Research finds employee owned business model offers greater resilience

Joseph Lampel, Professor of Strategy and Entrepreneurship

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The research was conducted by Joseph Lampel, Professor of Strategy and Entrepreneurship, and Dr Ajay Bhalla, senior lecturer in Information and Knowledge Management, at Cass Business School, London. The findings were based on a survey of more than 60 senior executives, and financial data from more than 250 firms. 

"The advantage for EOBs comes from taking a stakeholder rather than a shareholder view of management. Employees who have a stake in the company they work for are more committed to delivering quality and more flexible in responding to the needs of the business," said Dr Bhalla. 

In Britain businesses wholly or substantially owned by their staff are estimated to turn over £25 billion a year, or about two per cent of the UK GDP. In the Middle East employee owned businesses are less common due to the local ownership regulations. However, some international companies such as leading management, engineering and development consultancy Mott MacDonald have extended their EOB model to the Middle East, where they are experiencing much success.  

"The EOB model has aided our growth in this market, as expansion is financed through the company funds with a confirmed policy of growth decision making. The model also provided us with more resilience during the economic downturn. We have been able to support our clients through difficult times, with a view to long term business relationships." 

From the research, it has also been shown that EOBs are more resilient, with more stable performance over business cycles and less sales variability. From 2005 to 2008, non-EOBs experienced higher average sales growth per annum than EOBs (12.1% vs. 10.0%). However, the average sales growth of EOBs during the recession (2008-2009) was 11.08%, significantly surpassing that of non-EOBs at just 0.61%. 

According to Professor Lampel, "Resilience - the ability of firms to sustain employment and growth during difficult economic conditions - has been neglected as a crucial aspect of company performance over the past two decades. Instead, business strategy and public policy have been dominated by an unremitting focus on maximising share value. In the current economic conditions, business leaders and policy makers should be looking again at the resilience associated with the employee ownership model - and how it could benefit economies as a whole." 

The new research also reveals some key barriers to the growth of employee-owned companies, including how to retain the advantage of a potentially more committed workforce, as the business grows bigger and more complex. 

The report also finds that some EOBs have difficulties obtaining favourable financing from institutions that are more accustomed to dealing with listed companies, and that they also face more regulatory and policy challenges than businesses with other ownership structures. 

Despite these challenges, in the wake of the financial crisis the study suggests that the strengths of the employee-ownership model - such as accountable management, a happier workforce, closer alignment of risk and reward and a fairer distribution of profit - could help to build a "fairer form of capitalism" with a greater culture of responsibility and trust.  

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About Cass Business School 
Cass Business School, City University, London, delivers innovative, relevant and forward-looking education, training, consultancy and research. Located in the heart of one of the world's leading financial centres, Cass is the business school for the City of London.   

Our MBA, specialist Masters and undergraduate degrees have a global reputation for excellence, and the School supports nearly 100 PhD students.  Cass offers the widest portfolio of specialist Masters programmes in Europe and our Executive MBA is ranked 2^nd in the UK and 5^th in Europe.  

Cass has the largest faculties of Finance and Actuarial Science and Insurance in Europe.  It is ranked in the top 10 UK business schools for business, management and finance research and 90% of the research output is internationally significant.  

Cass is a place where students, academics, industry experts, business leaders and policy makers can enrich each other's thinking. For further information visit: www.cass.city.ac.uk.  
 
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© Press Release 2010