Employee ownership is logical – here is why other businesses should be following suit

Richer Sounds is doing it, so are other companies. Chris Blackhurst tells us why putting control of companies into the hands of employees is the way forward

Richer Sounds was founded in 1978 and has been booming since then (Getty)

As a business commentator, I’m not meant to have heroes, or to not admit to them at any rate.

But I confess: Julian Richer is right up there in my estimation. I must have spent a small fortune in his Richer Sounds hi-fi shops down the years, and, in a true test, I do not begrudge him a single penny. What I’ve bought has always worked, seemingly been the best I could afford at my price range, and the staff have always been helpful and knowledgeable. And his stores open at hours I can, and want, to visit.

You don’t feel ripped off either. Richer Sounds specialises in offering discounts from reputable brands, some of them high-end. So, there’s little glitz, no fripperies attached. Richer’s outlets are practical, down-to-earth, and because of that, genuine.

Before the editor screams “stop”, and questions how much Richer is paying for this piece of advertorial, I will end there. You get the picture.

Richer does things differently. His first branch was on London Bridge. That may sound glamorous, but to those who don’t know London’s retail scene that well, it isn’t. Bond Street it is not.

What drove him was footfall. He saw – by the way he was aged just 19 at the time – just how many people went in and out of London Bridge station during the day, and the result is a store right by the terminus entrance, next to all the snack bars, that has been regularly cited by Guinness Book of Records as possessing the highest sales per square feet of any shop in the world.

Constantly, there is method in his madness. His creed, espoused in his book The Richer Way – a case for required reading on all business and management courses if ever there was one – relates, among other measures, how he rewards staff with holidays in homes owned by the company. The company-owned aspect is vital, enhancing the feeling of collectiveness, allowing them to share experiences, giving them a selection to choose from, and fostering chat and excitement during the year. It’s clever.

Likewise, he does not believe in zero hours. His workers are part of the business, and treated as such.

Now, Richer has gone a step, or rather a leap, further. He’s switching his company into one that is owned by the staff, putting 60 per cent of his shares into a trust held for the employees. There’s more: each of the current 531 workers will receive a cash bonus of £1,000 for each year they’ve been with the firm. That calculates to an average payment of £8,000 per employee. Many chains would be proud of the eight-year figure, given the churn of staff in retail. But Richer has 39 staff who will collect more than £20,000 each.

The scheme that he, and presumably his advisers, have devised, is smart. Richer Sounds, which has annual sales of £200m, will pay the founder £9.2m for his shares. He will then give £3.5m worth back to the staff to be owned in trust for them. He will not be paying capital gains tax on the sale of his shares, because this move qualifies for tax breaks as part of the government’s attempt to boost employee share ownership.

That drive is still to get really going. It’s a measure of the relatively slow progress to date that Richer’s transfer will make Richer Sounds one of the biggest employee-owned companies in the country. Out in front, by some margin, is of course John Lewis.

But the department store group went down that route as far back as 1929. It was not until the coalition government, in 2014, incentivised employee ownership that the push towards this form of mutuality received the required fillip. Owners who sell at least 51 per cent of the equity of the business to the employee-owned trust are exempt from capital gains tax. Staff receiving bonus payments paid via their trust can receive £3,600 a year in payouts tax free.

There are signs, finally, of the model gaining traction. Some decent-sized names now populate the sector: Arup, Tiptree jams, Mott MacDonald, and Aardman, those folk behind Wallace & Gromit. In all, there are now 350 companies either owned by their workers directly or via a trust, with another 50 said to be considering the shift.

They may be many in number, but they still lag in scale. Even so, the employee-owned band is thought to account for 5 per cent of GDP.

Tax advantages apart, what the option also often provides is a solution to the thorny question of succession. You’re the owner; if you have them, your children are not interested; you could sell to an outsider, but they would almost certainly tear your life’s work apart, firing those staff who have become firm friends down the years, in the process. You’re not too bothered about the money; you’ve made a fair amount, and you can only spend so much. Suddenly, handing over the firm to those loyal workers who have been with you through the bad times as well as good, who have witnessed heartbreak as well as triumph, and who devoted themselves to making the business as good as it is, has real appeal.

It’s not plain sailing, though. When the company is bouncing, everyone is happy. But when things turn, the mood can quickly become sour. These are not mere employees any more but owner-employees, or as John Lewis insists on calling them, “partners”. Anyone doubting what it must be like for the John Lewis senior team only has to glance at the letters page of The Gazette, the weekly partnership magazine. The 83,000 staff, now facing vastly reduced annual bonuses, do not hold back when it come to criticising their leadership, openly questioning the direction the group is taking.

Fortunately, given the health of the brand, the Richer hierarchy is unlikely to encounter any opposition, not in the short term anyway. The Richer deal is one in which everyone emerges richer – and I’ve not got to write that very often.

Chris Blackhurst is a former editor of The Independent, and director of C|T|F Partners, the campaigns, strategic, crisis and reputational, communications advisory firm