Glenda MacPhail, a book project specialist at Friesens Corp. in Altona, was one of about 550 employees at the sprawling printing operation who got a share of $5 million in company distributions last year, on top of their regular pay.
MacPhail and her colleagues get the yearly bonus because they are 100 per cent owners of the company.
She said the additional money — an average of $9,000 per employee — means a lot to her and her young family.
SUPPLIED Shell and Friesens’ CEO Chad Friesen (pictured) are part of the six-person steering committee of a newly formed organization called the Canadian Employee Ownership Coalition.
“My husband and I use this bonus to maintain our home, plan a little for retirement and to add some family fun to our summer months,” she said.
Friesens is one of only a few dozen companies in Canada that are majority-owned by employees.
Inexplicably, Canada has never instituted the type of tax structure and incentives that encourage employee ownership as the U.S. and U. K. have done, despite the fact there is overwhelming evidence it has positive results.
Jon Shell, a partner with a non-profit research group in Toronto called Social Capital Partner — whose 2020 paper, “Building an Employee Ownership Economy in Canada” kick-started the current initiative — said Friesens is a perfect example of the benefits of employee ownership.
“Friesens is still in Altona. They would have absolutely left Altona by now if not for employee ownership,” said Shell.
Shell and Friesens’ CEO Chad Friesen are part of the six-person steering committee of a newly formed organization called the Canadian Employee Ownership Coalition. It will help push the Trudeau government to the finish line of establishing employee ownership structures.
The timing is important because the Trudeau government’s last two budgets committed to coming up with a Canadian structure. The coalition, which includes a broad array of corporate and social interests, was formed to capitalize on the momentum and try to ensure the correct plan is implemented.
Compared to the modest numbers in Canada, in the U.S. there are close to 6,500 companies owned by more 14 million employee-owners in control of about US$1.7 trillion in assets.
After passing legislation in the U.K. a few years ago, more than 300 companies were “sold” to employees last year alone.
Research in the U.S. and the U.K. found there are proven economic and social benefits: employee ownership is a viable option for business succession and over the next decade 70 per cent of Canadian small business owners say they will want to sell their companies; in the U.S. employee owners report more than 92 per cent more wealth than their peers at comparable companies; employee-owned companies performed significantly better in the 2001 and 2008 recessions, and are better positioned for current and future crises; and employee-owned companies are more likely to keep and grow jobs locally.
“That’s why the push is on right now,” said Friesen (who is no relation to the company’s founding family, who no longer have a financial stake in the company).
“We want to try to build awareness and, quite frankly, build some motivation for the government to get this done. The good news is there are teams working on the legislation.”
He said the concern is to make sure the government passes legislation that addresses the two main components the coalition believes will make employee ownership work in Canada. It needs an actual Employee Ownership Trust structure that enables it to hold equity in companies and an incentive for sellers that would either reduce or eliminate the capital gains tax they would owe if a company owner sold it to employees.
“None of those tax incentives exist in Canada,” Friesen said. “That’s why you don’t see a lot of Canadian employee-owned firms because it is cost prohibitive. It’s more work and there’s no incentive for the seller.”
If a business owner wants to sell the business, and a competitor or a private equity firm has the cash, there is no incentive in Canada for the owner to establish a trust with the employees as the beneficiaries, have the trust borrow the amount equal to what a private equity firm would pay from a bank, and then wait however many years for the company to effectively earn enough to pay out the selling price.
It’s the company that would pay the loan, not the employees. In the employee ownership model used in the U.K. and the U.S., which is being sought in Canada, employees do not go out of pocket to become owners of the company they work at.
But if the seller had his or her capital gains tax reduced or eliminated, and there was an uncomplicated trust structure that could easily be put in place — as well as a workforce motivated to be part of the undertaking — then it might mean fewer Canadian companies are sold to outside interests and more large, growing, successful companies are able to keep their workforces in place, which is essential to the health of the community.
Christine Cooper, executive vice-president & head BMO Commercial Bank, who is another member of the coalition steering committee, said she has studied the work that BMO Harris Bank has done on ESOPs (Employee Stock Ownership Plans) in the U.S. and believes it is a huge opportunity for Canada.
“It is a proven model that actually creates more wealth for more people, and more diverse groups of people,” she said referring to studies that show visible minorities, women and single-parent families create increased wealth compared to non-employee-ownership peer groups.
“This is something that resonates so well,” she said. “It levels the playing field quite a bit more than if a company was sold to private equity, for instance. More Canadians with more wealth is a good thing for banks.”
Simon Pek, an associate professor of business and society at the University of Victoria’s Gustavson School of Business, said there are all sorts of employee participation and training issues connected to employee ownership.
Martin Cash
Reporter
Martin Cash has been writing a column and business news at the Free Press since 1989. Over those years he’s written through a number of business cycles and the rise and fall (and rise) in fortunes of many local businesses.
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