Compare the shift in mindset between renting a house and owning one. A laissez-faire tenant could let a water leak drip for weeks before tending to it, but a homeowner who sees the leak’s impact on the water bill would likely get it fixed right away. Homeowners are more likely to think of their homes as long-term investments, and they will do what needs to be done to keep that investment in smooth working order. Tenants who have no personal investment and are instead paying someone else’s mortgage are less likely to tend to the details.
Now, apply this mindset to the workplace: doesn’t it make sense to have employees thinking and acting like co-owners rather than like tenants? Many maintain that it does, including Profit magazine. Forty percent of companies on the 2011 Profit 200 list, which compiles the 200 fastest-growing companies in Canada, is composed of businesses with some form of employee share-ownership program. But the notion extends well beyond Canada. Globally, employee-owned enterprises are on the rise, and they’re showing their traditional-ownership competitors the dramatic shared results that their business model can lead to.
For instance, when US-based Intel bought Denmark-based, employee-owned Giga in 2000 for $1.25 billion, each of the worker-owners generously received the US dollar equivalent of $2.6 million. Meanwhile, in Spain, Mondragon Corporation has been operating according to 10 co-op principles for more than 50 years. The company is an employer of roughly 100,000 worldwide, with $25 billion in annual sales from sectors as diverse as finance, industry, and retail, and its driving cultural principles include voluntary participation, payment solidarity (whereby the ratio of highest paid to lowest paid is only 1:3), democratic organization (where the people who do the work decide about the work), and concern for the community. It was at least partly (if not almost wholly) these initiatives that enabled the company to keep producing, thereby increasing retail sales by 23.4 percent between 2006 and 2011, and keeping the Mondragon name largely immune from the fierce recession that crippled competitors in neighbouring Greece and France.
Although there’s legitimate concern about how the economy will develop in the coming century, such examples shine as bright spots to pay attention to and possibly mirror. Employee ownership and cooperative business models seem to offer significant financial and community resilience against the 21st century’s environmental and fiscal uncertainties.
So how is Canada fostering similar practices? And what might we learn from other countries that have passed legislation in support of cooperatively run businesses?
This trend is not completely new to Canada, which already has a healthy, robust collection of co-ops—businesses run by volunteer members who all benefit from the shared products and services. It also has an active, supportive Canadian Co-operative Association (CCA), which stood in full support when the UN declared 2012 the “International Year of the Cooperative,” a sign that cooperative business models are gaining further traction and attention.
Employee-owned businesses, however, are a rarer breed of enterprise, whereby a percentage of the company’s workers are also shareholders. Such business are commonly referred to as ESOPs—an acronym for Employee Share Ownership Plan—and their advocates, though outnumbered, are loud in their praise. “Employee-owned companies with participative management outperform conventional companies with regard to productivity, sales growth, and employment growth,” said Sherman Kreiner, then the president and CEO of Crocus Investment Fund, at a 2001 meeting of Parliament’s Standing Committee on Finance. “Employee ownership is an effective mechanism for intergenerational transfer of family-owned businesses, and it also ensures that decisions affecting local businesses are made locally.”
ESOPs vary in their composition and intentions. Some offer employees a small percentage of company ownership, simply intended as an additional bonus in the interests of talent acquisition and retention. Newmarket, Ontario-based Allied Global Holdings Inc. has opted for this model, offering approximately 16 percent of the company’s shares to roughly 30 percent of its workforce. The company wanted to offer another incentive to employees that wasn’t based on bonus parameters.
Other ESOPs offer between 75 and 100 percent of ownership to employees. Toronto-based advertising agency Tamm + Kit, for example, was fully employee-owned at the ESOP’s inception and doubled business in its first year. The full ESOP model was chosen as the best succession and retirement option for the founding partnership team. Its members were concerned about selling the agency to a third party and the detrimental impact that could have on the workers who helped build the business.
Some ESOPs actually began in response to the financial crisis, each one an attempt to save jobs at a faltering enterprise. Essar Steel Algoma Inc., of Sault Ste. Marie, Ontario, was saved by a co-ownership model that, along with sharing the fiscal risks and rewards, empowered workers to self-manage any decision topics directly affecting their work, including schedules, compensation, hiring, and budgeting. As a result of the shared-ownership mindset, the company experienced a resurgence of morale and a notable rise in output.
