Jon Shell
Team
M@st3rSCP
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Jon was Managing Director of SCP from 2017-2023, leading the transition to our Ownership Agenda. He spent most of his career in the private sector before joining SCP, founding and growing successful companies in both Canada and Australia. Jon co-founded both Save Small Business and the Canadian Employee Ownership Coalition. Jon was first introduced to SCP when Bill supported a volunteer entrepreneurship project he was leading in Kenya in 2008. He received a BA from Queen’s University and an MBA from the Richard Ivey School of Business at Western University.
CAMP x SCP virtual talk - understanding private equity
In industries from dentistry to aircraft manufacturing, private equity (PE) is everywhere—some of it intent on rejuvenating flailing businesses, and some of it poised to extract maximum profit at any cost. To demystify this financial tool, CAMP and SCP hosted an expert panel of informed insiders and prominent American critics who have been on the frontlines of fighting PE’s worst excesses. Together, moderator Ana Pereira from the Toronto Star, Private Equity Stakeholder Project’s Jim Baker, Plunder author Brendan Ballou, SCP’s Jon Shell and CAMP Fellow Rachel Wasserman break down how PE is commonly used, what’s next and how we can change course.
Panelists
Moderator
Ana Pereira
Business Reporter, Toronto Star
Overheard at Crowe Soberman: The EOT advantage
Crowe Soberman Audit and Advisory Partner Chandor Gauthier sits down with Jon Shell, Chair of Social Capital Partners and Board Member at Employee Ownership Canada. They dive into the benefits of Employee Ownership Trusts and get into the nitty gritty of how EOTs can support smooth business succession, boost equity and retention and safeguard business legacies.
Speakers
Optimizing the impact of Canada’s Small Business Financing Program
Canada is currently undergoing the biggest wave of business succession in the country’s history. At the same time, Canada is facing a sharp decline in business formation and entrepreneurship. Without intervention, these twin trends are poised to weaken the vibrancy of Canada’s economy and damage local economies for the indefinite future.
Social Capital Partners and Venture for Canada made a joint submission to Innovation, Science, and Economic Development Canada (ISED) as part of its work to finalize its mandated 5-year review of the Canadian Small Business Financing Program (CSBFP).
We recommend that the CSBFP should be amended to allow for increased Entrepreneurship through Acquisition (ETA). ETA is a model whereby existing or aspiring entrepreneurs purchase and grow existing small businesses, rather than build them from scratch. This approach plays an important role in facilitating a transition to a new generation of entrepreneurs, keeping wealth in Canadian communities and unleashing local, private sector innovation.
At the corner of Main Street and Purpose: Rethinking small businesses by rethinking who owns them
By Shane Gibson | This post first appeared in Future of Good.
The Canadian economy is nudging towards a major transition, and a large number of small business owners are approaching retirement. Selling to a bigger business or corporation is one option, but alternative ownership models are giving business owners attractive options to keep their operations local.
Whether converting to a non-profit, forming an Employee Ownership Trust (EOT), or transitioning to a co-operative, alternative ownership not only helps local businesses but can also protect local jobs and keep wealth in the community.
“It’s all about people. It’s all about having control,” explained Dave Walsh, managing director of the Newfoundland & Labrador Federation of Co-operatives (NLFC).
Walsh is talking about co-operatives – an alternative ownership model that allows community members to take control of small businesses and keep them local.
The NLFC is currently part of an initiative working to help small businesses in rural Newfoundland transition to the co-operative method.
The project, called Social Enterprise Through Acquisition, is run with help from the Community Sector Council Newfoundland and Labrador and made possible by a $750,000 investment from the Northpine Foundation.
Walsh said the co-operative model can work well for businesses facing transition.
“Imagine you have a business owner who’s about to retire. They have a couple of traditional options: they can shut down, or they can sell,” Walsh noted, adding typically, that sale might be to a larger company.
He said that, for example, the local hardware store might be bought out by Rona or Home Depot, or a small cafe might sell to Starbucks.
But instead of selling to a corporation, under the co-operative model, the community comes together to take ownership of the business. Walsh said this can be a combination of employees and even customers.
“Basically, they form a small board and run the business through a committee,” he explains. “This way the business stays open and a community doesn’t lose a necessary service.”
