Re-structuring ownership

The recent report ‘Sharing Ownership: The Role of Employee Ownership in Public Service Delivery’ is effectively the first considered report card on the government’s mutualisation agenda. The report is the result of a year-long inquiry by the All Party Parliamentary Group on Employee Ownership which comprises MPs and peers from all parties. The group heard evidence from a broad range of stakeholders,  from public sector employees, public service mutuals, union officials, academics and policy makers. So what was the verdict?

TRANSFORMATIONAL RESULTS
The most significant finding is that if organisations make it to employee-led mutual status, the results are transformational. Organisations reported impressive results in terms of improving service delivery and staff engagement. For example, after one year in the new ownership model, Central Surrey Health had reduced waiting times for musculo-skeletal physiotherapy from 16 weeks to four weeks. Every spin-out who gave evidence were very clear that employee ownership was the right move for them.
    
However, the path to employee-led mutual status was not easy. Many barriers were identified. There is a lack of understanding about what mutualisation is and how the process might work. Appropriate expert advice and support is difficult to source and funding is an issue. Some employees reported that their attempts to explore the option were being thwarted by senior management.  Unions were often not involved or consulted until late in the process. Yet, when unions were involved from the outset, the transition was reported to be much smoother.

BARRIERS
There were several technical issues had to be resolved. Irrecoverable VAT often presented an additional cost to some mutualisations. The report requested that the government consider that VAT recovery arrangements that currently exist for government and public sector bodies be extended to mutual delivery bodies. The group also asked the government consider how procurement legislation and procedures can be used to allow new mutual organisations to grow, and not be suppressed by larger organisations.
    
The report recognised that mutual delivery models were a means to drive positive change, and employee led mutuals did report significant efficiencies. However, the group stated that cost cutting should not be the prime motivator for mutualisation.

MAKING IT A REALITY
How can public sector organisations make it happen? The Employee Ownership Association published a guide called ‘How to become an employee-owned mutual’ earlier this year which sets out the key steps.  
    
The first step is to assess the costs and benefits of all available options. An employee-led mutual model will not fit every organisation; there may be other ownership structures that are more appropriate.  
    
The next step is to build a viable business: what are the key capabilities of the organisation? Where will revenues come from? Will revenues cover the resources required? What funding is required? These questions and more will feed into a comprehensive business plan.
    
Following from this comes planning, leadership and engagement. This kind of transition management can be a significant distraction to the operation of the business and getting this stage right is critical to a successful outcome. Careful planning will minimise disruption and leaders must all demonstrate support to the process and ensure all stakeholders are considered.
    
The next step is the legal and technical considerations. It is important that the ownership structure fits the organisation, not the other way around. Careful due diligence will allow proper risk assessment. A key part of this stage is an examination of employee terms and conditions and how issues such as pensions will be handled. Of course, procurement and commissioning matters must also be addressed and it’s useful to explore these early in the process.
    
Then you should bare in mind ownership and governance; who will own the business is a key question. Will it be employee-owned, or will employees share ownership with other stakeholders, for example service users, or will the authority retain a stake? Will employee ownership be directly held by shares, or indirectly in a trust in the way John Lewis Partnership partners own their company? Good governance is essential for the robustness of the organisation going forward. Careful consideration is needed into areas such as who the directors will be, how they will be appointed and removed, and how the owners can ensure the organisation is being run correctly.
    
The final step is securing a strong mutual future: the formal transfer of staff, assets, contracts, etc, is only the beginning of the organisation. The new organisation must continue to look at improving how services are delivered, constantly building capacity and skills, and constantly assess how the ownership culture is working.

THE PUBLIC SECTOR
Despite the obstacles and challenges, there has been tremendous enthusiasm demonstrated to date by public sector organisations looking to explore mutual models. More than 200 have contacted the Mutual Information Service for help, with many others seeking support from other agencies and consultancies. Cabinet Office Minister Francis Maude stated that he would like to see one million public sector workers to be working in some form of mutual by 2014.  That’s an ambitious target, but with the right advice and support, with some legislative help, that figure might just be possible.