Case Summary

Nigel Le Quesne, CEO of Jersey-based financial services firm JTC, firmly believed that
"shared ownership" was at the heart of his company’s successful track record. The firm had
seen its revenues, profits, and number of clients and staff grow steadily throughout its over
30-year history, and management attributed much of its competitive edge to its culture in
which engaged employee owners had fully aligned interests and collaborated for the greater
good of the firm. Le Quesne had seeded the first employee benefit trust with some of his own
equity when becoming CEO in 1998, making all employees—from the receptionists to top
executives—direct shareholders in the firm. Over time, the employee-owned equity had
grown from 5% to 23% and the trusts created significant value that had already been directly
distributed to employees in two past pay-out events. In early 2018, after JTC’s successful
IPO, Le Quesne and his leadership team must decide if and how to adjust the shared
ownership tools to their new public market’s environment.

Characters in the case

Nigel Le Quesne, CEO of JTC

directors, CFO Martin Fotheringham and COO Wendy Holley
Steve Burnett looked after finance
Philip Burgin after clients
Nigel Syvret after operations
Michael Thomas, JTC’s director group development
David Vieira, chief communications officer
Becky Henwood- Darts, group director finance
Rae Swemmer, senior manager business development & marketing
Linda Garnier, director private wealth services
Miranda Lansdowne, director CEO office
Nicola Wainwright, a receptionist
Ian Moore, CPBE partner
Lesley Bassford, director group finance
Claire Driver, senior manager group HR   

ABOUT THE COMPANY    

 Jersey Trust Company(JTC) was established in 1987 by two young partners of

Crills, a local law firm, as the administrative side arm of their firm’s legal
business. 
 JTC Group was a financial services firm that provided fund, corporate, and private
wealth services to institutions and individuals. JTC had grown under Le Quesne’s
leadership from a local 12-people Jersey company to a global 700-people firm with
offices in 18 jurisdictions, both through organic growth and acquisitions (16 deals in
nine years).
 From 2001 to 2007, JTC expanded organically to the UK, British Virgin Islands, and
Switzerland and finished buying out the original law firm owners.
  In 2008, the four directors - Nigel [Le Quesne] Steve [Burnett] Philip [Burgin] Nigel
[Syvret] completed the management buy-out and JTC was wholly owned by
management and staff.
 In 2010, JTC made its first acquisition: Caversham Fiduciary Services, a local Jersey
competitor firm with over 40 employees.
 By 2018 JTC administered over $110 billion of assets for over 4,800 clients globally.

About the pre IPO plan

Le Quesne believed that their successful track record was primarily based on the fact that
100% of its staff were direct shareholders in the firm. “Shared Ownership” sat at the core of
JTC’s DNA. ever since he had seeded JTC’s first Employee Benefit Trust (EBT) in 1998 with
his own equity, turning all employees—and not just partners as in other service firms—into
shareholders. Over time, the proportion of equity held for and by JTC employees had grown
from 5% to 23%.

In 1998, Le Quesne seeded JTC’s first employee benefit trust with 5% of his 10% equity,
making all 15 employees at the time—from the directors to the filing assistant—shareholders.
Le Quesne put together guiding principles based on his shared ownership beliefs, referred to as
the “Magic Wheel” 

During the early years, staff mainly experienced the EBT through annual bonuses, as JTC
decided on dividends and distributed the related cash to its employee-shareholders tax-free. a
senior administration officer, earning about £25k to £30k a year, this represented about 5% to 10% of
their salary, up to 20% in a good year, while the trust firms across the street would pay bonuses of
about 10%.

When Le Quesne felt that its not right for the firm nor for the staff who own 19% through the
EBT. two of the four directors were happy to sell their shares. Le Quesne embarked on a search
over 18 months for a perfect private equity, first seeking to understand the expectations of the PE
community and the features of the different firms that were likely to be attracted to JTC chose the
private equity firm CBPE (Close Brothers Private Equity) as the  partner as They were
prepared to take a minority stake and believed in the management and our unique approach to
shared ownership, which was demonstrated directly when 5% of ‘sweet equity’,a which is
normally issued only to members of senior management as an incentive, was used instead to
seed the second JTC EBT.”

As the ”Fab 4” sold shares, so did the other owners—the employees—through the EBT. JTC
then paid out the first EBT. The proceeds from the sale of its 19% of shares was £12 million, which
was distributed among the 174 permanent employees at the time of the ‘capital event.’ Payouts
depended on people’s ownership, based on seniority of role and years at JTC, with an average
distribution of £51,000 per person

JTC invited its directors, managers, and some long-term employees to reinvest by rolling over some
portion of their EBT into buying JTC shares, which was to be held in a specific JTC plan and subject
to associated rules and they offered the opportunity to approximately 48 people, from manager level
and above. 

Following CBPE’s acquisition of a minority stake and the realization of EBT1, a second EBT
was immediately created and initially seeded with 5% of “sweet equity” which over time grew
to 8% of sweet equity . This meant that all staff would once again benefit from the company’s
performance at the end of the PE-backed era, assuming the company achieved its targets.

