About David

My name is David Erdal. I have spent much of my adult life converting companies to being owned by all who work in them, and written the two books on that subject which are discussed on this site. To find more detail of my journey from far left to business to employee-owned business see this 2011 interview from the Scotsman.

BBC exposed as Media Scaremonger

The blog below was written before today’s blitz of scare stories about Scotland’s financial institutions moving their HQs to the City of London – where in practice their decision-making already sits. Actually, the briefings by the banks and fund managers were old hat: the main thrust of anti-Yes propaganda was provided by the media, whipped up by the politicians, and especially by George Osborne’s Treasury. In this the BBC’s Nick Robinson played a willing part. I have seen Alex Salmond in disappointing form, but here, in front of the international media, he is at his measured best. Well worth watching.

Vote Yes to get out from under the City of London

John Lewis celebrate the 2014 bonus for all

John Lewis celebrate the 2014 bonus for all

The main problem with the UK economy is that it is dominated by the City of London. One example: according to most economists and commentators of all kinds, a measure of success for a business is to have its shares traded on the London Stock Exchange. But the effect of doing so is to suck cash out of the business into the financial institutions in the City – the very same ones whose motivation and behaviour led to the near collapse of the economy from 2008 onwards.
Look at Marks and Spencer, paying nearly £300 million pounds a year to the City financial institutions, for them to take their cut and put it into such inventions as hedge funds, potentially destabilising the economy and certainly increasing the inequality of wealth. M&S does not pay anything extra to its employees: the payout goes to the City of London.

By contrast John Lewis, about the same size as M&S but democratically owned and governed by its employees, and independent of the City of London, gives out over £200 million a year to all its 80,000 employee ‘partners’. Each gets the same percent of salary – 80,000 families benefiting from an extra two months’ cash. That reduces inequality. And the money is spent in the local economy, boosting the whole area.
One of the big reasons to vote Yes is to get our economy out from under City of London dominance.

The main problem with the politics of the UK is that they are dominated by Westminster – which itself is dominated, like the economy, by the City of London. One example: when the financial institutions found themselves in a state of collapse from 2008 onwards, they used their political clout to get Westminster to put everyone else in deeper debt than the world has ever seen, and used that huge sum of money to let the City financiers off the hook. Many of the financiers even made large amounts of money implementing that programme of putting the whole country desperately in debt. Westminster made us all poorer, to keep the very rich very rich.
So I intend to vote Yes, to give us in Scotland a chance of forming a different kind of government, less dominated by the financiers in the City of London.
It won’t be easy. But it is worth a try. And if we succeed we will end up vastly better off than the poor old north of England, still sucked dry by the City of London.

Nefarious CEO convicted of tricking employees out of £26m

ConmanA recent judgement in the High Court of England and Wales is worth celebrating. After many years of legal action, it has been shown that in the 1990s the CEO of Roadchef tricked the trustees of the employee trust that controlled Roadchef out of their ownership. He then organised the sale of the company so that he personally got more than £26m that should have gone to all the employees. You can find the decision of the judge in lawyerly detail at http://www.bailii.org/ew/cases/EWHC/Ch/2014/109.html

In an employee-owned company the CEO can be tempted to work for himself or herself rather than for the employees who own the company. And being trusted and respected by the employees the CEO can pull the wool over their eyes. It is very good indeed to see such a bandit brought to justice. He is personally liable to the employees for his dishonestly acquired profit of millions.

This also increases my respect for the law. I have seen the law fail massively, where an expert witness said verbally that the advice given by a merchant bank was ‘recklessly negligent’. He then refused to testify his honest opinion, because if he did he would never work in the City again. The power of big City players is used ruthlessly, and not for the benefit of society.

Employee owned firms are different: they work very effectively in the best interests of everyone. If there are exceptions, they are very few.

