New budget offers Canada a chance to get employee ownership right

Minister of Finance and Deputy Prime Minister Chrystia Freeland, delivering speech and federal budget for 2022.

The Government of Canada’s recently released 2022 budget represents a significant step forward in Canada’s journey towards greater employee ownership. In this budget, the government committed to establishing an Employee Ownership Trust. These trusts are vehicles used to purchase and hold shares in a company, in the interest of that company’s employees.

This is a big deal because the lack of such a tool in Canada, in contrast with countries like the U.K. and the U.S., has made it challenging for many Canadian businesses to transfer ownership to their employees.

A Canadian economy grounded in greater employee ownership could have tremendous benefits for our workers, businesses and communities, as proponents like nonprofit Social Capital Partners has argued. Documented benefits of employee ownership include increasing workers’ wealth and satisfaction and boosting companies’ profitability, productivity and survival.

For Canadians hoping to emerge from the COVID-19 pandemic with better jobs, a stronger economy and reduced inequality, employee ownership is a promising way to get there.

Employee ownership and employee participation

While it is reasonable to assume that employee ownership automatically means the right to participate in company decision-making, this is not always the case. This dynamic can be seen in U.S. Employee stock ownership plans (ESOPs), which have been a source of inspiration for many advocates of employee ownership in Canada.

In these ESOPs, companies’ boards of directors are usually the ones who select the trustees, while employees’ voting rights are usually limited to a narrow set of decisions, regarding topics like mergers and acquisitions. Unless companies involve employees in other ways, an employee’s ability to influence their company’s decision-making is significantly constrained.

This matters for two reasons. First, if we want to achieve the countless benefits of employee ownership, we need to couple ownership with opportunities for employee participation in decision-making and supporting practices.

Second, and more broadly, for the growing number of people sympathetic to, or active in, the movement to democratize work, settling on a model of employee ownership devoid of meaningful employee participation is a missed opportunity to tackle a broader array of social and environmental issues.

Endless possibilities

Fortunately, there are many promising practices that have been proposed or implemented for us to learn from to effectively fuse employee ownership with employee participation.

When it comes to employee involvement in the governance of employee-owned companies, one possibility involves granting employees a role in electing some (or all) of their company’s board of directors. This would increase the likelihood of the company electing a trustee sympathetic to employee interests.

Another possibility involves incentivizing or requiring companies to have employee representatives on ESOP Committees that oversee the administration of the plan.

It is important for employees to be involved early on in the development of employee ownership programs, either through incentivizing companies to disclose the details of their plans or by giving employee representatives a seat at the table right from the start to ensure their interests are protected.

Involving employees in operational decisions

These practices work best when they are combined with opportunities for employees to participate in more operational decisions, through practices like joint steering committees, granting employees more autonomy in day-to-day decision-making, comprehensive information sharing and extensive training and education.

Here, we can gain further inspiration from recent insights on workplace democracy in Canada, which point to the possibility of adapting models like German works councils to the Canadian context. We could also leverage ideas from the realm of political science like the use of democratic lotteries to select some employee representatives to bring a more diverse set of voices to the table.

These practices are just a small subset of those the Canadian government can explore with stakeholders, as it finalizes its Employee Ownership Trust framework. It is important to ensure that these consultations include all relevant stakeholders — especially the workers.

Some of these practices may be applicable to all Canadian companies and would benefit from standardized implementation, whereas others may be more company-specific and best left for each company to decide on with its employees. In either case, they show promise in helping us get the most out of this exciting development.

This article is republished from The Conversation under a Creative Commons license. Read the original article.