Fake co-ops!

As I have traveled around North America, I have had the opportunity to visit many co-operatives and credit unions. I have gotten to know how they operate and make decisions around their strategy and operations. It’s only in the last few years that I have become more interested in governance.

Governance wasn’t something I was interested in, or even understood very well until fairly recently. I took it for granted, governance was something that happened in the background and I never dwelled on its importance.

Visiting a social co-op employing people with disabilities.

In Bologna, we have seen many types of coops: consumer co-ops selling goods and services in which the customers are the members; worker co-ops where the member-owners are the employees; social co-ops often organized as worker coops where the focus is meeting a societal need such as helping refugees or people with disabilities; and producer co-ops where people who produce things such as grapes can work collectively to create more value by co-operatively turning their grapes into branded and marketed wines earning them all greater returns than they would earn individually selling grapes directly to the market.

I have heard people here call some local co-ops “fake coops” and they do so for two main reasons.

Some worker co-ops can be fake co-ops. A worker co-op usually has some employees who are not worker-owners and others who are. In Italy, if a co-op dips below 50% of all employees being worker-owners, they are no longer considered to be “mutually prevalent” and lose certain tax benefits encouraged to increase the number of people who mutually own the firms in which they work. Having a high prevalence of mutuality or worker-ownership at a firm promotes things that the State cares about such as higher wages, greater inclusivity in the workforce and more democratic practices. Most worker co-ops in Emilia-Romagna have 70% of staff buying in as worker-owners and only 30% being strict employees. Some people call worker co-ops who have a small number of their employees as worker-owners to be fake coops. They are set up as a co-op, but the benefits are not widely shared, and are concentrated in the hands of a few, like in traditional firms.

Another way in which a co-op can be fake is when the bond between members is very small and meaningless. Consumer co-ops, a very prevalent model in North America, are at constant risk of becoming fake co-ops, as the bond between members is shallow, the commitment needed to join is often low and the benefits of membership are limited. For example, you join a food co-op for $25, a fairly low amount, you get some discounts, vote for the board, but what’s asked of you is minimal. These co-ops have to work harder to compete in a non co-operative market and retain and promote their principles and mission.

Compare that to a worker co-op, where you may be spending hundreds or thousands of dollars to in order to buy a share and become a worker-owner. While voting rates at consumer co-ops tend to be 2-5% of members, at worker co-ops 80-100% is more typical because they’re voting for a board which directs their work-life and the strategic direction of the firm where they are a co-owner.

As I work with co-ops and credit unions, I am amazed by how many don’t have active democratic practices. They limit the number of candidates who can run in board elections and seriously screen their candidates, so that board directors are acclaimed instead of elected. They don’t promote to their members that they can run for the board. In BC, credit unions have seen a shift where our regulator requires credit unions to recommend certain candidates who best represent the skills a regulated, complex financial institution requires today. But there are practices I see in play at credit unions who still operate democratically, including Vancity, such as having a Nominations & Elections Committee made up mostly of members-at-large (who aren’t on the board) and only a couple of sitting board members. This is done so the existing board can’t control who can stand for elections. Allowing all members in good standing to run, whether they are recommended or not, and having more recommended candidates than there are open seats so there is still an open election among the recommended candidates as well as all candidates are important practices to keep a co-operative democratic and real.

If you work for a co-op or are a member of a co-op consider how democratic your organization is. Are control and benefits shared broadly, or concentrated? No co-op is perfect, but all should be striving to live out their principles as best as possible and share benefits broadly.

Worker-co-operative succession.

After meeting with CoopFund, where in addition to understanding their model we learned of their support for Worker Buy Outs, we met with Arbizzi Cooperative Society. This is a packaging company whose founding owner sold the company to his employees who mutualized this small business and run it as a worker co-operative.

Visiting Arbizzi Co-operative Society in Emilia-Romagna.

They spoke of their challenges in shifting their mindset from employees working 9-5 to worker-owners who run the company and make key decisions together. It took quite a bit of effort from the owner, the staff and their financial partners to make it all happen, but the results are extraordinary.