While moving to a co-op can be especially effective for organizations with distributed management models, EOTs and non-profit conversions might be a better option for organizations with more traditional management structures.
Changes to Canadian law this year have made employee ownership more enticing for SMEs by exempting the first $10 million in gains from the sale of a business to an EOT.
The EOT model – which sees a trust hold shares of a corporation for the benefit of the corporation’s employees – has given Friesens Corporation in Manitoba the chance to prioritize employees’ values ahead of profit, according to CEO Chad Friesen.
Under the Friesens model, both part-time and full-time employees are beneficiaries of the employee trust, meaning they receive cheques—similar to a dividend payment—several times a year.
“Yes, it feels awesome to hand out cheques,” Friesen said, proudly bestowing the virtues of employee ownership. “But ultimately, you want people to be a part of the whole story, and I have pride telling people how this company started, how we’re owned, and how that benefits the lives of the people who work here.”
Meanwhile, choosing to convert to a non-profit can see the SME itself remain for-profit while a non-profit takes over ownership.
“By being owned by a non-profit, its profits can be redirected into the non-profit to support programming, etc.,” explained Kristi Fairholm Mader with Thrive Impact Fund, a place-based fund in B.C. providing acquisition financing and working capital to social enterprises.
“It is also a good way to diversify revenue, provide inclusive employment, support local economies, and increase sustainable supply chains.
Through the transition to alternative ownership, a business broadens its social purpose, meaning it can serve an important social role in a community—that it makes the community better, according to Walsh.
“Every co-operative started because there was a need, because there was an important gap that someone needed to fill,” he said. “Those are powerful stories – like when you talk about a community that had no daycare, and everyone got together to fill that need.”
Walsh said he thinks those types of stories are about to become more common.
In 2022 a Canadian research project, Co-op Convert, found Canada is set to lose up to 48 per cent of its local businesses in the next five years – mostly due to retirement.
In Atlantic Canada, that number is estimated to be closer to 55 per cent for small- to medium-sized businesses.
Colin Corcoran, CEO of the Community Sector Council Newfoundland and Labrador, said that makes projects like Social Enterprise Through Acquisition even more critical.
“Our goal is to provide a lifeline for communities facing economic uncertainty by safeguarding employment through the conversion of local businesses,” said Corcoran.
Even though Social Enterprise Through Acquisition is a relatively new initiative in Newfoundland (the project was announced in 2023), co-ops are far from a new idea.
In fact, they have a long history in Canada, dating back to the 1860s.
Grocery stores, banks, newspapers, childcare, insurance companies, restaurants, housing and more have all been run as co-ops at one point or another.
According to Employee Ownership Canada (EOC), employee ownership can also boost productivity, job satisfaction, engagement, and motivation among employees. So why don’t we see more alternative ownership models like co-ops in our communities now?
Walsh thinks it’s all about education.
“We don’t learn about co-ops in school anymore,” he said. “You could go through an entire business degree and not talk about co-ops.”
Walsh admits the idea can sound foreign and complicated, and he’s worried some will be deterred from trying it. But he’s hoping his initiative—and others across the country, such as a new employee ownership campaign by EOC—will help educate and change some minds.
“Yes, there is more work than with a traditional business, but it’s worth it,” he said about his experience with co-operative models. “The community is so much more involved. It’s so powerful.”
And he’s not just talking about Newfoundland. Walsh said there’s a big space for co-ops in Canada, and a rich history to back it up.
“Just look at Quebec. They’re leaders in co-ops – in the financial and even the housing sector,” he said. “The Prairies have been leading the way in co-operative business for over a hundred years with grocery stores and credit unions.”
Back in his neck of the woods, Walsh points to the Fogo Island Co-Operative Society as a gold standard in the co-op world.
The co-operative has been going strong on the island, the largest of Newfoundland and Labrador’s offshore islands for more than 50 years.
It was started in 1967 as island residents faced a slowing economy and a dwindling population.
They had a difficult choice: leave their homes and resettle on the mainland or stay and rebuild together.
They chose to rebuild, and since then, the “Fogo Process” – a model for building a co-operative society – has become known worldwide.
Walsh said it’s a testament to what a co-operative future in Canada could look like.
