Three free Brightoneers events and other updates from me

I’ve been very quiet on this blog lately, but there’s been loads going on so here’s an update from me.

The Brightoneers

The community of people working together to build a pioneering new economy in Brighton launched with a bang in January. 100 people came to the first event and we have the next three events lined up. All of them are free to attend and open to all. Just register using the links below.

12 Feb: Alternative currencies and smartcard pilot. Led by Good Money, we’ll be working together on moving towards a pilot of a smartcard system in Brighton that helps the local economy.

19 Feb: How can we use crowd funding to build a better economy? We have speakers covering the use of crowd funding for equity, rewards and lending, then time to break into groups to start making stuff happen.

5 March: The first Brightoneers film night: Shift Change – an awesome film about the power and potential of employee ownership – check out the trailer. I’m planning on making this a monthly event screening documentaries that will inspire us into action.

WorldBlu

I’ve been working as an ambassador for WorldBlu, speaking about democratic business at a number of events (like this) and talking to some awesome companies about them joining the movement. The WorldBlu List of Most Democratic Workplaces 2013 will be announced in April. I’m very excited to see Brighton growing as a hub of certified democratic workplaces following on from my previous company, NixonMcInnes being one of the first WorldBlu-certified companies in Europe. There’s also WorldBlu Live coming up in May in Denver. Get along to this if you can. My involvement in WorldBlu is now winding down and I’ll be focussing more on work locally here in Brighton. There may just about be time to get your organisation assessed by WorldBlu for this year’s WorldBlu List. If you’re interested, drop me a line and I’ll put you in touch with the right people.

Business development help for consulting companies

Having spent 10 years building a consulting company myself, I’m keen to share my experience in marketing and selling consulting work with other consulting companies in Brighton. If you’re a freelance consultant or running a small consulting company and would like to bring in more business, I might be able to help. I’m also launching a little project around this over the next few days. If you’d like to be kept in the loop then please get in touch.

And the rest of life

I’m mid-way through an 8-week course on Mindfulness and meditation with Mindfulness Sussex. I’m loving the combination of ancient wisdom dating back 2500 years backed by modern scientific studies that have shown many benefits to mind and body.

It’s the Brighton Half Marathon this Sunday. I’ve been gradually getting back to pre-travelling levels of fitness. I still have a long way to go and a horrible bout of ‘man flu‘ set me back these past couple of weeks, but the Half is a bit of a milestone anyway.

OK that’s about it. If we’re overdue to catch up for a chat then give me a shout.

Cooperatives need bottom-up thinking

I’m at the early stages of working on an idea to see many more cooperative businesses in Brighton. I’m at the International Summit of Coops in Quebec to learn more and make some new connections in this area.

Coming from the traditional private ownership business world – even though I have long been a fan of democratic business – I’ve realised how I naturally gravitate towards top-down thinking. People smarter than me keep correcting me and getting me to think bottom-up. Here are two examples:

1) Thinking about how to go about building a network of cooperatives (like the enormously successful Mondragón in Spain) I thought I needed to put together a group of people to work on a constitution, then recruit or set up coops to join the group. Classic top-downness. I did have a nagging doubt about the approach – it felt like I was creating a bureaucracy. Actually, the best way to do it is to start with people: The needs of the people in the local community and with people in existing and potential new coops. Once you are fully engaged with the people involved you can start setting up a network from the bottom, with one coop, linking to the next one and so on, and eventually build whatever group structure might be needed.

2) Ownership & Finance. I’ve mused about innovating business ownership models before – how you can structure ownership of a business in a combination of employee, customer, community and private ownership. In top-down fashion, I’ve been trying to figure out the most optimal model which could then be applied to coops in Brighton. Again, the far better approach is to accept that there’s a lot of flexibility and many possibilities and to work with the people involved to find the best route as needed. For example, more capital intensive businesses like manufacturers may require more private investment; those in service sectors could be more employee-owned; and those selling to consumers may benefit from greater customer and community membership.

I’m sure there are many more examples of where bottom-up thinking will provide a better approach, and although cooperatives may formally delegate power for some centralised decision-making which at times may be more effective, I’m going to make it a rule to make bottom-up my default approach.

The state we’re in and the call for a new economy

I’m at the Imagine 2012 conference on cooperative economics in Quebec City. Here are some thoughts after the first full day. It’s a pretty frightening picture, folks. But there is hope.

The industrial age economy, and indeed the neoclassical model of economics underpinning it has reached the end of its useful life. Whilst it helped lift many millions out of poverty, we are now seeing greater inequality between rich and poor countries and even between rich and poor people within countries. A model of business based on maximising shareholder value in a world where only a tiny proportion of people are shareholders will only cause rising inequality. This is not just bad news for the poor. In unequal societies, the rich suffer from many more social problems than in more equal ones.

