Christopher BarrettShambala co-founder Chris Johnson and new Employee Ownership Trust chair Tom Berry tell us how and why the festival became the UK’s first to be employee owned.
Earlier this year, Kambe Events, the company behind the 15,000-capacity Shambala festival, declared that the independent event’s co-founders had ceding ownership of the business to the team members who had helped build it over the past quarter-century.
The transition saw the festival’s ownership handed to an Employee Ownership Trust (EOT). At a time when the festival sector is increasingly dominated by major promoters, Shambala’s founders said the move was taken to ensure the festival remains independently run, and that its team will share in future successes.
Voted best independent festival at the Access All Areas Awards, Shambala was founded 26 years ago by a team including Sidharth Sharma, Chris Johnson, Oli Grassi and Dan Raffety.
Johnson says a key motivation for moving to employee ownership was to ensure Shambala would remain unwaveringly independent, and that its team would not only continue to have an emotional stake in the business but also a financial one.
Leading Shambala’s Employee Ownership Trust is its chair Tom Berry, who has no experience whatsoever of running outdoor events. What Berry does possess is extensive experience of advising organisations that are looking at changing their ownership model. He took on the role at Kambe having seen it advertised on the Employee Ownership Association website, a site he recommends for companies considering moving to employee ownership.
Tom Berry
“If you are going to be employee owned it is mandatory that you have an independent figure as its chair, which I am with Kambe. Sitting behind the chair, you then have employee trustees,” he says.
Johnson will hand over the MD role to newly recruited Stephanie Dodd in August. Meanwhile most co-founders will remain part of the cultural fabric of Shambala; Dan Raffety is staying on as head of music, Sidharth Sharma as creative director, Johnson as sustainability lead, and Oli Grassi has become a trustee on the EOT board.
“As co-founders who have held the vision and driven the success of Shambala for 25 years, we won’t disappear overnight, rather step back from managing the organisation. In many ways each of us is remembering why we found ourselves in this festival business, reconnecting with what we are passionate about – music, creativity and sustainability,” says Johnson.
While Shambala is the first to switch to EOT ownership, some alternative ownership models that have been adopted by UK festivals include becoming a social enterprise or community interest company. Berry says he has sat on boards of community interest companies and EOTs and that when making a choice between the options the best route depends on what you are trying to achieve as an organisation.
“It depends if you going to stay in the organisation as a founder or if you are going to leave,” he says. “My advice would be, because most people are looking to leave at some point, that the best way to create a long-lasting legacy is to give the company to the people who have created its success and culture; the people who work on it day to day. That is always better than creating something that is artificially in the interests of other people.”
John Lewis & Partners is famously an employee-owned business, with its many thousands of employees collectively owning the enterprise in a trust. In 2012, the Nuttall Review of Employee Ownership, an independent UK Government report by Graeme Nuttall OBE, investigated the John Lewis model and identified a series of obstacles to making employee ownership a mainstream business model. While highlighting the difficulties, it also found that employee-owned companies consistently report stronger economic performance, lower absenteeism, better staff retention, and higher profitability.
In a move to streamline employee ownership, the concept of an EOT was introduced under the Finance Act 2014, and with it tax benefits for companies owned by an EOT and for individuals who dispose of shares to an EOT. It presented business owners with the opportunity to sell their shares to an EOT free from capital gains tax. Employees are not given direct share ownership in the company; a controlling interest is transferred to the trust which then holds it for the benefit of all employees.
“That’s when it started to get interesting,” says Berry. “Instead of selling to a trade buyer or a private equity firm, you could sell to employees and get a tax benefit because of doing it. I’m not going to comment on whether companies did it for that reason or not, but it certainly was compelling at that point in time to sell to employees. What has happened after that point in time is people have been exploring it more and deciding that this might be the right way to do it for cultural reasons, rather than just financial reasons.
“I completely agree with founders of creative industries that they should be paid for the effort and the time they put in. Let’s face it, there are plenty of people who have set up events or venues who did not pay themselves enough money in the past, to make sure the project went ahead. Most importantly, EOT means that employees have control of what you have created together. It also means you are not going to sell out to an organisation for a vastly inflated sum of money on paper, which you’ll never get. That is what generally happens in these situations; when you sell to a PE company or a trade buyer you don’t get the money on the table.”
Chris Johnson
Says Johnson, “The primary motivation for becoming employee-owned for us is the principle that Shambala is owned by the team who make it happen. The tax benefit is great, but isn’t significant enough to drive the decision, in fact overall it’s more complicated for exiting founders in some ways. Think of the whole thing like your teenager is leaving home – you’re not looking for the cheapest option; you’re looking to make sure they will thrive. Shambala is a life’s work for us.”
Once the company has been sold to the EOT, its former owners often write a ‘letter of wishes’ outlining values or principles that they believe are important to the success of the business in the future. It is then up to the EOT whether that advice is embraced or binned.
Says Berry, “The letter of wishes was written by the founders for Kambe and read out on the day that it was sold to the employees. It was a very emotional moment, a beautiful thing. It’s not legally binding, so the Trust does not have to hold by that letter of wishes but it would be very silly of us not to.”
This article features in the summer edition of Access All Areas magazine – read it here.