“They were destined for resettlement. Now Fogo Co-op is delivering seafood products all across the globe,” he said. “They’re even one of the biggest fisheries in Canada… and they’re a co-op.”
For more information on co-operatives across Canada, check out Co-op Week 2024 from Oct. 13-19, hosted online by https://canada.coop/en/events/co-op-week-2024/.
Matthew Mendelsohn
Team
M@st3rSCP
Name Here
Matthew is a Canadian public policy leader. For over 25 years, he has designed and implemented public policy solutions that work in practice and has advised governments, organizations and elected leaders on ways to improve economic, social and democratic outcomes. Matthew is a former deputy minister with the governments of Canada and Ontario, and was the founding Director of the Mowat Centre, a public policy think tank at the University of Toronto. Most recently he was a Visiting Professor at Toronto Metropolitan University and a Senior Advisor at Boston Consulting Group. Matthew received a B.A. from McGill University, a Ph.D. from the l’Université de Montréal and an ICD.D from the Rotman School of Management.
Employee ownership trusts explainer | Toronto Sun
Toronto Sun
SCP Chair Jon Shell in the Toronto Sun on what Employee Ownership Trusts mean for business owners, the community and the broader economy.
Uncommons Podcast: Wealth inequality and inclusive growth with Matthew Mendelsohn
Social Capital Partners’ CEO, Matthew Mendelsohn, joins Member of Parliament for Beaches-East York, Nate Erksin-Smith, on his podcase “Uncommons”. Matthew and Nate talk about wealth concentration and its threat to democratic stability. They also discuss practical solutions to address wealth inequality, lack of trust in democratic institutions, the role of the federal public service and the need for a competent and responsive government.
Speakers
Nate Erksine-Smith
Member of Parliament, Beaches-East York
Employee Ownership Trusts make it easier for Canadian businesses to share wealth with employees
This post first appeared in Future of Good.
Two new federal bills have received royal assent, making it easier for business owners to create Employee Ownership Trusts and share their wealth with employees.
New incentives will encourage business owners looking to sell to consider an Employee Ownership Trust so employees can have a stake in business ownership.
Selling the company to a trust means employees do not pay out-of-pocket. The loan is paid off from company profits, and employees begin to receive dividends.
Nearly three-quarters of small business owners plan to retire in the next decade.
Advocates have long argued that EOTs have numerous benefits. They allow companies to grow and stay in local communities, contribute to employee retention, and create financial wealth for employees and their families.
Bills C-59 and C-69, which will allow this to happen, received royal assent on June 20.
Bill C-59, a competition bill, means Canadian business owners will qualify for up to $10 million in tax-free capital gains if they sell 51% or more of their company to workers through an EOT.
Bill C-69 is a financial fairness bill which aims to encourage more business owners to sell to an EOT.
“It’s a different wealth-building model, but it lifts everybody and creates good economic opportunities,” Arnold Strub, executive director of Employee Ownership Canada, said earlier this year. “When employees have skin in the game and an ownership mindset, good things start to happen.”
The Government of Canada first read Bill C-59 in the House of Commons, including proposals on Employee Ownership Trusts (EOT), on Nov. 30.
Highlights include extending the capital gains reserve from five to 10 years, a $10-million capital gains exemption, and the ability to use the loan as a tax deduction, all designed to make turning a business into an EOT easier, said Strub.
Broadly, employee ownership meets two crucial goals, said Strub. First, it’s a democratic way for working-class Canadians to acquire wealth.
Such models are also a retention tool, as employees generally have better compensation and develop an ownership mindset.
“There’s a lot of research from the UK and the U.S. that shows that private companies with some type of employee ownership plan do better,” said Strub.
One employee ownership success story can be found in the Canadian prairie town of Altona, Man. where Friesens Corporation has 600 employee-owners in a town of 4,300 people. Established in 1907, the company evolved into four divisions offering trade books, academic annuals, packaging and self-publishing assistance.
In the 1950s, the owners began investigating new ownership models once they knew no next generation would take over. Influenced by the co-operative movement, they started gifting shares to employees who, for a time, could exchange them on a private market. About 30 per cent of the staff owned all of the shares.
That worked until the early aughts when Friesens created an EOT since more people were retiring than purchasing shares.
Now, every employee is an owner, and every employee is a beneficiary.
