The Senator Tony Loffreda travelled to England earlier this month to attend the Oxford Symposium on Employee Ownership since Canada recently amended the Income Tax Act to allow for employee ownership trusts.  His visit to England was very rewarding and educational which he wrote about in this column. 

When I walked into the theatre where our symposium was being held, it oozed in history and tradition. I felt like I had been teleported to another era.  If only walls could speak!

For two days earlier this month, the historic Sheldonian Theatre at the University of Oxford, built over 350 years ago, welcomed thought leaders, academics, policymakers, and various stakeholders from nearly 30 countries for three days of discussions on employee ownership.

As a proponent of employee ownership trusts (EOTs) in Canada, I was honoured to be invited to the Oxford Symposium on Employee Ownership and speak to Canada’s approach to integrating EOTs into our society.

The concept of employee ownership has been around for a long time: it allows employees to be part of the ownership structure of a business.  In broad terms, an EOT is a form of employee ownership where a trust holds shares of a corporation for the benefit of the corporation’s employees.  As the government suggests, EOTs may be used to facilitate the purchase of a business by its employees, without requiring the employees to pay directly to acquire the shares and it provides business owners with an additional, and rather attractive option for succession planning.

The United States and the United Kingdom have implemented employee ownership models years ago with encouraging results and increasing take-up rates.

When employees have skin in the game, they are more likely to be more committed to the success of the business.  Corporations with employee ownership structures are known to be more competitive, more productive, more profitable, create more jobs, and they help in recruiting and retaining employees.

Canada introduced the concept of employee ownership trusts in the Income Tax Act this year with the passage of Bill C-59, along with a $10 million capital gains tax exemption thanks to Bill C-69, the latter of which I was honoured to sponsor in the Senate.  It was a great win for our business community, but more so for Canadian workers, when both bills received Royal Assent on June 20^th.

The timing of EOTs in Canada is timely and relevant as recent data shows that 76% of business owners plan to exit their businesses within the next decade.  Selling to the highest bidder may not always offer the optimal outcome.  Entrepreneurs who have built their businesses from scratch may be more interested in securing their legacy and ensuring their businesses continue to have an impact in our communities. 

In fact, as I learned during the symposium, companies with employee ownership models do not relocate as easily and are more strongly embedded in their regions.  These businesses are the backbone of their communities and keeping them locally rooted is essential for continued prosperity. By promoting employee ownership through EOTs, we can offer a sustainable solution that preserves these businesses, empowers employees, and enhances productivity. It’s a win-win for businesses, their employees, and the communities they serve. 

Mergers and acquisitions can be very appealing for some business owners.  However, too often, we hear of great Canadian mid-size businesses being sold rather than finding new markets and expanding its reach.  I think EOTs could help keep Canadian businesses stay at home while continuing to have an impact in our communities and provide employees with new financial benefits.

Since EOTs are new to Canada and have now become law, policymakers, practitioners, and business advisors now need to shift their focus on awareness and education.  Collectively, we need to effectively communicate the many advantages of our EOT program so that the broader business community knows there are additional options to consider as part of their succession plans.  I am confident the insights gained, and the connections made in England will undoubtedly contribute to our ongoing efforts in promoting EOTs in Canada.

Canada’s EOT landscape is nascent, and I am hopeful that we will soon see encouraging signs of its potential in shaping social enterprise throughout the country.  The capital gains tax exemption was a key feature that, in my opinion, was needed to incentivize business owners and I was proud to work towards integrating that into its structure. 

I know the Government of Canada will take the next few years to monitor the take-up rate and assess if changes are needed to further incentivize business owners.  Perhaps a full tax exemption to allow for bigger deals with larger corporations should one day be explored.  In the meantime, I urge all soon-to-retire business owners to consider employee ownership as part of their succession plan. 

If the walls in the Sheldonian Theatre could actually talk they would tell them that the positive advantages of employee ownership are significant, the benefits are extensive, and the impact is profound.  Anyone would be hard-pressed not to be convinced!

The Honourable Tony Loffreda, Independent Canadian Senator (Québec)