Scottish e-newsletter

In the last issue, I reflected on a report we'd commissioned from Demos, which analysed some ingredients for sustainable growth in a post-credit crunch economy and proposed that the economy would be more resistant to crisis if more firms were employee-owned, co-operative or mutualised.

While these models continue to be regarded with scepticism by banks and investors more accustomed to dealing with listed companies, new research proves that they successfully generate wealth as well as positive benefits for society and shareholders alike.

The research - commissioned by John Lewis Partnership and published by Cass Business School - suggests that the EOB (employee-owned business) model offers particular advantages to SMEs and in knowledge and skill-intensive sectors, sectors that are so important in Scotland in the fields of renewables, food and drink, tourism and biotechnology.

With Scotland marking the first ever Co-operatives Fortnight earlier this summer, it's work noting that, in a knowledge-based economy, EOBs can significantly increase productivity. They also create new jobs more quickly and add more value to output and human capital than conventionally structured businesses, whilst demonstrating the same levels of profitability.

The Cass research also finds that EOBs are also more resilient than conventionally structured companies, outperforming the market during the downturn and demonstrating a lower risk of business failure.

Yet resilience - the ability of firms to sustain employment and growth during difficult economic conditions – is a critical aspect of company performance that's largely been neglected in the unremitting drive for delivering maximum value to shareholders.

In the current economic climate, business leaders and policy makers should be looking again at the resilience of alternative models – and considering how they could benefit the economy as a whole.

Information and advice for would-be EOBs and cooperatives are critical factors and Scotland is already leading the way with Cooperative Development Scotland.

But policy makers need also to ensure that alternative ownership models are not unfairly burdened with regulatory barriers that do not apply to conventional businesses.

For example, governments might look again at creating a level playing field in terms of the tax regime. Tax incentives for owners wishing to transfer their businesses to employees (which existed up to 2003) could be re-introduced.

And employees who want to invest small amounts of capital should enjoy the same tax relief as investors with more than 5 per cent equity currently do. In France for example, profit-sharing is mandatory for firms with more than 50 employees.

A public venture capital fund for mutuals and employee-owned businesses would help to open up access to finance and yield a return for taxpayers.

With new tax raising powers for The Scottish Parliament firmly on the political agenda, Scotland may be in a position to set a lead in these areas also.

I believe if we have learned one lesson from the financial crisis, it is that we must move away from a narrowly defined interpretation of shareholder value to more democratic, values-led businesses that recognise the social importance of employment alongside economic success.

Download the Model Growth: Do employee-owned businesses deliver sustainable performance? report (PDF size: 0.8MB).

Case study: Aquascot, Alness
As a succession strategy for owner-led SMEs, employee ownership has a lot to recommend it.

The history of successful, small businesses passing on to the next generation – when the principals seek to realise value and move on – is not good.

Typically these businesses are acquired by a much larger competitor, often headquartered hundreds of miles away from them. And within a year or two, the business is rationalised and scaled down, to achieve operating economies.

The EOB model, on the contrary, allows the process of value creation to continue.

In the case of companies like Aquascot, the Highlands-based supplier of salmon to Waitrose, it was this concept of continuing value creation that was a big driver in their taking up the EOB model.

To a London shareholder, Aquascot may be a small outstation in the North of Scotland, but to their community and their suppliers, they are very significant indeed.

Advised by John Lewis Partnership Registrars team, Aquascot is now more than half way through the transition to becoming an EOB.

According to Dennis Overton, Aquascot MD, employee ownership actually allows the process of value creation to become even more significant in a sector like food and drink in Scotland – dominated as it is by small businesses – and never more so than in the Highlands.

For more information visit the Aquascot website (www.aquascot.com).

John Lewis has opened a new customer contact centre at the Hamilton Technology Park, that will bring more than 450 jobs when the centre reaches full capacity.

The Scottish Government is supporting the project with £700,000 in Regional Selective Assistance.

One of two such centres in the UK, it is fielding customer enquiries and dealing with administration as part of a drive to centralise and improve our customer services operation.

Announcing the news earlier this summer, First Minister Alex Salmond said:

'The Scottish Government is doing all that it can to create jobs and investment and I am delighted that John Lewis has chosen to locate its new customer service contact centre in Scotland.' 

John Lewis Partnership already employs 2,600 people across its John Lewis and Waitrose shops in Scotland.

In the UK, people who live in cities rely on a dwindling rural population to keep them fed. And we know that farmers are getting older and it is tough to attract new blood into the sector. In Scotland, over the ten years to 2008, employment in agriculture fell by around 10 per cent.

But NFUS figures suggest that for every one person employed in agriculture, another three are employed further down the supply chain, so having a thriving home food industry is crucial to wider economic success.

The Scottish Government is, of course, well aware of these issues.

Its Recipe for Success – the national food policy – is laudable in its scope and in its aim that consumer demand should be met by sustainable, skilled and profitable food and drink growers, producers and suppliers, supported by first class research and development.