The equity rolled over by the 48 employees invited to do so was held in separate ‘Jersey Share
Ownership Plans’ (JSOPs) which kept the specific portions of equity owned by those individuals
segregated from the wider EBT2 pool

The mechanics of EBT2 enabled its distribution based on a points system. Employees received
performance grades in their annual reviews for their ability to do the job and for their behavior in line
with JTC values.At point of distribution, the next capital event, the total value of the EBT2 was to be
shared based on the total points each employee had accumulated over the lifetime of EBT2.

In 2014, Nigel came up with the idea of ‘Equity for All’ (E4A) to sit alongside the EBT2 and
expand the shared ownership option.  E4A effectively created a private market for JTC shares
through a trust vehicle and, subject to there being enough supply, staff were able to purchase shares
once a quarter using a bespoke internal web portal. On March 14, 2018, JTC achieved a premium
listing on the London Stock Exchange, with a share price of £2.90 and market cap of £310 million,
of which £180 million was in the hands of management and staff.

the second EBT vested upon the IPO. JTC shared the spoils of £15.6 million, with £14 million shared
out among its 534 employees and £1.6 million retained to seed the next, listed company era, EBT.For
long timers who had reinvested from EBT1 or made further direct investment via E4A, the
windfall was even more impressive. The management were asked to re-invest a minimum of
50% of their shares, to assist with the share price, and all did.

Challenges Faced Post IPO:

1. Shared Ownership possessed challenges for succession planning.
Fotheringham said, “It’s one of the things we need to look at, especially with JTC
being so closely associated with Nigel. He is keen to find a successor from within, so
we try to create as many internal candidates as possible. But the reality is that any
new leader will not be Nigel—she or he will be different. And any new leader, even
one developed internally, may be motivated not by fairness but other things.” Le
Quesne did not fully agree, “Some people say that ‘I and JTC are interchangeable,’
but I genuinely believe that JTC exists in its own right. Our culture and Christmas
tree model should help with succession, but it’s never that easy. Some think I’ll always
be around and for others we’ve created so much wealth that this can affect their drive
to take that final step.”

2. Will JTC be able to reward its employees as well as before.

It now had more employee owners and was operating in a more global (and less
controlled) environment. Furthermore, JTC had more external shareholders to keep
happy, including institutional shareholders whose interests may not always be aligned
with that of management and staff. For instance, while JTC was motivating staff with
the prospect of future capital events, external shareholders might push for short-term
dividends.
 3. JTC also faced, for the first time, not just the motivation of a potential upside for its
employee owners but also the potential downside of public drops in the JTC share
price. Company performance had been an issue prior to the IPO as well, but
fluctuations were now more visible and JTC immediately held accountable by its
shareholders and markets.

4. Some Employees Felt Lack of transparency.

A few employees, especially those with additional investments, were keeping “an eye
on the ticker” since the listing. While some had criticized a certain lack of transparency
on what to expect in the pre-IPO EBT model, others feared that the new omnipresence
of one indicator, the share price, could be even more distracting. Fotheringham said,
“There is a pressure that comes with it. There is always an expectation that the
organization is going to deliver again, and one of the challenges as we get bigger is how
to keep doing so. Basically, we need to keep growing and getting better; they are the
only ways.”

What should their post-IPO shared ownership concept look like?

100% of JTC employees should remain as direct stakeholders in the business.

Employees should be rewarded based on performance, seniority, tenure, and individual

contribution.

Employees should have the opportunity to buy additional shares internally. Those employees
can either buy shares from loan / advance on salary or from their existing cash on hand.

Reason for loan options for employees is to eliminate high administrative barriers in some
jurisdictions, and trading fees and minimum amounts at some banks.

Post-IPO employees should be made eligible for an annual bonus designed to incentivize
high performance based on financial and non- financial measures.

Should they privilege continuity with its initial version or adaptation to the new public
market environment?

Yes, the company should go with the initial version of their compensation policy because we
can see that, 

Shared ownership helped retain clients; By September 2018, JTC had over 4,800 clients—
who often stayed for multiple long- term structure cycles and generated recurring revenue of
above 90%—resulting not only from the high costs to switch providers but also from its
shared ownership culture. One of the client also testified that JTC’s employee is consistent
care about the client which makes the employees of JTC do a great job for their clients,

Shared ownership helps to make JTC an attractive acquirer and provides a real and tangible
advantage in acquisitions to win over the workforce, who often had no prior ownership and
welcome them in.
Shared ownership had helped JTC become a global player: Employees of JTC at global level
felt a boost in terms of drive, work ethics which was visible in KPIs. JTC has grown from 70
people in 2015 to 180, and serves six instead of two jurisdictions.

Shared ownership provides benefits for talent management: JTC is seen as a place that people
want to work. JTC employees don’t have to wait for someone else to be promoted, leave, or
retire to progress and be promoted themselves. Shared ownership is a big part of hiring
conversations, and explains the company’s culture and the new hires’ place in it.