Why makers of Wallace and Gromit decided to become employee-owned

Morph welcomes guests into the central Bristol offices of the animation company Aardman with a putty-coloured, outstretched arm. But there are plenty of other reasons that employees might feel welcome here, from the breakout areas populated by stuffed Shaun the Sheep, to the well-tended gardens, where Nick Park often sits, pondering his latest creations, to the walls and cabinets lined with Baftas, Oscars and Cannes Lions for Wallace and Gromit and many of the other Aardman creations that are printed in the memory of any British child of the Nineties.

Last year, those employees had one more reason to stay. On 10 November 2018, the company announced that its founders, Peter Lord and Dave Sproxton, were selling 75 per cent of shares to a trust that would hold them on behalf of employees, turning Aardman into an employee-owned company.

Stephanie Owen, a senior producer and trustee director, first heard about the plan at the company’s annual review in April last year. She had plenty of questions about employee ownership, which is still less well known than other company structures, but mostly, she felt proud.

“I felt incredibly emotional and rather proud to be part of a company where the owners were taking such a bold and generous step to ensure the company’s legacy continued in the hands of the people who care so much about it – the partners, as we are now all called,” Owen remembers.

There are now more than 370 employee-owned businesses in the UK and 200,000 employee-owners. The sector is still small, but has grown rapidly since the 2012 Nuttall review by the government, which encouraged the creation of employee-owned businesses as a way to diversify industry after the financial crisis.

After the Nuttall review, the government created two types of tax relief for employee-owned businesses. The first offers relief from capital gains tax for company owners who decide to sell their business to an employee-ownership trust. The second provides an income tax exemption for employees, allowing them to receive a tax-free bonus of up to £3,600 annually.

“It’s not the only reason [someone who owns a company] would enter into the transaction – this is more likely to be about protecting their business and their legacy, but the tax relief is helpful to get the balance when you consider other exit strategies,” says Tamsin Nicholds, senior associate at Fieldfisher LLP, which advises companies on employee ownership. “Both [types of tax relief] are appealing and they also create a bit of publicity around the business model, which encourages people to look at it more.”

This week, the Employee Ownership Association and Co-operatives UK joined together to call on the government to invest £2m in the spending review to support the voluntary expansion of employee and worker-owned businesses.

They point to evidence that shows that as UK productivity has declined, the productivity of the top employee-owned firms is rising by 7 per cent a year. Ed Mayo, secretary general of Co-operatives UK, says: “When it comes to reducing wealth inequality, driving employee engagement and tackling regional resilience, employee and worker ownership offers a proven solution.”

Upstairs at Aardman, Dave Sproxton keeps a business book on his desk that partly inspired his decision: Beyond the Corporation: Humanity Working by David Erdal, the chair of Tullis Russell, a paper manufacturing company based in Scotland. Erdal designed and led the employee buyout of the company, which was completed in 1994.

Sproxton had been thinking and talking about succession plans for Aardman since 2013. The seeds of his interest in employee ownership were sown much earlier when, as a geography undergraduate, he studied under a Marxist professor. “The tendency of a company like ours with intellectual property of value is to get swallowed by Endemol, Disney or somewhere, who then take the properties and make them in another country,” he says. “About five employees go with them and the rest find themselves out of a job.”

Sproxton dismissed the idea of becoming a cooperative, which gives every worker an equal share in the business, believing that it might not work in such a commercial environment. He landed on employee ownership through a trust, which is managed separately through a board. This model does not convey the same voting rights as full cooperative ownership, but can make employees a more active part of managing the business. “The culture of the place was already collaborative, as film-making is, so when an employee-ownership structure was mooted, I thought that could be a way forward,” he says.

Now the transfer of shares is complete, Sproxton is focussing his attention on appointing a new managing director to replace him, so that he can move into a consultancy role. Meanwhile Peter Lord will remain creative director, working on a Shaun the Sheep movie due out later this year and Chicken Run 2, which is in development.

“We’re not quitting yet,” the founders said in the statement announcing the new company structure. “But we are preparing for our future. This approach is the best solution we have found for keeping Aardman doing what it does best, keeping the teams in place and providing continuity for our highly creative culture. And of course, those that create value in the company will continue to benefit directly from the value they create.”

Since the transition, Stephanie Owen has been elected by her colleagues to represent them at the executive board and the trustee board. The role is a step up from the previous workers’ council and has given employees more of a hand in shaping the business – including helping to choose a successor to Sproxton as managing director. “There is a new air of excitement and positive energy that the EO transition has brought,” Owen says. “There is also a sense of responsibility in the knowledge that ‘it’s our Aardman’ now and we all have a part to play in making it the best it can be.”