The federal government took concrete steps toward making Employee Ownership Trusts (EOTs) a viable business structure in Canada in last year’s budget. This should be celebrated. But as the government prepares Budget 2024, advancing policies to encourage EOT adoption and creating tax incentives for EOT implementation should be a top priority for economic growth.
EOTs are pretty much as they sound: a formal structure that allows private business owners to sell a company directly to their employees. The ownership can be transitioned over time or financed by a third party, so all employees can participate. EOTs offer another good option for transitioning a private business beyond the usual pathways of a direct sale to a competitor or a foreign owned entity, or simply closing shop altogether.
Employee-owned businesses in other countries, such as the U.S. and the UK, have already shown us some of the benefits we can expect here — chief among them, productivity gains and wealth redistribution. But as Canada looks to increase its competitiveness, another important benefit that EOTs may offer is potential business growth, especially for women-owned businesses.
As the owner of a professional services business, I’ve participated in many programs meant to facilitate my company’s growth. But it wasn’t until the possibility of an EOT that I became serious about putting significant growth plans in place.
Canada is a small business economy. In our private sector, almost 90 per cent of employees work for small- to medium-sized businesses (SMEs). But only 18 per cent of SMEs are owned by women. Yet women-owned and -led businesses often outperform other businesses. Research shows, they are more profitable and experience less staff turnover, for example.
Women-created and run businesses hold tremendous potential for the Canadian economy.
According to research, Canada could add up to $150 billion in GDP by advancing gender equality and women’s participation in the economy.
However, women-owned businesses experience a number of disadvantages that hinder their growth. Women have more difficulty accessing capital and securing investment. Women-owned businesses are also less likely to export beyond Canada’s borders.
In a period where Canada must focus on increasing its productivity and competitiveness, providing every incentive for women to break historic patterns and grow their businesses should be a priority.
This is where employee ownership has a role to play.
Women are more likely to run service-based businesses, where scaling up is more often dependent on the people who are providing the services. Employee ownership presents a unique opportunity to harness the power, commitment, and interests of employees to advance their shared business growth.
Also, the ties between employee ownership and corporate social responsibility, employee prosperity, and wealth redistribution may be a stronger motivation to grow for some women business owners (like me) than more traditional reasons, like profit for the sake of profit.
My company, Challenge Factory, is a good example — it’s a people business, through and through. Our services rely on the commitment and expertise of our team members. Our consultancy work is focused on shaping better workplaces, now and in the future.
Organizations supporting employee-owned businesses suggest that while employee ownership models might exist for even the smallest of companies, EOTs may be better suited for organizations with at least 15 or 20 employees — which encourages companies like mine to grow to embrace the EOT model.
Our company goal is to create better futures for our staff, just as we do with our clients, to advance workforces, labour markets and career transitions. Profit enables us to accomplish this, but it is not the only way — or even the most important way — we measure our success.
Business owners of all genders may find employee ownership as a succession plan strategy intriguing enough to spur new growth plans. To be sure, successful women founders have grown large enterprises that export, and men also run service-based SMEs. But on the whole, a growth strategy that focuses on employees, business, and impact growth all rolled into one is fascinating and compelling, and I know I’m not the only woman founder and business owner in Canada taking a look and considering different business strategies as a result.
In federal budget 2024, transitioning to EOTs should be robustly incentivized, both as a path to grow a business, and as part of shaping a better future of work for everyone. This critical piece of the puzzle may work especially well for women-owned businesses.
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