A Case Study: Employee Ownership worked, IPO led to failure, and why

Download the ‘TR-Inveresk’ pdf file to read the case study:

TR Inveresk

Productivity: The Employee Ownership Effect

Productivity: The Employee Ownership Effect

This case study tells the fate of two paper manufacturers in Scotland. They were similar in every way except one: their ownership strategies. Inveresk carried out an MBO – Management Buy Out – and then floated their shares on the stock exchange. Tullis Russell chose an EBO – an All-Employee Buy Out. Inveresk, which started well ahead in terms of productivity, slowly declined and eventually went bust. Tullis Russell’s employees – who all together had control of the company – increased their productivity dramatically year after year after year, as shown in the graph. Yet again, employee ownership showed itself to be better for all concerned than the plc-Stock Exchange route, which extracts wealth instead of building it.


4 thoughts on “A Case Study: Employee Ownership worked, IPO led to failure, and why

  1. I don’t know the whole story, but I do know TR chair was inherited, this MAY suggest that the man on the helm did not have sufficient business knowledge or skills etc.and took a good company into bad times, the EBO may have taken the authority away from the sadly lacking Chair? I may well be wrong! It does not necessarlily mean an EBO or similar is better than a good leader. Imagine if Virgin group had a similar start, I doubt if half the revenue streams would exist. Food for thought as they say.

    • TR was a very much a family business and whilst Willie has a point I think the main issue was that TR having had a history of unbroken success rested on its laurels and didn’t move with the times. The EBO probably saved the company but it was slow to gain popularity in the initial stages. EBO is not the magic wand for every situation and many employees want to be just that – an employee with others taking the risks.
      Inveresk was a very different case. Top heavy management and unsustainable cost structure. I remember it well and knew several people who were involved. Very sad but predictable end !

      • ‘TR having had a history of unbroken success rested on its laurels and didn’t move with the times’
        Yes and no. In 1981 it started up a new £22m coating plant. A French company tried the same technology and could not get it to work. A Japanese company got it working, but only to produce extremely expensive papers. TR successfully produce really successful coated boards on it. That took state-of-the-art expertise, and was a high-risk project from the start. No resting on laurels there.
        And in management terms, certainly after 1985 there was no resting on laurels. Remember this was the period when the majority of UK paper mills closed, like Inveresk.
        Leadership and investment were part of the success: but the shift to employee ownership was key.

  2. I was the guy that inherited the chair, and converted it to being owned by its employees. All the evidence shows that employee owned companies do in fact outperform conventional companies owned from the top – even those that have charismatic leaders. The same has been true of Tullis Russell: it has moved from a good company to an outstanding one, when most UK paper mills failed and closed. A major problem with a charismatic leader is what happens when he retires, or more likely dies on the job. And Richard Branson probably thinks he deserves what he gets, when in fact it he could not possibly have done it without the massive work of those around him. If that were acknowledged, the company would do better.

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