Unlocking the potential of employee ownership in Canada
Federal budget includes commitment to explore employee ownership trust framework
TORONTO, April 19, 2021 /CNW/ – Social Capital Partners welcomes the federal government’s decision to explore options to unlock the potential of employee ownership trusts (EOTs) as part of Canada’s economic recovery. This is a first step toward making broad-based employee ownership a more significant part of our economy. Social Capital Partners produced Building an Employee Ownership Economy in October 2020, a report calling for the establishment of EOTs in Canada, as a way to grow Canada’s comparatively low levels of employee ownership.
“There is a large body of research from around the world that points to employee ownership trusts as a powerful tool to reduce wealth inequality, support business succession, protect local jobs, and promote economic resilience,” says Jon Shell, managing partner of Social Capital Partners. “It’s great to see the government recognize that employee ownership could be part of rebuilding a more inclusive, more resilient economy.”
In the US and the UK, employee-owned companies grow faster, pay better, are less prone to lay-offs or bankruptcies in economic downturns, and are more likely to keep jobs in local economies. Due to public policy that encourages their use, EOTs are a popular structure for business succession in those countries, where they have generated significant wealth for front-line employees. EOTs are common in the US, where 14 million employees own $1.4 trillion in shares at over 6,000 companies. Since their introduction in the UK in 2014, they have become increasingly popular, with almost 100 companies becoming employee-owned in 2019 alone. Canada does not have a business structure comparable to the employee ownership trust.
A recent survey by the Canadian Federation of Independent Business (CFIB) suggests significant interest among Canadian business owners in employee ownership. Fifty-nine percent of respondents were either strongly or somewhat in favour of introducing policies similar to the US and UK, and 53% said they were more likely to sell to their employees if such a policy were introduced.
“Canadian business owners are very community-oriented. We think employee ownership in Canada can be even more successful than the US and UK with the right policies in place,” said Shell. “That would mean more Canadian companies staying Canadian-owned.”
Canada’s current regulatory environment makes selling to employees very difficult. “As a business owner who believes in the power of employee ownership, I’m really excited to see it in the budget. It’s been very difficult, and taken a very long time, for me to sell some of my company to my employees. It should be a lot easier,” said Peter Deitz, Co-Founder and Board Chair of Grantbook. His comments echo those of Geoff Smith, CEO of EllisDon, one of Canada’s largest employee-owned companies, in a video he posted this past month encouraging the government to implement employee ownership trusts.
“Given the benefits, a made-in Canada approach to broad-based employee ownership should be a priority for policymakers that are looking to strengthen Canada’s economic recovery and increase the well-being of Canadians over the long-term,” says Shell.
About Social Capital Partners
Founded in 2001 by entrepreneur and philanthropist Bill Young, Social Capital Partners (SCP) is an independently funded non-profit that designs and implements systemic ideas to tackle social problems. SCP initiated their Employee Ownership Capital project in 2019 to link institutional capital to employee ownership conversions in the United States using the Employee Stock Ownership Plan structure. SCP is campaigning for a targeted employee ownership policy in Canada. For more information see www.employee-ownership.ca.
About Employee Ownership Trusts
Employee ownership trusts (EOTs) are a way for business owners to sell all or part of their businesses to their employees. Their unique design means that employees do not pay directly for their shares while still allowing owners to sell at fair market value. Instead, loans allow the owners to be repaid out of company profits over time. Employee shares are held in trust and governed by a trustee, and the company continues to be managed traditionally. EOTs are a form of broad-based employee ownership, where all employees are included in ownership. Forms of EOTs have been established in law in both the United States and the United Kingdom.
Source: CFIB, Your Voice – March 2021 Survey, March 4-31, 2021, n = 5,365.
SOURCE Social Capital Partners (SCP)