Fyne way to safeguard the future

"I think at first people didn't grasp what was happening but, through time, they are beginning to understand the long-term benefits," says MacCallum who has seen the company grow from a shed at the top of the loch into one of Scotland's biggest and best known processors, with a £10m turnover.

Like many a family-scale business forced into sale through the exit -- or in Loch Fyne's case, sudden death -- of a majority shareholder, it was ill prepared to fight off the corporate vultures that began circling at the first whiff of acquisition in 2003.

"We knew the consequences of us being sold to another company was that production would be shifted elsewhere and Loch Fyne would become a hollow brand," says md Andy Lane, who started farming oysters with fellow entrepreneur and business partner Johnny Noble in 1977. "Johnny and I had often talked about putting the company into the hands of the employees but we had always hit a brick wall and getting venture capital would have put people in debt, which we didn't want to do."

Noble's death two years ago left Lane no option but to hang a large 'for sale' sign over the firm that had nimbly avoided both borrowing and early disaster by pursuing a policy of diversification and expansion funded by profit. Supported by a loyal, local staff, the company grew to become a significant exporter of fresh and smoked fish as well as a major tourist attraction, generating just over £2m a year for the fragile highland economy and, in the words of one employee, "putting Argyll on the map". Its sale to a larger processor would not only have resulted in the loss of local jobs but also the near certain dismembering of the company's various limbs, sending financial ripples far beyond the highlands.

So when, at the eleventh hour, Lane's attention was drawn to the philanthropic Baxi Partnership, a trust that specialises in helping owners and managers secure firms for their employees, he lost no time getting in touch. During a telephone conversation on Christmas Eve 2003, he persuaded Baxi md David Erdal that Loch Fyne was ready to join the growing ranks of UK companies that are beginning to benefit from what is now described as one of the best legislative frameworks in the world for employee-owned firms.

"The ideal company will have no debt, predictable profitability and good management that want to stay because they realise that managing a bunch of people that own a company is a lot better than managing one where everything you do is for someone else's benefit. They must have an appetite for spreading information, listening to employees and getting them involved," says Erdal.

Within four months Erdal and his colleagues had pulled together a deal using a combination of bank finance and Baxi loan, which saw off four bids for Loch Fyne and helped bosses through the initial, and sometimes prickly, transformation period. Fifty per cent of the equity was immediately transferred to a trust and staff, who received their first free share issue from the remainder last summer, elected two employees to the board.

"This is not management by democracy," stresses Erdal. "But it can be a little bruising."

At Loch Fyne, there was just one senior staff casualty due, as Lane puts it, to "a rather orthodox view of command and control".

"In the early stages management find themselves under more strain rather than less because they get internal pressure from subordinates asking why are we doing something this way and not that," says Lane.

Management style is crucial to success, and mettle is well and truly tested at the first AGM. "The difference is that you are reporting to the people you are managing," says Erdal. "They know as well as you do what's happened in the last financial year and all the mistakes you made. They also know the buttons they need to press to get you going. The key is not to retreat, but to be open and upfront."

It's scary stuff and the more "top down" a company's approach has been in the past, the harder it is to change.

"Our relationship with Loch Fyne was quite short, but very sweet," says Erdal. "With other companies we have spent quite a lot of time helping managers think it all through. Following the transfer we get involved as much or as little as they want."

Although every employee-owned company is constructed differently, Baxi insists on a series of covenants that are effectively a constitution for job ownership and gives it the right to intervene if things go disastrously awry. Transparency and good internal communication are two of its guiding principles -- attributes that Lane admits had been lacking under the old regime.

"It's very difficult to break the 'them and us' attitude, particularly in a traditional part of the country, like Argyll," says Lane. "But the climate of job ownership encourages listening, and confidence begins to build once you start consulting. Suddenly you have 120 minds working for the company, rather than half a dozen managers getting overstressed."

Loch Fyne's whirlwind transformation delighted suppliers and customers. "They were chuffed and both our retail and delivery sales shot up," says Lane. Less than a year under employee ownership, the company is expected to outperform its annual growth rate of 10-12% with pre-tax profits predicted to double by 2006.

Lane puts the increase in productivity down to a combination of better staff motivation and a subtle change in customer relations. "When people know they are talking not just to a member of staff but a shareholder, it feels different. I can't over-emphasise the positive reaction of customers."

Staff too are beginning to feel the warm glow of free enterprise. Christine MacCallum has seen a huge boost in morale, encouraged by new training opportunities and a culture of openness that extends all the way to the top. "Problems get sorted a lot quicker now," she says. "Staff also feel they are involved in the direction of the company because we are told everything, and that makes you feel good. We all feel like curators here and for years to come there will be work in this area.

"It was very difficult, though, after years of treating Mr Lane as the boss, to suddenly realise I'm a part-owner in this business, too!"

Erdal argues that while profit sharing and suggestion boxes all play a part in enhancing a company's performance, nothing motivates quite so much as "working for me". "Studies show that where you have involvement but not ownership you get much less of an uplift in production than where you have both."

Both size and financial stability counts towards success, he says. "One hundred to 150 employees is a good number because a business of that size is not dependent on one or two individuals ... The key thing is that local managers communicate with, listen to and care about the employees."

As head of a non-profit making organisation committed to extending the concept of job ownership, Erdal sees no reason why the concept should not transform the public sector in much the same way as it has companies in the private. "I'd like to see the post office in the hands of the post masters and mistresses -- I think we would be amazed at the improvements. And what about the railways?"

Meanwhile, more and more small to medium sized firms are exploring the opportunities and Paul Wilkinson, chairman of the food industry's sector skills council, Improve, thinks he knows why.

"Venture capital firms are among the least venturous organisations I have ever met and increasingly utterly risk averse," he says.

He believes that for some firms employee ownership is a good solution, although he's less certain that there is "a sophisticated model that everyone can tap into". Back on the loch-side, though, it's working well.

"We used to chunter on in this country about a third way without really knowing what it was," says Andy Lane. "If you are concerned about our society and its future then something like employee ownership, where people's confidence, sense of responsibility and self worth grows, is going to be far better than if you work for a faceless company the other side of the world. If our service had gone backwards rather than forwards I would be saying something different. All I know is, we are a better company for it." FM

The Baxi model

Under the Baxi Partnership model, at least 50% of a company's shares remain in trust. Free shares are distributed to staff in every profitable year and can be internally traded on an annual dealing day. No outsider can own ordinary shares in the company, although there are other opportunities to invest.

Staff elect directors to the board. They also elect trustees to the trust. In addition, certain restrictive covenants are imposed to safeguard employees' interests.

The Baxi Partnership can be contacted on 01334 479101 or visit http://www.baxipartnership.co.uk. Further free advice on employee-owned businesses is available from Job Ownership, on 0207 821 9298 or see http://www.jobownership.co.uk.

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