It was a simple interaction, but to me it spoke volumes about the awareness of employee ownership in Canada.
An accountant sitting next to me on a plane asked me what I did for a living. I told him that I help companies design and implement employee share ownership plans (ESOPs).
When I asked him what he did he shared that he was an accountant, and in some circumstances does similar work to me.
I asked if he is seeing increasing interest from business owners in ESOPs.
“No,” he said. “It’s not right for everybody and many companies just don’t have the right team.”
Now, to some, that comment may seem harmless enough, maybe even true. But to me, it was a very clear example of the bias and misunderstanding many advisors hold of ESOPs that is stifling the growth of a proven, effective business model in Canada.
It’s true, ESOPs aren’t for every company. Studies by the National Center for Employee Ownership (NCEO) in the United States estimate that one in four business owners are “ESOP owners” — people who believe that by sharing the pie, and engaging their employees in what Jack Stack famously dubbed the great game of business, the pie will expand, swell, even multiply.
But based on the number of businesses in Canada, we haven’t even tapped into 1 per cent of the potential business owners who could benefit from an ESOP.
It was the accountant’s second point of not having the right team that is more misleading. Now, having the right team is essential for your business regardless of its structure. When a company is looking for people at the leadership level, an ESOP is often the most effective way to recruit entrepreneurial talent who can grow and develop your business.
But I also believe that many employees have latent potential but haven’t been trained or mentored into taking on the roles and responsibilities of an owner. When these opportunities are presented, along with education and communication about what it means to be an owner, employees change. Some employees will change a lot. Some just a little.
Collecting data over 40 years, the NCEO shows that productivity grows faster in companies after they set up their ESOPs than would have been expected based on their performance prior to setting up their plans.
It makes sense. Companies who have ESOPs know their employees have a stake in the business and as a result, are more engaged and driven to make the business succeed.
Harmac Pacific, a British Columbia mill facing the threat of being shut down, is a good example of the unrealized potential of employees. Almost no one was betting a number of mill workers who each invested $25,000, along with several local investment groups, would be able to turn around the mill’s dire situation (this was at a time when thousands of forestry workers were losing their jobs). But they did.
And it’s for reasons like this that I’m most excited to be part of a group that’s organizing the first Canadian Conference on Employee Ownership. We decided to host the event based on the startling reality that the Baby Boomers own 70 per cent of Canada’s small- and medium-sized companies, and more than 80 per cent do not have a formal succession plan.
ESOPs offer one practical solution. But in order for business owners to consider this model, we’ll need more understanding from professional advisors.
This conference will provide a significant opportunity to hear firsthand from ESOP companies about why the model is worth considering.
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