John Lewis builds communities MUCH more than M&S

Last year, the John Lewis Partnership and Marks and Spencer were about the same size: sales of £9.5bn and £10bn respectively. John Lewis employs slightly more people – employee owned companies generally do – 84,000 vs 81,000. From their profits, John Lewis distributed £210m in cash, M&S £268m. The cash from John Lewis went to the partners (employees) as a percent of salary – the same percent of salary for everyone, regardless of position. In other words it went to ordinary families, and was spent in ordinary ways, making life a bit better for 84,000 families. The story in M&S was very very different. A few of the top people got a lot. The rest of the employees got little or nothing. Almost all the cash was sent up to the ‘financial institutions’ in the City of London. These are the people who plundered and wrecked the world economy, and helped themselves to huge fortunes on the way. They are still being paid for – and still rewarding themselves massively – at the expense of all the hardworking tax-payers, paid for in part through the cuts in public services and benefits. What did they do when they received the M&S millions? They passed it around among themselves, taking their cuts on the way, and ‘invested’ it – that means gambled to you and me – in things like hedge funds and derivatives.

So which one was in the public interest? The one that countered inequality, benefited 84,000 ordinary families, reduced child poverty, and strengthened local economies? Or the one that fed gambling money to the fat cats in the City?

And according to customers, John Lewis and Waitrose did far better than M&S. Employee ownership is simply a better way of doing things.

US Wealth Distribution is Crazy

This is a great, clear video showing how the distribution of wealth in the USA has gone crazy. Joe Stiglitz, the Nobel prizewinning economist, concluded from his research that the market has no Invisible Hand that makes things all right. What works in the market is power, and when you let the powerful off the hook, when they no longer have any sense of being responsible for the consequences of their actions, then this is what happens. Only six minutes, and very well worth seeing.

The Paula Principle

Here is a good succinct summary by Tom Schuller of the research on the fact that while men tend to rise to a level beyond their competence – the Peter Principle – women tend to rise only to a level below their competence. Tom has christened this the Paula Principle.

I worked for some years with the FI Group when they were employee owned. The company was founded in the 1960s by Steve Shirley, a woman who called herself Steve rather than Stephanie to counter the prejudice against women that was so powerful then. She stopped work to have kids, and realised that there were many young women with great programming skills who had done the same. So she designed the business for them: working part time, and from home. That was pioneering stuff in the 1960s. At the time I worked with them, the board was still all-female, and the joke was that although they employed men, none of them had shown to talent to make it to the top. Dining with the CEO, Hilary Cropper, and her family one evening, I heard another jest, by her daughter, one that illustrated some of the costs for women who get to the top. ‘Actually,’ Hilary’s daughter said (perfectly warmly and affectionately), ‘I don’t have a mum: I have two dads’.

In FI Group gradually the board positions were taken over by men. Then the employee ownership began to be given up, the company lost its crusading drive, and eventually it was taken over. So when the men dominated the board, the company declined. Coincidence – or cause?

Papermaking is a male-dominated, substantially blue-collar industry. In employee-owned papermaker Tullis Russell, which has outperformed the industry for years, the top elected council, which represents all the employees (including the managers) as the owners of the company, recently chose a new chair: a young woman called Kirsty Grant. They also elected her to be a trustee of the employee ownership trust that controls the company.

Employee ownership, in which the work and the fruits are shared, suits women. It also suits men. In a study in Italy employee-ownership was shown to have very positive effects on the cardiovascular health of both men and women. But the effect on men was greater. Perhaps it is something to do with the fact that when men are given the chance NOT to compete so hard with each other, they feel a lot less stressed. Cooperation where the fruits are shared is fun for human beings of any gender.

The Human Warmth of Collective Business

This is another great film, about four worker-owned businesses in California. It really speaks for itself, describing the businesses and intercutting interviews with several business members. One of the most interesting aspects of this way of structuring business is brought out towards the end of the film, from just before 23 minutes in. This shows a series of people talking about the human effects of working together collectively and supportively. It is well worth seeing and hearing. If you want to see it on YouTube, go to https://www.youtube.com/watch?v=-cyP1tR45qU

Gritty US Employee Owned Initiative

This link takes you to a 10 minute PBS film about the likely rebirth of a shipyard, through an employee owned start-up, together with a great up-to-date commentary by Chris Mackin, who appears in the film in a flashback to 1987. It makes the case well that properly democratic structures and processes are essential if employee-owned companies are to work well. The fact that the majority of ESOPs in the US do not give the employee-owners the right to vote their shares, while it may have encouraged conservative owners to take the ESOP route, ultimately disappoints the employee-owners and misses the performance gains that democratic ESOPs characteristically experience.

