London law firm Hodge Jones & Allen (HJA) has brought in sweeping changes to its ownership model, making it the first firm to be wholly owned by its employees.
The reform, which has been implemented through an employee ownership trust (EOT), is intended to secure the firm’s long-term future and address succession issues posed by the impending retirement of senior partner Patrick Allen.
Allen had amassed a roughly 70% stake in the firm during his tenure, meaning his retirement threatened financial instability in the event that capital went with him when he left. Over the last five years, a range of options had been considered on how to structure the business.
‘We’ve been thinking about succession for a long time,’ managing partner Vidisha Josh told Legal Business. ‘We considered options like a merger or an injection of capital but after doing due diligence it didn’t really appeal to us. We just couldn’t bear the thought of the firm being broken up and sold for parts.’
Under the new arrangement, all 230 staff will be entitled to annual tax-free distributions of up to £3,600 a year, while Allen, who was a founding member of the firm 40 years ago, and Joshi will act as trustees. Finance director and business consultant Kingsley Tedder of Coach House Consultancy will act as an independent external trustee for corporate governance and compliance. The trust will manage the firm’s shares and profits on behalf of employees.
Bonuses at HJA will be dependent on profit performance, with the firm currently hauling down annual turnover in excess of £17m.
Commenting on the move, Allen said: ‘Becoming employee owned reflects the people-first entrepreneurial spirit that has been the backbone of HJA since 1977. It provides continuity for our partners and staff, and therefore our clients. It is the perfect model for a firm like ours.’
The ownership transition comes as a number of firms look at alternative models for structuring their businesses. South-west firm Stephens Scown and listed firm Gateley both give staff minority stakes through trusts but have stopped short of a wholesale employee ownership model. City litigation boutique Signature Litigation meanwhile adopts a co-operative structure which sees every member of the firm have a fixed, non-discretionary and proportionate entitlement to firm profits.
EOTs were first introduced to UK businesses following the Finance Act 2014, with successive UK governments promoting models of employee ownership. HJA’s structure is similar to mainstream retailers such as John Lewis, as numerous businesses look for more democratic and less volatile ways of pursuing growth and profits in light of the financial crisis.
The move from a firm of moderate size and reputation could pave the way for similar transitions from firms in future.