The 50 employees at Grantbook, a tech advisory firm for global grantmakers, have become owners of the Toronto-based company through Canada’s first “employee ownership trust,” an emerging form of worker ownership created by legislation last June.
Another dozen or so Canadian companies are in the midst of their own employee-ownership transitions through the new trust structure, which through profit-sharing aims to distribute wealth more equitably than US-style employee stock ownership plans, or ESOPs (for background see, “With employee trusts, Canada opens a pathway to worker ownership”). The early adopters are what one advisor calls “vanguard companies,” including certified B Corps.
With Canada’s economy under threat from an escalating trade war with President Donald Trump, who has belittled the country as the US’ “51st state,” employee ownership is becoming something of a nationalist rallying cry. The pitch: Strengthen the country’s economic sovereignty by keeping businesses out of the hands of American investors and instead putting them in the hands of Canadian workers.
Both parties in the upcoming election are playing to working-class audiences. Prime Minister Mark Carney said during the Liberal Party leadership election that he would make it a “great time to be a worker in Canada.” His primary opponent, the Conservative Party’s Pierre Poilievre, said that “instead of turning workers against business owners, we’ll turn workers into business owners.”
Three out of four small- and mid-sized businesses in Canada are projected to change hands over the next decade. That’s an opportunity to transfer trillions of dollars in business wealth to workers via the new employee-ownership trust structure. But it also raises the risk that many of those businesses could fall into foreign (read “American”) hands. The US accounts for nearly half of total foreign direct investment in Canada, amounting to over $430 billion. More than half of Canadian stocks are owned by US investors.
“There’s no question that employee ownership could be mobilized to help keep Canadian businesses in Canadian hands in the face of US aggression,” says Jon Shell of Social Capital Partners, a Toronto-based nonprofit that supports policies to drive more wealth and ownership for working-class Canadians.
Shell, a member of the Canadian Employee Ownership Coalition, will join ImpactAlpha’s Agents of Impact Call, “Sharing the wealth through employee ownership,” Wednesday, March 26.
Also joining The Call are Essential Owners Fund’s Malini Ramanarayanan Moraghan, Ownership Capital Lab’s Alison Lingane and Lafayette Square Institute’s Jack Moriarty (RSVP).
“Keeping what we have is under significant threat, not just from American aggression but also from an aging population of business owners,” Shell wrote in a recent post. “The low dollar, and likely lower interest rates in the US will make our businesses ripe for the picking.”
Employee ownership 2.0
Grantbook has grown rapidly in recent years by helping partners including World Education Services, Tides, Surdna and Libra foundations and others, digitalize their grantmaking operations to roll grants out more efficiently.
“Grantbook was in very high demand right through the pandemic because of the services it provides to the philanthropic sector,” said Peter Deitz, who co-founded the firm with Anil Patel in 2012.
Grantbook’s employee ownership trust holds a 55% stake in the company on behalf of employees and is in the process of buying out original founder shares with a portion of the company’s cash flow. CEO Nikki Barrett retains her 20% stake in the company. Former employees hold 25% of the company’s shares.
“We decided to not have third-party financing for the transaction because we didn’t want to burden the company with any kind of interest payments, especially since interest rates are very high at the moment,” Deitz says. “Because we knew this transaction was coming before it actually happened, there was cash set aside to support it.”
An earlier US-style ESOP had been shut down because of a common problem – leaving too many of a firm’s shares in the hands of former employees, limiting the ability to reward current and, more importantly, future workers (for example see, “Some Vermont Information Processing employees will see up to $10 million each after exit to Warburg Pincus”).
“We did our first version of employee ownership because we thought it was the right thing to do, and because it felt like a great way to be inclusive [and] equitable, but it created inequities,” says Deitz. More than half of the purchase price to form the EOT has already been paid out. Deitz says he is confident in the trust’s ability to pay the remaining amount over the next 18 months, upon which he’ll step down as a board trustee to devote full-time to his latest B Corp, Unwrapit.
Employee owners will receive a larger share of the firm’s profits after completing the purchase of the founder shares. Profit allocation from the EOT to employees will take into account workers’ compensation and length of service, and other factors decided by the trustees, to ensure that profit-sharing is reflective of each employees’ contributions. New employees will go through a six-month probationary period before becoming eligible as a beneficiary.
Canada’s employee ownership structure includes a temporary tax exemption on up to $10 million in capital gains tax realized on a sale to an EOT. This incentive did not apply in Grantbook’s case since the founder shares were held in a corporation and not by an individual.
Deitz called the decision to transition via the EOT a no-brainer. “It sets the company up for success. It avoids exacerbating inequalities that might have resulted from a different path.”
Cultural feasibility
With its new law, Canada was leaning into employee ownership as an economic development strategy long before it became the subject of a trade war from its closest neighbor and biggest trading partner. Now, the approach is gaining momentum as a national security strategy as well. Advocates are calling for the use of the Invest in Canada Act, the federal law that oversees foreign investment in Canada, aggressively to prevent American takeover of Canadian businesses.
“Nothing could unite Canada like Trump has,” says Tiara Letourneau of Rewrite Capital Advisors, a Vancouver-based M&A advisory firm that has carved out a specialty in advising retiring owners looking to transfer ownership of their businesses to workers via the Canada EOT.
The female-led advisory firm is helping more than a dozen companies that are set to become employee-owned through the EOT structure this year. “We’ve had double the number of companies come and talk to us than we expected in this amount of time,” Rewrite’s Letourneau says. After a pause for the shock of the trade war to pass, “everything jumped back to life in the last two weeks,” she adds.
Rewrite counts more than 50 potential clients that have inquired about the EOT. Of those businesses, around 70% have B Corp certification for their social and environmental missions. Rewrite calls them “vanguard companies,” businesses that understand good business is more than just making a profit, but also making an impact on the world around them. “Grantbook is one of those by definition,” Letournau says.
Rewrite conducted a feasibility study on Grantbook, also a B Corp, to find out whether or not the firm was ready for the EOT transition. “We look at financial feasibility to make sure that companies have the ability to pay back any debt related to the transaction, and to pay their shareholders over time,” says Letournau.
“We also look at cultural feasibility to determine how ownership fits into the organization,” she adds. “Grantbook was in a very strong position for both of those, and so it was an easy green light for them.”
Barrett, the CEO, says her ownership stake has excluded her from participating in the EOT, but not in the ownership culture that has emerged at Grantbook since it became the first company to transition to an employee ownership trust under Canada’s new law.
“I say that nothing’s changed and everything’s changed,” she told ImpactAlpha. “The feeling of being in a company where you know the rewards are flowing to the whole team, regardless of tenure or regardless of whether you have capital to buy shares.”
