Common questions about employee ownership
I just spent the last two years working in a worker-owned cooperative called Good Good Work. Because of that, and a blog post I wrote a while back, I get a lot of random emails or requests for a meeting from someone looking to start a co-op. And I always say yes. Though I get a lot out these conversations, I find myself answering a lot of the same questions and sharing the same thoughts and resources. I figured I should just write them down.
This post is for those folks out there who want to know more about co-ops and employee ownership, but are too shy or busy to reach out, or who are lost in the murky online world of cooperative documentation. It’s my personal perspective and it’s not perfect, nor does it qualify as professional legal or financial advice—which changes state to state and country to country anyway. For whatever it’s worth, I hope it helps you.
“The only co-ops I can think of are grocery stores. What other kinds of co-ops exist?”
Depending on where you are, there are a few different types of co-ops and they all operate a little differently. Though there are a lot of cooperatives in this country, most cooperatives are not worker cooperatives. They’re usually banks. In fact, as of 2015 only 394 out of 64,017 cooperatives are worker cooperatives (around 0.6%). Generally speaking, co-ops fall into one of the following categories:
- Producer co-op: usually agricultural producers like Organic Valley
- Worker co-op: where folks are selling services, like my former co-op
- Consumer co-op: like a local electric utility
- Credit unions: they’re banks, go open an account!
- Buyer co-op: think REI or grocery co-ops
- Housing co-op: folks collectively owning a place to live
This is, of course, a non-exhaustive list. There are even hybrid models that exist for mutual benefit to members. You can read more about the different kinds of co-ops on the cultivate.coop website.
“How do I start a co-op in my state?”
As with all things related to co-ops (and employee ownership), the answer is: well…it depends. I think this is why it’s so hard to talk about and understand. But it’s true! Each co-op is unique because it’s a greater-than-the-sum-of-parts situation based on the members within it.
Basically you have two options: you can form a new company as a co-op or you can transition an existing business into a co-op by selling the company to the employees. Either way, you’ll want to
- Get your group educated and in agreement to move towards employee ownership.
- Start talking through the co-op you’ll be building, focusing on why you want to be a co-op and how you want governance to work.
- Do the legal and financial paperwork required.
My suggestion is that you reach out to a consultant or co-op developer before bringing in a lawyer. They’ll be able to help answer questions for you and guide your group conversations. The more you can get done with a consultant, the more money you’ll save when you’re ready to work with your lawyer. Consultants usually charge a lot less than lawyers and have additional skills to help you navigate challenging conversations.
“I have a team and want to become a co-op, but my team doesn’t get it or want to. How do I convince them?”
People may have alternative answers to this one (feel free to leave a comment if that’s you), but the short answer I give folks is: you can’t. Sure, you can hire a professional co-op developer to educate you, lay out all the data on why they’re more sustainable, why they produce better products and services, how they can benefit local communities, and more…but at the end of the day, if people don’t want to take ownership of the company they’re part of, they won’t. With that said, you have a few options.
With patience
You can introduce the idea slowly, holding open and honest and ongoing dialogue between all the people involved. Again, you’ll probably want a skilled facilitator for this. Over time, as people start to understand what’s involved and begin to co-create a picture of what the group may look like as a co-op, you may be able to get folks on board. In my experience, it takes an actual spiritual change within each person before they come around to the idea. That just takes time. If you’re lucky, folks will have already done that before they come to the table. But probably not. It’s a big shift for most people. So be compassionate, listen deeply, and work slowly, keeping all questions and concerns open for conversation.
By force
The other option is to force the idea. Unless your team is absolutely ready or drop-dead loyal to you, you’ll lose a few along the way. It’s not ideal, but if you have the power you can do it. I just wouldn’t ever recommend it. It’ll likely come back around to bite you in the ass.
“How do you make money in a co-op?”
You make money with a good business plan and lots of hard work. At the end of the day, a co-op is a for-profit business just like any other. So if you want to be a good co-op, you have to be a good business first.
“Does everyone have to make every decision together?”
God, I hope not. Organizing based on 100% consensus can disempower people and force hidden hierarchy into the closet where it goes unchecked. No, you don’t make every decision together. When you form your co-op, you get to choose what decisions are made at what levels, just like any other organization. Some things need to be decided by everyone (like appointing a board, updating/amending bylaws, and so on), but most things — or as many as possible — should be decided at the lowest level possible. Meaning: let the people doing the job make the decisions they need to make about their job. They’re the experts.
