Employee Ownership Across the Pond

23min
Season 1
Listen directly on:

Today we are joined by Matthew Flann, veterinary surgeon, and director at Pennard Vets. He explains the transition to an employee-owned model, how this model has influenced Pennard Vets’ ability to hire veterinarians, how the company’s internal culture has changed, and how the employees’ 70 percent ownership affects the decision-making process and strategy of the company.

Topics discussed:

  • An introduction to Pennard Vets and how they came to be employee-owned.
  • How the decision to transition into this model was received by the company’s employees.
  • How this model has influenced Pennard Vets’ ability to hire veterinarians.
  • Insight into how the company culture is changing since the introduction of this new model.
  • The system through which employee ideas are communicated to the management team.

Helpful links:

Speakers

Transcript

Ryan Leech, Director of Sales
Ryan Leech

Welcome to Consolidate That! Ivan, great to see you again, really excited about our guest joining us from the, for me, the other side of the pond, depending on where you’re listening to. Might be on your side of the pond though.

Ivan-Zak
Dr. Ivan Zak

Yeah, well, I’m here, I was just thinking where you’re located at. I think it’s a walk and a pond for you. For me, it’s really just the pond. I’m right on the –

Ryan Leech, Director of Sales
Ryan Leech

Yeah, I mean, you live on the water, I live in the real world.

Ivan-Zak
Dr. Ivan Zak

There we go. Very excited to introduce you guys to Matthew Flann, who is the managing director at Pennard Vets. He graduated from Royal Veterinary College in 1999 as a veterinary surgeon and took a position in Pennard Vets, Kent where he and his colleagues provided high-class medical care. Now, for people in North America, the veterinary surgeon means that he is a veterinarian, they’re just veterinary surgeons there. They don’t call themselves doctors there which we do in North America, I remember –

Yeah, we hired a person in SmartFlow, we hired a person from Scotland and we went to the western conference and she was completely pissed off that everybody calls themselves doctors. It was very interesting but, Matthew, thank you so much for finding the time, thank you for joining us, let’s see here.

Matthew Flann
Matthew Flann

Thank you, Ivan, and nice to meet you, Ryan, nice to meet you, Ivan.

Ryan Leech, Director of Sales
Ryan Leech

I’m still staggered by this doctor story here. I have to tell a quick story for you on this. My father-in-law is a veterinarian, my sister-in-law is a veterinarian as well. When I first met my father-in-law, I called him Mr. Markham and he was very quick to correct me and say, “It’s Doctor.” For the longest time, I resisted that just as a power struggle and so my sister-in-law, by marriage, my wife’s brother’s wife, both she and I just refused to call him anything for a very long time, until one day, we both got together and after about three or four years, we said, “You know what? We’re not calling him doctor anymore, we’re calling him by his first name.” We both shook hands and made a pact, “We’re going in, we’re calling him by his first name” and he just started dying laughing because he had been messing with us for years.

I’m always very cautious now to call people doctors but it’s good to know that we can call you Matthew instead of Dr. Flann.

Matthew Flann
Matthew Flann

You can, just as in a bit of an update, we are now doctoring up in this country, there’s, as of a few years ago, we had the ability to call ourselves doctors. Most of the younger colleagues haven’t got a “doctors” in front of their names and there’s a few of us around that are still loyally, holding on to the third gen title and surgeons are called misters, aren’t they?

If you have a surgeon, certainly in the UK, if you’re a surgeon, you’re a mister, and that’s what it is, or miss or misses or miss.

Ivan-Zak
Dr. Ivan Zak

Very interesting. Well, we’ll switch to what we want to talk about today because we didn’t say that. It is very exciting to talk about the group, Pennard Vets are a group of hospitals and how many of them, Matthew, today?

Matthew Flann
Matthew Flann

Might we have six practices and an out of hours, which is an ER center for you guys, and a few of the bits and bobs like the capturing and things like that. We got another practice joining the family in the next six weeks or so.

Ivan-Zak
Dr. Ivan Zak

Excellent, well, congratulations on all the success. This structure here, not only it’s a group of hospitals but it is also owned by employees and we wanted to talk about this model. I’m very excited to learn how to dis-evolve because my assumption that you didn’t start there, guys, you were just veterinary hospitals and then you said, hey, let’s share the wealth and the success between all of us.