In Emilia-Romagna, similar to BC, most people are employed by small businesses. We are expecting a Silver Tsunami, a wave of retiring age small business owners who either started their business, or who took it over from their parents. In many cases the children of these owners don’t want to run the business. They are seeking a transition, selling the company to keep their life’s work intact.

In places like Vermont (go Matt!), we see success of worker co-op succession of small businesses. In these businesses, the people who tend to know the current state, operations, challenges and opportunities best are the staff. They are in a unique position to run it together and share in profits from their labour. Business successIon like this serves many purposes: it fits what many young people want from workplaces today, it creates greater entrepreneurialism, it serves to mutualize part of the economy for future generations, and it spreads wealth and profits more equitably amongst staff.

This has been a big focus for CoopFund, who have done 60 Worker Buy Outs since 2008, and most of those since 2012. Most of these companies have 15-20 employees. If you do the math, admittedly, that’s only 1,200 people who have been impacted since 2008, which doesn’t sound like much. But when we think of that kind of impact, there are a lot of downstream benefits that need to be considered, like the suppliers who don’t lose a contract causing them financial hardship, the purchasing power of all those new worker-co-operatives to purchase for their needs, and the families who don’t suffer from loss of employment.

I think this is a great opportunity, directly relevant to BC, as we face a similar societal pressure. We just need some intrepid business owner looking towards retirement to give it a shot to see how it can work and then promote the model  to others to try and replicate it.

A co-operative fund.

While here in Bologna, I’m thinking about those systemic advances we can make to accelerate the adoption of the co-operative model in BC. Many things we see here have grown up in this area and are inseparable from the local culture and economic ecosystem. Many of the aspects of the co-operative support system are hard to imagine being replicated back home. But there are definitely some things we’re seeing here that could be imported to support growth of coops in BC. Like I wrote in my previous post, a stronger coop sector in BC would be an important complement to the capitalist system and create greater equity and sustainability, augmenting governmental interventions.

We spent Wednesday morning visiting CoopFund, an economic support to startup coops and coops wanting to grow and develop. In Italy, all coops put 3% of net profits into a fund whose primary objective is to support new coops and expand the activities of existing coops. Their focus is on technological innovation, increasing employment opportunities, expanding into Southern Italy where there aren’t as many coops and expanding coop social enterprises into sectors such as health and integrating people with barriers to employment into the workforce.

When a coop is facing major challenges or insolvency, the fund is one of the refinancing agents along with local credit union equivalents and the coop apex organizations such as LegaCoop. The CoopFund also offers consulting services to the coop to help them through a difficult period.

I found it very interesting that the interest rate off the loans CoopFund makes can be variable based on terms and risk similar to commercial lending at home, but is also affected by the social outcomes the coop is delivering. If a social outcome of the coop creates employment, especially in barriered communities, the rate will be lower as it provides a general benefit to society. At traditional banks, social objectives don’t factor in at all – in fact those objectives can be perceived as distracting from the main economic objectives of the borrower and may lead to a higher risk profile and therefore higher rates. Here in Bologna the more the loan can be linked to social outcomes, the lower the rate. Rate is driven by alignment to values rather than solely to risk, as all loans have to meet a standard risk profile as a stage of application to the fund.

We do have a national coop fund now, finally. And the idea of the government requiring coops to create a national fund based on a percentage of net profits isn’t realistic or warranted. If a few key players came together to capitalize a fund, organizations like the Credit Union Foundation of BC, Vancity, MEC and others, working in concert with a provincial body governing economic and/or social development to ensure aligned outcomes, we could advance the creation of more coops.

As we see the trend towards solopreneurs and away from traditional employment options, the growth of worker coops kickstarted by a fund like this could create more opportunities for people to earn a higher standard of living for their work, have a greater sense of ownership and more collaborative workplaces and create more opportunities to those facing barriers. Such progress would be a win-win for employees, the government and the coop sector.

CoopFund specifically focused on Worker Buy Outs – having small businesses who have run into problems or have owners who want to sell their businesses sell to the workers who own the new business as a co-operative. I’ll post more on worker coops succession at another time.