Why Form Worker Cooperatives?

In certain ways, worker cooperatives operate like regular businesses: they develop products or services to sell to the public, with the goal of generating a profit to support the business and its owners. Like conventional businesses, cooperatives typically incorporate or file formation documents with the state, apply for appropriate business licenses, pay taxes, hire employees and/or independent contractors, and engage in other regular businesses activities.

However, worker cooperatives are unique in some key ways. In particular, cooperatives are more likely to create stable fair-paying jobs, adopt environmentally sustainable business practices and invest in the local community. Because they often evaluate success based on a variety of metrics in addition to profit, such as worker health and happiness, sustainability, and community benefit, worker cooperatives are often said to have “multiple bottom lines.”

  • Local Ownership. Typical large corporations are owned by shareholders who do not live in the communities in which the business operates or from where it sources its products. These shareholders are usually less concerned about maintaining healthy workplaces and making sure the business does not harm its community than the worker-owners of a local cooperative business.
  • Increased Job Security in Economic Downturns. In economic downturns, most corporations are narrowly focused on maintaining value for their shareholders, rather than maintaining employment for their workers. By contrast, because worker-owners call the shots in their cooperative, they value preserving jobs foremost, rather than maintaining shareholder value. Because they have increased job security as owners of the business, they can also plan for the long-term and invest in the continued health of their business and their community.
  • Worker Health and Happiness. Because workers have an ownership stake in the cooperative business, they can make business decisions that directly promote and support worker health and happiness. Even the most benevolent owner/employer is unlikely to make business decisions that benefit workers if such decisions have a negative impact on profit. Conversely, worker-owners are interested in generating a profit, but also invested in ensuring that they work in a healthy environment, characterized by job stability, fair wages and benefits, and safe business practices.
  • Environmental Responsibility. The people who own and run worker cooperatives also tend to live, work, and play in the neighborhood where the business is located. Because worker cooperatives are deeply rooted in the local community, they are less inclined to engage in environmentally destructive business practices than companies controlled by outside investors. Using toxic chemicals, squandering natural resources, or damaging open spaces would have a negative impact on the very people in control of the business, as well as on their families, friends, and neighbors.
  • Contribution to Community. Worker cooperatives help build community wealth through local ownership. Workers who own their jobs have a direct stake in the local environment, and the power to decide to do business in a way that creates community benefit. Worker cooperatives are likely to form relationships with other local businesses, hire local workers, and reinvest their profits back into the neighborhood.

Benefits of Worker Cooperatives

When efficiently organized and managed, worker cooperatives convey the following benefits to the people who work there:

  • Employment and the ability to generate income. A worker cooperative gives groups of people an opportunity to become economically independent in a mutually-beneficial way.
  • Control over the way their work is organized, performed, and managed. Worker cooperatives provide an opportunity to balance workers’ needs and concerns with the need for profits and efficiency. Worker cooperatives also emphasize the training and development of the worker-members.
  • Employment security, as long as the enterprise is economically viable.  Worker cooperatives are managed to generate income and provide stable employment for their members.  When faced with a tradeoff between pursuing profits and maintaining employment, worker coops often choose the latter.
  • A financial and ownership stake in the enterprise in which they work. Worker–members contribute directly to building the enterprise and sharing in its success.
  • An opportunity to practice democracy in the workplace. Worker-members participate directly in decisions that affect them in their workplace as well as those that determine the growth and success of the business.

Breadth of Worker Cooperative Enterprises

Successful worker cooperatives are found in many different business sectors including: housecleaning, restaurants, taxis, grocery stores, bakeries, bookstores, bike shops, nursing and construction. This is just a small list of examples. Worker cooperatives come in many different shapes, sizes, and industries. The US Federation of Worker Cooperatives estimates that there are over 300 worker cooperatives in the United States, collectively employing over 3,500 people.

In the San Francisco Bay Area there are many notable worker cooperatives, including: The Cheese Board Collective and Arizmendi Bakeries (worker-owned pizza shops and bakeries), DIG Cooperative (gray water systems design), and Rainbow Grocery Cooperative (full service grocery store including both bulk and prepared foods), and many more. In addition, there are a number of Limited Liability Companies (LLCs) that are structured as worker cooperatives including WAGES (green home-cleaning services) and Teamworks (green landscaping).

Key Considerations In Forming Worker Cooperatives

Worker ownership can be a successful business model in nearly any industry. But, it is not for everyone and there are some important considerations to think about when deciding whether a worker cooperative model is right for you. A fundamental aspect of worker cooperatives is balancing the entrepreneurial and independent spirit needed to start and run a new business with an appreciation for and commitment to the values of shared ownership. The essence of democratic control is that no one person has the final say.

The US Federation of Worker Cooperatives has developed a useful list of factors to help determine whether worker ownership is right for you (this is not exhaustive):

  • Your members have a clear commitment to and understanding of worker-ownership and cooperative principles.
  • Your members provide a product or service that is in demonstrated demand by the market; you have a viable business concept.
  • Your cooperative has access to adequate financing, including meaningful capital contributions from members, in the form of cash, labor, or both.
  • Your cooperative selects and develops a quality management team, either by recruiting from outside the firm or by consciously developing from within. Quality managers do not necessarily need to be MBAs, but they should have a firm understanding of the business and the environment in which it operates.
  • Your cooperative provides membership to individuals with the technical skills and knowledge to make the business a success, and provides those individuals with the tools and environment necessary to succeed.
  • Your cooperative places an emphasis on electing experienced directors with a clear commitment to building a fiscally sound organization and working on behalf of the membership overall.
  • Your cooperative can aggressively position itself for changes in operations, markets, and member needs.

Of course, you can create a successful worker cooperative without having each of these factors in place, but this list represents good principles to strive toward. In addition, it can be challenging to establish a worker-owned business in an industry with high turnover or where work is generally seasonal. However, some worker cooperatives have been established in such industries for the specific purpose of countering such trends and ensuring workers can earn a livelihood throughout the entire year. (Source: Think Outside the Boss: How to Create a Worker Owned Business, co-authored by the Sustainable Economies Law Center and the Green-Collar Communities Clinic of the East Bay Community Law Center.)

Worker Cooperative Support Organizations

 Resources:

Options for Worker Cooperative Legal Structure
Overview: The Katovich Law firm (http://katovichlaw.com), run by Jenny Kassan, made this presentation about legal structure for worker coops available for free online. It gives a brief overview of different structures, among them: cooperatives, partnerships, LLCs, L3Cs, S and C corporations, tax exempt corporations, and B corp status. Some California-specific information, and lists of other issues to consider.

Worker Cooperative Toolbox
Published by Northcountry Cooperative Foundation in partnership with Northcountry Cooperative Development Fund

Think Outside the Boss: How to Create a Worker Owned Business
Co-authored by the Sustainable Economies Law Center and the Green-Collar Communities Clinic of the East Bay Community Law Center

Steps to Starting a Worker Co-op
Author: Gary B. Hansen, E. Kim Coontz, Audrey Malan
Publisher: University of California
Date of Publication: 1997
Format: Print and online pdf
Authority: Coontz is the Executive Director for the California Center for Cooperative Development. Malan previously served as executive director of CooperationWorks!, a national organization of cooperative development centers and practitioners
Content/Usefulness: No specifics on food co-ops; very broad tips about how to approach opening a new one
Up To Date: Published in 1997 and no updates since then.

Richard Wolff’s podcasts on worker cooperatives:

Other Articles
Law review article on labor- vs. capital-managed firms

Worker Cooperatives: Performance and Success Factors

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