To achieve this, we need to ensure continued diversity in the sector and there must be room at all stages of the supply chain for enterprises of all sizes – from the smallest family farm through to the largest producers.

We know that our customers are going to demand even more and better local and regional food and we need a diverse supply base to provide that colour and choice.

This is where retailers have a key part to play. To ensure diversity, you need good returns. Farmers and small producers need to make a living wage and that won't simply come as a cause and effect result of increasing global demand for soft commodities.

From my role as current chair of the Prince's Rural Action Programme, part of Business in the Community (BiTC), I have seen first-hand the problems faced by many of the UK's small farmers and growers.

If retailers don't offer realistic returns to their suppliers, allowing diversity to thrive, then farmers will go out of business or growers will consolidate into ever-larger conglomerates.

Given the global food challenges we face, I believe we must refocus on the true value of farming as a well-rewarded career in a diverse and sustainable sector, populated by a skilled, passionate and engaged workforce.

Waitrose believe in paying our farmers and growers a decent return and, as I said earlier, we want to do business with enterprises of all sizes.

We have a very strong track record of supporting British farmers and growers.

All our own-label dairy is British and our support for dairy farmers has ensured that the investment by Waitrose farmers in their own holdings stands at around double the national average.

We also supported Britain's pig farmers, by becoming the first major retailer to commit to buying all of our fresh pork and bacon from British farmers.

Our chicken, eggs and beef are British too.

And we now stock nearly 300 lines by Scottish producers, many of which are small, family-run enterprises.

All this is not to say we ignore market price fluctuations – of course we don't – but we recognise that the long-term viability of our suppliers is important.

Our producer groups are right at the heart of the way we work, with our farmers working together to share best practice in production and business.

This collaborative approach comes with an open book policy, helping suppliers to better understand their costs, increase yields, ensure quality, cut disease and maximise profit.

This demonstrates what we passionately believe at Waitrose – that supplier sustainability and 'trading fairly' actually means sensible and realistic business practice.

As we face down significant future food security issues and look to a future where we will be forced to improve our self-sufficiency in food production, I believe more retailers will be forced to adopt this holistic and considered approach to their suppliers.

The first new-build Waitrose store in Scotland is due to open its doors in 2011.

Complementing the Byres Road store in Glasgow which opened last November, Waitrose Newton Mearns will be Scotland's largest Waitrose shop to date.

The 25,000 sq ft store represents an expansion by Waitrose in Scotland, part of an ambitious UK-wide growth strategy by the employee-owned supermarket, which is part of the John Lewis Partnership.

It represents a multi-million pound investment by Waitrose and will create more than 200 new jobs. As co-owners of the business, all employees are known as Partners and, as such, will enjoy the unique benefits of employee-ownership.

The new store will also feature new, propane-based refrigeration technology, which is HFC-free and which will reduce Waitrose's carbon footprint by 20 per cent. Waitrose will also source 100 per cent of the store's electricity from green sources.

John Lewis has won a Scottish Business in the Community (SBiC) Award for Excellence.

John Lewis received the SBC Large Company of the Year Award, for their active involvement with schools and young people in raising their skills and aspirations, particularly through a five-year mentoring programme in Glasgow which brings Partners together with young people in local schools. 

The Award was presented by HRH Prince Charles Duke of Rothesay to Barry Matheson, MD of John Lewis Edinburgh and Aberdeen, at an awards ceremony at Holyrood Palace.  The judges described The Partnership as a leading example of flexible and innovative working practices, combining success in business with a commitment to serving their communities.

Helping Scotland's food and drink businesses understand how they can profit from partnership has been the focus of Waitrose work in Scotland this year.

Speaking at the Cultivating Collaboration (C2) conference, Duncan Sinclair, Waitrose Agriculture Manager, used a case study of Cackleberry Eggs to demonstrate how developing collaborative supply chain partnerships can deliver sustainable returns all round.

Cackleberry Eggs was formed by three Borders beef farmers already supplying Waitrose UK-wide, who diversified into egg production to supply Waitrose's Scottish stores with Columbian Blacktail eggs. They now supply the business UK-wide with 42,000 organic eggs a week.

The conference offered Scottish producers a chance to find out how they can add value to their products based around provenance and quality; to discover what makes businesses like Waitrose tick; to hear how their supply chains operate and what they're looking for in producer partners.

It followed hot on the heels of the Profit 101 innovation workshops, also run by C2 to which Waitrose contributed a list of product ideas they'd like to see on their shelves, including high quality Scottish ready meals.

Finding new and innovative small suppliers to extend its existing range of around 300 Scottish lines is always on the Waitrose agenda. Companies such as Simple Simon's Pies from Lanarkshire and Heather Hills Honey from Perthshire – who started supplying Waitrose last month – are typical.

'Sometimes companies supply just one or two stores; sometimes they supply UK-wide. What we look for are high quality, natural ingredients, where possible sourced within the local area or region, that are well presented, appropriately packaged – and delicious,' explains Local and Regional Sourcing Manager, Tracey Marshall.