It's a bad day at the office when a company's founders realize they hate the firm they started and want to quit. It's even worse when their middle managers not only agree but openly question their bosses' vision and goals.

This was the grim situation at Nurse Next Door Home Healthcare Services Inc. that convinced John DeHart and Ken Sim that they had two choices: to sell the firm they had worked so hard to build or to transform it completely. The Vancouver-based franchisor of home health-care services for seniors had grown to 1,000 employees and $20 million in revenue in the four years since its launch in 2002. The two were winning awards for their business acumen, writing what looked to be an entrepreneurial success story. But a starkly different reality was playing out behind closed doors.

The reason: the co-CEOs were so busy managing hypergrowth that they'd failed to define a vision for their firm and hire accordingly. This oversight saddled Nurse Next Door with a group of middle managers who, although hard-working, were highly cynical and anything but engaged. "We didn't like them and they didn't like us," says DeHart flatly.

He and Sim decided to start over almost from scratch. They divested the staffing division that had brought in 85% of total revenue, leaving a home-care services division with sales of $3 million. They then set out to rebuild the firm as a home-care specialist whose core values would fire up employees and drive every aspect of operations. Since then, Nurse Next Door has grown to $25 million in sales, and it placed No. 9 on the 2012 Best Small and Medium Employers (BSME) ranking on page 35. One of the keys to this success was DeHart's and Sim's grasp of the essential role that middle managers play in building a highly engaged workforce.

BSME organizers' study of companies in the ranking shows that overall employee engagement is closely tied to engagement among middle managers. Why? People in the vital middle not only carry out a lot of the work but are responsible for directing, motivating and assessing their direct reports. Because front-line workers have far more contact with their supervisors than their top executives, the strength of these relationships is vital to a firm's success. Put simply, disgruntled, unfocused and overwhelmed managers tend to produce unproductive and disillusioned employees.

"The engagement level of middle managers tends to be the ceiling on what you can expect to achieve with the staff below them," says Einar Westerlund, director of project development at Queen's Centre for Business Venturing, which conducts the BSME ranking with global HR consultancy Aon Hewitt. Westerlund says this is because disengaged managers tend to view themselves as staffers rather than leaders. This is a critical distinction that-if entrenched-can destroy trust, guidance and mentorship between middle managers and employees.

Aon Hewitt data show that firms that foster employee engagement reap impressive rewards. The 50 companies in the ranking (83% of whose staff are, on average, highly engaged) far outpace firms that entered the ranking but didn't make the list (and average a middling 61%). The top 50 boast revenue growth rates 1.6 times those of their less-engaged competitors, receive twice as many unsolicited job applications (reducing recruitment costs), achieve up to 30% higher customer satisfaction and have 40% less voluntary staff turnover.

So, how can you produce highly engaged middle managers? Westerlund says top employers treat middle managers as leaders, include them in strategic planning, cultivate their skills with effective training and support them in challenging times such as recessions, periods of rapid revenue growth and major shakeups in the company or industry.

Yet, too often, businesses leave middle managers to fend for themselves. If sales slump, they're often the first to be let go, worsening the burden on those who remain and further hammering company-wide engagement. And many CEOs are loath to delegate. They cling to producing the ideas and innovation that drive growth-leaving middle managers with the drudge work.

Still, many BSME honourees have shown that it is possible to do right by middle management-and enjoy a substantial  return. This takes a serious commitment to strategic planning at the executive level, and dedicating time and effort to engage and support middle managers.

It also may take more drastic measures. DeHart and Sim began by firing 10 of Nurse Next Door's 25 middle managers in a single day. Next, they revealed their plan to establish some core values and infuse them throughout the business by empowering middle management.

Nurse Next Door switched from top-down strategic planning to a new process that solicits input from middle managers, as well as other employees, through a regular survey. Managers share their ideas at daily huddles, monthly management meetings and annual off-site retreats.

The company also trains middle managers in how to come up with better ideas, such as coaching them on how to set strategic goals and interpret financial statements. Another key change was to budget 4% to 6% of managers' salaries for learning-up from zero in 2006-and to invite them to seminars and conferences once limited to senior management.

As well, DeHart and Sim have reinvented the hiring system, instituting four rounds of interviews focusing on culture fit and talent, rather that skills. As part of this, a manager from another team does a "culture check" to gauge a candidate's fit for Nurse Next Door. Involving middle managers in each other's hiring decisions helps to diminish managers' natural tendency to focus so much on their own department they disengage from the wider business. And making far fewer bad hires has sharply reduced staff turnover, relieving managers from the disheartening feeling of always scrambling for replacements.

Since the changes, Nurse Next Door's rate of voluntary turnover among middle managers has dropped below 1%, from 50%. DeHart says this success in engaging middle managers has been fundamental to the firm's post-2006 growth. "If we had taken this approach from Day 1, we would be at least double the size now," he says. "I have no doubt about that."

