What is a Worker Cooperative?
A worker cooperative applies the principle of democracy to the legal structure of the workplace. Simply put, it is a business where the people who work in the company own and control the business on a democratic basis of “one person, one vote”. In a worker cooperative, ownership and control of the business derive from working in the company, rather than from simply investing capital in it. A central element of this business structure is that labor uses (or employs) capital, rather than capital using (or employing) labor. Profits and losses from the business are allocated to the worker-owners according to either the hours worked or gross pay. (Download pdf)
Control in a conventional corporation is based upon the capital individuals invest in the company.
Control in a cooperative is based on working at the company. Traditionally everyone’s capital contribution is equal.
While each member has an equal vote in accordance with the democratic principle of one-person/one-vote, the extent of issues on which members vote varies from firm to firm. In practice, the board may decide many issues without voting by members, and managers make many day-to-day decisions without any voting at all.
What kind of business can be a worker co-op?
Any kind of business can be organized as a worker co-op. Today, more than 18 million workers in the US have some ownership stake in the place they work – with over 7,000 Employee Stock Ownership Plans (ESOPs) and 500 worker co-ops, researchers estimate that 18% of the workforce have some element of ownership at work. Time and again, studies have found that when ownership is paired with a meaningful degree of employee participation, that performance, productivity and firm longevity is enhanced. A democratic workplace is more than just a way to make jobs better, it’s a way to make companies better.
Employee ownership doesn’t necessarily change the impetus to maximize shareholder value, it just changes the calculus used to make that decision. When workers and owners are one and the same, the interests of the company and the community become aligned and investment decisions are made to ensure the ongoing viability of the company – including measures to preserve or increase jobs and support the long term health of the local economy.
For companies that want to avoid the ongoing costs associated with an ESOP, a worker co-op or similar hybrid presents a simple, viable ownership structure designed to capture and build on the entrepreneurial drive of your employees. Today there are hundreds of successful worker co-ops in operation in a diverse set of industries, some of the democratic firms ICA has worked with include:
|Chroma Technology Corp. is a leading manufacturer of optical filters and related products. Founded in Brattleboro, Vermont, in 1991, Chroma quickly established itself as a leader in filter designs. From its inception, Chroma has worked closely with the scinetific community worldwide to develop the best possible solutions to applications requiring fluorescence filters. Chroma, a 100% employee owned and democratically run firm, employs more than 100 employees with offices in Europe and Asia today. Chroma’s filters are distributed worldwide, though all manufacturing occurs in the United States.|
|Weaver Street Market is a natural foods retailer located in North Carolina. It is a multi-stakeholder cooperative with separate classes of stock for consumers and workers. Weaver Street operates three locations and a commissary that acts as a central kitchen for Weaver Street’s stores and other food co-ops in the region. The Board of Directors, which is made up of both consumers and workers recently laid out four strategic goals to achieve by 2020, including making healthy eating accessible, tasty, and fun; drive the growth of local and sustainable foods; invigorate downtowns; and use net zero energy, create zero waste, and promote responsible packaging. Weavers Street’s General Manager Ruffin Slater has been a driving force behind ICA’s Our Community Market initiative.|
|Big Timberworks is an 18 member sustainable build/design firm based out of Bozeman, Montana that focuses on home building, timber framing, furniture and design. Using seasoned techniques, the firm has a focus on reclaimed materials, with most of the wood and about half of the metal reclaimed. Using reclaimed materials in the designed projects “adds vitality to its new life because of its’ past life.” Big Timberworks, which converted to a worker co-op with the assistance of ICA was the first worker cooperative in Montana.|
|Cooperative Home Care Associates in the Bronx is the largest worker cooperative in the US with more than 2,000 employees. CHCA is a leading innovator in the home care field. Founded in 1985 with the assistance of ICA, it provides quality home care to clients through a system designed to improve job quality and care outcomes. In partnership with PHI, a nonprofit founded by CHCA in 1992, CHCA maintains an employer-based workforce development program that provides free training for 600 low-income and unemployed women annually and serves as a significant driver of employment in the Bronx.|
Business as a Democratic Community
The best way to think about a worker co-op is that it’s a business set up to mirror the structure of a democratic community. The citizens are the people who work in the company. The articles of incorporation serve as a charter or constitution, and the bylaws define rules, rights, and responsibilities. The board of directors, like a legislature, is elected by the people it represents — citizens in a political community, worker-members in a cooperative.
A town or city is a democratic community of people with the common purpose of living in a certain geographical area. People qualify to vote in the town or city elections by residing within that area. A worker cooperative is also a democratic community, but it is a community of work, not a residential community. It is a business, a place to make a living by producing and selling a meaningful and useful product or service. Membership rights in a worker cooperative are personal rights attached to the functional role of working in the firm, rather than property rights that can be bought and sold. In contrast, ownership rights in a conventional corporation — voting rights and the rights to capital dividends — are property rights which may be bought and sold as capital shares, subject to any transfer restrictions in the articles of incorporation.
Rights give rise to responsibilities. Voting rights in a town, city, state, or nation come together with responsibilities, such as paying taxes. A corresponding responsibility in a cooperative is to pay the membership fee. In corporate terms, a membership fee is a contribution to capital, representing a member’s initial portion of the net worth of the company and consideration for a share of common stock defined as a “membership share.” Legally, since the membership fee is an investment of equity capital, the member risks losing his or her investment if the corporation experiences an investment of losses.
Business Strategy: A Core Element of Success
It should never be forgotten that whatever its social goals, a worker cooperative must be first and foremost be a successful business. This means that the firms understands the fundamentals of how to succeed, including:
Market: Just like any other business, a democratic business must serve a viable market. It must address a real need or problem that a customer is facing, and it must be able to do so at a reasonable cost.
Management: The new company will need competent leadership or management to lead it and the workforce must possess the necessary skills to manufacture the products or deliver the service.
Money: The cooperative will need adequate financing (a mix of debt and equity) to cover the capital needs of the new business, the development costs and the losses that must be anticipated before the cooperative fully establishes its market.
For more business strategy resources click here.