Governance – 5 things every employee-owned business should know
- Apr 20
- 4 min read
Sound governance is the foundation of every well-run business. In volatile times it acts as a reassuring bedrock for the way things are set up, accounted for and done.
But when you’re employee-owned – or selling to an EOT as your succession plan – there’s a ‘double layer’ of governance to bear in mind.
This is because of the additional checks and balances that employee ownership will bring.
So, as a company owner, what do you need to know about governance to equip your boards with the right framework to be successful – both before and after your business becomes employee-owned?
Our consultant Lisa Fryer has first-hand experience of making governance work. She shares her employee ownership governance insight here.
1. The size of your executive board matters
Leading employee owners is different [Lisa says], so your executive/operational board should be well-prepared and structured to make the most of this opportunity – ahead of your employee ownership transition.
It must be agile enough, in size and nature, to support your company’s needs.
If your board is small, it can be useful to seek particular expertise in the form of a high-calibre Non-Executive Director (NED). The challenge and rigour these ‘critical friends’ bring will ensure your directors have the insight they need to make the best decisions – and avoid unproductive ‘group think’.
A good NED's independent external perspective, ability to help manage risk and (on some occasions) expertise in governance can offer additional robust decision making and protect the integrity of the board.
2. You need the right board capabilities in the right roles
'Before transitioning to employee ownership – then every two years – your business should do a thorough skills audit to identify your company board's strengths and gaps'
Does your executive board have the collective capability to operate your business effectively once it becomes employee-owned?
If board members are long-serving, you should ensure their skills are still relevant or can be developed to support the next stage of your company’s growth.
Before transitioning to employee ownership – then every two years – your business should do a thorough skills audit to identify your company board’s strengths and gaps.
This will highlight development opportunities and when external expertise should be brought in.
Individuals might feel vulnerable, but often boards in businesses that are becoming employee-owned are already composed of very talented and inspiring leaders. It’s why your company is successful.
A board with the right capabilities and skills won't just have expertise in the business's core purpose and offer. Its members will also have the capability to ask the challenging questions and bring the focus to the issues and topics that have the greatest impact.
Sometimes directors avoid the thorny issues when they know there will be a tough debate and work for them as a result.
3. Clarifying your trust board’s role and responsibilities is important
When selling your business to an EOT, you must create a trust board. Your trust board provides a vital extra layer of governance for your employee-owned business.
Both independent and employee trustees (if you have them) should clearly understand their role and responsibilities – and it’s important that the rest of your company understands them too.
Your trust board is not usually a decision-making body; it is your ‘conscience’.
Its value lies in the independent perspective, insight and challenge it brings as it ensures your board is operating in line with your purpose and ethos – and in the best interests of your beneficiaries.
In fact, recognition that the independent perspective is key was strengthened in 2025 by HMRC's updated legislation around EOTs. As a result, two independent trustees is now recommended as best practice for trust boards.
Looking for an independent trustee? Our consultant Jeremy Gadd explains how we can help ease the process here – in partnership with leading executive search business Russam.
4. Identifying your purpose, vision and values is fundamental to future success
As founder / owner, you should clarify what matters most about the way in which your business will operate once it becomes employee-owned, and ensure this is referred to in some way in your Trust Deed and Articles of Association.
What is non-negotiable in your purpose, mission and values? Where are your red lines?
Remember that these legal documents will provide a clear reference point for your boards as they navigate the path ahead.
Use them, therefore, to specify what’s most important without being restrictively detailed to avoid undermining your company’s ability to evolve and grow.
5. Rigorous organisation and record-keeping underpins sound governance
It might seem tedious, but establishing a clear administrative process and diligent record-keeping is integral to the smooth running of your employee-owned executive / operational and trust boards.
Setting a clear agenda for meetings, where each director, NED or trustee understands their purpose and the information they must bear in mind is good governance.
Maintaining accurate records ensures that, if challenged, both your company and trust boards will be able to clearly demonstrate what was considered, explain the reasons they signed off a particular decision and provide the assurance they were acting in the best interests of your beneficiaries.
There have been countless instances where failures of governance have been identified as due to inertia, a lack of willingness to act decisively or failure to follow the agreed procedures.
What should you do next?
Sound governance not only helps employee-owned businesses stay legally compliant – it also supports commercial resilience by giving your business a better foundation for growth, leadership succession and change.
At Telos Partners, we can support you and your business to transition, embed, renew and grow through employee ownership. Find out how here and get in touch to speak with our team.
