Employee-owned companies an idea ripe for expansion

We generally take for granted that everyone has the right to a say — and certainly a vote — in what our governments do. But in the workplaces that rule many of our waking hours, these democratic rights are largely absent.

In a time of extreme inequality, deteriorating social cohesion and reduced trust in our institutions, why shouldn't workers have more control over the firms they work in? Enabling employees to take more ownership and control in their working lives is a promising antidote.

Despite barriers to their creation, examples of employee-owned firms in Canada include Ellis-Don in construction services, Friesens in printing and the worker co-operative Shift Delivery.

With advocacy from a broad coalition of supporters — including many business owners — the federal government has tabled legislation to create a new employee ownership trust legal structure that makes it easier for business owners to sell firms to their employees.

Employee ownership trusts are a powerful model that allows a trust to acquire a firm on behalf of its employees without workers paying out-of-pocket. Instead, outgoing business owners agree to take deferred payments that come out of the firm's profits over several years. The latest federal budget includes a plan to sweeten this with a capital-gains tax break on the sale.

While enabling this model is an important step forward, a much broader suite of policies is needed to tap its full potential in Canada.

In a new report, we examine evidence from around the world and lay out a menu of public policies that can help unleash the potential of a democratic employee ownership sector.

By democratic employee ownership, we mean models of worker ownership that have three core features: employees own a majority of the firm's shares, employee-owners have meaningful control rights over the firm, and shares are allocated in a broad-based and equitable manner.

We examine 15 public policy options to expand democratic employee ownership, which could be adopted variously by federal, provincial and municipal governments.

These include measures to improve access to capital for democratic employee-owned firms, such as launching a public investment bank with an employee-ownership lens, setting a lower tax rate for these firms (in light of their societal benefits) and ensuring they receive ready access to existing business support programs that governments already provide.

Other promising policies include providing seed grants to start regional democratic employee ownership centres and development agencies, as well as establishing employees' “right to own” the firms they work in.

Most of the policies we examine have been used in other jurisdictions with significant employee ownership or worker co-operative sectors, but nowhere have they all been brought together. By drawing lessons from successes (and shortcomings) around the world, a concerted policy effort could catalyze a major expansion of employee ownership in Canada.

In certain corners of the world, employee ownership is common. This includes the Emilia-Romagna region of Italy, where co-operatives make up a third of GDP; Mondragon, a sprawling multinational worker co-operative based in Spain's Basque Country; and the burgeoning sector of employee ownership trusts in the United Kingdom.

But in Canada — and many other jurisdictions — barriers to employee ownership prevent the model from being more widely used, including challenges accessing capital and the lack of an existing ecosystem of employee-owned firms to support and showcase the model.

With a major wave of succession decisions imminent among retiring business owners, the moment is ripe for expanding employee ownership in Canada. Both workers and business owners express a strong interest in employee ownership in public opinion polls.

Decades of economic and social research suggest that employee-owned firms have major benefits to workers and society, including reduced inequality, greater job security, higher pay, more resilience in economic downturns and businesses that are anchored in community.

Research also finds that employee-owned firms are equally or more productive than conventional investor-owned firms. For workers in employee-owned firms, the business is truly their own, so a strong motivation to work productively and improve processes is no surprise.

The potential of democratic employee ownership is significant, crossing left-right divides. At its most basic, democratic employee ownership can help put working people back in the economic driver's seat at a time when they have been increasingly left behind.