“The idea of being responsible for making sure the store continues and thrives is a real honour for us, and we take it seriously. It’s something daunting but exciting at the same time.”
This quote from then-employee of Munro’s Books, Jessica Walker, appeared in a 2014 Times Colonist article announcing that founder Jim Munro was planning to retire. But instead of selling or closing the business, Jim planned to transfer it to four of its long-standing employees, including Walker.
This wasn’t the first time an owner has passed ownership of a business to its employees to ensure its continuity. Still, it’s an endearing story for locals given the nostalgic value of not just the store itself (they’ve been in their current location since 1984, a beautiful 1909 heritage building on Government Street). Munro’s is also an important cultural landmark given that the bookstore’s other co-founder was world-renowned author Alice Munro, who in 2013 became just the second Canadian and the only Canadian woman to receive the Nobel Prize in Literature.
Ownership and succession will be a major issue in the coming years as Canada’s largest demographic continues to retire. According to a 2023 report, two-thirds (76%) of business owners in Canada plan to leave their business in the next decade. That represents $2 trillion in assets that will change hands.
But succession isn’t the only pressing issue here — the concept of ownership and equity itself is fundamental to a healthy and vibrant local economy. And $2 trillion represents a lot of ownership and equity!
Why care about ownership and equity?
If you live paycheque to paycheque, there’s a slim chance you’ve been able to acquire ownership of meaningful assets. I don’t mean material assets (a car, kayak or a vintage Fender guitar). I’m referring to assets that present positive appreciation and cash-flow opportunities over time. These include dividend stocks, bonds and GICs, businesses, rental property (or even a home with a secondary suite) and the like.
There are several reasons why ownership and equity are fundamental to communities and their economies. Let’s examine two of them:
- Wealth inequality is harmful — equity can help address it.
Wealth accumulation by a select few — especially in the context of rising costs — prevents those without a means of acquiring these assets from getting ahead. This impacts their quality of life and personal freedoms (like when to retire) and their children’s lives (e.g., restricting access to extracurricular activities or what school they can attend). As researchers at Duke University discovered, there are many misunderstood implications for children who grow up in poor versus wealthy households.
Still, the wealth gap keeps widening. According to Oxfam, in the first two years of the COVID-19 pandemic, the world’s 10 richest men more than doubled their fortunes from $700 billion to $1.5 trillion — at a rate of $15,000 per second or $1.3 billion a day. This occurred during a period that has seen the incomes of 99 percent of humanity fall and over 160 million more people forced into poverty. Women collectively lost $800 billion in earnings in 2020, with 13 million fewer women in the workforce now than in 2019. This extreme inequality contributes to up to 21,000 preventable deaths each day.
The fact that these billionaires doubled their net worth through a period of unprecedented global uncertainty also hammers home the significant role that equity plays: assets make their owners more resilient.
- Local control over our destiny. Communities are stronger when they own their assets.
As cited in a just-released report, “Ownership Matters: Building Community Wealth in Canada” from Royal Roads University and Scale Collaborative, community wealth-building is “an economic development strategy that enables citizens and community organizations to collectively own, manage, and benefit from local wealth-generating assets such as businesses, real estate and infrastructure.”
In an era that demands that we collectively respond to big issues such as climate change, poverty and homelessness, isn’t it in our best interest to have more control over the future of our communities?
The benefits of locally owned main-street economies include:
- More control over the fate of the community. Non-local investors have less stake in the vibrancy of local economies and are more likely to make short-sighted decisions based purely on profit. A 2019 study of the U.S. retail industry found companies taken over by private equity lost 521,175 direct jobs over a 10-year period. Then there are the 700,000 indirect jobs lost through supplier and other relationships. For context, the retail sector in general added over a million jobs over that same period.
- Resilience through recessions: A 2017 study found employee-owned enterprises fared better through downturns, had stronger employment numbers and a lower risk of bankruptcies through the last two recessions.
- Equity is key to multigenerational wealth. According to this US study, those within employee-owned companies had a median household wealth 92% higher than their non-owner peers. Unlike income, equity can travel through generations via inheritance. It can end the multigenerational poverty cycle.
- Stronger support for local charitable causes. Some research suggests small businesses donate up to 250% more to local charities and causes than larger businesses. This helps the community.
- More money circulating locally. Locally-owned businesses don’t just care more about local issues; they also help keep more money in circulation locally. A B.C.-focused study found that for every $1M in sales, independent retail stores generate $450,000 in local economic activity compared to just $170,000 for chain stores. Among restaurants, the differential was even greater: $650,000 in local retailers compared to $300,000 for chains. This translates to about 2.6 times as many local jobs supported.
- Small, independent businesses pay more taxes. Dense, walkable commercial areas — where local businesses are more likely to be located — generate more tax revenues per square metre than low-density, car-centric commercial areas (e.g., Big Box retail) even when accounting for the sales taxes generated!
- Buying local reduces carbon pollution. A 2021 study of several products by LOCO BC and Vancity found that sourcing from local suppliers can realize GHG reductions in the range of 5% to 66%.
It’s difficult to know how many of our local businesses are at risk of closing due to retirements or whether or not they’ll be sold off to competitors or outside parties. But we know there are 519,300 businesses in B.C., including over 85,000 on Vancouver Island (2021 data). Of these, 98% are small businesses with fewer than 50 employees. If we apply the national statistic of 76% mentioned above, it could mean over 60,000 Island-based employers are facing some sort of succession uncertainty.
What can we do?
“You cannot have local ownership without local finance and local investment — and very few of us have money in the local economy,” wrote Michael H. Schuman, author of the 2020 book Put Your Money Where Your Life Is. “Creating instruments that allow people to invest in co-ops or community enterprise is essential.”
