Canada

Opinion: Employee ownership trusts should be an option in Canada

The post-pandemic recovery offers Canada a golden opportunity to address some of the inequities in our society.

"It is my hope that Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland will give serious consideration to including employee ownership trusts in the budget. Canada lags behind many other countries in not having fertile ground for this type of structure, Senator Tony Loffreda writes.

With the vaccine rollout picking up speed, we have much to be hopeful for as we relaunch our economy. This month’s federal budget gives the government an opportunity to provide Canadians with a clear picture of its economic outlook and its spending priorities as we begin our post-pandemic recovery. The budget is the perfect vehicle to offer employers, employees and the middle class some much needed support and opportunities to grow through policy and fiscal changes.

Throughout the pandemic and in anticipation of the budget, I have been meeting with stakeholders from various sectors of our economy who are advocating for new policies or government funding for their respective initiatives. I’ve heard many great ideas for policy changes that could have a meaningful impact. Most recently, I met with representatives from Social Capital Partners, a Toronto-based group advocating greater employee ownership opportunities.

In broad terms, employment ownership is when a company’s employees own shares in the company’s stock. This can take the form of worker co-operatives or employee stock options plans, for example. However, one model that does not exist in Canada is the employee ownership trust (EOT). In the United States and the United Kingdom, EOTs have become increasingly more popular, particularly with business succession being top-of-mind for many owners who might find an EOT appealing as a transitional ownership option to their employees.

Without being too technical, an EOT is essentially a fiduciary arrangement where company shares are bought through a trustee, who borrows money to buy these shares at fair market value. These shares can then be redistributed to all employees, not just executives, using a predetermined methodology.

There are countless economic and social benefits to employee ownership. For example, it can help reduce wealth inequality and lead to higher income for workers; support business succession; protect community-based jobs and stimulate local economies; and promote economic resilience. When employees have a stake in the company, they are more likely to work even harder to ensure its success and profitability.

Social Capital Partners submits that in order for Canada to reach the levels of employee ownership seen in the United States and the United Kingdom, a new policy framework must ensure three things: that owners are aware of and able to choose employee ownership trusts as an option; that investors and lenders are encouraged to finance these type of transactions; and that incentives are in place to both drive adoption and support companies remaining employee-owned over the long-term.

The post-pandemic recovery offers Canada a golden opportunity to address some of the inequities in our society. It is my hope that Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland will give serious consideration to including employee ownership trusts in the budget. Canada lags behind many other countries in not having fertile ground for this type of structure. This should be rectified.

As all governments do, the Liberal government will be making tough decisions as it prepares its budget. With targeted spending and some fiscal restraint, I think the government can address many of the cracks in the foundation of our society that have been accentuated during the current health crisis.

I believe that formally endorsing employment ownership and establishing the necessary policy framework for EOTs would send a strong signal to Canadians that the government wants to create a favourable environment for business owners to reward their employees, stimulate our economy and create greater wealth throughout our society.

After all, is it not the government’s objective to grow the middle class and build back better? A vaccine alone can’t solve all our economic woes, but introducing legislation that would allow employment ownership trusts in Canada could give our economy a much-needed energy boost.

Tony Loffreda is a senator from Quebec and a member of the Independent Senators Group. Prior to his appointment to the Senate in July 2019, he worked for 35 years in the banking sector.

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