9. Models of Business Ownership

Should be able to find good info on UK biz ownership proportions here
http://www.ons.gov.uk/about-statistics/user-guidance/lm-guide/concepts/employers/ownership/index.html

ESOP - employee share ownership plan

British govt introduced tax favours for Esops. The aim was to promote a 'Share owning democracy" (Banks et al 2000:22)

http://www.nceo.org/library/esops.html
Employees can buy stock directly, be given it as a bonus, can receive stock options, or obtain stock through a profit sharing plan. By far the most common form of employee ownership in the U.S. is the ESOP, or employee stock ownership plan. Almost unknown until 1974, about 11,000 companies now have these plans, covering over 8 million employees.

ESOPs are most commonly used to provide a market for the shares of departing owners of successful closely held companies, to motivate and reward employees, or to take advantage of incentives to borrow money for acquiring new assets in pretax dollars. In almost every case, ESOPs are a contribution to the employee, not an employee purchase.

In an ESOP, a company sets up a trust fund, into which it contributes new shares of its own stock or cash to buy existing shares. Alternatively, the ESOP can borrow money to buy new or existing shares, with the company making cash contributions to the plan to enable it to repay the loan. Regardless of how the plan acquires stock, company contributions to the trust are tax-deductible, within certain limits.

Shares in the trust are allocated to individual employee accounts. Although there are some exceptions, generally all full-time employees over 21 participate in the plan. Allocations are made either on the basis of relative pay or some more equal formula. As employees accumulate seniority with the company, they acquire an increasing right to the shares in their account, a process known as vesting. Employees must be 100% vested within three to six years, depending on whether vesting is all at once (cliff vesting) or gradual.

When employees leave the company, they receive their stock, which the company must buy back from them at its fair market value (unless there is a public market for the shares). Private companies must have an annual outside valuation to determine the price of their shares. In private companies, employees must be able to vote their allocated shares on major issues, such as closing or relocating, but the company can choose whether to pass through voting rights (such as for the board of directors) on other issues. In public companies, employees must be able to vote all issues.

ESOPS are used:
To buy the shares of a departing owner:
To borrow money at a lower after-tax cost:
To create an additional employee benefit:

Caveats: The law does not allow ESOPs to be used in partnerships and most professional corporation. Private companies must repurchase shares of departing employees, and this can become a major expense. The cost of setting up an ESOP is also substantial -- perhaps $30,000 for the simplest of plans in small companies and on up from there. Any time new shares are issued, the stock of existing owners is diluted. That dilution must be weighed against the tax and motivation benefits an ESOP can provide. Finally, ESOPs will improve corporate performance only if combined with opportunities for employees to participate in decisions affecting their work.

http://www.nceo.org/culture/index.html
Research indicates that employee ownership companies grow faster than they would have been expected to grow without employee ownership and that they are more stable than their counterparts. Many studies have found that employee ownership affects corporate performance only when combined with initiatives that create an environment in which employees are given the tools, training, and opportunities to take more active roles as owners--in other words, only when the company creates an "ownership culture."

http://www.nceo.org/options/index.html
A stock option gives the recipient (the "optionee") the right to buy a certain number of shares in the granting company at a fixed price for a certain number of years.

A related type of plan is the employee stock purchase plan (ESPP), which is used mainly in public companies. Note: stock options and ESPPs have nothing to do with ESOPs


Channel 4 is a publicly owned non profit.


http://us.ft.com/ftgateway/superpage.ft?news_id=fto101420081729506314
Johnson, Luke (2008). Why public ownership is a failed model. FT.com 14.10.08

There is another victim of the credit crunch: the publicly traded model of ownership. The near-collapse of many of the large banks in perhaps a dozen countries shows that such corporate structures do not work.

I have served on the boards of various public companies for more than 20 years and most such constructs were dysfunctional. Interests were not aligned and there was more focus on pointless, ritual corporate activity than underlying profitability and productivity. Everyone tries hard, but the disconnect between management and ultimate ownership leads to the profound issues our economy now faces.

Large public companies are mostly owned by a hugely fragmented shareholder base. Fund managers meet executive directors twice a year for an hour and expect to understand what is going on. Too often they judge management based on their ability to carry off a presentation rather than their true skills as leaders. Professional investors have stakes in 100 companies or more and expect to have real insight into all of them: a fantasy. Meanwhile, the top directors of a large public company can spend a fifth of their time visiting hundreds of actual or would-be shareholders.

If things fall apart at a company, asset managers cling to a naive faith in the non-executives, as if they are really able to change matters. But on most occasions institutional investors find it easier to run from the battlefield by selling their shares. So who has any incentive to fix the cock-ups?

After all, how can the non-execs really understand what goes on? They meet less than once a month for a few hours. Mostly, they are paid to conform. No one dares challenge the executive directors because the executives have all the information.

