Richer Sounds share ownership model could save capitalism

Julian Richer, the founder of hi-fi retailer, Richer Sounds, is breaking new records again. For more than 20 years, Richer’s first shop on London Bridge was ranked by the Guinness Book of Records as having the highest sales per square feet of any retailer in the world.

Now Richer is setting another record by becoming one of the UK’s most generous philanthropists and promoting industrial democracy in a way not seen since John Spedan Lewis gave his business to his staff in 1929.

With £200m of annual sales, Richer’s move to turn his company into an employee-owned trust is one of the biggest in the UK. The plan is to transfer 60% of his shares into a John Lewis-style trust for the company’s 531 employees.

If that is not generous enough, Richer is also giving employees a cash bonus, worth £1,000 for each year that they have been with him. That works out at an average payout of £8,000 per employee, while 39 people will receive more than £20,000 each.

The company will pay Richer personally an initial £9.2m for his stake but then he will give £3.5m of that back to staff to be owned in trust for them. There’s an added benefit for Richer: under tax breaks introduced to encourage more owners to choose employee ownership, he will not have to pay any capital gains on his stake.

Providing tax breaks to encourage wider share ownership via Employee Ownership Trusts was one of the smartest moves made by David Cameron’s coalition government. Indeed, the Finance Bill of 2014 gave exemption from capital gains tax on the proceeds of a sale to owners who sell a minimum of 51% of the equity of the business to the EOT. Employees were also incentivised – anyone receiving bonus payments paid via the EOT can be paid tax-free up to £3,600 a year.

So everybody is richer: Richer himself, and his employees. What’s not to like? And it’s a great move by an entrepreneur who has always liked to do business differently – ever since he set up his first London Bridge shop aged 19.

He’s always championed a more compassionate style of doing business, setting out his philosophy in a management book, The Richer Way, nearly two decades ago.

Critical to success, he wrote, was a happy workforce with employees being well-paid. It’s a philosophy he has always pursued: he refuses to use zero-hour contracts while employees have access to company-owned holiday homes around the world.

What’s exciting is that there appears to be a new mood in the air towards employee share ownership. Such a move, it’s worth remembering, John Spedan Lewis said he chose as a middle way between Bolshevism and managerial capitalism.

It’s an ownership model gaining critical mass in the UK: there are now 350 companies either owned by its employees directly or owned by trust, and a pipeline of another 50 who are working on plans to transfer. That’s equivalent to about 5% of GDP.

John Lewis may be the biggest name of all but there are many, many more businesses including Arup Group, Make Architects, Mott MacDonald, the Gripple engineering group and Tiptree jams.

And over the last year, there have been some big hitters choosing this path, raising the profile of the sector and helping spread the word. They include Aardman’s Peter Lord and David Sproxton, the creative geniuses behind the Wallace & Gromit animated films. The duo, who drew their first animated characters while at school more than 40 years ago, wanted to retire. Rather than sell their business to an outsider – Stephen Spielberg’s DreamWorks once made an offer – they sold three-quarters of the business to its 140 employees. Funding for the employee ownership trust came out of Aardman’s £18 million cash reserves.

Guy Singh-Watson of Riverford, the organic vegetable grower, was another entrepreneur to go down the employee route. He sold the bulk of the business to staff last year, retaining a quarter of the business.

There’s clearly something in the air. It’s certainly a smart option for small to medium-sized, often family-owned businesses, which are facing succession planning and don’t want to sell to outsiders.

Ironically, Deb Oxley, chief executive of the Employee Ownership Trust, says one of the problems facing the sector is the shortage of specialist lawyers and accountants around to deal with the pipeline of companies wanting to transition.

Even so, Oxley reckons the trend is reaching a “tipping point”. Let’s hope so. With Jeremy Corbyn on the horizon with his threats of nationalisation and compulsory ownership of chunks of publicly listed companies, the Richer story is the latest brilliant example of spreading capitalism to the many. The beleaguered and depressed Conservatives should be taking this trend far more seriously.

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