Most of Canada’s 1.2 million small and medium-sized enterprises have been affected by COVID-19. A large number of them remain heavily indebted as pandemic restrictions ease, while workforce shortages and supply-chain disruptions are still a problem.
The pandemic has exacerbated the succession crisis for these companies as a growing number of owners nearing retirement, who do not have formal plans for the continuation of their businesses.
This impending succession crisis, known as the “silver tsunami”, was part of what was already discussed in Canada in early 2010. Economic experts in the United States and the European Union have also been warning of a similar event on the horizon for more than a decade.
$1.5 trillion in business assets before the pandemic and the future of a large number of Canadian employees were at stake as so many Canadians are employed by small and medium-sized companies.
Overall, Canadian business owners are unprepared for succession or the effects of the crisis on their companies. The jobs and socio-economic well-being of Canadian communities are potentially at risk.
In Canada, a research team led by me recently published a report on succession in these companies and found that business owners first think about transferring their companies to their children or other family members (43 percent). Huh. Retired owners or risk-averse businesses also want to sell to third-party investors (24 percent).
But, as our research also shows, less than half of retirement-aged owners (48 percent) are familiar with the intricacies of succession, while only 14 percent have formal succession plans.
Another succession option is the strategy of business conversion to cooperatives – selling or relocating companies to employees or other community stakeholders who then form cooperatives and carry on business activities.
These converted businesses can take various member ownership forms, such as worker, consumer, multi-stakeholder or producer co-ops. More than 200 of them, of all these different types, already exist in Canada.
As my earlier research on Italian labor procurement and Argentine labor-retrieval companies showed, businesses that convert to cooperatives represent a near-perfect hedging and succession strategy. However, our new study shows that in Canada it is still a largely overlooked option by most owners of small and medium-sized enterprises and employees, unions and policy makers.
Overall lack of understanding of cooperatives
The combination of a lack of succession planning and a failure to consider cooperative-transformation solutions corroborated the finding from our research – only 30 percent of Canadian small business owners are familiar with cooperatives, and many of them have the wrong idea about them. . They include misconceptions about the inefficiency of cooperatives due to democratic governance and the assumptions that they lack competition.
Decades of research into the advantages and strengths of the cooperative model suggests that these concerns are unfounded. Cooperatives offer stable business models that provide good jobs. They are often superior to traditional businesses in responding to and surviving crises because they source capital locally rather than distant shareholders, meet the needs of the local community, and promote trust and mutual assistance. Huh.
Read more: Banking cooperatives run by black women have a long legacy of helping people
For example, during an economic downturn, cooperative members often revise wages and revenue distributions rather than lay off employees.
The overall lack of knowledge of cooperative models is not surprising. There is a systemic bias against solidarity-based economic activity by mainstream economists and business pundits, and a related lack of co-op material in secondary business and economics courses.
Plus, Canada already has about 6,000 non-financial co-operatives, which, according to a recent study, account for 3.4 percent of its GDP ($61.2 billion). This is significantly higher than the telecom sector and mining sector at 1.8 per cent of GDP and auto parts and manufacturing sector at 0.9 per cent of GDP respectively.
There is no doubt that cooperatives are competitive and sustainable businesses. It should then be in the interest of business owners, employees, unions, local communities as well as policy-makers to learn more about cooperative alternatives for the purposes of succession and business survival.
Transformation Paths into Cooperatives
Part of this should include a renewed education campaign about Canada’s already established path for businesses to convert to co-ops. Cooperative advocates such as the Canadian Workers Co-op Federation and provincial unions in Ontario have long been leading the way. But business schools and the mainstream media also need to step up. How-to resources and conversion diagnostic tools need to be made readily available, and case studies of co-op models should be promoted.
Examples of Canadian businesses that have successfully converted to co-ops include Ontario’s Aaron Theater Co-Operative, Episerie Co-op Grocery, and Arize Architects; Battle River Railway in Alberta; and Glitter Bean Cafe in Halifax.
Most of them are in Quebec, however, due to favorable socioeconomic policies concerning cooperative development, the role of unions and labor funds in the conversion process, and the unique forms of cooperative businesses found there.
These include multi-stakeholder solidarity co-ops and worker-shareholder co-ops, where the worker co-op co-owns the firm with more traditional investors. Examples of conversions to co-ops in Quebec include dozens in the funeral area, the ambulance area, the recently formed newspaper Co-op CN2i, and even a co-op Saint-Hubert franchise in Laval. .
Canada’s Co-Ops stepped in to more quickly meet the needs of the community during the COVID-19 crisis and had more immediate local impact than government and corporate responses.
Read more: Cooperatives of Canada: helping communities during and after the coronavirus
The COVID-19 crisis has demonstrated that our communities need to be self-sustaining rather than relying on unstable global supply chains. Co-operatives bring resilience and self-determination to local economies.
The cooperative model should therefore be seriously considered and nurtured as a viable response to firms that have closed down and lost jobs as a result of the pandemic and the emerging business succession crisis.