How Worker-Owned Companies Work

  • submit to reddit

Economist Richard Wolff is a proponent of democracy at work: an alternative capitalism that thrives on workers directing their own workplaces. In the documentary film Shift Change, producers Mark Dworkin and Melissa Young tell the stories of successful cooperative businesses from Spain to San Francisco. We caught up with Dworkin and Young to find out what makes cooperative businesses work.

Theresa Riley: What drew you to this topic as filmmakers? Why did you want to make this film?

Mark Dworkin and Melissa Young

Mark Dworkin and Melissa Young

Mark Dworkin and Melissa Young: As filmmakers we don’t just expose problems. We want to help people find solutions. In 2002 we were in Argentina at the height of their economic crisis, and in hundreds of workplaces which had closed, workers took over the company, went back to work, and made a go of it. These examples made quite an impression on us, and we featured their stories in two films: Argentina — Hope in Hard Times and Argentina Turning Around. A friend who saw the Argentina documentaries suggested that we learn more about the Mondragon cooperatives in the Basque Country of Spain. When we did, we were moved and inspired by this successful model of worker ownership and its potential to change the culture of work — not just in Spain but around the world. Our investigations revealed that there are hundreds of thriving worker cooperatives that promote economic democracy right here in North America, but they are little known.

Riley: How many businesses in America are worker-owned?

Dworkin and Young: Employee ownership in the U.S. is much more widespread than usually understood, with at least 11,000 such businesses in operation. Many are Employee Stock Ownership Plans or ESOPs, where employees own part or all of the company. Introduced under President Nixon, this is one way for private companies to transition to employee ownership. ESOPs may or may not be democratic and participatory places to work. Worker cooperatives are both owned and managed by their workers — one worker, one vote. According to the U.S. Federation of Worker Cooperatives, currently there are about 400 worker cooperatives in the U.S. They operate many types of businesses, mainly services, and are growing especially among Latino immigrants and in working class communities.

Riley: Most of the businesses you visited in the film seemed to have weathered the economic downturn of recent years. But have some co-ops failed? How do privately-owned small businesses and worker-owned businesses compare? Do they fail less often?

Dworkin and Young: One of the challenges faced by cooperative businesses is that they have to survive in the larger economic system, over which they have little control. Worker co-ops in Mondragon and in the U.S. have done better than other similar sized businesses in the current economic crisis. When sales and profits are down, worker owners don’t just close the doors. People take a hard look and try to figure out what they can do to make things better – such as adding new products or finding ways to improve efficiency and productivity. At any given time some co-ops are doing better than others, depending on the industry in which they operate. So in Mondragon each year co-ops that are profitable pay into a “rainy day fund,” and co-ops that are going through hard times are able to withdraw funds to help them out. In co-ops where business is slow, members can often find temporary work in co-ops that are doing better. And since workers own and manage the company, they may agree to reduce their pay on a temporary basis until business picks up again. That way nobody has to lose their job. Cooperative networks that function in a similar way are just beginning in the U.S.

Watch the Shift Change trailer.

Riley: The film makes it look like co-ops are pretty smooth operationally.

In the U.S. we learn from an early age to navigate hierarchical social structures, and we have lots of practice competing but little practice cooperating. So we have a lot to learn in order to make cooperatives a success.
Dworkin and Young: Most of the co-ops we chose have proven themselves. They’ve had decades to learn how to operate smoothly. New employees go through a probationary period, from as little as six months to a couple of years, during which they discover if they like working in a cooperative environment, and current co-op members can decide if they think the new employee would work out. After this trial period the person generally has to apply for membership and be voted in by existing members. At that point the new member needs to make an investment in the company, usually ranging from $500 to $20,000, with about 10 percent paid in cash and the rest from payroll deductions. People who would not feel comfortable in this environment weed themselves out. People who have shown they don’t work well cooperatively are not asked to join. New members then get training in co-op management. So there are various stages of selection and development to make sure that co-op members have the temperament and the skill to work together smoothly.