“Over the last 12 months, we’ve distributed in the neighbourhood of $5.5 million in proceeds to our employee-owners,” CEO Chad Friesen said in January.
“On average, our employee-owners received over $10,000 of what we would call an EOT distribution.
“We feel that our model is the great equalizer in business. It doesn’t matter whether you’ve come from an affluent family down the road or you’re a newcomer who’s arrived here from the Philippines. You both have an equal opportunity within this company to take advantage of ownership benefits.”
The Canadian Employee Ownership Coalition came together 18 months ago to advocate for better incentives to boost employee ownership in Canada.
Mark Carney and the Canadian business elite need to think more about growing wealth inequality that is destabilizing democracies around the world
By Matthew Mendelsohn | The Toronto Star
Mark Carney had a chance to weigh in one of the defining issues facing Canada. The answer he gave suggests he isn’t ready for public life
Mark Carney made a speech last week and many people had plenty to say about it. But one of his replies during the Q & A deserves more attention than it received.
MP Nate Erskine-Smith asked Carney what he would do about Canada’s growing wealth inequality. Carney’s answer was a bit unfocused, but he made two points clearly: 1) Let’s hope wealthy people give more to charity, and 2) We shouldn’t only focus on redistribution.
This was not a serious answer.
If Carney wants to play a constructive role in Canadian public life, he should have thought deeply about the staggering and growing wealth concentration in Canada and around the world. This concentration is creating anxiety and anger among many young people, it is destabilizing democratic societies and he should have something meaningful to say about it.
Given his professional history, Carney knows that the benefits from economic growth in recent decades have increasingly gone to capital rather than workers. Even if he doesn’t want to serve up big pieces of blame pie, he should at least have critical reflections on the role of finance in producing obscene wealth alongside real hardship.
Unfortunately, Carney’s instincts on wealth inequality are reflective of what has been on full display from many business leaders over the past few weeks who have been bemoaning Canada’s “productivity emergency” — and then having a bit of a fit about small changes in the capital gains tax.
We share these concerns about the long-term decline in productivity, which has real and negative consequences on our quality of life.
But Canada’s long-standing productivity challenges have been debated for three decades, their causes are not well-understood and the solutions are not obvious. We certainly shouldn’t assume that realistic solution just happen to coincidentally lineup with all the prior positions and economic interests of corporate Canada.
“Given his professional history, (Mark) Carney knows that the benefits from economic growth in recent decades have increasingly gone to capital rather than workers,” writes Matthew Mendelsohn. “Even if he doesn’t want to serve up big pieces of blame pie, he should at least have critical reflections on the role of finance in producing obscene wealth alongside real hardship.”
We are even more concerned that many of Canada’s industry leaders who shape our public debate have seemingly missed the most important economic policy debates of the past 20 years. Around the world, almost no serious person continues to believe that cutting taxes on the wealthy will unlock growth for working and middle-income people.
Most advanced industrial democracies are dealing with inequality and challenges to economic growth by rejecting market fundamentalism and investing in things like public transit, child care, affordable housing and ensuring that low- and middle-income people have money to spend in the local economy.
So, Carney’s answer was disappointing.
When he was asked about wealth inequality, Carney could have talked about his views on this emerging consensus. He could have talked about housing and its relationship to both inequality and productivity.
He could have shared his thoughts about global processes to confront wealth sheltering and corporate profit shifting.
He could have talked about how oligopolistic markets hurt working people, innovation and productivity and how we should break them up.
He could have discussed ways to get more capital into underserved communities or how we should confront the worst features of modern extractive capitalism and private equity.
And when he chose to toss the word “redistribution” on the table, he could have at least noted that we are living through a period when concentration of ownership is redistributing upwards toward the extremely wealthy. Or that it is important that we stop talking narrowly about income redistribution and focus more deeply on how to broaden ownership of the economy.
But his instinct was to say none of these things, just as the instinct of our business community when talking of productivity is to discuss their taxes rather than the housing crisis.
Authoritarian populists are winning in many places because, in part, the benefits of economic growth have been accruing disproportionately to capital. Everyone who aspires to play a constructive role in public life needs to address this head on.
Highly unequal societies — with wealth, opportunity and privilege passed along intergenerationally — are not safe, healthy or happy societies. They are not in anyone’s interest, even the wealthy.