How employee-owned businesses could disrupt the Canadian business scene

When Heather Payne, CEO of Juno College of Technology in Toronto, told her staff that she would eventually turn over ownership of the company to them, some of them were lukewarm about the idea, but other employees expressed cautious optimism.

Payne is one of many Canadian business owners who are considering transferring the ownership structure of their business to an Employee Ownership Trust (EOT). It is a legal structure that allows employees to become shareholders in their company by buying shares from business owners. Employees can also earn additional shares each year.

“It’s a place where they understand what’s going to happen to the business at the end of the year, after 10 years or 20 years, and I think that could be very comforting,” she said. declared. The flowis Matt Galloway.

EOTs are a relatively new initiative in Canada. The federal government said in its 2022 budget announcement that it would amend the Income Tax Act and introduce an employee ownership trust, to encourage employee ownership of businesses.

Simon Pek, assistant professor at the Peter B. Gustavson School of Business at the University of Victoria, said Canada is “in a good position” to implement this change properly because “we can learn from other jurisdictions as well. than experts and practitioners and organizations that have done it in the US and UK”

“Chances are that if they take the time to think about it, think about the mechanics properly, they can create…a ‘made in Canada’ solution that will work really, really well and meet all the objectives that they fixed themselves”, he said The flow.

Payne said she’s thrilled that Juno, a private career college with 34 employees, is one of the first Canadian companies to take such an approach.

“There’s still so much to understand with the employee share ownership trust, but we’re looking forward to … hopefully showing a lot of other people the benefits of it,” she said.

Public campaign for employee ownership

The government’s commitment follows a public campaign by Social Capital Partners, a Canadian not-for-profit finance company, to create a dedicated EOT in Canada, as well as consultations with stakeholders.

Jon Shell, Managing Director of Social Capital Partners, explains that part of what makes EOTs so attractive to workers is that they give them the opportunity to become shareholders in the company “for free”. (Submitted by Jon Shell)

Part of what makes EOTs so appealing is that they give employees the opportunity to become shareholders in their company “for free”, according to chief executive Jon Shells.

“Each employee becomes a company shareholder free of charge through the trust, and they earn additional shares each year, allowing them to grow their wealth over time,” he said. “When they leave the company or retire, the company buys back their shares for cash.”

On top of that, it provides an additional option for medium-sized businesses – which Shell says are typically family or founder-owned – to sell.

“Their options are usually to sell to a competitor, creating more concentration in an economy; or to a third party, like a financial buyer, like a private equity fund,” he said.

“So the point of these EOTs is to give owners the choice to sell to employees they seem to really like.”

For Payne, who’s run Juno since she founded it in 2012, that’s one of the main reasons she reached out to Shells for more information on EOTs — and why she thinks it’s the good role model for his business.

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“The idea of ​​having to go around the company and sell it to someone who could just break it up and fire the team…was really, really unappealing,” she said.

“For me, the goal is to build something that will still exist 100 years from now, and so I really think an employee ownership trust is the best way to make sure that happens.”

Democratic cooperatives another option

EOTs aren’t the only way to give employees a say in how the company they work for is run. There are also worker cooperatives, in which the cooperative is owned and self-managed by the workers.

“In an EOT…the community or the employees are co-owners. So they are owners, but they don’t necessarily have a democratic say in running the business,” said social scientist Marcelo Vieta. The flowis Matt Galloway.

“In a co-operative, the members are co-owners and have a democratic say in the management of the business, and what is done with the revenue and the strategic direction of the business.”

Social scientist Marcelo Vieta argues that cooperatives give members “democratic control over the management of the enterprise and what is done with the income and the strategic direction of the enterprise”. (Submitted by Marcelo Vieta)

Through his project, the Co-operative Conversion Project, Vieta and his team have tracked approximately 255 business conversions to co-operatives in Canada, 181 of which are still active in various sectors.

He said studies have shown that cooperatives increase business performance and productivity and provide greater stability in communities and in specific businesses.

Pek believes that the key to the success of a worker co-op is the degree of democracy with which it is run.

“If you take the idea that a worker co-op…exists so that worker members can have a say in the future of the organization and to get those benefits…it’s really important that it operates democratically” , did he declare.

But according to Pek, there are potential challenges that can arise if the democratic process is not done properly.

“If you don’t structure democratic practices properly, and if you don’t monitor them and improve them over time, what can happen is that a certain subset of individuals tends to occupy leadership positions or even stay in those positions over time,” he said.

This is called organizational degeneration. Pek said this can lead to increasing levels of apathy from all workers over time.

Simon Pek, assistant professor at the Peter B. Gustavson School of Business at the University of Victoria, says that one of the main challenges facing worker cooperatives and EOTs is organizational degeneration. (UVic Photo Services)

It’s not limited to co-ops either. Pek said organizational degeneration can also occur in EOTs.

While there is no silver bullet to prevent this from happening, Pek said there are ways to revitalize democracy in these organizations.

“There’s a big movement now in political science, focused on things like citizens’ assemblies or citizens’ panels,” he said. “[They’re] composed essentially of citizens chosen at random to reflect and deliberate together, and then make decisions that represent the diversity of the whole population.”

“I think these could also be used in co-ops and worker-owned businesses to give a more refined but also more inclusive perspective on what worker members really want in a particular situation.”

Building for the long term

Even though she turned Juno into an EOT, Payne understands why other business owners might seek to maximize returns and sell to the highest bidder — and she doesn’t blame them.

But for her, converting her business to EOT isn’t just about the money.

“It’s more about … creating something new in education that will last a long time,” she said.

Payne founded Juno College of Technology in 2012. She hopes it will still be running 100 years from now, so she’s changing its ownership structure to EOT. (Submitted by Heather Payne)

Written by Mouhamad Rachini. Produced by Alison Masemann.

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