John Lewis is an entirely (100%) employee-owned co-operative. We have deliberately balanced majority Employee Ownership (51%) with an active aligned partner in Krystal EO holding the remaining 49%. This means that we have a nexus to provide support, guidance and resources to maximise success, while maximising returns to the Flywheel to propagate Employee Ownership.

We’ve picked the closest we can to the mid-point (in favour of employees) between entirely employee owned co-operatives and more typical 0% employee owned private enterprises (such as PE or publicly traded companies).

Krystal Hosting Ltd provides 5% of its turnover on a monthly basis as a donation. This covers all operational expenses such as payroll, accommodations, travel and marketing and means that 100% of philanthropic donations are committed to the businesses we acquire, maximising impact.

Krystal EO Ltd (16180966) has been specifically built for this mission. It is purely altruistic in nature by design. Lawyers Bates Wells helped draft the Articles to protect against acquisition, conversion or mission drift, including the following features/provisions:

1. Limited by guarantee, not shares. Cannot be bought or sold.
2. Mission-locked with singular purpose in Articles: “To acquire, and facilitate the acquisition of, interests in UK businesses to make them permanently majority Employee Owned.”
3. Not-for-profit. Non-distribution clause to prevent value extraction.
4. Earnings ratio. C-Suite cannot earn more than 7× average salary.
5. Patron & Guardian. Krystal Hosting Ltd (Simon’s first company and patron) acts as sole Guardian Member to further ensure the character remains.

Krystal EO does not have traditional shareholders, as it is limited by guarantee, not shares (this is to prevent it from being bought or sold). Krystal Hosting Ltd. is the sole guardian member responsible for holding it to its Articles and mission. Significant changes to Krystal EO can only be approved by Krystal Hosting Ltd.

No. Krystal EO is a not-for-profit with a dual-funding model; 100% of operational costs are borne by the Guardian Member, Krystal Hosting Ltd via a monthly donation of 5% of its turnover. This arrives in a dedicated ‘Opex’ bank account.

100% of philanthropic donations are used to acquire businesses and transition them into permanent majority Employee Ownership. These arrive in a dedicated ‘Donations’ bank account.

In the event of excess operational donations those could be rolled over from the Opex to the Donations bank account and used to acquire further businesses. Funds cannot be redistributed to members, in this case Krystal Hosting Ltd.

No. Unfortunately ‘Employees’ aren’t a valid charitable object at The Charity Commission so we wouldn’t qualify. Once Krystal EO has scaled it should be possible to pass the ‘public benefit’ test and gain charitable status.

Unfortunately, because ‘employees’ are not considered a valid charitable object by the Charity Commission, and because the Flywheel generates enormous public benefit after running for some time, we are unable to be a charity, qualify for Gift Aid, or offset profit. We are working to find a way to provide these beneficial perks, but hope that, for a small handful able to see the enormous power of the model, this won’t be a reason not to donate.

£2 million is Krystal EO’s guide per Founding EOvestor, however this is not a fixed requirement. We welcome different levels of participation, from a single larger anchor commitment to several smaller ones, provided together we reach the £10 million required for the first acquisition.

Once the Flywheel starts turning, we will publish quarterly reports based on calendar quarters, within one month of each quarter closing. For example, Q1 (January–March) would be published by the end of April. These reports will be published openly on Krystal EO’s website and cover which businesses have been acquired, including the number of Employee Owners created, and how existing acquisitions are performing, including data such as profitability and impact.

Krystal EO’s impact can be measured in the following ways:

• Number of employee-owners created
• Number of employee-owned businesses created
• Total number of majority Employee Owned companies in the UK inspired by the Krystal EO model
• Profit returned to employee owners
• Profit returned back to the Flywheel to create additional employee-owned businesses
• Employee satisfaction, churn, profit per head, etc.

