» EO leaders meet
» Event to launch new study on EO effect
» Training EO champions

Employee ownership news :

» Interest in the John Lewis model continues…
» ...not least as a model for parts of the NHS…
» John Logue, US pioneer of employee ownership, dies
» EOA briefs Lib Dem health spokesman
» Circle Health partners' conference
» 'Post bureaucratic public services’ Government event
» More names for Ownership Commission
» Cadbury – missed opportunity
» Employee owners pick up awards

EOA:

» Welcome to new members

Whitehall update:

» Corporate governance in the financial services sector
» ABI update
» Longer lasting EBTs from 6 April 2010
» No prospectus for free share offers
» Subsidiaries
» EBT accounting
» PAYE and option
» TUPE and tax
» UK Employee Ownership Index

Leaders of co-owned companies worth a combined £21 billion-plus met at a House of Commons dinner hosted by the Association in January. Sponsored by EOA members Child Base, the dinner was addressed by Liberal Democrat deputy leader Vince Cable MP, a vice president of the Association. “Traditional forms of governance are just not working” he told guests, citing a “realisation that shareholder democracy hasn’t happened” and “a new interest in alternatives.” Praising the Association’s “very interesting” policy ideas, Dr Cable supported EOA’s call for wider use of employee ownership in public services.

The rise of the so-called sustainable firm is the subject of a policy symposium hosted by the John Lewis Partnership and EOA on 10 February. Guests at the event will hear the results of new research by Cass Business School on how firms with employee ownership perform and grow. Speakers include FT columnist John Kay, think tank chief Phillip Blond, and Professor Richard Wilkinson, author of the acclaimed study of inequality ‘The Spirit Level’. The event takes place at London’s Institute for Government, whose director Sir Michael Bichard [pictured] will chair the symposium.

To reserve a place at the Symposium contact Lo Waghorne at EOA on 0207 022 1960 or email info@employeeownership.co.uk

Workshops for employee representatives – such as elected directors or trustees – are on offer from the Baxi Partnership at cities around the UK during 2010. Covering topics such as governance, company strategy, trusts and share plans, the courses run in Glasgow [25-26 February]; Manchester [22-23 April]; London [23 Sept]; Inverness [21-22 October] and Sheffield [18-19 November].

Click for more information on workshops

The London Evening Standard devoted a double page spread (17/12/2009) to the more intriguing aspects of the John Lewis Partnership, as interest continues in the partnership model as a possible solution in Britain's public services. John Lewis thrives for lots of reasons, but these include a sharp focus on profit, the galvanising effect of intense competition, and the integrity of 100% trust ownership. We wonder if a new Government will be prepared to replicate those conditions in the NHS?

EOA policy director, Nigel Mason, attended a Westminster seminar hosted by the Oxford Centre for Mutual and Employee Owned Business to debate the findings in the recent Nuffield Trust paper called NHS Mutual (reported in Issue 12 of this e-bulletin). Cliff Mills, a director of Mutuo, the association of mutual businesses, presented a paper on the origins of the consumer co-operative movement and wondered whether the conditions for self-help and mutuality which gave birth to the Rochdale Pioneers' co-operatives have their parallels in the 21st century. Of course, consumer mutuals and employee-owned businesses are quite different animals, but is there room in the public sector for hybrids? To be continued…

Professor John Logue, a leading figure in the American employee ownership world, died suddenly just before Christmas after a brief illness. He founded and led the enterprising Ohio Employee Ownership Center, which despite its parochial sounding name had a lasting influence on employee ownership solutions in many parts of the world. President Gorbachev sent an adviser to Akron to learn about how to privatise Soviet businesses to employee buyouts. The Irish government followed suit with many an employee-centred privatisation, as did the reformist governments of post-communist central and eastern Europe. During the 1980s and 1990s, some of the most impressive ESOP buyouts in the world were happening in John's patch. He built a dynamic team of multi-disciplinary graduates from Kent State University who became the match for Wall Street investment bankers peddling more conventional solutions for America's rust-belt industries.

You can read more about John's inspiring work here

Norman Lamb MP, Liberal Democrat health spokesman, twittered positively about his recent briefing from EOA on employee ownership, including our proposal that the continued use of tax-advantaged discretionary share schemes should become conditional on companies operating all-employee share schemes of at least the same magnitude. This proposal came out of our calculation that 50% of all tax relief on employee share schemes is going to less than 3% of beneficiaries, which in the current climate is vulnerable to attack.

Read EOA’s briefing paper

EOA members Circle Health held their annual conference on 14 January for 400 partners at their brand new Norman Foster-designed hospital on the outskirts of Bath.

The conference was chaired by broadcaster Jonathan Dimbleby and had an impressive cast of speakers including Professor Lord Darzi (author of the 2008 review of the NHS which advocated empowering clinicians to take more responsibility for managing the NHS), Lord Carter (Chair of the Co-operation and Competition Panel), Andrew Lansley MP (Shadow health secretary) and Charlie Mayfield (chairman of the John Lewis Partnership).

The contribution of employee ownership to Circle Health's impressive performance, including a 20% improvement in productivity in the year since taking over the management of a Nottingham independent treatment centre, was widely acknowledged. Circle Health is 50% owned by the consultants, GPs, nurses and non-medical staff who work in its facilities.