The more important question is: where does collective decision-making end and individual autonomy begin? The answer here is again: well…it depends. Answering this question inside your team is probably going to take the greatest proportion of your time when forming. Like: Who sets the salaries? How do you decide to bring in new member-owners? Tricky, right?
And, of course, these decisions can be changed later if needed. You get to decide how that’s done, too. You can work with a consultant, co-op developer or co-op lawyer to help you figure out which decisions should be made at which level. I always tell folks to start with the minimum structure they need to get started, only adding complexity when it proves necessary, and forming healthy habits of revisiting old decisions on a regular basis.
“How is a co-op different than an ESOP or a B Corp or a Public Benefit Corporation?”
Cooperatives
Roughly speaking, a cooperative is a structure where all member-owners are equal owners. Check out Wikipedia’s article to get a thorough definition.
Pros
- the most democratic ownership structure available in the US
- statistically proven benefits to productivity, profitability, employee satisfaction and retention, and sustainability/longevity
Cons
- challenging to raise investment capital, potentially expensive for employees to buy-in
- inflexible ownership structure
- not a legal entity in every state
ESOPs
An employee stock ownership plan (ESOP) allows businesses to be partly owned by the workers and/or give workers different percentages of ownership. More on ESOPs on Wikipedia.
Pros
- can be easier to transition an existing business to ESOP than co-op
- flexible ownership structure
- some tax incentives
Cons
- doesn’t inherently promote the benefits you get with a co-op, you have to work the cooperative ownership culture into your business intentionally
- still allows for outside influence
B Corp
B Corp is a status, not a structure. Any kind of company can get certified with B Corp status, including a co-op. It’s a rigorous certification process and usually means that a company with B Corp status is doing their best to be good stewards, but it’s entirely separate from employee ownership.
Public Benefit Corporation
PBC does not equal employee owned. A public benefit corporation, or PBC, is a special legal entity that’s kind of like a hybrid between a non-profit (serves a social good without care for profitability) and a for-profit (serves profitability without care for a social good). It grants a company the ability to serve both their shareholders and a charter that aims to create some sort of public benefit. They can try to maximize profits, but only up to the point where it interferes with their charter. Check out the Benefit Corporation website FAQ for more info.
“Can co-ops take investment money?”
Technically, there’s no reason why they can’t. The problem is that investors usually want a share of ownership in a company in return for their investment. Technically that isn’t allowed unless the investor is a worker, and even then they can’t own a greater share of the company than any other worker. So it’s not that co-ops can’t take money, it’s just that the conditions don’t exist for it to be appealing to the vast majority of investors.
Most often, co-ops receive low-interest loans when they need money. These can come from banks, individuals, or investment clubs like the Colorado Solidarity Fund. All that said, the tide may turn as savvy investors begin to focus more on long-term benefits. We’ll see as time goes on.
Good online resources
- Sustainable Economies Law Center: A legal resource for sustainable, alternative economic models.
- US Federation of Worker Cooperatives: The official membership organization for worker cooperatives in the US.
- Democracy at Work Institute: An offshoot of the Federation of Worker Cooperatives focused on education, research and relationship-building.
- Co-op Power Hour podcast: A radio show all about co-ops! Each episode focuses on a different aspect of cooperatives.
- NCBA CLUSA: (National Cooperative Business Association Cooperative League of the USA) Works internationally to economically empower communities by strengthening cooperatives.
- International Cooperative Alliance: Like the US Federation of Worker Cooperatives, but international. They host a big global conference for cooperatives each year.
- Project Equity: A group that helps existing companies transition to employee ownership.
- The Industrial Commons: Another group that helps existing companies transition to employee ownership, but focused more on North Carolina.
Good people resources in Colorado
These Colorado-based folks are doing amazing work in the cooperative space.
- Jason Wiener|p.c.: A Boulder-based law firm specializing in cooperative law. Disclosure: I designed Jason’s website when he was our co-op’s lawyer.
- Rocky Mountain Employee Ownership Center (RMEOC): Offering education and cooperative development.
- Colorado Co-op Study Circle: A Meetup for folks interested in co-ops.
- Nathan Schneider: Author, educator and cooperative guru here in Colorado. He recently published Everything for Everyone: The Radical Tradition that Is Shaping the Next Economy, a book all about co-ops that everyone should pick up.
- Caroline Savery: A co-op culture developer. She hosts educational workshops and works directly with groups as a consultant.
Anything missing here? Let me know in the comments and I’ll update this post whenever possible.