Where did this idea come from, how big were you as an organization when you came out with this idea, and how did you actually operationalize this transition? A loaded question.

Matthew Flann
Matthew Flann

Okay, a bit of background, the practice is 125 years old so there is a lot of history, there’s a lot of legacy with the practice, which is wonderful, it’s really good. I joined the practice, what, 20 odd years ago and myself and two, three other colleagues have been running the place for the last 10 years, at that kind of timeframe. We’ve been getting bigger last year, 10 years or so, we doubled in the size and there’s a very large trend towards corporate ownership in the UK where there’s quite an 80 percent, I don’t know, it’s certainly north of 60, 70, that kind of level and we’re certainly one of the bigger ones left, which haven’t sold to one of the big consolidators. We were getting asked an awful lot from the team, “When are you going to sell, what’s going to happen, what’s our future?” We would always come back and say, “Look, we don’t want to sell, we’re in it for the long term” and that type of thing.

Unfortunately, lots of colleagues always say that until the day they sell. Lots of colleagues always say, “I’m never going to sell to the corporate, I’ll be independent” and then you get a text message from them with you know they say, “Oh, I’ve sold and that’s fantastic.” You congratulate them and that’s wonderful for them. There’s no reason for our team to really believe that we were being true and when you got an organization of a hundred people, the person trust you with individuals is that much thinner, if that makes sense. Okay, we thought it’s a bit of a problem and a few years ago as well, we’re thinking, what can we do to get the practice and be around another 185 years.

In this country, there’s a big department store called John Lewis, which if you’ve ever lived in the UK, you’d recognize it. That has like an employee ownership, partnership model. Kind of looked to them, we did certainly speak to our accountants and other people in the area for advice and so on. In the end, we learned more about employee ownership through the employee ownership association, which are these association in the UK and we discovered that this was actually a particular model where the team members could actually have some shares held in their name in a trust. We thought actually, that’s quite a good thing to do, we went and have them working and I’ve got quite a lot of my work in life left. I don’t really want to work anywhere else. I’d rather just grow, I will help grow this practice with the team and innovate and change and put on a really solid footing for the next 125 years. That’s really the decision-making process to get to the point to go, let’s go employee owned.

Ivan-Zak
Dr. Ivan Zak

I mean, that sounds wonderful but now, well, for one, I know that none of the corporate owned or private equity-backed organizations would ever be able to do that, there’s no way that someone says, “Yeah, sure, let’s share the organization.” Obviously, owned by private. You could do that, what was the structure that you chose, how does that work? Is that based on the salaries, is that based on just, you have a roll end sort of as you employed, is there a vesting period? Can people reinvest more money into organization? What are all those little details and what does it look like?

Matthew Flann
Matthew Flann

Okay, again, just for a bit of clarity, we transitioned on the first of March of this year, before the first of March, there were three owners. It was me, Andrew Green, and Caroline Collins and we all had a third each of the business and so there were three of us as owners. At the point of transition, to create the employee ownership kind of status and the employee ownership model, we created a trust which holds 70 percent of the shares. We sold 70 percent of the shares into a trust and the trust is held and operated on behalf of the employees.

None of the employees need to invest money themselves and the shares are held there. As far as we’re concerned, obviously, we’ve sold their shares into the trust and what we decided to do personally is actually take that money over time from the trust while have all up a lump sum at the beginning or something like that or have the trust raised debts to pay us out. The reason why we chose to do that is that we want to pass and thrive and succeed and grow and expand and obviously it needs the operating capital and the ability to raise that and things like that. That was our personal decision to do that.

In the UK, we have a very good model which was setup by the government maybe about 10 years ago or so, which was this employee ownership trust model. It’s favorable from a tax perspective from the owner selling into the trust and also, it’s favorable from the tax perceptive, from the employees receiving money out of the trust.