I’ve worked with many employee-owned companies, and have always found that employee-owners, when they are treated and trusted as the partners that they actually are, with full rights to information, influence and a share of the profits, take a highly responsible view of the big strategic questions. In particular, they normally wish to ensure first that enough is invested to keep the company strong, giving it a far higher priority than taking money out in distributions.

By contrast, private equity so-called ‘investors’ characteristically set out to extract as much cash as possible as quickly as possible. So the responsible investors are the employee-owners who set out to build strong businesses,  not the private equity people who try to cash out.

For the film and article by Chris Mackin, click here.

Loch Fyne Oysters: its history and liberation into employee ownership

Local Heroes PoDThe wonders of technology have made available the inspiring story of Loch Fyne Oysters again in printed form. Originally published by Viking, then in Paperback by Penguin and electronically in Kindle, it can now be bought on Amazon in an elegant new printed edition – printed only when you order it. When I looked today the book could be ordered for next day delivery. The quality is indistinguishable from ‘normal’ books printed in quantity to be held in stock.

The book discusses the precarious founding of the business, wracked by the kind of bad luck that plagues entrepreneurs; follows the inspiration and dedication of the two very different founders through the tough early seven years, and then on into the uplands of success, including the founding and early development of ‘Loch Fyne Restaurants’.

When one of the founders died, the other helped organise the transfer of the business into employee ownership, and for nine years productivity and happiness soared at the head of the loch. Read this book to see why and how this happened.

Subsequently poor strategic decisions made by senior managers came home to roost, and the company was forced to sell out to a local salmon farm. But not before the experience of everyone being partners in the business had produced its glorious effect for business performance and for the people involved.

Isobel Dixon of the agency Blake Friedmann inspired me to write the book in the first place; her colleague Victoria Innell worked tirelessly to see this print-on-demand edition come out, and Andrew Smith followed up his spectacular Kindle cover design with the elegant simplicity of this one. I am very grateful to them all.

Rewarding Stars in Employee-owned companies

15_sf_ballet_pairHow do we reward people who do great things? We have to reward them well. Their special contributions need to be acknowledged. Often that means giving them lots of money, much more than the average.

At the same time, they need to acknowledge – and they may not want to recognise it at the time – that their work is hugely supported by the work of the others, the work of their partner employee-owners. They could not achieve all they do without that support.

Different groups of employee-owners come up with different systems for rewarding their stars. Some companies are very happy to see big differences in cash bonuses, while keeping the share distribution equal, building up through equal allocations every year. Others devise systems to share the ownership more with the people whose work contributes more in the way of growth or profit. Some reward the individuals, others have team bonuses, with the team itself or the team leader deciding how the bonus is divided among the team members.

In companies where a few stars make a really big difference – such as in a literary agency or a ballet company – there will usually need to be a system for addressing this question.

It is important for the people involved to have a say in designing the original system, and in reviewing it and perhaps tuning it from time to time. Employee ownership is never about imposing a ‘one size fits all’ solution.

But there are common elements. The clearest lesson is that there needs to be a significant part of the ownership held in common, and managed democratically. Otherwise the system will be open to opportunist abuse by people who are influential, people who don’t care about future generations. We need to be vigilant about selfish opportunists – the most dangerous being the ones who have not got beyond the current model, the people who think that those at the top do everything that is important, and deserve all the rewards.

Most employee owners want to pass on their company strong, so that future generations can enjoy the same excitement and freedom as they have. And they recognise that the big contributors should be well rewarded.