Public sector services – some are being cut, all are feeling the pinch.     For many, the solution sees these services move into the private sector.  According to Kathleen O’Reilly, the big question is how to continue to entrench the right values and ensure that the subsequent business is viable?

 A key aspect is ensuring that employees are on board and some form of employee ownership can provide this.  This can be either in the form of direct ownership or in the form of employee benefits trusts.  John Lewis is hailed as a shining example of this in a sector that produces an estimated turnover of £30 billion annually. 

So what type of legal vehicle will be most appropriate?  

Consider a company or a mutually owned Industrial and Provident Society or some other form of mutual organisation. 

In relation to the company model – should it be one that is charitable, will it have a social enterprise element or is it intended that it makes profit?  In addition, should employees’ incentives be delivered via direct ownership or via an employee benefit trust so that the interests of employees are preserved, notwithstanding changes in the composition of the employees?  Giving employees a serious stake in ownership is seen as a good model to improve the experiences of, and relationships with, consumers and employees alike. 

Key questions on ownership include the following: 

• How will ownership be distributed across employees and other stakeholders?
• Will a share in ownership attract financial, voting and/or other benefits?
• Will anyone have special rights and responsibilities, e.g. the right to appoint a director or to veto certain board decisions?
• Will any social purpose be locked into the structure?
• Will there be a separation between the executive and ownership functions in the new organisation?
• Will ownership be held directly by the employees themselves or indirectly e.g. in an employee benefit trust or via a combination of the two?
• What steps will be taken to ensure long term sustainability and “future-proofing”?

Companies can be very flexible in their structure in order to meet the demands of these new enterprises.  With careful drafting of their constitutions it is possible to ensure that the needs of all stakeholders are met. 

Kathleen O’Reilly is Jordans Head of Legal Services and can be contacted by email.

KOR 8.11.11