GDP growth brings about improvements to wellbeing, but only up to a point before tailing off and in many cases declining (for example, increasing obesity and mental illness in the United States.) Research by Manfred Max Neef suggests that this tailing off happened around the 1970’s or 80’s for most developed nations.

The economy is a sub-system of planet earth – an inherently closed, finite system, therefore the economy cannot keep growing indefinitely within it. This can be easily explained to young children. Yet this inconvenient truth is ignored by all large political parties who argue about whether growth needs investment or austerity, and we still have an economy based on ever-increasing, unsustainable consumption. There are about 1.8 hectares of workable land to support each human being on the planet. In rich countries like the US, the use is in excess of 4 hectares and growing. Not to mention the hundreds of millions of people in the newly developing middle classes in India, China, Brazil and others who are now joining the consumer party.

The key message is that we have to move away from a fixation on growth (getting bigger at any cost) and towards development – becoming happier, healthier, wiser, safer and with better relationships.

This is not a call for left-wing politics. Far from it. Socialism and industrial age capitalism have both failed. Capitalism, for all of its fundamental shortcomings is the best way humans have come up with to organise ourselves to produce the things we need. But we need a very different capitalism.

The cooperative movement – businesses based on ownership of members (be that customers, employees or other stakeholders in the community) offer an alternative to maximising shareholder value. Instead, they use capitalism to maximise social outcomes – in other words, the things that really matter to humans and the planet now and for future generations. This is the concept of development rather than growth in action.

This view of capitalism is remarkably well established. Cooperatives world-wide have 1BN members and the largest three manage assets in excess of 1.6TN (and guess what, they have been extremely resilient through the recent economic turmoil because they did not engage in the insane activities like shareholder-owned banks.) It’s extremely worrying that despite the size of the cooperative movement and the promise it holds in playing a part in a development rather than growth based new economy, there is no representation of the cooperative movement on the B20 - the business forum that advises the G20. Business as usual, the old model is there in abundance.

We have an economy and consumption that cannot grow indefinitely. We are close to irreversible climate change together with huge natural resource depletion and energy shortages. We have to act now to protect the planet for future generations, and we need to start by creating a new economy, and fast before it is too late.

Video: We the owners

Check out this trailer for up-coming documentary We The Owners, about employee ownership. Really gives a sense of what employee ownership means on an emotional level. It’s hard to fail to see why this is such a successful model for business. It features one of Worldblu’smost democratic workplaces‘ – Namaste Solar too. Looking forward to seeing the finished film.

Innovating business ownership models

Something I like doing for fun is sketching pie charts of ownership models for businesses. Yes, I am a business geek!

In the standard model today, the ownership of a business is something separate from its operations. The role of investor/owner doesn’t necessitate any involvement in actually running a company or delivering any value for its stakeholders. Owners have a right to appoint the directors and have the right to all of its profits. As I’ve written about before, this doesn’t do much to create fair and happy societies but as an entrepreneur, I am excited about how we can evolve new business ownership models. The goal is to engage more stakeholders to create better businesses that innovate more; provide better service and more value to customers; create better jobs; deliver more value to society as well as outperform traditional businesses in financial terms. I think we can do much better than today’s status quo.

Most of the pie charts I’ve been sketching are for new start-up businesses and combine three types of owners:

1. Private investors: This group is fairly traditional, but there’s no doubt that private investors can provide the capital necessary to get new ventures off the ground, especially in today’s market where lending to start-ups is difficult. However I see two key changes to the norm. Firstly, a commitment from investors to ALL of the outcomes of the enterprise (in terms of human, social and environmental capital, as well as financial returns.) And secondly, a commitment to eventually sell their stakes to the following two groups of owners, once they have accumulated a fair return for their investment and risk. On the surface this may look like sacrifices compared to investment purely for capital gain, but I believe that businesses with these more innovative ownership models will outperform traditional businesses, more than making up for the restrictions places on private investors.

2. Employee-owned trusts: Giving the employees a meaningful stake in the business from day one sends a powerful message that they are not working for someone else’s benefit, but they are true owners, partners and stakeholders in the venture. This changes the mindset of an employee who will see it as their business. This increases motivation and productivity. I reckon 30% is about right, to leave enough room for other investors.