All ESOP roads in Canada seem to lead to Perry Phillips, president of ESOP Builders Inc. and author of Employee Share Ownership Plans: How to Design and Implement an ESOP in Canada. Perry, an accountant, a business valuator, a consultant, and an ally to roughly 155 ESOP clients over the past 17 years, has seen firsthand how sharing growth and responsibility leads to more generous pieces of the pie for everyone, but he emphasizes the importance of an ESOP mindset in successful owners, too. An ESOP mindset requires “a strong ethic of altruism,” Phillips says, “with a desire to build wealth among [the owner’s] employee group and give back to those who helped build the business to be what it is.”
An ESOP mindset also requires comfort with heightened business transparency. Wade Wilson, PCL Constructors Inc.’s senior director of communications, says he was surprised when he attended his first town hall meeting at PCL and the owners revealed proprietary fiscal information. “I wasn’t a shareholder yet because I was new, but I was exposed to full financial disclosure of the company; our goals and figures were completely transparent,” he says. “I was stunned they would share that in a group environment, but there was a sense that the people in the room, the fellow shareholders, were entitled to the information.” Based in Edmonton and with more than 10,000 employees, PCL has been employee-owned for 35 years and is repeatedly listed as one of Canada’s best companies to work for, largely because it’s so up front.
But make no mistake: an employee-ownership model—and the transition required to implement it—is not for the faint of heart. “It’s difficult for some to adopt a co-ownership mindset, especially for managers who haven’t had good experiences with employees,” admits Dr. Carol Beatty, an associate professor at Queen’s University’s School of Business and author of Employee Ownership: the New Source of Competitive Advantage. “It’s a leap of faith to think of employees less as hands and more as knowledge workers.”
However, in unpredictable economic times requiring rapid social and technological adaptation and closer connections between organizations and their customers, there is an increasing need for knowledge and action to be shared by all members of an organization—rather than keeping knowledge concentrated at the top while actions are carried out by the workers below. Labourers, regardless of their rank in an organization, should be welcomed as active, responsible agents who can continuously seek what is ideal for the organization, not as helpless, powerless dependents who need managers above them to make decisions.
With more freedom comes more responsibility, though, as well as a need to make good decisions that will align with an ownership ethos. “We expect a lot from people,” says Viive Tamm, executive director of Tamm + Kit. “We want them to treat this place as their own business, so they are given the freedom to figure things out and to make the decision that feels right for whoever will have to live with the outcome.”
Employee ownership can be so much more than an economic agreement, emphasizes Beatty. She believes that “employee ownership is a philosophy,” and indeed, increased trust, openness, and a collective-benefit consciousness are touted by myriad management scholars as the keys to business survival and success in a brave, new, networked world. Employee ownership is a legal, structured relationship that creates the conditions for such values to become authentically embedded in everyday conversations, processes, and decisions rather than being forced upon the organizational culture through employee engagement programs.
“When you talk to employees, you are talking with the shareholders,” Wilson says. “There is a sense that you have to be transparent and open first. If you guard information, you are guarding it from a shareholder. [Staying open] reinforces a mindset of ‘this is your company, too.’”
Despite these potential benefits, though, there’s only so much support for employee ownership at the federal level in Canada. Perry Phillips grew awfully tired trying to garner political allies for the cause, and after trying fruitlessly for many years to highlight the socioeconomic benefits of ESOPs to politicians in Ottawa, he gave up. “Advocating … took a lot of effort, time, and money,” he says, “I stopped looking for allies once I decided to help as many ESOPs as I could to get established.”
Like Phillips, Beatty is also perplexed why Canada, with one of the world’s most powerful economies and a long-standing altruistic reputation, does not yet have federal legislation and incentives for employee-owned enterprises like the United States and Great Britain. “Employee-owned enterprise is so aligned with our values in Canada,” she says.
“Sharing is good business,” Wilson adds, “I am interested in share return and better returns for all. PCL is my work family. I want us to excel for my own benefit but also for my friends and colleagues.” But without increased support, it might take time before many more arrive at this way of thinking.