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February 20, 2019

Ownership of business by staff is viable

A recent article about a UK company got me thinking. The company builds and restores classic sports cars and has developed a profitable niche for itself. The founder, approaching 67 and wanting to retire, has handed his shares to a trust in which all employees are beneficiaries. He wants the company to continue and his customers to support him. It sounds like a solution from heaven. But I wonder what the company will look like in five years time without him at the helm.


In 2015, Kenya’s Business Daily reported that employees of firms listed at the Nairobi Securities Exchange had accumulated share options worth Sh8.5 billion, booking substantial capital gains on assets they were offered for free or at discounted prices. Equity Bank, Safaricom, East African Breweries Limited, Housing Finance and KenolKobil were among the 10 publicly traded companies that had active Employee Share Ownership Plans last year. But you don’t hear much about how these very young schemes are performing.

By contrast, the South Africa financial affairs site had this to say about ESOPs down South: “Employee Share Ownership Programmes must be one of the most overrated placebos in South Africa’s human resource arena. We have always been a staunch critic – not of the concept itself – but of the expectations for what these highly complex and costly programmes can deliver.”

The comment was prompted by the SA government’s vacillation over rating ESOPs for Black Economic Empowerment scoring purposes. BEE is the solution the post-apartheid regime devised to address the exclusion of non-whites from economic participation.

Global economic historians seem to be of the view that very few ESOPs have resulted in the participants gaining or even wanting more control over the destiny of the company. In the rare occasions when this has happened, the initiative came from employees trying to save an organisation from going to the wall or from the predations of shareholders. Perhaps to expect otherwise is to suffer from a delusion that has flawed modern capitalism – that the owners of assets are ultimately in control; that they are the real drivers of the business. They are not. As any competent marketer will tell you, customers are.

Commonly cited factors that cause ESOPs to fail include poor leadership and a lack of a shared vision on customer needs. Poor communication was also a big factor, especially the lack of sharing financial information with staff. Also failing to explain and demonstrate the impact of operations on the company’s performance, and to link some rewards to operational improvements.

So we haven’t yet found a way to share ownership effectively anywhere in the world. Perhaps Africa should take up this challenge.


Chris leads the Brand Inside’s African operations. [email protected]

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