For the employees to receive money nowadays, if there’s a dividend, 70 percent of the dividend goes into the trust and the trust distributes that according to a fair method equal to the process and it could be based on anything really, it could be proportion to the salary, it could be linked to length of service, it could be linked to other things as well, but as long as there’s an agreed protocol, that the trustees or the trust agreed to and that’s what happens.

As far as myself, Caroline and Andy go, we still own 10 percent of the shares. In that situation, if there was a hundred pounds of dividend paid out, 70 would go to the trust and 10 pounds would go to each of us as well.

Ryan Leech, Director of Sales
Ryan Leech

I mean, that’s really cool that you guys have this dividend opportunities. Is that something that the employees are, I guess, maybe on a probationary period or on a vesting period prior to entering the company to be able to participate in that?

Matthew Flann
Matthew Flann

Yeah, an employee needs to be with us for 12 months before they’re entitled to the benefit of the trust. It’s just one of the rules we establish when we set it up. It didn’t feel right to make them wait three years or longer and it didn’t seem a fair ride to everyone else if they come in and there happens to be an annual payout in their first three weeks, that doesn’t seem fair either.

Ivan-Zak
Dr. Ivan Zak

Can you tell me two things, what happened? One is, what happen when you announced that and how was that received and the second thing, how did that influence your ability to hire veterinarians in this environment today?

Matthew Flann
Matthew Flann

Okay. Right, this is a really good question. We got a pretty good team and we’ve been working on culture and communication and trust and all that kind of stuff for quite a long time now. We profile our people so we know their profiles and how they’re thinking and they act and the way we all communicate with each other, which are all very good.

The idea within the employee ownership world is that when a company does this, they spend a year with consultants, bringing the team up to speed, educating them on roles and responsibilities and engagements and responsibility and all these types of things. We kind of skipped that because we knew, A, if we told the vets a year out or the whole team 12 months out, everybody would worry and overanalyze for 12 months.

We kind of took the brave decision to go, well, we’re going to do it on the first March and on the first of March, that evening, we held a Zoom. We invited all 95 employees at the time, on to the Zoom and we had a nice prepared video and with all the right things mentioned, rowdy music and everything else we played this lovely video to them for about 15 minutes and then we have about 45 minutes of Q&A on the Zoom and that’s how we brought the news to them that they were now employee owners and have a stake in them in the future.

Ivan-Zak
Dr. Ivan Zak

What was their reaction? Did you record it? I wish I – how did people react? Was it a surprise, was there gratitude from them, was there worry that this is some other corporate trick? What was the other reaction?

Matthew Flann
Matthew Flann

Yeah, I think all of them, everybody’s reaction consistently was, “Thank goodness we’re not going to be sold to a corporate” that was pretty much the resounding theme. A lot of team, people have left other consolidators once they’ve been consolidated and they’ve not gotten within there and they’re not lying for whatever reason they joined us. They didn’t always stay with us but we’ve had a lot of the team who have come to us for that reason and they were worried we are going to do the same to them. A lot of people just had consistency, we’re so glad we got – we know what our future is like. That is very reassuring and it is good for their psychological safety I guess as well.

About a third of the people also said this is brilliant. It’s fantastic, it’s really, really good. About another third was like, “Yeah, we kind of get it. We don’t understand what we do but it sounds okay,” and then the other third was like, “We have no idea what it means. We don’t understand it at all but we trust you, so we’re on board with that.”

Ivan-Zak
Dr. Ivan Zak

Did you feel that the culture changed? Did it unite people more behind sort of the organizational purpose?

Matthew Flann
Matthew Flann

You know, Ivan, it’s early days in mind, this place has been six months and this is kind of answering that recruitment question as well. Even though a lot of certainly other practice owners are aware of us and other people know about what we have done now, I don’t think it is really out there and it is common knowledge amongst all the vets on the ground, if that makes sense, all the assistants and other practices. So I don’t think it’s widely known that what we have done so, yes, I think it does help with recruitment once we can show them what we are made of and once we get their interest that probably does help certainly but is early days yet for that point of view.

