Business Models: Part 3 - Collective ownership - All for one

In the third installment of a series on different business models, Hannah Crown considers two different but linked movements that have their roots in employee ownership.

While employee ownership and co-operative models are relatively uncommon compared to other models of business, there are highly successful examples of both in the childcare sector.

Independent co-operatives have been around as early as the 1960s. The Co-operative Childcare is a prominent chain. Part of retail group The Midcounties Co-operative, the chain has 47 settings and caters for 3,495 children. Childbase is a rare example of the employee ownership sector, also with 47 settings, catering for 3,884 children.

The co-operative childcare movement

Co-operatives date back to the 15th century; now, more than 15 million people in the UK 'own' a co-operative. Ownership is a co-operative's defining characteristic: members own and run it and take a share in its profits. As membership of a co-operative must be open, 'members' can be members of the public. Thus follows the co-operative ethos that it must benefit its local community.

Data on the number of childcare co-operatives in the UK is patchy. The latest data from Co-operatives UK lumps together health, social care and childcare, with 177 co-operatives of this type recorded in the UK in 2014.

Like social enterprises, the co-operative is not a legal form in its own right but an organisational type - there is no 'Co-operative Act' and thus no precise definition. Often a co-operative is a company limited by guarantee, but it can also be a community interest company or an industrial and provident society (IPS). Co-operative Childcare is registered as an IPS (now called a 'registered society'), which by law can be a 'bona fide co-operative' and can't be 'a society that carries on ... business with the object of making profits mainly for the payment of interest, dividends, or bonuses'.

The independent co-operative sector is well-established, if relatively small. ACE Nursery School, a private company limited by guarantee, is a parents' co-operative, with an 'outstanding' nursery school for 40 children in Cambridge, which started in 1966. At ACE, all parents must make a practical contribution, which means five hours work per term. Those who cannot commit time are asked to pay a contribution instead. The arrangement helps reduce spending on staff. Decisions are made by a parent committee, which has financial control, including setting staff appointments and salaries, and fees.

The Midcounties Co-operative, of which The Co-operative Childcare is a part, is an independent consumer co-operative spanning seven counties of the UK. It featured on The Sunday Times Best 100 Companies To Work For list in 2011, 2012, 2013 and 2014. Aside from the childcare business, it also has divisions in food, funeral care, energy and travel, as well as a pharmacy and a post office. It has some 245,000 members (including non-employees). It is independent of The Co-operative Group, though it is a corporate member, which means its members can earn a dividend at The Co-operative Group stores.

The Co-operative Childcare is 100 per cent member owned, with 1,261 childcare employees. Of these, 1,225 are members of The Midcounties Co-operative. It has six 'outstanding' and 30 'good' nurseries. The group operates a points system for anyone purchasing services from its businesses. Usually one pound earns a point (the value of these points changes depending on profits). Anyone with a membership card can earn points, which are issued back as vouchers. The vouchers can be spent in any of the society's trading groups, or paid into a member's share account. Many parents using The Co-operative Childcare are members, which effectively means they can use their dividend to act as a discount.

Its community work includes a community grant programme, a staff-led food bank programme, and an information campaign on domestic abuse in teenage relationships called Can You See Me? in partnership with charity Women's Aid. All staff also get three paid days per year to work for a charity.

Gemma Allardyce, head of customer and brand for The Co-operative Childcare, says, 'Social responsibility is an underlying principle. If profits are down in other companies, suddenly this isn't quite as high on their agenda, but we will never sacrifice that. We do everything we do to reinvest in our communities.'

Decision-making

Co-operatives such as ACE are managed on a collective basis. In larger co-operatives, a stricter hierarchy is often in place, with some of the employee members elected by their colleagues as directors to manage the business. But managers in worker co-operatives are directly accountable to their fellow employee members.

The Midcounties Co-operative, for example, is headed by a board of directors, chaired by the president. The board sets the society's objectives and strategy, including its social goals. Directors are elected by members, and can be anyone who has been a co-operative employee for more than a year, providing they have spent at least £400 in the society's businesses. The board has sole decision-making control over issues such as long-term objectives and strategy, membership policy, financial reporting, approval of business acquisitions and political donations, and directors fees (currently £7,500 per year, though these have then to be voted on by members). A mostly elected membership strategy committee looks at ways to best recruit and involve members in the society. Below this, there is a board for each trading group. The childcare board contains appointed employees of the childcare, and other, businesses.

Parents and even children's views also form part of decision making, as well as those of employees. Parent representatives from each nursery meet every month or so, while a parent advisory panel has two representatives from each area who can discuss best practice and act as a consultative body on a range of issues. Children can say what they like and don't like at their own council in each setting.

For staff, a colleague council meets quarterly to provide a channel of communication directly from nursery colleagues to the executive team. Ms Allardyce says, 'The group's focus is on "action" rather than discussion.

For example, as a result of a colleague council agenda item we made the move to change the way we do planning in nurseries across the whole estate.' A childcare managers' council also exists to look at ways to identify, share and develop best practice and improvements.

Employee ownership

Childbase Partnership, which was founded in 1989, has 24 'outstanding' and 20 'good' settings. Now, 72 per cent of the company is owned by employees, with the rest owned by private individuals who invested in the company at the beginning of its life. Under this agreement, the investors can only sell shares back to the company's trust, which manages them, and on which sit staff who have previously held positions on the company's 'partnership council'. The company's aim is to be 100 per cent employee owned within ten years.

The majority of share owners have between one and 5,000 shares; 42 people have 5,001 to 10,000 shares and 57 have more than 10,000 shares. Employees buy shares under a scheme called Save As You Earn. They can save between £20 and £125 per month, which is automatically deducted from their bank account. At the end of the year they are offered the choice between having the money back or converting it into shares.

The company also runs 'BOGOF' schemes - up to three shares for every one share purchased. Staff are educated about share schemes and how they work as part of staff roadshows every year.

The partnership council acts as a conduit between staff at all levels. It has representatives from each of the company's nurseries. Confidential documents, such as agreements about new acquisitions, are shared with partnership council members, who must all sign non-disclosure agreements (all staff are party to other company information, with chief executive Mike Thompson sending regular updates, including about share prices). Operations director Lynda Gostelow, who chairs the council, says, 'The partnership council challenges everything, such as the stability of nurseries we are buying and how acquisitions will affect share prices, and they could block an acquisition with a majority vote.'

Mr Thompson sits on the executive board, which makes recommendations to the partnership council. A key decision taken by the council has been on staff salaries, with increases for those on lower bands and raises to be paid from the date of the employee's arrival rather than a fixed company-wide date.

Ms Gostelow adds, 'The senior team looks at salaries and presents recommendations to the partnership council for debate. The partnership council then divides into working parties and talks to each nursery team about where they think salaries should be.'

The company pays above the national minimum wage. Unqualified staff receive a wage between this and the Living Wage, and newly-qualified staff get the Living Wage, while more senior staff's wages increase with experience.

She adds, 'This sector is not the best paid in the world. We have seen people invest their hard earned money into buying shares in this business. We get the best out of people - 53 per cent of the business is "outstanding" - that is directly linked to the fact that we are employee owned.'

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