Giving your workforce a voice may not be as scary as it sounds. If done properly, companies could have a happier crew with the same overall objectives as senior management.
The constitution of British business is under the microscope as never before. European legislation on informing and consulting employees is likely to lead to staff having a bigger say at a far earlier stage on important issues that affect the running of the business.
And the Government has so far failed to silence calls for reform of corporate governance laws that allow senior executives to command nest-feathering pay packages and severance deals, often at the same time that employees face insecurity and job losses.
But what effect do greater democracy and worker involvement have on how companies make money? The DTI claims its discussion paper last year on information and consultation found “a broad consensus that information and consultation systems have an important part to play in creating high-performance workplaces”. But so far there has been little evidence to back this up.
Now a school uniform supplier in Sheffield is aiming to prove that a high-involvement company structure and top-class performance can go together.
This 16-year-old firm, employing about 130 people, is going much further than just giving its workers a voice. It is preparing to hand over to them control over the future direction and leadership of the company. Not only will they own most of the shares, they will also sit on a powerful governing council with the authority to remove the managing director and decide his or her remuneration package.
This new ‘community company’ will be closely watched by academics at Sheffield Hallam University to see what effects the new structure has on hard business measures such as productivity, quality and customer satisfaction.
School Trends’ founder and managing director Peter Beeby says: “I am very cautious about telling anyone else how to go about their business. But there is an increasing body of evidence to support the idea that companies that fully engage with employees in terms of decision making and distribution of resources perform better than those that do not.
“You can also make a strong moral argument that those within the business are taking greater risks than an institutional shareholder will be taking with a spread of investments. They deserve a better share of the spoils than they get in many areas of industry.”
For Beeby and his partner Ric Norris, creating this community company – which is thought to be unique in the UK and was partly modelled on the huge Spanish co-operative Mondragon – is just the next logical step. They have always run the company along democratic lines.
“Our company values have been developed over time with the involvement of all our members rather than in the HR department’s lunch hour,” Beeby says.
“We established early on a structure to ensure people had a say in the business. We set up action groups that meet monthly to allow people to have an insight into their areas of work and key issues as regards to strategy.
“We hooked into the idea of profit sharing early on and established an employee share ownership scheme relatively early for a company of this size,” says Beeby.
He continues: “It is a non-hierarchical organisation: we don’t treat management as a tool of privilege and power. It is simply regarded as a function. There is very little demarcation around position or authority. It is entirely open plan, no one has an office. The move to employee ownership is therefore a natural step.”
The motivation behind it was the directors’ need to find an exit strategy for shareholders that would not put School Trends’ company culture at risk. The thought of selling shares through a trade sale or flotation was anathema, given the atmosphere of trust and security they had worked so hard to create. So the directors set up a trust to hold the majority of shares for the employees, and to encourage the staff to expand their own shareholdings. The governing council completed the belt and braces approach, ensuring the control of the company could forever remain in sympathetic hands.
“We considered all directors would come up for election periodically on the basis of one member, one vote,” Beeby explains. “But the pitfalls are it could be argued it may be difficult to establish an objective viewpoint in terms of directors’ performance. We decided the idea of a smaller, elected group that would have authority to remove or appoint the managing director only – the managing director would still be responsible for appointing the managing board – may have more merit.”
The council will also make decisions about workers’ terms and conditions – pay, holidays, and so on – as well as how best to protect the company’s values. Operational decisions, however, will continue to be made by the board – the council will only have a say where these are “deemed to be at odds with the company’s values”.
Is there a danger that directors will shy away from commercially necessary but difficult decisions? “If these are likely to impact on people in the company it is right they should be fully involved in the decision making anyway,” Beeby says.
“If you involve people effectively and give them a real say you usually end up with the right decision.”
Beeby says he has had difficult decisions to make in the past – such as when the company tried and failed to break into mail order. “We weren’t looking at a redundancy situation but certainly it impacted on the resources available for salary increases and it affected morale greatly.
“I took the failure of that project personally,” he concedes, “and I considered my own position. But the response from the majority was wholly supportive. That can only have been because people felt deeply connected with the decision making and took some of the responsibility on themselves.”
He continues: “The kind of changes that we are evolving here require a strong element of trust and that trust can’t be inflicted on people, it needs to be grown and nurtured. We have a level of trust that we can cope with most things.”
He says the company’s record – it has a 27 per cent share of the primary school uniform market while the nearest competitor has 9 per cent – proves worker democracy and commercial imperatives are not mutually exclusive.
Professor John Cullen, who is leading the SHU study, argues it is the company’s competitiveness that makes it such an excellent research subject.
“One of the things it does well is that while it is driven by values it recognises the need for sustainable business. It is willing to take on board lots of ideas and techniques to ensure that it remains competitive. It is now developing in the secondary school sector and I think that although it has market share, it cannot be complacent.”
Cullen has spent time with the company looking at its entire supply chain from its relationship with suppliers – logistics or embroidery – through to the customers.
“The values that dominate the organisation in many ways impact on the customers, the relationship with schools. The way they run the business has an impact on the business they get; they are keen on developing people, training and development days, and so on. It is about getting people really embedded in what they are doing,” Cullen says.
Cullen’s team will measure School Trends’ success against a range of measures to do with customer satisfaction – lead times, turnaround times and productivity waste, quality, quality costs – as well as employee satisfaction and turnover.
More difficult to measure are the less tangible aspects such as how innovative and creative staff are. “People use concepts such as the balanced scorecard, EFQM. If we can learn things from models such as these, all well and good,” says Cullen.
“How you measure these is an important part of the project.”
What Beeby and Cullen hope to see emerge from this is a new form of social entrepreneurship that offers long-term security and a share of the spoils in return for high levels of commitment and creativity. It is no place for those who prefer a comfort zone.
“There are a lot of benefits to working here,” says Beeby, “but it is demanding in terms of what people are expected to give and contribute. This is not necessarily in terms of hours, though given we are seasonal certainly at some times of year that is the case, but more in terms of the expectation that they will think about their work, will contribute to the decision-making process.”
With employee turnover about 10 per cent, it is not a trade-off everyone is willing to make. But turnover among those that have been with the company more than a year is negligible, Beeby says.
“One of the great benefits of working in an organisation that has strong, solid foundations is that there is perhaps more licence to be creative and to take commercial risks in the knowledge that you have a team that is going to stick together,” Beeby says.
The Information and Consultation (I&C) Directive
The government has outlined draft regulations that would apply to undertakings with 50-plus employees. The employer must establish I&C procedures where a valid request has been made in writing by at least 10 per cent of employees. Practical arrangements would be by negotiated agreement with genuine employee representatives. Employers would have six months to set up the necessary structures. Management must provide the I&C committee with information on:
The recent and probable development of the undertaking’s activities and economic situation
The situation, structure and probable development of employment and any anticipatory measures envisaged, particularly if they threaten jobs
Decisions likely to lead to substantial changes in work organisation or contractual relations, including collective redundancies and business transfers.
Consultation must take place with a view to reaching agreement on decisions within the scope of the management’s powers.