Link to media report on the conference

Speaking at an Institute for Government event on "Post bureaucratic public services" on 11 January, the Rt Hon Oliver Letwin MP described the principles that would guide a Conservative government's reform of public services. These were: decentralisation (eg giving local councils a general power of competency, including the ability to "trade" cross-border and in competition with each other), transparency (publishing lots of data on performance ) and accountability (eg requiring referenda to be held if a local council wished to raise council tax above the rate of inflation).

Asked about the ownership structure of the new providers, given that the Shadow Health Secretary had been holding up the John Lewis Partnership as a possible model for parts of the NHS, Mr Letwin said the Party had given a lot of thought to this and would be publishing a policy statement on employee ownership imminently.

The independent Commission on Ownership, reported in the special edition of EOA’s Bulletin in December, is expected to begin work in March. More commissioners to work alongside Chairman Will Hutton have now been announced.

They are:
Peter Marks – Group Chief Executive,
The Co-operative Group Professor Jonathan Michie,
President of Kellogg College, Oxford University
Lady Sylvia Jay - Vice Chair, L’Oreal
Ruth Sunderland, Business Editor of The Observer
Richard Reeves – Director of Demos think-tank
Oliver Nyumbu – Chief Executive, Caret Ltd

Link to more information about the Commission

Employee ownership was a better option than Cadbury’s controversial sell-out to US food giant Kraft according to former EOA chairman Andrew Gunn in a letter published in The Guardian on 22 January:

Read Guardian letter

Employee ownership advisers the Baxi Partnership have announced this year’s winners of awards named after founder Philip Baxendale – pictured with leadership award winner Louise Smith of Stewartry Care. The awards recognise firms and individuals who contribute to the promotion of employee ownership. Based near Dumfries in Scotland, Stewartry also scooped the ‘employee ownership champion’ award for co-owner Anne Bennet, with the company sharing a prize for employee ownership initiatives with Home Insulation Services. Top spot in the ‘company culture’ category went to oil and gas consultants g3baxi partnership.

These co-owned companies have recently become EOA members. Click the company name to go to their website.

Useful Simple Trust - design, communication, sustainability support services
Expedition Engineering – civil engineering
thomas.matthews– communication design
Think Up– education services
The Canning School - business English and communications training

Whitehall Update is written by Graeme Nuttall [pictured], legal adviser to the EOA and tax partner with Field Fisher Waterhouse LLP. Contact Graeme at graeme.nuttall@ffw.com

This issue provides a summary of what is happening to reform governance in the UK financial sector, and beyond, gives the start date for longer life EBTs and highlights a wide range of technical developments.

The UK's corporate governance framework is going through a process of significant change due to the impact of the financial crisis. Recent developments include the publication of the Walker Review containing recommendations on disclosure and structure of remuneration for banks and other financial institutions, the implementation on 1 January 2010 of the Financial Services Authority's Remuneration Code and the draft Financial Services Bill 2009-10. The theme of all these reforms is the need to encourage and ensure effective risk management and align pay with risk.These reforms are additional to the Government’s bank payroll tax as mentioned last issue.

The reforms will reach beyond the financial services sector, as is evident from the Financial Reporting Council's review of the Combined Code for listed companies. See also the EU’s recent study on monitoring and enforcement of corporate governance standards.

The Association of British Insurers has published a position paper (December 2009) on executive remuneration addressed to the remuneration committees of FTSE 350 companies, and updated its guidelines on executive remuneration policies to deal with the management of risk.

As reported in the last issue, the Perpetuities and Accumulations Act 2009 will allow new trusts, including EBTs, to have a 125 year life instead of 80 years. It will come into force on 6 April 2010.

The Committee of European Securities Regulators has confirmed that where securities are generally allotted free of charge no prospectus should be required (see updated FAQs (December 2009)).

The Enviroco Limited case is a reminder for some groups to check which companies count as subsidiaries for employee share plan, EBT and other legal purposes. In this Court of Appeal case arrangements relating to a Scottish law deed of pledge over shares in a subsidiary meant that company ceased to be a subsidiary, as defined in the Companies Act 1985. Normal parent-subsidiary relationships arising from voting control are unlikely to be affected but if, for example, a lender has security over shares and/or a nominee holds the shares, checks should be made. It may be that employees of affected companies can no longer participate under group plans or benefit from EBTs.

The Chartered Accountants’ Institutes have published draft additional guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006, including the treatment of shares surplus to requirements or relating to out-of-the money options. Comments on ICAEW TECH 03/09 are requested by 19 March 2010.

The J E Chilcott case is a failed appeal against tax under what is now section 222 of the Income Tax (Earnings and Pensions) Act 2003. This section requires employees to make good any PAYE on, in particular, option exercises within a short time (now 90 days).

The Kuehne + Nagel case provides a helpful analysis of why lump sums paid to employees on the transfer of a business were taxable as employment income. Possibly, an amount would not have been taxed as employment income if it had been paid separately only to recognise the removal of pension rights.

Visit the index web page (link here to webpage ) Any EOA member interested in receiving the EOI quarterly update should email Elaine McKay.

If you no longer want to receive this Bulletin please let us know by emailing lo.waghorne@employeeownership.co.uk