Under corporate governance guidelines, non-executives are not meant to have material shareholdings.

On stock markets the mad gyrations of a share price during a few days can determine the destiny of an institution that has been going for 200 years. If their shares had not imploded, would the government have stepped in to save RBS and the others?

I always thought it was a terrible sign when a chief executive had a screen in the office showing the company share price - but perhaps they were the clever ones. How can anyone run a business when hedge funds trade big chunks of their equity every day? Because hedge funds comprise up to 50 per cent of all broking commission and a fair portion of trading volumes, even though they only hold 2 per cent of all shares, they have a hugely disproportionate effect on market behaviour. One benefit of these troublesome times is that hedge funds are likely to be much less influential in future, since their resources will be greatly diminished.

I believe private ownership allows a more stable, long-term approach to wealth creation. Highly geared leveraged buy-outs may suffer in the coming downturn, but family or employee ownership offers advantages over the volatility of quoted companies. There is less minute-by-minute exposure to external scrutiny, and less obsession with immediate valuation. Organising such ownership structures for banks would not be easy, but it might lead to a healthy state of affairs.

http://www.nolo.com/article.cfm/objectID/6294EA66-70E7-4562-81AC734B34CAD352/111/182/ART/
'business ownership structures' - above. See also this book?:
LLC or Corporation? How to Choose the Right Form for Your Business

on employee ownership

http://www.ent.stir.ac.uk/Employee%20Ownership.htm

on mutuals

http://www.caledonia.org.uk/mills.htm

Community INterest Company

Public interest company

co-operative
http://www.co-operative.coop/aboutus/

in 2006 we returned some £19m of our profits to individual members.

In 2006 we had 1.5 million economically active members, making us the UK’s largest
co-operative. Just £1 allows anyone to be part of The
Co-operative, and each of our members has an equal right to a say in how the business is run and how we achieve our social goals.

Every year members receive a share of the profits that they helped to create. That is why in 2006 we returned some £19m of our profits to individual members.

http://www.co-operative.coop/aboutus/thecooperativemovement/
A co-operative is a group of people acting together to meet the common needs and aspirations of its members, sharing ownership and making decisions democratically.
Co-operatives are not about making big profits for shareholders, but creating value for customers ‑ this is what gives co-operatives a unique character, and influences our values and principles.

There are many co-operative businesses throughout the world, of which The Co-operative Group is the largest consumer co-operative.


There are many other types of co-operative such as housing, worker, credit unions, agricultural and even political.


http://www.co-operatives-uk.coop/live/cme0.htm
GOOD INFO

http://www.co-operative.coop/aboutus/thecooperativemovement/ICD/

http://www.employeeownership.co.uk/share-schemes.htm

Visa finally sold up...
http://www.reuters.com/article/newIssuesNews/idUSN1441588020080314

Visa was owned by the banks that issued its cards - it had a member ownership model
Visa planned to sell 406 million Class A shares at $37 to $42 each, for proceeds of $15 billion to $17 billion, according to a regulatory filing last month.

Visa share price today at $56.47
http://finance.google.co.uk/finance?client=ob&q=NYSE:V

http://news.bbc.co.uk/1/hi/business/7263156.stm
Visa hopes to raise more than $18bn (£9bn) from the listing, which would make it the largest Initial Public Offering (IPO) in the US to date.

The share offering would be the culmination of a restructuring process that began in October 2006.

It is currently owned by banks that issue cards carrying the Visa symbol.

Of the net proceeds, $10.2bn from the listing will be paid to the banks who own the network.

Meanwhile $3bn will be set aside to cover the costs of a variety of litigation that Visa is currently involved with.

Why did Visa restructure? Did it need to raise the capital for the litigation? Must be more to it than that?

Tomorrow's Owners

"Table 3 compares the market capitalisation of domestic listed companies with the GDP of our chosen countries at the end of 2005" (p29, table is on p30)

(I mapped this against data on % of national wealth held by the richest 10% of the population in these countries and found no correlation)







http://www.telegraph.co.uk/finance/newsbysector/utilities/2795061/Britain's-biggest-private-companies-The-raw-materials-of-everyday-life.html

4 Viridian

Revenue £1.02bn

Viridian is one of Northern Ireland’s leading pan-utility groups. It supplies electricity to around 780,000 homes and businesses in the province and is also a leading supplier of gas and renewable electricity to the industrial and commercial electricity markets across Ireland through its Energia subsidiary. Viridian also operates two gas turbine power stations at Huntsdown near Dublin, in the Republic of Ireland, that together provide almost 20pc of Ireland’s electricity needs, as well as operating transmission and distribution systems in Northern Ireland. The Belfast-based company was bought by private equity group Arcapita in December 2006 for £1.6bn.