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How employee-owned businesses could shake up Canada’s business scene

When Heather Payne, CEO of Juno College of Technology in Toronto, told her staff that she was eventually going to hand ownership of the company over to them, some of them were tepid on the idea — but other employees expressed some cautious optimism.

Payne is one of a number of Canadian business owners who are considering moving their company ownership structure to an employee ownership trust (EOT). It’s a legal structure that allows employees to become shareholders in their company by buying shares from business owners. Employees can also earn additional shares every year.

“This is a place where they understand what’s going to happen to the company at the end of the year, at the end of 10 years or 20 years, and I think that could be very comforting,” she told TheCurrent‘s 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, an 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 correctly because “we can learn from other jurisdictions and also from experts and practitioners and organizations that have done this in the US and the UK”

“There’s a high possibility that if they take the right time to reflect on this, think through the mechanics correctly, they can make … a ‘made in Canada’ solution that will work really, really well and meet all the objectives they have,” I have told TheCurrent.

Payne said she’s excited for Juno, a private career college with 34 employees, to be one of the first Canadian companies to adopt such an approach.

“There’s still so much to figure out with employee ownership trust, but we’re looking forward to … hopefully, show lots of other people the benefits of it,” she said.

Public campaign for employee ownership

The government’s commitment follows a public campaign from Social Capital Partners, a Canadian non-profit financing company, to create a dedicated EOT in Canada, as well as stakeholder consultations.

Jon Shell, managing director of Social Capital Partners, says part of what makes EOTs so appealing to workers is it gives an avenue for them to become shareholders in the company ‘for free.’ (Submitted by Jon Shell)

Part of what makes EOTs so appealing is it gives employees an avenue to become shareholders in their company “for free,” according to managing director Jon Shells.

“Every employee becomes a shareholder of the company through the trust for free, and they earn additional shares every 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 gives an additional option for mid-sized companies — which Shell says are usually family- or founder-owned — to sell to.

“Their options are generally 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 it gives owners a choice to sell to employees that they really seem to like.”

For Payne, who’s been running Juno since she founded it in 2012, that’s one of the key reasons why she reached out to Shells for more information about EOTs — and why she feels it’s the right model for her business.

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“The idea of ​​having to shop the business around and sell it to someone who might just break it up and lay off the team … was really, really unappealing,” she said.

“For me, the goal is to build something that’s going to be around still in 100 years, and so I really feel that an employee ownership trust is the best way to make sure that that will happen.”

Democratic co-ops 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 co-operatives, in which the co-operative is owned and self-managed by the workers.

“In an EOT … the community or employees are co-owners. So they own, but they don’t have democratic say, necessarily, in the running of the firm,” social researcher Marcelo Vieta told TheCurrent‘s Matt Galloway.

“In a co-operative, the members co-own and have a democratic say in the running of the firm, and what’s done with revenues and the strategic orientation of the business.”

Social researcher Marcelo Vieta says co-operatives give members ‘a democratic say in the running of the firm, and what’s done with revenues and the strategic orientation of the business.’ (Submitted by Marcelo Vieta)

Through his project, the Conversion to Cooperatives Project, Vieta and his team have tracked about 255 business conversions to co-operatives in Canada, of which 181 of them are still active across different sectors.

He said studies have shown that co-ops increase firm performance and productivity, and provide greater stability in communities and in specific businesses.

Pek believes the key to a successful worker co-op is how democratic it’s running it.

“If you take the idea that a worker co-operative … exists so that the worker members can have a say in deciding on the organization’s future and to get those benefits … it’s really important for it to run democratically,” he said.

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

“If you don’t structure the democratic practices right, and if you don’t kind of keep a pulse on them and improve them over time, what can happen is that a certain subset of individuals tends to take on leadership positions or even stay in those positions over time,” he said.

This is called organizational degeneration. Pek said this can result in growing levels of apathy from the broader worker membership over time.

Simon Pek, an assistant professor at the Peter B. Gustavson School of Business at the University of Victoria, says one of the key challenges facing worker-owned co-ops and EOTs is organizational degeneration. (UVic Photo Services)

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

Although there’s no silver bullet to stop it from happening, Pek said there are ways to revitalize democracy in these organizations.

“There’s a big movement now in the political science realm, focused on doing things like citizens’ assemblies or citizens’ panels,” he said. “[They’re] basically comprised of randomly selected citizens to lean and deliberate together, and then come up with decisions that represent the diversity of the entire population.”

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

Building long-term

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

But for her, converting her company to an EOT is about more than just the money.

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

Payne founded in the Juno College of Technology in 2012. She hopes it will still be operating in 100 years, which is why she is changing its ownership structure to an EOT. (Submitted by Heather Payne)

Written by Mouhamad Rachini. Produced by Alison Masemann.

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