As far as changing the culture internally, I think already we had a good culture. As far as the culture so I said with the EOT at the moment or the employee ownership element of the business, it is still quite early days, if that makes sense. We’ve not had a financial payout for the team yet but we are changing things, implementing things. We have changed our structure around our leadership structure and our reporting mindset the whole group and actually brought everybody onto a banding system for salary and we’ve got some other perks getting in there. We are starting to introduce a lot more benefits than we had previously, which is not necessarily directly related to an employee ownership structure but because we’re one, it is more likely to happen quickly, if that makes sense.

It is going to be a slow burner thing for employees to be really raving about it and going, I say “employees”, I mean “co-owners”, and I mean team members to be really raving about it going, “This is amazing, this is fantastic.”

You have to remember also, certainly in the UK, we’re going to present to times of demand for veterinary services with an unprecedented numbers of vets, we just don’t have enough vets at the moment. There has been a lot of vets leaving the country for various reasons and we have an increase pet population. The vets on the ground are really struggling to do the job they want to do and that’s kind of an overwhelming or overriding sentiment throughout I think the profession in this country at the moment rather than just within our practice.

Ryan Leech, Director of Sales
Ryan Leech

With the 70 percent ownership by the employees or the teammates as you’ve put them, right? Co-owners, how does that adjust or affect decision making of the vision or the strategy of the company?

Matthew Flann
Matthew Flann

Again, it is really a good question. In a sense, there is no direct involvement with leadership-making in that space. The actual trust is run by three trustees and one is an independent, one is a previous director and one is an employee trustee as well, so there is an employee representative there. That board of trustees reviews the decisions of the executive board and they make sure that the executive board is running the company in the best interest of the trust, so that’s it.

Through the trustees if there is any real direct wishes to change direction, philosophy, things like that then that can be imposed, if that makes sense. There is that loop and the employee trustee is actually very shortly going to be holding surgeries, if you like, in different sites just to speak to her colleagues and go look at anything you want to, you know, you want a feedback to the trustees or “What are your ideas, what are your thoughts, and what are things that we can do best?” or that kind of thing. There is that line of communication there.

So in essence, we are a business that’s run properly, that is run effectively, and run well and so all of those reporting lines from the team members come up in the usual way. If there is a nurse or a vet tech, I guess, in your lane, in your province has some ideas about improving the system or on when you ration, or whatever, then that will go up to your line management, or they’re in local teams and then back up to the system. That’s how it should happen in any normal business and that happens with ours. We happen to have a side escape route as well should it be necessary through the trust. I hope that answers your question.

Ryan Leech, Director of Sales
Ryan Leech

That’s amazing.

Ivan-Zak
Dr. Ivan Zak

Absolutely. Yeah and you know it obviously sounds like this is not something that you did this and it changed everything. You were a very well-run company with the respect of people that do the work and with the lines of communication and the management structure established, this is just another thing to combat sort of this corporate takeover of our industry and you secure employees. It would be very interesting to see how the development works.

What does that look like from just general management perspective? One of the things that you said about this line of communication, I spend about two years researching healthcare and how did they combat certain aspects of burnout and management mismatches and things like that. A lot of that was what I found was through lean methodology. Which I think that was twice tried at NHS, your healthcare system, first time not very successfully and then, I think, successfully after that. One of the main principles that I learned in the healthcare was the principle of caring for people that do the work and actually focusing on that but that needs that direct line of communication. Can you talk a little bit more about the process?

How do you take the ideas from the forefront like from the actual nurses and the veterinarians, how they trickle up to the management team and then how they’re prioritized in terms of implementation? Because if you’ll ask 95 people what they want to change, you are running the risk of having 95 projects. How do you prioritize them and then making sure that those that were not prioritized are communicated back for the reasons why?

Matthew Flann
Matthew Flann

Yeah, so we have had a bit of a pause in our processes since the beginning of COVID and we haven’t really kind of got that up and running properly again, but before COVID, the system we were utilizing or the tools we are utilizing was a process what we call is continuous improvement boards.

We’ve got, and I think this is probably fairly common practice in a lot of businesses, but we’ve got little cards, actual proper physical cards, it’s not electronic, you know? If there is a problem or that stated or another person states that they state their solution and that goes into the department every couple of weeks, we have a team meeting and we’ll have several team meetings that are across different sites, because it is going to be relevant locally, and they will gather around and go, “Look, this is a problem. This is a solution I propose. What do people think?” and someone takes ownership over it.” Then that gets all written down and it is on a back of a card and it gets brought up next time for the solution, and so on and so forth, and that was actually a really neat way of doing things.