Let’s explore some of the solutions to bringing back local control:
Employee ownership trusts & transactions
Unlike Munro’s Books, most businesses aren’t going to simply be transferred to their employees without some sort of intermediary. A famous example is Taylor Guitars, an internationally renowned acoustic guitar brand based in California. The founders, who are still working in the business, wanted to start the transition to retirement. Who better to take over a quality brand than employees passionate about the product rather than a private equity firm buying the business as yet another asset within a portfolio?
The Taylor Guitars transaction took place in 2021, and the company is now 100% employee-owned, thanks in part to a third-party intermediary who financed the deal.
So, who was the intermediary?
You win a prize if you guessed the Healthcare of Ontario Pension Plan. Read the full story about the financial transaction here.
Phillips Brewing & Malting Co., another local institution and the largest brewery on Vancouver Island, took a similar approach to Taylor Guitars.
Through an investment from B.C.-based Yellow Point Equity Partners, Phillips’ employees who have been with the company for at least three years are being given the chance to be owners. Founder Matt Phillips will still be active in the brewery with a goal that “employees will own a substantial and growing stake in the brewery over the next few years.”
Matt could have decided to take a cash payday by selling the company entirely into the private equity market (a major trend in the brewing and distilling industries) or to a multinational like Molson Coors, just as Vancouver’s Granville Island Brewing did over 13 years ago. But lucky for us Islanders, Phillips says, “As always, we will remain dependably independent.”
The Canadian government also introduced new legislation around Employee Ownership Trusts (EOT) to help make these tools more readily adoptable. Learn more here.
Local investment networks
The community of Port Townsend in Washington State has invested nearly $10M into its local businesses since 2006. This might not seem like a lot, but for a town of 10,000 people, it’s money helping the local economy rather than just sitting in a stock portfolio.
A Local Investment Network is neither a bank nor a local investment club. Rather, it’s a way for community residents to come together around a common goal: to direct their pooled capital at local gaps and opportunities in their neighbourhoods and keep more capital in the local economy — all while building wealth together. Learn more in this field guide from Washington State University.
Another form of ownership is community and/or user ownership. It means less on the equity side (since co-ops only share dividends and the share value itself tends not to change). However, co-ops are a great way to address gaps in the local economy, especially in smaller or remote communities where a business might be too risky for a sole proprietor to take on or where a business owner has difficulty finding an adequate buyer.
The story of Stick in the Mud coffee shop in Sooke has received media coverage for this reason. As Mary Griffin at CHEK News (another amazing employee ownership example!) explored in this July 2023 story, owner Dave Evans wanted to transition out of the business. Because Dave couldn’t find a buyer, he was planning to close down the cafe and bakery side of the business. But then the community stepped up to help by creating a co-operative to buy the business. (You can become a member of their co-operative here.) This keeps the business and the money in the local economy.
Social enterprises as succession tools
Yet another option to keep small businesses local is the power of being acquired by local non-profit organizations.
This is exactly what B.C.-based Scale Collaborative has been promoting through its Business Legacies Initiative. On Scale’s website, you can find stories of how some of these ownership transitions worked. Good examples include Fernwood NRG, a neighbourhood-focused non-profit organization in Victoria which bought a hair salon from an owner who wanted to retire. The non-profit gets an opportunity for revenues to support its broader mandate, the neighbourhood retains a valued local service, and the owner gets a viable path to retirement that allows her legacy to live on. A true win/win/win scenario!
More pathways to asset ownership
Ownership and equity can come in other forms for those not interested in operating or investing in local businesses. Homeownership is a major asset that has historically been hard to obtain in our region. According to Habitat for Humanity, homeownership is a major catalyst that can lead to multigenerational wealth building. But because reaching even the bottom rung of this ladder is so hard, we should explore creative options, such as “Collaborative Homebuying.” (Read the B.C. reference guide). These approaches give more people pathways to ownership when combined with creative ways of getting over the downpayment barrier.
Lastly, we can shift our entire perspective by redefining what “wealth” means. In this 2023 TED talk, Aisha Nyandoro, creator of America’s longest-running guaranteed income program, explains how her perspective shifted while working with her clients: Black women living in low-income housing in Mississippi. These women defined wealth not by accumulated assets but by spending quality time with their families, having some savings set aside for emergencies, the flexibility to stay home with a sick child or the ability to care for aging parents.
Aisha found that by making dependable, low-barrier investments available to these impoverished households, her clients gained space to dream bigger and become more empowered about their financial futures rather than just living paycheque to paycheque and feeling stuck.
Bringing it Home
Nearly 10 years have passed since Munro’s Books changed hands. And the bookstore is still going strong in the heart of downtown Victoria. I asked Jessica what ownership has meant to them over this time.
“I had worked for Munro’s since 2000, and I feel a great sense of responsibility to be mindful of the legacy Jim Munro created. The store continues to evolve and grow, but people who have been coming here for decades also say it feels the same — that’s exactly what we are hoping for!”
Asked what advice she would give to other business owners considering retirement or transitioning out of their business in the coming years, Jessica says that while owners should consider various options, an important consideration is how the long-term vision and legacy of the business can live on.
Local ownership, in whatever form, helps that vision continue in a way that some other succession options do not.
Dallas Gislason is the Executive Director of Community Economies at South Island Prosperity Partnership (SIPP), the economic development alliance for Greater Victoria he helped found in 2016. Dallas has applied his passion for building resilient and inclusive economies through projects and boards in various parts of Canada, the U.S. and abroad. He’s lived on Vancouver Island since 2010.