In the U.S. we learn from an early age to navigate hierarchical social structures, and we have lots of practice competing but little practice cooperating. So we have a lot to learn in order to make cooperatives a success. But many people are willing to make the effort. We have participatory instincts that are stifled in the dominant economy. One friend lit up when I told him that in worker cooperatives, people are encouraged to put forward their ideas about how to make the company better. That’s sure different, he said; everywhere I have ever worked you’re best off if you keep your head down and your mouth shut. So I wouldn’t say that workers are resistant to cooperation, but rather our cooperative instincts are suppressed and trained out of us. To help overcome this, all of the co-ops we visited place a high priority on initial training and ongoing leadership development of their members. And it works.

Riley: What happens when agreement can’t be reached? Or when consensus leads to failed strategy?

Dworkin and Young: Worker co-ops are organized and run by their members and they have very different management structures. Those that manage by consensus, such as the Arizmendi Bakeries profiled in our film, tend to be small. Members can meet with one another face to face and on short notice to deal with problems and correct them. Most co-ops around Mondragon and the larger ones in the U.S. tend to have professional management that operates much the same as management in a conventional enterprise. The key difference is that the co-op board of directors is elected by the employees. Nobody who does not work in the co-op has a say in how the business is run, so the co-op tends to serve the needs and wishes of its members as opposed to absentee owners. Everyone has an incentive to work constructively together and help the business succeed.

But as Fred Freundlich, a professor we interviewed at Mondragon University offered, “Broad democratic management doesn’t solve all human problems.” When major disagreements do arise, “The ownership and governance structures in those enterprises, that they’re democratic, that they’re more participatory, helps ameliorate these problems, even if it doesn’t make them go away.”

Riley: What can we learn from places where it has not worked?

Dworkin and Young: The history of worker co-ops in this country is mixed. Many got started in the late 19th and early 20th century with the arrival of immigrant groups. In our region of the Pacific Northwest, there were a lot of cooperative plywood mills. Many of these failed because they had not made provisions for the business to survive as a cooperative long term, after the original members retired.

We’ve heard of companies begun in a wave of optimism in the 1970s that failed for either of two basic reasons. Some were not businesslike enough (there was not a good market for their product, their product or service was not of sufficient quality, or they didn’t manage finances, time, and materials well). Others were not cooperative enough (they were such successful businesses that they were bought up by a large corporation and ceased to be a part of the cooperative economy). Newer co-ops have learned from past co-op failures and designed programs to overcome them. They have become sophisticated businesses that are more agile and nimble than conventional firms while retaining their co-op purpose. Technical assistance is available from experienced experts in terms of how to convert a regular business to one that is employee owned and even more successful in the future. And to discourage co-ops from selling out to corporations for a big profit, in many cases, if the co-op should be sold, members can only recover the funds they have invested with a modest return, but any profits above that have to be given to other co-ops or public interest organizations.

Riley: What aspects of co-op workplaces can non-co-ops adopt? How would we get started here at Moyers & Company, for instance? Any tools we can share with our audience?

Dworkin and Young: Nearly all workplaces, even those which are not owned by their employees, can still be more democratic. They can invite ideas and criticisms from staff without penalizing someone who challenges (constructively) how things are currently done in an effort to do things better. Decision making and finances can be more transparent, so every employee has an idea of the risks and limitations that the enterprise faces and their own contribution to that. Performance evaluations which are traditionally between an employee and a supervisor can also include peers, “customers,” etc. And even a non-cooperative institution can be devoted to the common good above and beyond the short term gain for that enterprise. We now have B corporations in various states where a commitment to solving environmental and social problems is enshrined in the corporate legal structure alongside financial profit. Many employee-owned businesses allow workers to spend a given percentage of their paid work time either improving their own skills or examining ways to improve the business. That is also something conventional businesses and non-profits could do.

