If Chancellor Gordon Brown wants an example of restraint among captains of industry, he need look no further than David Goodrich, executive chairman of British Maritime Technology (BMT). Goodrich recently persuaded his board to accept a restructuring which turns BMT, a research company owned by the government until 1985, into an employee benefit trust, following the path of the John Lewis Partnership.
The usual options of flotation or buyout, with connotations of fat-cat directors netting big share bonuses, were rejected in favour of a course which will benefit all the staff.
When BMT transferred from the public to the private sector it was a member-based organisation limited by guarantee. Members were mainly firms from the maritime sector, and any profits were to be ploughed back into the company. It has since become a profitable international consultant for the marine and general engineering sectors.
To prepare for expansion, the set up needed modernising.
‘Having decided to change, we looked at a range of options,’ says Goodrich. They included moving to charitable status, flotation, a management buyout or an employee buyout.
‘Charitable status was rejected because at the end of the day, the charity commissioners would run the company, not the BMT board. I rejected flotation because the company needs to be able to take a long-term view. We do not want to be influenced by short-termism.’
Goodrich says flotation would have meant ‘a small number of shareholders getting a capital gain. None of the creators of BMT would have benefited.’ An MBO had similar drawbacks. ‘It meant wealth for a few senior directors. Therefore it would have been bad for the rest of the staff. It is not ethical.’
The executive chairman took the unusual view that since the staff had contributed to BMT’s success, they should benefit from any changes. This led him to consider a management/employee buyout.
The advantage was that it included all employees. ‘But the disadvantage was that unless we floated at some stage an idea we rejected there would be no real market for the shares. Also, the financial costs of this route were huge.’
Finally, they hit upon a suitable model from the retail sector: the John Lewis Partnership. It is a trust owned by its 35,000 employees. Profits are distributed annually to employees through the John Lewis Partnership Trust, which holds the ordinary shares in the partnership company; staff get a bonus calculated as a flat-rate percentage of salary.
‘I liked how it operated,’ says Goodrich. ‘As a 75-year-old trust, some bits were out of date but ethically, as well as legally, it met obligations to staff.’
Whereas John Lewis employees qualify for the profit share scheme as soon as they join the company, a BMT employee will qualify after three years. The central board will decide what percentage of consolidated profit goes to employees, on a points system based on salary and length of service.
Goodrich, mindful of engineering skills shortages, believes the new structure, which was well-received within BMT, will help recruit, motivate and keep high-calibre staff. ‘We are not asking people to take a financial stake in the company when they might not have any money to invest,’ he says. ‘All we are asking is that they invest their time.’
If an employee benefit trust is such a good idea, why don’t more firms have them? ‘Greed’ is the reason Goodrich gives.
For BMT, the switch to an employee-owned trust will complete a 13-year transformation under Goodrich. He was the first managing director when it was formed through the amalgamation of the National Maritime Institute and the British Ship Research Association.
The early days were tough, as the Government cut financial support to shipbuilding and its associated sectors, and the oil price collapsed.
Goodrich implemented cutbacks and sold assets to fund a strategy based around subsidiaries with the freedom to develop their own businesses. Initially these concentrated on four market areas merchant ships, oil and gas, naval defence and coastal zone management and were encouraged to specialise in areas such as hydrodynamics and aerodynamics. BMT has extended this to eight subsidiaries in the UK, two in the US and joint ventures in Poland and the Pacific Rim.
Each had its own profit share scheme and some autonomy. ‘We had to give boards and staff a feeling of ownership,’ Goodrich recalls. ‘I believe in giving a lot of autonomy, as long as subsidiaries act with integrity. I only interfere when things go wrong.’
He accepts there will be a greater need for information from the centre to boost employee involvement, and consulted John Lewis chairman Sir Stuart Hampson for advice.
‘BMT already had a clear idea how the John Lewis Partnership worked and was keen to pursue our model. I was able to talk them through the practical aspects and also reassure them that it was as effective as it appeared in principle,’ Hampson recalls. He says the changes ‘show an alternative to flotation that might not bring great riches to senior management, but which can provide the basis for continuing commercial success’.
According to Goodrich the success of the strategy will be proven if he is able to turn down a hostile bid. Although the umbrella company could not be sold, businesses within BMT could be.
The BMT board is not considering a sale. But Goodrich decided that any purchaser must give the first £30m made from BMT to a university research facility. ‘This cannot be changed,’ he says.
Last week BMT won ‘a major strategic contract’ to provide in- service support to the Royal Navy submarine fleet. It was won in partnership with DML and Systems Engineering & Assessment (SEA), against a consortium led by GEC Marine, and is valued at £20m, but could be worth £150m over 10 years. It will mean much more work for BMT Defence Services in Bath.
Goodrich has an eye on retirement as executive chairman in three years’ time, and says internal promotion will help preserve the ethos of the company. ‘I do not want to tie the hands of the board of directors for the future, but I want to ensure that we don’t get new people wanting to make a capital gain,’ he says.
So who will take over? ‘Only someone with the same values,’ he insists.
Goodrich at a glance
Born: 15 April 1941
Education: Ryhope Grammar School, Sunderland
First job: Apprenticeship, Bartram & Sons shipyard, then Hawthorn Leslies, Sunderland.
Current job: executive chairman, British Maritime Technology (BMT) Ltd
Interests: vintage cars, family