The Last Word March/April 2022: Gareth Quarry and Jill Whitehouse

Employee-ownership trusts: a smooth and collaborative transition

In 2018, when we were suddenly presented with the opportunity to become the majority shareholders of SSQ, the leading global legal talent business, we openly acknowledged that when our management colleagues felt the time was right, we’d listen to any proposals they had to take over. That time came in 2021, and with it a shopping list for what was needed. What did that list look like? Pretty impossible.

It included:

  • Continuing to provide our employees with the best career paths on an unrivalled platform
  • Keeping control – SSQ’s ethos, its culture is key to its success, and nobody wanted to hand the reins over to a third- party purchaser or private equity house with their own agenda
  • Not weighing down the company – or colleagues – with borrowing.

A smooth and collaborative transition. Amazingly, moving to ownership by an employee-ownership trust has enabled us to tick off every one of those items and plenty more besides.

So, what does it take? First, it takes a lot of trust.

This is because the way an EOT transaction works: the selling shareholders – in our case 100% of them were selling – agree to sell their shares with the purchase price payable in instalments to a fresh-out-of-the-box EOT, an entity which here had only £10 to its name.

The purchase price is funded by the company making gifts out of its distributable profits over a number of years. There is no obligation on the company to make those gifts – they are purely discretionary. But if everyone believes in the ideal of true employee ownership, and the outgoing parties have trust in those remaining to run the business, it is quite easy to see that everyone at the end of the day has thesame objective.

This is because, once the purchase price for the shares has been paid in full, the profits can all stay in the company to be used for the benefit of employees.

So while the sellers obviously want to receive their money as quickly as possible, everyone else also wants this to happen. The trust wants to clear down its debt and get on to its main purpose – ensuring the company is run for the benefit of employees and that its profits, to the extent not needed for investment in the business, can all be applied accordingly. The trust effectively acts as the business’ conscience making sure that happens. And the employees want to get to that point as quickly as possible also, so that this can happen.

A crucial macroeconomic contribution is at play here. Global economic inequality desperately needs fixing. Employee ownership, done right, plays a part in shifting the dial and improving the lives of its employees. It is no coincidence that while EOTs originated in the UK, several other countries are actively looking at adopting the model. With its international footprint we believe SSQ has a role to play blazing EOT’s trail internationally.

We could have sold to trade or private equity: all the money up front and much less risk. But it didn’t feel like the right thing to do. We wanted SSQ’s employees to be the ones to benefit long term from its amazing success.

For a recruitment business, where our people make the whole thing tick, this is something that anyone looking to exit should think about seriously.

Gareth Quarry is outgoing chairman and Jill Whitehouse is outgoing COO and GC at SSQ

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