Watch a segment from Shift Change on the Arizmendi Bakery chain in the Bay Area.

For more information, visit www.shiftchange.org.

  • submit to reddit
  • http://www.facebook.com/people/Corey-Rosen/1436845377 Corey Rosen

    The data strongly show that employee wonership works. ESOP companies, for instance, grow about 2-3% per year faster than they would have without an ESOP, their employees have 2.5 times the retirement assets as employees not in ESOPs (and as much in diversified assets), and are one-third as likely to be laid off. Details are at the Web site of the National Center for Employee Ownership, http://www.nceo.org/articles/research-employee-ownership-corporate-performance.

    There are over 11 million employees in ESOPs alone. It is a major part of the economy but one, peculiarly, that gets almost no attention from opinion leaders. It is also supported equally in Congress by both parties — who else can say that?

    Corey Rosen
    Founder
    National Center for Employee Ownership

  • John Restakis

    Studies show that co-ops have higher survival rates than conventional firms. In Canada, the survival rate of co-ops is 50% higher than capitalist firms. In addition, co-ops & credit unions perform better in tough economic times than do private firms.

  • David Woo

    The thing that “capitalists” haven’t gotten with this model, is that each worker has to buy their share with usually a cash downpayment. Workers are not given a share of the company for free, they have invested and bought their piece of it.

  • http://www.facebook.com/linda.findley.146 Linda Findley

    Thanks for continuing to bring up this option. Truely it is the best plan for carving out your own future!

  • Cass DeFiore

    Cooperative enterprise has many good characteristics but it also has a down side. There are no “managers’, everyone is a manager. This means decisions take longer, there wili be contention and there will rarely be total agrement So the enterprise can easily morph into a number of factions that result in chaos. In addition a real smart person with controversial innovative ideas (a Steve Jobs) would not be able to get his ideas and methods implemented. Think of Edison or Henry Ford. However, once the firm is well established, up and running then cooperative enterprise would have a great deal of merit. But innovation never comes from committee rather it comes from a single or a few individuals. Therein lies the problem of this approach. So the quintessential issue remains: How can we achieve innovation when all decisions are performed by committee. You have heard the saying: A giraffe is a horse designed by a committee. So would you address these issues.

    Cass DeFiore

  • hmr

    Taking into consideration that one has a service or product how do you start a Worker-Owned Company and are there any institutions or organizations that provide start up funding?

  • Anonymous

    Harper. if you think Betty`s st0ry is great, on friday I bought a gorgeous Acura since getting a cheque for $9243 this-past/4 weeks and-more than, 10k lass-month. this is really the coolest job I’ve ever done. I actually started nine months/ago and straight away startad earning minimum $80, per/hr. I work through this link,, jump15.comCHECK IT OUT

  • Joseph A. Mungai
  • Lawrence Hartman

    Wow, cooperatives will be a great way for the US to get their competitive edge back. The structure of today’s for profit top heavy companies tends to have those companies become inefficient due to not listening to the great ideas of their front line employees. I sure wish I would have had the opportunity to work in a coop setting. All my ideas unfortunately for me and the company I worked for did not get implemented and the ideas that did get implemented, I never got appropriate attribution for my idea and that is a big time morale issue. Best of luck with this coop thing and I do see it as the way to the future as soon as we get rid of the Fascist Pigs that are in control of corporate American currently.

  • ThisWay Out Coops

    Funding is critical, but being prepared for the commitment and laying down a sound, solid foundation for your cooperative is even more important.

  • ThisWay Out Coops

    I’m sure the world would have kept turning with or without every single one of Job’s ideas being implemented quick as a whip. What are the working conditions in the factories that make Apple products? “Fast” isn’t always better, “Bigger” is always better. Frankly, I would trade the ubiquitous parade of new operating systems or “upgrades” every three months for decent, democratic & dignified working conditions for all workers.

