In this exclusive interview for CanadianSME Small Business Magazine, Elspeth Murray, Director of the Employee Ownership Research Initiative at Smith School of Business, Queen’s University, shares a clear and practical view on how employee ownership can strengthen the future of Canadian SMEs. Drawing on her leadership at the Centre for Entrepreneurship, Innovation & Social Impact and her expertise in strategy, organizational change and entrepreneurship, she brings research-driven insights that highlight why employee ownership models are gaining national momentum and how they can support long-term business success.
Elspeth Murray is the director of the Employee Ownership Research Initiative at Smith School of Business, Queen’s University, a new multi-disciplinary network focused on filling the gap in relevant data, expertise and business-oriented resources and solutions to support employee ownership activities in Canada.
Elspeth Murray is also the director of the Centre for Entrepreneurship, Innovation & Social Impact and an associate professor and CIBC Fellow in Entrepreneurship at Smith School of Business. She is an in expert in strategy, the management of change and entrepreneurship, and is a co-author of the bestselling book Fast Forward: Organizational Change in 100 Days. Elspeth’s academic interests span change management, competitive dynamics, entrepreneurship, governance, social impact and sustainability, strategic management, strategy and innovation and employee ownership.
Could you start by explaining what an employee ownership trust (EOT) is, and how it differs from more common models like worker co-operatives or employee share ownership plans?
Employees collectively own the company through a trust, rather than owning shares individually. This is the main difference.
With new federal policies supporting EOTs, how well-positioned do you think Canada is right now to foster employee ownership, and what are the most urgent policy changes or extensions still needed?
We are currently well positioned, however there’s a ‘but’. Under Canadian federal legislation (in force since 1 January 2024), when an owner sells a “qualifying business” to an EOT, the first C$10 million of capital gains realized on that sale can be exempt from tax for the selling individual. The but is that the legislation is temporary, applicable to qualifying business transfers that occur in tax years 2024, 2025 or 2026. The most urgent policy change is to make this permanent.
There has to be an incentive for SME owners to undertake the work required to sell their businesses to employees vs. selling out to Private Equity or just shutting it down. Other countries like the U.S. and UK have already shown such incentives make a difference in the decision making of business owners.
Canada often looks to international models for inspiration. Based on your research, what lessons from the UK and US can Canadian small business owners apply when considering an EOT structure?
The UK has had the EOT structure in place since 2014. We can learn a great deal from their experience. So far, and in short, EOTs have a number of benefits as compared to other exit options for business owners. First, it keeps the business independent and in the local community. Second, it gives owner-operators a market-value exit. Third, it allows the sale to be financed over time. Finally, and perhaps most importantly, it is less adversarial and less disruptive than third-party sales and thus there are positive benefits to things like workforce engagement.
As compared to other ownership models, the UK experience is that EOTs are low on the administrative complexity spectrum. Unlike ESOPs, for example, there are no shares to keep track of. Governance is also straightforward – the trust owns the business, employees own the trust, and thus trustees oversee the business on behalf of employees.
What are the most compelling business and employee benefits associated with EOTs, and are there any challenges that owners and workers should plan for before embarking on this transition?
In terms of employee benefits, the obvious one is financial. In addition to a paycheck, employees essentially benefit through profit sharing as owners of the trust. But the benefits to workers go beyond money. Research shows that employee owners are, by and large, happier, healthier and more satisfied in their work. As owners, even with the most minor of stakes, employees start to feel more agency and excitement towards their work, as there’s a clear correlation between organizational performance and individual prosperity. On the whole, employee-owned companies grow faster and generate higher profits than the norm. They’re more productive and more innovative and exhibit greater resilience when times are tough.
As we look at the current geopolitical climate and concerns around sovereignty, job loss, and the wave of business owners who are preparing to sell their businesses in the next decade, EO and EOTs can help keep SMEs Canadian owned and in their local communities thus protecting jobs and creating prosperity for more people.
Finally, what insights or advice would you share with Canadian SMBs exploring succession planning or business transformation through employee ownership?
Employee ownership is not a panacea. It can’t fix a toxic culture. It doesn’t tend to work as well when organizations are quite small, or very volatile, or are ultra-secretive about strategic goals and financial performance.
As with any new idea, execution is the key. What this means in practical terms is good preparation – clean financials, employee education on what EOTs are and how they work, and careful thought to governance. It also means surrounding yourself with great advisors – EOT experienced accountants, lawyers and other professionals who can help navigate the nuances of making an EOT transaction work.
