The shut-down of the economy has lasted for almost 2 months and businesses are either facing negative impacts from the COVID-19 crisis, along with most Canadian businesses, or are among the minority of businesses experiencing positive impacts.
It’s likely that very difficult business decisions have had to be made to ensure your company’s existence through the crisis. Part of the challenge is having to lay off valued employees, and maintain a positive culture.
Although things are still changing rapidly, business owners are likely considering long-term impacts on the company’s ability to retain their employees, but also to attract top talent once the crisis is behind us. The many reasons why owners turn to an ESOP (Employee Share Ownership Plan) include to exit the business, to establish a succession plan, and especially to attract and retain the top talent in the industry. In some sectors ESOPs are de rigueur and companies cannot be without one. Rather than turning away from investing in your business growth now, this may be exactly the right time to take opportunities to work on your business rather than simply in it.
As your company grows and time goes on, your workforce demographics naturally become younger. It certainly seems that ESOPs appeal greatly to Millennial workers who are looking for something more out of their companies. More studies are confirming this as more millennials enter the workforce. Every business owner knows how much time it can take to put together the “perfect” team. Additionally, employees overall are not staying in one job, or one company, for long compared to in the past. For these reasons, an ESOP can be a very strategic and valuable tool to attract and retain your team which you have invested in and worked hard to establish. Many studies of ESOPs in the US conducted by the NCEO indicate that ESOP companies have a greater resilience for staying in business through economic downturns. While the current crisis is unprecedented, these studies do suggest companies who have a participative ESOP will be more likely to come out of the crisis and emerge in a relatively strong position.
In ESOP Builders’ ESOPs as an Attraction and Retention Tool (November 2019) survey of Canadian ESOP companies 75 percent of respondents indicated their ESOP offers an edge on the competition to attract and retain talent. Therefore, it is likely that taking these steps will set your company up for success against your competition by ensuring you have the team to bounce back incredibly strong once the country experiences a positive shift in the economy.
By Joanna Phillips, CHRL, CVB, Vice President, ESOP Builders Inc.
Our April 2020 survey gathered responses from ESOP companies across Canada to help understand their strategies undertaken to manage operations as an ESOP during the COVIC-19 crisis. The survey summary is illustrated below.
First is the philosophy of personal wealth creation. Employees are motivated by financial gain and ESOPs deliver wealth.
Second is the philosophy of cultural engagement on a personal basis. The Theory of Group Wisdom holds that groups are more successful over individuals due not to the intellect of each person but due to the social interaction of the group. ESOPs create the conditions of group success through a participative culture of engagement.
It is estimated that less than 10% of the workforce actually own their own business. That means over 90% are employees. This statistic is important because owners and employees differ in how they think about business issues.
Most owners of privately-held companies are also the founders. Why? At some point in the past, they had a dream and a desire to own their own business. For many, this required giving up a secure job working for someone else and entering the uncertain and ambiguous realm of an entrepreneur. Although there was a huge risk, they believed in themselves and their dream, and they took the leap. For many, this required using their own savings, as well as putting their house and everything they owned on the line as collateral. This was not an easy decision on their part.
On its 10th anniversary, the owners of Canada’s largest organic brewery, Beau’s All Natural Brewing Company, announced it will be selling the company to employees through an Employee Share Ownership Plan (ESOP).
The owners, a father-and-son team, said selling to employees ensures the Vankleek Hill, Ont., brewery that has approximately 150 employees stays independent, an important factor for the founders.