Four Reasons Our Economy Needs Employee Ownership Now

When you think of employee ownership, what comes to mind?

You might dismiss it as a fringe pursuit. You might think of it as an admirable, if seemingly impractical, approach to doing business. You might see it as a gesture of benevolence—a nice thing to do.

But have you considered employee ownership as an answer to some of society’s stickiest issues?

If you’re unfamiliar with the model, here’s a quick primer: Employee ownership is an umbrella term to describe corporate structures that distribute proprietorship among some or all workers—not just those at the top. In Canada, it tends to take three forms: worker co-operatives (in which all workers share ownership and participate in management), employee share ownership plans (which allow employees to amass ownership stakes as an incentive or as part of their pay), and employee ownership trusts, or EOTs (a new-to-Canada succession structure that allows owners to transfer shares of a corporation to an employee-owned trust in exchange for tax incentives).

For individual businesses, the advantages of employee ownership can be varied and substantial: Employee-owned companies have been found to be more productive, innovative, resilient, profitable and faster-growing than those with concentrated ownership structures. By now, there is enough data about the brass-tacks benefits to catch the eye of even the most hardened skeptic. (There’s a famous observation among those in the employee ownership space that it’s likely the only economic idea supported by both Ronald Reagan and Bernie Sanders—albeit for very different reasons.)

But the potential advantages go far beyond the scope of individual companies. In fact, experts believe employee ownership can help tackle some of the most pernicious economic problems facing Canada right now.

Smith Business Insight contributor Deborah Aarts spoke to members of the new Employee Ownership Research Initiative (EORI)—which is housed within Smith’s Centre for Entrepreneurship, Innovation, and Social Impact—to understand why employee ownership might be a model for today’s moment.

Problem #1: The “silver tsunami”

Here’s a tough truth about the Canadian economy: It’s built on a bedrock of small- to mid-sized private enterprises, and a lot of their owners are getting out of the game. A 2023 report by the Canadian Federation of Independent Business found that more than three-quarters of Canadian small business owners said they intend to exit before 2033—yet fewer than 10 per cent had a succession plan in place. With some $2 trillion of assets on the line, this so-called “silver tsunami” represents a significant economic problem.

“There’s a generation of retiring business owners with no one to buy their businesses,” explains Melissa Hoover, who is managing director of ownership culture at Apis & Heritage Capital Partners (an investment fund focused on transitioning businesses to employee ownership models), a senior fellow at the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers, and a member of the EORI advisory board. “Many think their only options are to close, to sell to a competitor or to get acquired by private equity—if they are big enough to attract interest. But more and more are starting to recognize employee ownership is an option—and in this moment, a really good one.”

In particular, the Canadian EOT mechanism—which became law in 2024 under the federal Income Tax Act—offers an enticing alternative to selling out or shutting down, by creating a smooth runway for employees to buy out shares and providing fulsome tax incentives to the selling owner(s). “The EOT structure allows exiting owners to maximize the monetization of their life’s work,” explains Elspeth Murray, associate professor and CIBC Fellow in Entrepreneurship at Smith, academic director of the Smith Master of Management Innovation & Entrepreneurship program, and director of both Smith’s Centre for Entrepreneurship, Innovation & Social Impact and the new EORI. “Furthermore, by transitioning ownership to people already working in the organization, it addresses the legacy question: Very few business owners want to just cash out and leave everyone on their team to their own devices.”

Problem #2: Sovereignty threats

As anyone who has recently scrutinized a grocery label knows, economic sovereignty is occupying considerable brain space among Canadians in the current global geopolitical moment. And while employee ownership won’t ameliorate the impact of tariffs or trade wars, experts say it can play an important role in keeping the domestic economy strong and free.

Why? Because the aforementioned silver tsunami is creating what some have described as a “perfect storm” for foreign takeover by private equity firms or multinationals. Employee ownership creates a financially compelling incentive for businesses to stay put. “It’s one way to help keep ownership of businesses within Canada, in Canadian hands,” explains Murray.

There are real economic reasons to encourage this, says Simon Pek, an associate professor at the University of Victoria’s Gustavson School of Business, where he also serves as associate director of the Centre for Regenerative Futures, and an EORI fellow and board member. “Private businesses are often considered anchor institutions in their communities,” he explains. “They create local jobs, support local supply chains and play a material role in keeping communities intact.” Transferring ownership to employees allows those benefits to continue, Pek adds, while increasing the likelihood that the venture will carry on for the long haul: “If a business is going to be sold, it’s far preferable, from a sovereignty perspective, for it to go to people with strong ties to the community than to a foreign company that might not think twice about shutting things down in the future.”

Problem #3: Lagging productivity

Economists, policy-makers and business leaders alike have long bemoaned the persistently lagging productivity of Canada’s economy. Correcting that will require, in the words of McKinsey, “unprecedented pace and bold action” on a number of fronts—and experts believe employee ownership can help.

There’s a growing body of research that demonstrates when companies pair employee equity ownership programs with organizational cultures that encourage participation and agency, productivity improves. “When you align the interest of workers and the interests of employers it creates a powerful incentive for folks to be more productive,” says Pek. “You see workers come forward with more innovative ideas and process improvements because workers clearly stand to benefit.”

Writ large, this contributes to a more productive economy overall, Hoover adds. “Employee ownership proves–in a really practical, meat-and-potatoes way–that not only is a multi-stakeholder economy possible, but that it actually outperforms single-stakeholder capitalist models.”

Problem #4: Wealth inequality

Finally, there’s the matter of wealth inequality. In Canada, the income gap—that is, the difference in the share of disposable income between the wealthiest and poorest households in the country—reached a record high in 2025. “There’s little doubt that there’s a widening gap between the haves and the have nots, and that it’s crushing the middle class,” comments Murray. “I think employee ownership offers an opportunity to help close that gap.”

Hoover considers employee ownership a “market-based strategy for tackling inequality.” She elaborates: “If you want to build wealth in our current economy, you have a few options: owning a house, inheriting money, accumulating stocks and owning a business,” she says. “For a lot of people the latter stands out as the most possible, especially when it’s a shared ownership strategy. It gives people access to a productive asset that keeps generating wealth and building assets.”

This is more appealing to owners than you might expect, Hoover says. They see the same headlines about rising costs and growing debt as everyone else, and most would prefer to be part of the solution than the problem. “If you ask selling owners about their No. 1 concern, it’s usually taking care of the people who work for them,” she says. “Many owners are drawn to the idea of sharing the value that’s created with the people who created it,” especially when there are favourable tax reasons for them to do so.

Furthermore, when workers get ownership (or a path towards it) it sparks all sorts of offshoot economic benefits: They might be able to buy a house, or invest in their communities, or simply maintain stable employment. “It can help address a lot of the issues we all care about,” says Pek.

Pek, Hoover and Murray all acknowledge that employee ownership is not a magic wand. It takes considerable time and effort for owners to implement an ESOP or an EOT, and it can require extensive legal, accounting and operational support to get the details sorted. However, all agree that the work can have a clear—and rewarding—payoff. “When it’s done properly, employee ownership is not as risky as it may seem,” Pek says. “In fact, it can be very valuable—for businesses, yes, but also far beyond that.”