Right now this remains Britain's second-largest employee share ownership scheme, after the Baxi Partnership Ltd, a firm in Preston, Lancashire, that makes heating systems. The two companies have one additional factor in common: David Erdal is chairman of both.
Mr Erdal, with degrees from Oxford (Chinese) and Harvard (business administration), is the sixth generation of the same family to run Tullis Russell Group from its headquarters at Markinch in Fife, 25 miles north of Edinburgh. But he is giving up the chair to devote more time to a PhD in anthropology.
Giving up the family shares and redistributing them to the employees is altogether more long-term. Indeed, the process is by no means complete. There are another 18 years to run. It all began in 1985, soon after Mr Erdal took over the reins from his uncle, David Russell. His share of the equity was invested in the Russell Trust, which owns 48 per cent of the firm.
That figure will decline in the coming years as more and more shares are transferred from family to employees. But, crucially, the Russell Trust retains the golden share. Without its consent there can be no sell- out to a predatory bidder.
Tullis Russell had always been a forward-looking but paternalistic firm, conscious of its responsibility as the biggest employer in the area. "The family shareholders were committed to the success of the company, but they no longer wanted direct involvement," says James Daglish, the chief executive. "David Erdal foresaw that there had to be some exit for the family that would be consistent with the Russell Trust philosophy of remaining independent."
An employee share issue seemed the most attractive option. It would give the company's workers a stakeholding in their own futures, while the Russell family could cash in their shares without becoming liable to large bills for capital gains tax.
Indeed, the process, begun tentatively in 1985, gathered considerable momentum with the 1994 Finance Act, which extended the period for redistribution of shares from seven to 20 years. "As long as you are reinvesting in another taxable asset, you're not liable for capital gains," says George Wishart, the group finance director.
Employee shareholding is in its infancy in this country, with fewer than 100 companies having schemes. In America there are several thousand, including Avis, Polaroid and United Airlines. "In some cases in the States, the share option has been used as part of a cost-cutting deal," says Mr Daglish. "Workers have had shares instead of a wage increase."
Initially, there was suspicion among the workforce that Tullis Russell had similar intentions. "People weren't used to getting something for nothing," says Mr Daglish.
Today 40 per cent of the workforce is unionised and former union committee members sit on the Share Council, designed to put forward employees' views. Not that employee share ownership means running the business on a co-operative basis. Directors are free to manage as they see fit, as long as they put themselves up for re-election at the annual general meeting.
The average employee shareholding is around pounds 2,200 but that is likely to rise. By 2014 it could be between pounds 17,000 and pounds 18,000 at 1994 values. Nobody, though, will be allowed to sell their shares on the open market; they must be sold back to the Employee Benefits Trust. Otherwise the company could be open to the takeover it wants to avoid.
Of course, share values will increase if the company prospers. Hence the willingness of many employees to suggest efficiency savings and accept changes in working practices. Tullis Russell recently negotiated a shift pattern that enabled it to avoid costly shutdowns at weekends. Production was at 108,000 tons at the end of this financial year, compared with 70,000 five years ago. Sales have risen to pounds 141m from pounds 124m last year but overall pre-tax profit, at pounds 5.3m, is down pounds 1m, reflecting customer resistance to price increases required to offset the worldwide rise in pulp costs.Reuse content