3. Crowdfunding: There is a huge amount of innovation going on right now around sourcing finance in small chunks from large groups of people. Popular platforms like Kickstarter are helping new ventures to raise anything from hundreds to millions of dollars from future customers, friends, family and supporters. I think there’s something particularly powerful about having customers as part owners in a business. Imagine a customer in a restaurant who has bought a very small stake in the business. Perhaps they don’t have a great experience there one day, but instead of feeling like an annoyed customer, they feel like a disappointed owner. Very different mindset that wants to focus on making sure the problem is fixed for next time.

Putting it all together

Say a new company is founded with an initial £50,000 of capital from private investors. These shareholders own 50% of the company, valuing it at £100,000.

Next, an employee-owned trust is set up. This is a separate legal entity from the company and it owns 30% of the shares, including all voting and other shareholder rights. Employees can elect board members, giving them real power and influence right from the start. A very powerful way to attract and motivate employees.

A second trust is set up (I call this a Community Trust) which owns the remaining 20% of the shares. These shares are purchased by way of a loan from the company, so the Community Trust initially owes the company £20,000. The Community Trust then sells a limited number of memberships, say 500 at £40. This may take a few years, or it could use a platform like Kickstarter to sell the memberships before the company launches. This repays the loan and adds capital to the business as well as building a loyal base of fans. Once the memberships are sold out, the members can elect their own board member and receive ‘dividends’ – a share of the company’s profits in the form of vouchers that can be spent there.

From the outset, the private investors agree that they can only sell their shares to either the employees or the Community Trust. This aligns their interests with those of the other stakeholders.

The obvious objection to a model like this is that the traditional investors on the face of it appear to be giving up a lot of equity and control. Yes, they hold a smaller slice of the pie, but the pie could grow much larger with an engaged base of fans and motivated employees. Plus they have a new route to liquidity for their own investment, by selling their shares over time to the Community Trust (which creates new memberships at a higher valuation) or the employee-owned trust (which pays for the shares out of future profits.) I believe that it will also form a much stronger base of power in the company, with representation from employees and customers, sharing the ups and downs with everyone involved. Finally, for entrepreneurs and investors who want to do something more special for the world than just make some money it creates an opportunity to build a legacy that lasts beyond their personal involvement.

Building a better economy with more employee ownership

Iain Hasdell, Chief Executive of the Employee Ownership Association has written an excellent call to action for government to facilitate building a better economy with more employee ownership.

In the UK and most of the rest of the advanced world economies we are dominated by publicly traded companies which don’t lead to a fair distribution of wealth. Hasdell writes that 50% of the people in the UK own 1% of the wealth, with the wealthiest 20% owning a huge 84% of the wealth. This isn’t just bad news for people outside of the wealthiest brackets. Other studies have indicated that more equal societies have a higher quality of living for everyone, including the richest. So this isn’t about taking from the rich and giving to the poor – all of society would benefit.

The disconnect between ownership and doing the actual work also creates unhelpful and distracting tensions such as pressure to please analysts and deliver quarterly results rather than building an environment for the long-term that brings the best out in employees and delivers value to customers and society. Employee owned companies are free to do the opposite.

Not only would an economy based on more employee ownership be fairer for the masses who actually do the work, but based on the evidence from employee owned companies today, they are likely to outperform traditionally owned rivals though higher employee engagement, motivation and innovation. This presents a new opportunity for growth at a time when our current capitalist system is failing miserably.

So what can we do about this?

Hasdell wants government to remove red tape and tax disincentives that currently hamper wider employee ownership and also take an active role in educating the business community about the potential of employee ownership. This really rings true for me as someone who has started a business. At various times we considered selling the business, but never even considered selling it to the employees as an option purely through our own ignorance of this being an option, and when we eventually did look into it, the process was off-putting (although not impossible, and I still hope the business will eventually become employee-owned.)

I know that there are many entrepreneurs and other business owners who want to realise some value for their investment, risk and hard work in building their businesses. I also know that many of these people fear the implications of ‘selling out’ – the impact on the employees and fear of the fate of their ‘baby’ falling into the hands of new owners who care only about financial return on investment. I urge these people to consider selling the company to the employees instead. There’s help available from consultants like Baxi Partnership to explore this option and help you through the process.

If you are an employee working for owner-managers, then why not plant the seed about employee ownership? There’s a good chance that they will have never even considered it, but it could open their eyes to a way to realise some value for themselves whilst leaving a real legacy for the employees who helped them to build the company.

Why do we accept giving up all of our rights at work?

I’m reading Beyond the Corporation by David Erdal at the moment and so have been thinking a lot about employee ownership. It’s making me wonder why we accept so little in the way of rights at work than we otherwise enjoy in the free and democratic societies we live in.

In a democratic country we have the right to choose the leadership and hold them to account; we have a right to transparency and information and we have the right to speak our minds, dissent, make our voice heard and participate.