  • Anonymous

    Sometimes the most creative idea is not practical, but when you throw it out to the group, others can tweak it so that it does work. Both the creative thinker and the realist can work together and possibly arrive at a working model faster than if one person brain storms the whole thing and misses critical elements.

  • Anonymous

    Couldn’t the “buy in” sometimes be working at a reduced salary for a time?

  • Anonymous

    Then if it were a co-op, production would never have been offshored.

  • http://www.you-read-it-here-first.com/ John Bailo

    I guess based on observation of crowd sourcing, I would say that such structures would work in mature industries (like retail grocery stores) and flounder in dynamic ones where fast and critical decision making are necessary and the best ideas have to succeed even at the expense of people’s feelings.

    For example, I look at something like the Ouya, and yes, it is something that a bunch of people outside The Industry might dream up while saying “why don’t they make a cheaper console that’s just like our phones”. Sounds good right? Well, as Einstein said, your idea is crazy, but maybe not crazy enough to be right!

    Same with Ouya, it’s moderately innovative, but Google’s Chromecast is crazy, wild innovative as it cuts across every sector of TV broadcasting and computer media streaming topology! Did a democratic team think that up? Or a very selected few engineers given ultimate authority?

    Different strokes for different folks.

    I envision a completely different system of Individual Authority where venture capital is freely available at small and large amounts for people to form risk free businesses, no matter how outlandish the project. The idea is it would at worst create jobs, salaries, employ people, and the one out of 1000 idea that is truly new would succeed. Again, maybe Democracy is good for lumber stores and warehouse-retail businesses, while Individual Authority is needed for cutting edge stuff.

  • http://www.EqualExchange.coop Rodney North

    There are many resources & organizations to help one through the start-up phase for a worker co-op.

    These two may be the best for those in the U.S.:

    http://american.coop/node/119

    http://www.usworker.coop/education

  • DavidW

    Newton? Apple Lisa? Pippin? That Apple USB mouse that looked like a big round cookie? They let Jobs go and then he came back. The same kinds of issues that affect all successful businesses affect all kinds of businesses.

    Corporate and shareholder companies have many good characteristics but it also has a downside, some of the managers are just plain bad people. A “loose” cannon on the deck can hurt or “help?”

    Innovation can come from group effort or leadership or from dictatorship.

  • DavidW

    Some are structured as an installment plan with a downpayment and a payroll deduction over months or years depending on how much the company is worth.

  • DavidW

    But in ESOP’s some employees are more “equal” than others when they have accumulated more shares and therefore more votes. In a Cooperative, it’s one worker/owner one vote, no one can own more of the company than anyone else from CEO down to the clerk. They have different jobs and different pay scales in a large Co-op but they are equal owners with equal say.

  • DavidW

    I would also remind Cass DeFiore that dictators certainly don’t consult anyone and can make very quick decisions.

    What happened to Lehman Brothers? They weren’t over-leveraged by committee, were they?

    The way a company is organized is only one part of how work and creative things get done.

  • DavidW

    Cass DeFiore hasn’t added any nuance in her argument. Committees are not on/off, right/wrong, black/white, it’s much more complex than that. Luck and timing also have a part to play in bringing creativity and innovation to market.

    There are always those dictators out there in the business world who have fooled everyone else.

  • DavidW

    There are concrete things one can do while we wait for the next evolutionary change in the economy. Move your money into a Credit Union. Find and shop at a consumer or worker owned Food Co-op, there are about 400 across the country and about a half dozen to a dozen open up every year. Invest in a cooperatively organized business either as a consumer or worker.

    This does two things immediately, it builds a more fair economy and it deprives the current corporate totalitarians of your cash flow. The more we can do this the more we can re-direct wealth back into our communities, so that it can circulate and benefit us more directly.

    If one is especially motivated, then go out there and organize your neighbors to build and support economic democracy through Cooperatives. There are many resources online one can look up for contacts.