While companies such as Nurse Next Door have figured out how middle managers are the linchpin of winning cultures, other firms realize their value in times of major change. Such is the case at Northern Lights Canada (No. 14), an Oshawa, Ont.-based employment services and corporate training provider. Its internal surveys show engagement levels have long hovered around 90% among its middle managers, a.k.a. "team leaders."

That stellar record came under threat after the government agencies that hire Northern Lights to place tough-to-employ job candidates modified their funding model 18 months ago. The company changed its business model in response, with the unfortunate effects of higher costs and longer receivables. In order to remain profitable, Northern Lights had to lay off 60 of its 230 employees. It also had to shift its focus from customer-service metrics to performance metrics demanded by its clients.

Wendy Legere, Northern Lights' CEO, says her company took steps to avoid the crash in engagement that such wrenching upheaval can start. It stepped up its support for middle managers by, for example, giving them training every six weeks on how to manage staff while the company transformed its operations. And Northern Lights, which prides itself on a free flow of information, strengthened this by pairing team leaders to share ideas and trade information about staff issues and industry developments. The pairs share their insights at regular team meetings, which the firm then uses to shape corporate strategy and training-session topics.

As Northern Lights revamped its business practices, it saw information-sharing among team leaders at its 19 locations across Ontario as essential to maintaining high engagement levels. Legere says the firm invested "tens of thousands of dollars" to facilitate this, combining Internet-connected whiteboards, webinar systems and conference calling to conduct virtual meetings and training.

The company also emphasized one of its core values: it's acceptable to admit to making a mistake. In fact, Northern Lights encourages its people to share their errors so colleagues can learn how not to repeat them. Legere says this engenders a sense of trust that leads middle managers to highlight areas for improvement rather than stay mum for fear of retribution.

Despite the upheaval over the past 18 months, she says, team-leader engagement levels have dipped only slightly and voluntary employee turnover remains at a miniscule 1%. Legere credits her firm's focus on engaging middle management, as well as the rank and file, with helping to keep the company afloat at a time when "we have seen other agencies close their doors because they can't do the work under the new funding model."

Unlike Northern Lights, Solvera Solutions (No. 5) didn't face a threat to its survival. Instead, it saw developing highly engaged middle managers as a way to grow revenue at a sustained rapid clip-and to build a deep bench of management talent able to take over once the founders leave the business.

The Regina-based IT and business consulting firm boasted a highly experienced leadership team, a solid set of business processes and $6 million in sales from the two firms that merged to create Solvera in 2005. To meet a 20% annual growth target and prepare Solvera for a smooth succession, the four principals made a series of moves designed to develop an enviable pool of middle-management talent.

First, they opened the middle-management tier to more of Solvera's top-performing employees. Managing principal Reg Robinson says Solvera's 20-person middle-management team (its workforce totals 180) is about 20% larger than it needs to be. This gives more staff members an avenue for career advancement-in contrast to the many entrepreneurial companies that have only a thin middle layer.

"We have grown the leadership team with the business because the founding principals will, one day, leave," says Robinson. "This is about developing the leaders of the future."

Having more middle managers permits Solvera to promote junior leaders faster, giving them the chance to take on more responsibility gradually while receiving consistent mentoring from higher-ups. Robinson estimates that the extra overhead costs the equivalent of 2% of revenue, which reached $23 million in 2011.

Solvera also has encouraged middle managers to buy into the business, even though this dilutes the principals' share of total equity. "That's the downside," says Robinson. "But we're inviting new partners in to help us build a larger organization. We're not giving something up, but facilitating that growth to happen." Robinson says inviting middle managers to become partners makes them feel more fully engaged and keen to develop a better understanding of the entire business.

The firm also has driven engagement with a company culture that is both flexible and challenging for middle managers. This includes ensuring that managers have enough time to lead. For instance, the firm spent $200,000 over several years on software that minimizes the hours needed for time tracking and invoicing-a tedious task for any manager at a consultancy. And Solvera shifts managers to different accounts each year so they're able to do each other's jobs, allowing the firm to balance workloads in peak times. Robinson says this practice also boosts engagement by constantly challenging managers to develop their skills and learn the nuances of a wider variety of the company's accounts.

Robinson says these various initiatives have pushed the turnover rate among middle managers below 5% and client-satisfaction above 90%. Sales have grown at a 25% average annual compound rate-surpassing the 20% target. And, says Robinson, Solvera has achieved its goal of readying a new generation to take over the company sometime this decade.

Robinson's advice to CEOs who question the value of pumping time and money into improving middle managers' passion for the business is simple: it's worth every hour and every penny. "Our growth has been built around creating a positive relationship with clients and having an engaged workforce, so we can build the business organically," he says. "That depends entirely on the engagement of the leadership team and the quality of their skills. Any time or investment spent helping them to learn the business will pay off in the future."

Related stories