In almost all businesses the employees have no equivalent rights. The rights belong only to the owners of the business – the shareholders. The shareholders are the only people with rights to information, to appointing or removing the management and ultimately deciding what the business does. Further, the shareholders are the only people with the rights to the profit and capital gains that it generates. Shareholders can sell these rights to whoever they choose in spite of any feelings the employees may have about it. The employees in the business create all of the value that it generates, yet they are merely ‘rented’ in return for pay, like a piece of machinery.

Why is it that we accept so little in the way of rights at work that we take for granted in society? Perhaps it’s because life is generally OK and we don’t feel hugely repressed, in spite of the lack of rights. Perhaps it’s because the status quo is so deeply entrenched in our history that we accept it as ‘the way things are’ and it cannot be changed. I wonder if this the same as the burgeoning middle classes in China who have decent jobs and access to consumer goods and perhaps don’t worry too much about the fact they cannot oppose or hold their politicians to account or have access to free information. But surely we can do better than this.

I am convinced that the solution is more than just democratic organisations. It is full ownership of companies by the employees. Only by the transfer of all rights from external shareholders to employees can we have true democracy at work.

Many democratic organisations are not actually true democracies at all. Whilst there are 10 principles of democratic organisations, what sets a true democracy apart is inalienable rights, not just operating principles which can be changed at the whim of the owners.

Most ‘democratic companies’ are actually benevolent dictatorships. The company I co-founded (and have now left but am still a shareholder in), NixonMcInnes, is a classic example. The company truly buys into democracy and has been independently assessed and shown to be living by the 10 principles. There is a huge level of transparency and employee involvement, from fully open financial information to guest seats for employees to attend board meetings. Employees have a say in selecting and evaluating managers, contribute heavily to strategy and planning, and have the right to ‘dissent’ by raising their own ideas, challenging anything that they are not happy with, and know that they will be listened to. There is also a generous profit sharing scheme in place. However, none of these things are actually rights – they are the policies set by the owners and can theoretically be reversed at any time, and the owners still have the right to sell the business to anyone they like who would be free to do as they please.

At NixonMcInnes, the concept of employee ownership has been discussed at length. I remember when we first talked to the employees about the idea and all of the rights that it would give them, they weren’t as excited as I thought they would be. The reason for this was that they felt they were already enjoying a lot of the benefits through the democratic principles, and the only real difference would be a big chunk of debt to pay off the old shareholders. In other words, life was OK under the benevolent dictatorship. I had to agree that this was a fair point, but I think there is something bigger at stake here.

Perhaps I am wrong, but I can’t help thinking that there is something hugely important about concrete rights that are set in stone forever – hopefully hundreds of years in the case of NixonMcInnes and certainly beyond the lifetime of everyone working there today. Rights that cannot be eroded over time or given up to new masters who want to do things differently. I think there is a massive difference between principles and true rights.

This is all sounding very socialist which is not a notion I’m terribly comfortable with to tell you the truth. In talking to socialist friends, they often say that the solution is for workers to unionise and to force (usually begrudging) employers to give them better rights. Personally I think the goal of better rights for employees is spot on, but the further polarisation of the situation into ‘them’ and ‘us’ is incredibly negative. It actually accepts and reinforces the status quo of the shareholder-employee relationship and misses out on huge opportunities to build amazing businesses that benefit the employees as well as society and the planet as a whole.

I would like to see far more employee ownership in order to give people these enduring rights at work. Perhaps unions could work towards raising finance to buy companies outright for the employees. I would also like to see bids for public companies to be taken out of the hands of short-term investors on the stock markets and into the hands of the people who work there.

This is not just social ideology. It is actually great business sense too and this is what gets me excited as an entrepreneur. In Beyond the Corporation, the myths about the supposed flaws in employee ownership (lack of innovation, inability to make tough decisions, bureucracy, short-termism etc) are thoroughly debunked by the reality of employee-owned companies like John Lewis, Arup and Publix who consistently out-perform their peers across all traditional measures of business success. It’s clear that employee owned companies can actually be more agile, innovative and better able to cope with tough times.

There are compelling reasons why employee ownership would be a far better and fairer standard framework for business than the current shareholder model. To test this theory, imagine for a moment that employee ownership was already the standard and employees had parallel rights at work as they do in society. Would any sane person suggest that it would be a good idea to remove all of these rights and give them up to owners who don’t actually create the value within the firm? Would anyone believe that these businesses would perform better? Would anyone think it would be better for society? Of course not. The current model only hangs on by virtue of the fact that it is ‘the way things are.’ But I don’t think it should or even can hold on forever. The day of the employee-owned firm is coming.