with that investment risk and if anyone knows what the strength of a company is, it is likely to be its workforce.

I have never seen this as a practical problem - employees appreciate that they are taking a risk, but workers realise they should invest elsewhere as well as in their own company.

IBTimes UK: With multiple owners, there must be a worry that an employee owned organisation will run less smoothly than a corporate competitor?

GN: If you look at the board structures of the major employee owned companies, you will find that they have conventional boards, which are capable of making decisions in the same way that any other business would.

An interesting challenge for employee owned companies is at times of adversity. But because employees have been better informed during the good times, they are capable of making really constructive suggestions as to how to deal with the bad times. For example, individuals may come forward for voluntary redundancies.

IBTimes UK: You argued for workers to have a "significant and meaningful" stake in an employee owned company in the Nuttall Review. Can you qualify what you mean by "significant and meaningful"?

GN: "Significant" goes beyond pure financial participation. It is not enough for the organisation to deliver a tax break or another financial benefit to the employee, the company has to deliver on employee engagement.

In order to trigger the benefits of employee ownership, most employee owned companies choose a model of more than 50% of employee ownership. But some research suggests that percentages below 50% can also deliver benefits.

Until the research is further advanced, I have left the "significant and meaningful" percentage amount to be decided on a company-by-company basis.

IBTimes UK: The government has announced that it plans to float the Royal Mail on the London Stock Exchange for between 260p and 330p per share. The move will see 10% of the company's share being given to the postal service's workers. What do you think about the sell-off?

GN: I entirely support the idea of a variety of equity incentive measures and that different arrangements work well in different companies.

My personal preference would have been to explore the idea of the employee shares in the Royal Mail being held collectively through a trust, rather than personal awards.

I am concerned that individual postmen will sell the shares when they think it is appropriate, so the benefits of employee share ownership may be lost. With an alternative approach, perhaps involving a collective ownership of shares, Royal Mail employees could have had an ongoing say in how the business is run.

IBTimes UK: You travelled to Australia in May and spoke about employee ownership. Have you been to any other countries since then to promote and explain the business model?

GN: I recently travelled to Ireland to deliver a lecture to the Irish ProShare Association. It looks as if the UK government is doing something right because there are signs of interest in employee ownership in Australia and Ireland.