Succession planning. Those words bring to mind the family business being passed down to the next generation. However, that is not the only option. A practice that is rapidly gaining in popularity is transitioning established corporations to employee ownership – and there are many different ways to do this.
Rachel Bachmann, board chair, Employee Ownership Canada, explains, “New legislation for Employee Ownership Trusts (EOT) is coming into effect this year.”
An EOT is an employee ownership structure where a trust retains a business’ shares for the advantage of the company’s workforce. This arrangement allows employees to indirectly acquire the business, eliminating the need for them to directly finance the purchase of shares. For those owning the business, an EOT offers an alternative strategy for planning their succession.
Employee Ownership Canada used to be known as ESOP Canada, but with EOTs coming into play, along with the other existing models for employee ownership, they changed their name to better reflect the range of options and the services they provide to business owners and their teams.
Bachmann continues, “We educate and assist anyone interested in employee ownership, including employee share purchase plans (ESPPs), stock options, employee stock ownership plans (ESOPs) and more. We encourage people to look at new legislation coming in for employee ownership trusts and learn about the many benefits of selling to employees rather than to private equity.”
Arnold Strub, Employee Ownership Canada’s executive director, adds, “People should know that almost every employee ownership plan is the same in many ways, but also different in many ways. All plans seek to attract and retain employees and facilitate a smooth succession. However, your goals will determine what type of plan will work the best. Employee ownership presents a wide spectrum of options. We help business owners find the tools that work best for what they want to achieve.”
No matter which plan is chosen, the benefits are numerous.
“Employee ownership is beneficial for employees as they acquire equity,” says Bachmann. Employees like to actively participate in the company’s growth, benefit from the hard work they are doing and see the benefits of that in the return on their shares as owners. From the employer side, when employees are thinking like owners, they think more long-term, make better decisions and are more invested because they can get something back. Companies that are employee owned are more productive and bounce back faster after downturns.”
Many business owners put off succession planning because they think it is a long, arduous, drawn-out process. However, that does not have to be the case.
“It all depends on the model,” Bachmann says. “In some cases, it’s as simple as setting up a holding company or a trust. It can happen quickly. The important part is to have the right partners – a good legal team and a good tax team to support you and to ensure you are asking the right questions. You have to take into account that the process may not take long but getting the team on board and educating them can take the most time.”
“It is key to create trust in the relationship,” Strub adds. “That is, open communication because you are sharing business and financial information with employees. It takes time to build a new employee culture. Typically, it takes a couple of years to do a culture shift and get everyone on board, but this step is very important.”
Employee Ownership Canada routinely runs conferences to help business owners and their teams understand the many modes of employee-led succession. Last year’s conference in Edmonton was very successful and attended by teams locally and from across Canada.
One of the presenters at the Edmonton conference was Marc Lacoursière, president of The Achievement Centre. His talk addressed the soft skills necessary for a successful transition to employee ownership.
“One of the reasons we work with those interested in employee ownership is because organizations will go down this path but need to know how to invest in their people to increase their skills and get higher engagement. There is massive demand and growth in this employee ownership space. While we are one of many providers that teach complementary soft skills that help with the transition, we are proud to have more than 40 years of experience. We are one of the few that have developed our knowledge over several decades, so we are able to integrate a lot of cultural, societal and D.E.I (diversity, equity, inclusion) shifts into what we teach.”
Lacoursière is happy to see that employee ownership is a growing trend.
“What I have noticed over the years is that the conferences I have attended seem to be building a groundswell of support. More companies that have been involved for a longer period of time are becoming great advocates and proof that organizations who invest in employee ownership have better success, engagement, longevity and better succession planning, which is a big issue for lots of businesses. Owners, demographically, are getting to that point and need a transition strategy.”
His talks address how engaging employees actively in learning new skills is a key factor in success – including for succession planning. Another benefit is how employee ownership naturally enforces the values of D.E.I.
“This structure broadens diversity; it’s naturally going to happen,” Lacoursière says. “We are seeing how employee ownership introduces a multi-owner business structure that broadens the generational perceptive.”
“However,” he cautions, “During and after the transition to employee ownership you still need to think about your organizational strategy and your growth model. You still have to find support and help to develop those areas and that is where the demand is increasing for the development of people and growth services.”
One company that has taken all this on board and succeeded is Argus.
In 1958, Argus was a small manufacturing plant in Edmonton. It has since grown substantially in capabilities and product lines and now operates out of two facilities (Edmonton and Nisku). In 2010, the two founding shareholders expanded shares to a group of 13 employees. In 2021, the offering was expanded to the leadership group and in 2022, it was offered to all of Argus’ employees.
A company-issued press release states, “Argus’ full broad-based ESOP was launched in January 2022, with inclusivity being the new standard, where every employee is invited to participate. The goal is not a transition or exit strategy but a responsibility of stewardship, where the shareholders take care of the company and leave it stronger for the next generation. The ESOP provides stability, predictability and a smooth transition for company leadership. It also ensures that corporate values instilled by founders will not be forgotten or sold off.”
The rollout of the process included information sessions, opportunities for communication and collaboration and plenty of transparency.
“Argus values its employees, embracing diversity and the benefits it brings. Innovation and progress are achieved through valuing the ideas of its people, two-way communication and being open to change. Argus’ legacy ESOP program provides a stable future for the company and its employees, ensuring a personal interest in the success of the company and a greater sense of job satisfaction,” says the press release.
Over at Employee Ownership Canada, Bachmann and Strub are excited about what the future holds and they invite Western Canadian business owners and their teams to join May’s 2024 Conference in Montreal.
“The conferences are a great place to network with those thinking about employee ownership, those doing it and the service providers that can help you,” Bachmann concludes. “More and more people do not want to take over their parent’s companies and more employers are looking to keep their business local and not have their operations moved offshore. Employee ownership is a great way to keep your legacy going.”