Good governance is crucial to the success of an Employee Ownership Trust (EOT), as it ensures that the trust is managed in the best interests of the employees and that the company remains sustainable over the long term. In this blog, we go through some of the key governance factors that can help to drive the success of an EOT.
Our research has identified 6 success factors for EOTs to be sustainable in the long-term.
- Clear objectives and strategy: The EOT should have clear objectives, purpose, values and a well-defined strategy that is aligned with the interests of the employees. This should be communicated to all stakeholders, including the employees and the board of trustees.
Related post: Innovation, sustainability and effective directorship, a conversation with Charles Conn, chair of Patagonia
- Strong leadership: The EOT should have a strong board of trustees with a diverse range of skills and experience. The trustees should promote the interests of the employees and have a deep understanding of the responsibilities of trusteeship.
A generalist board training, combined with a targeted EOT induction are a good start to the non-executive role on EOTs.
Business owners establishing an EOT may recruit non-executive directors through NEDonBoard. Please visit our website or email us for information. We have a track record of supporting recruitment needs of EOTs.
- Effective communication: Good communication is essential to the success of an EOT, as it helps to build trust and engagement among the employees. The EOT should have effective communication channels in place to ensure that employees are informed about the trust’s activities and that their voice, views and concerns are taken into account.
- Robust financial management: The EOT should have robust financial management systems in place to ensure that the company remains sustainable over the long term. The trust must have adequate financial resources.
In March 2023, John Lewis, UK’s largest employee-owned business, owned in trust by its 80,000 partners was reported to be exploring a plan to change its model to raise investment and warned of job cuts as part of efforts to become more efficient. The partnership recorded a loss in 2022 against a backdrop for the retail sector.
- Fair remuneration policies: The EOT should have fair and transparent remuneration policies in place that are aligned with the interests of the employees. This may include ensuring that executive pay is not excessive and that there is a fair distribution of profits among the employees.
- Regular review and evaluation: The EOT should be subject to regular review and evaluation to ensure that it is meeting its objectives and that the governance arrangements are effective. For example, the decision-making process should be reviewed and tested regularly with evolution of the business environment to remain fit-for-purpose.
Related post: Seizing NED opportunities with Employee Ownership Trusts
Written by Elise Perraud
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