DEMOCRACY AT WORK: COOPERATIVES AND EOTS

Much has been written on the changing nature of our economy and what it means for workers today: the gig economy, the rise in part-time, “flexible” employment (read: less secure), and wage stagnation, all contributing to rising wealth inequality. Amidst these concerning trends, worker ownership is a beacon of hope to not only enable workers to build wealth, but to play a more active a role in steering the ship and determining their future.

Worker cooperatives provide an ownership structure that can do both. They are businesses where the asset base is collectively owned and controlled by their worker “members.” Governance in worker cooperatives generally adhere to the principle of “one worker, one vote,” which can result in a democratic culture and highly engaged and loyal employees.

When new employees join a worker cooperative, they typically have a probationary waiting period before they can gain/apply for membership. Workers often purchase shares, and/or pay a membership fee that adds to the equity base of the company. Profits are allocated to the workers according to the bylaws and policies established by the co-op, often in proportion to hours worked.

So, how do worker cooperatives stack up against steward ownership principles? As you’ll recall from our earlier post, the two key principles of steward ownership are: profits serve purpose, and self-governance.

Principle 1: Profits Serve Purpose

The purpose of a worker cooperative is to provide employment for its members by operating an enterprise that follows the cooperative principles and values. Profits clearly serve purpose, being distributed amongst worker-owners vs. extracted by remote shareholders.

Principle 2: Self-governance

The democratic nature of worker cooperatives keeps the “steering wheel” in the hands of stewards who are actively involved in the business, making it highly aligned with steward ownership. However, a core tenet of self-governance is the idea of permanent independence: steward-owned companies can never be sold. In the case of cooperatives, worker-owners can elect to sell a cooperative to private investors and convert it into another corporate form through a process called demutualization.

Some companies have found creative ways to fully integrate steward-ownership and cooperative principles, by removing any incentive to sell the cooperative for private gain. For example, Equal Exchange included a “poison pill” in their operating agreement that states that all profits from the sale of the business will be donated to charity.

So are Employee Ownership Trusts a viable alternative to worker cooperatives to achieve democracy at work?

As we detailed in an earlier post, an Employee Ownership Trust, or EOT, is a single-stakeholder form of Perpetual Purpose Trust, where all or some of the shares of the company are held in trust on behalf of all or some of the employees. Following steward ownership principles, EOTs are designed to prevent anyone from selling the business for personal gain and to protect the ongoing purpose and independence to benefit current and future employees.

There are two key differences between worker cooperatives and EOTs: (1) the meaning of “ownership,” and (2) the flexibility of governance design.

Difference 1: Ownership

In EOTs, workers do not directly hold shares in the company; instead, company ownership is held in trust on behalf of the employees. This is a significant difference, and a key consideration for owners that are considering structuring or converting their company to either form.

Difference 2: Governance

Worker cooperatives, by nature, are committed to democratic control by the company’s members. EOTs, on the other hand, can structure governance based on the wishes of the founders who set it up. At one end of the spectrum there could be a more traditional, management-based design, and at the other end of the spectrum, it could look exactly like a cooperative, with a one worker, one vote structure. Or anything in between, because, like all purpose trusts, there is a great deal of flexibility in how they can be designed.