Is it perfect? No, I thought it would absolutely be amazing when we launched it. It was about 60 percent good and we were reviewing in the process and trying to improve it and see what we can do better and then COVID kind of hit. Getting 20 people in a stuffy old Victorian building and it removed without any ventilation wasn’t really the best thing to do so we kind of put that to one side, funny enough and it should have actually correct to you the top of the program and I do apologize.

My title has changed now, I am not managing director anymore. We’ve actually I’ve stepped aside in that role and we’ve brought in somebody, he’s got experience in running practices a lot bigger than us. As this new colleague has come in, I can focus a lot more now on the commercial side of things on acquisitions and development and building and I think that that is lovely and that kind of floats my boat and this new colleague is actually developing new communication systems and processes as well.

We have a lovely offsite leadership meeting yesterday and one of the topics that I was actually exactly as you said, Ivan, is looking after the people. I think what was really interesting is, is that I think everything we talked about today goes for any business. It is good business practice, no matter what the ownership model is, is just that when it is employee owned, you got a more compelling reason to do it, whether it is looking after people making sure – you make sure practice is good, looking after people’s psychological, safety, wellbeing, you name it, it is always important for any good business. It is just more fundamental in an employee owned business and I think that’s really important to remember. The MD that’s come in is not comped in employee ownership necessarily background but it is really interesting to see it work in action, so that’s been very interesting to see.

Ivan-Zak
Dr. Ivan Zak

That’s fascinating because what you are talking about this continuous improvement process and the card system that’s exactly what Lean and healthcare does. They have these, I don’t know if you took it from there, but I don’t know if you went into any sort of any literature and strategies about Lean implementation to healthcare, that is exactly what they do.

They have this card system, I’ve seen it in San Francisco General Hospital, I have seen in Boston General Hospital, I have seen it in Hopkins, this is really what they do. I thought it was kind of antiquated being a techy guy, it kind of came up with additional ideas that I’ll share with you after this episode, how you could digitalized the process but this is brilliant. Arguably what you just said in an organization that is ownership or non-ownership, I think that regardless of the ownership, if you implement the system where you clearly show to your colleagues, partners, employees that you listen to them that’s half of the battle. I think that is half of the battle of attracting them and saying, “I want to work for this organization because they listen to my voice,” so that is just brilliant.

I don’t know how we blew through 25 minutes. That was too quick but that’s our promise to our listeners. If we want to learn or our listeners want to learn more about your organization directly from your website, what is it or if there is interesting press releases, I know that is how we found you through a press release, so where can people go and learn more about you and the organization?

Matthew Flann
Matthew Flann

Well, our main practice website is if you Google pennardvets.com, that’s us. From an employee ownership point of view, there is also Fledging Group, which is called the British Veterinary Employee Ownership Association, which is a bit of a mouthful but it is buveoa.org.uk. There is a landing page on there and you can request us more information and we’d be happy to talk to anyone about it and my email address is quite simple. It is mflann@pennardvets.com and I would be happy to reach out or speak to anybody if they reach out to me.

Ryan Leech, Director of Sales
Ryan Leech

That’s great, I think what you guys are doing is going to be an inspiration, first off, for people over in your part of the world there to look at a great employer and a great place to be but also for everyone that listens across the globe to listen to a way that you can have the feelings and the ability to do all of those things with people.

If we were to invite a guest, who would you recommend that we have on the show with us?

Matthew Flann
Matthew Flann

Well, there is a very lovely person called Alison Lambert and she’s always got lots of interesting ideas to talk about.

Ryan Leech, Director of Sales
Ryan Leech

Mathew, thank you so much for joining us, it’s been wonderful to hear about it. I think you guys have some great stuff going on and as always, we appreciate it and to everyone listening, thank you so much for joining us.

Matthew Flann
Matthew Flann

Thank you very much. It’s been a pleasure.