At a societal level, Krystal EO’s impact can be measured by recording:

• Child destitution (we are aiming to eliminate this)
• Gross National Happiness (GNH)
• Employment in target areas
• Environmental contributions

Yes:

• No. 1 – No Poverty
• No. 8 – Decent Work and Economic Growth
• No. 10 – Reduced Inequalities
• No. 11 – Sustainable Cities and Communities

This is essential to maximise the impact the model can have. There are 2 shareholder groups; the employee owners, through the EOT which actually holds the shares, and Krystal EO. Both have a vested interest in making sure the company succeeds but profit isn’t the only measure of success.

100% of funds donated pass through to fund acquisitions and the employee-owned businesses they create (as Krystal EO has its operational funding provided by Krystal Hosting Ltd). When funding an acquisition, an additional 10–15% will be donated as a ‘Transition Fund’ to pay for staff training and education to ensure a smooth transition.

The EOT is a simple legal framework in operation since 2014. It allows for the definition of who qualifies as a beneficiary (in our case, all employees who have passed probation and remain employed). It requires that all beneficiaries are treated equally under law. Because the Trust itself owns 51% of the shares there is no need for complicated share management on behalf of employees, such as buy in or cash out.

Furthermore, there are a number of qualifying tax breaks under UK legislation, if the EOT owns at least 51% of the company (which in our case it does):

• Sellers gain 50% tax relief on the EOT value (51% of the consideration).
• Employees can earn up to £3,600 a year tax free via PAYE.

The board will be supplemented by an additional Trust board, normally composed of 3 trustees. One will be from Krystal EO, one elected or nominated from the employees to represent them, and one independent from the same industry that both parties respect.

We look for five things:

• Profitable
• Established — no startups, no early-stage risk
• At least 30 staff, ideally more than 50
• A UK-based workforce
• A workforce (and sellers) who want to be Employee Owned

What makes a genuinely good acquisition goes beyond the basic eligibility criteria — management depth, sector, culture and value.

There’s a Shareholders Agreement (SHA) between 3 parties:

1. The seller(s) −100%
2. The Employee Ownership Trust (EOT) +51%, and
3. Krystal EO +49%

Thanks to our generous donors, Krystal EO has the capital required to buy out 100% of the shares of the company. Let’s imagine that the firm is for sale for £10M (and in this example we’re assuming no deferred consideration).

1. Krystal EO loans the EOT £5.1M via a loan note that doesn’t need repaying under normal circumstances. This is paid to the sellers.
2. Krystal EO pays £4.9M for its share.
3. The combined £10M will be paid to the sellers upon execution of the conditions of the transaction being completed satisfactorily. This will include adoption of new Articles and the creation of reserved rights. It may include entering into a shareholders agreement where needed to protect the investment.

Otherwise the deal is like typical M&A, and would involve months of familiarisation and standard legal and financial due dil. (Simon has overseen 12 M&A deals at Krystal Hosting and has advisors that can safely conclude these transactions.)

In short, we don’t! The whole intention behind this initiative is to unlock the massive amount of underutilised potential in the workforce, creating happier, more productive employee owners who can become more involved citizens, leading to a more equitable and prosperous nation.

There is one exception: because businesses Krystal EO acquires are for the benefit of employees present and future (and because it would break the Flywheel) employees cannot sell the gifted EOT. To effect this Krystal EO makes a number of changes to the Articles during the sale, and maintains a 49% minority stake and holds a ‘Golden Share’.

We work on the mantra of a “Freedom in a frame”, working with each individual business to figure out their unique culture, strengths and characteristics, then establish broad boundaries within which creativity and innovation can flourish.

EDHEC Business School is currently undertaking an independent research project: ‘Scaling Employee Ownership: A Stakeholder-Centred Strategic Framework for Krystal EO’; producing a stakeholder impact and needs report, a business model, and financial scenario projections through to 2060.

The model is capitalist in nature and we cannot guarantee that businesses will survive. However, we’re pretty confident that businesses owned by employees will follow, on average, the precedent set down by existing EO businesses and outperform their non-EO peers. (As you might reasonably anticipate when everyone involved has a vested interest in the success of their business…)