Not a direct response to OP's question, but I wanted to give some general background info on worker cooperatives and coops in general.
A cooperative is type of a business entity that does not have outside shareholders. Rather, its members are its owners.
So, in the case of a worker cooperative, the people who work for the business are its member-owners. (In the case of a consumer cooperative, its patrons are its member-owners.)
What are some benefits of cooperative businesses?
For one thing, because the business is not beholden to outside shareholders, who typically only have an interest in the financial health of the company, it can make decisions that a for-profit company might not be at liberty to make.
For instance, a for-profit bank, under shareholder pressure, might introduce sneaky hidden fees to increase its bottom line -- but at the expense of irritating its patrons. That just wouldn't happen with a credit union (a form of cooperative), because the investors and patrons are one in the same, and their interests are aligned.
Another big benefit, and this is especially true with tech companies, is that the member-owners are invested in the company's success in a way that mere employees are not -- and they have the decision-making power to actually influence how the company operates, because coops are democratically controlled. A lot of tech companies grant stock options and offer profit-sharing programs, but stock options can be a crap shoot (there are a lot of ways for them to end up being worthless, even when the company is profiting handsomely), and profit-sharing doesn't necessarily mean power-sharing.
There are two major downsides to operating a business as a coop, though. One is that you have to raise all of your capital from your members, rather than relying on outside investment. That can be really tough, especially when you're just starting out.
The other downside is regulatory. I'm not sure how it works in other countries, but in the U.S., there are a lot of restrictions and hoops you have to jump through. For instance, consumer cooperatives must restrict membership based on some type of common bond -- a geographic area or an alumni association, for instance. But some types of businesses just don't flourish unless you open them up to everyone. This is less of a problem, though, for worker cooperatives.
I'm a big fan of the cooperative movement, and the broader distributist movement (http://en.wikipedia.org/wiki/Distributism), and I wish more people knew about the benefits coops offer.
> One is that you have to raise all of your capital from your members, rather than relying on outside investment.
Actually, it is possible to raise outside capital. One way is a traditional bank loan, though that usually requires collateral. There's also "patient capital" available from some institutions.
We also have a National Cooperative Bank in the US, created by an act of Congress and later privatized (as a co-op, naturally), that specializes in banking services and loans for cooperative enterprises. They may not be completely up-to-speed on worker cooperatives, however.
A really interesting option is a direct public offering, where you can sell non-voting shares to individuals while avoiding most of the legal implications of an IPO, as long as you comply with various restrictions and raise a limited amount of money. There's a case study about a pickle company that transitioned to a worker co-op by buying out the previous owners that way:
Thanks for the informative post. I'm new to the idea, and I have a question. You say that the decision making process is democratic. Couldn't that be dangerous?
The majority is not always right, or even informed enough to make a correct decision. An executive hierarchy puts this process in the hands of key decision makers, who are supposed to make the correct decisions to protect the company's interests based on their experience.
What happens when the decision made by the democratic majority is potentially harmful to the company? Is there a hierarchy in place to mitigate bad decisions?
Thanks for the informative post. I'm new to the idea, and I have a question. You say that the decision making process is democratic. Couldn't that be dangerous?
The majority is not always right, or even informed enough to make a correct decision. An executive hierarchy puts this process in the hands of key decision makers, who are supposed to make the correct decisions to protect the company's interests based on their experience.
What happens when the decision made by the democratic majority is potentially harmful to the company? Is there a hierarchy in place to mitigate bad decisions?
EDIT: jawns has clarified that the democratic process can be used to appoint an executive heirarchy. I was under the impression that every business decision was put to a vote by the entire cooperative. I understand now that key decision makers can be elected in order to mitigate decisions that may be harmful to the business.
Well, remember that just because a company is democratically controlled does not mean that its member-owners cannot elect an executive hierarchy of its own. But when the votes are cast for that election, it will be the member-owners' interests that are being reflected, and not outside investors' interests.
To give an example that's more to do with worker cooperatives, suppose the member-owners are discussing whether to work 35- or 45-hour work weeks. The 35-hour work week might be good for work-life balance, but bad for the business itself, while the 45-hour work week might be the reverse. Nevertheless, the majority of members might vote in favor of the 35-hour work week, and whether or not that is bad for the business, it will be good for the majority of the workers.
Granted, the democratic process isn't perfect -- you need only look at U.S. politics if you need proof of that -- but when you compare it to its alternatives, it's not at the bottom of the pack.
I find it amusing that you think a hierarchy can solve the bad decision problem. You may be right, though not in the sense of mitigating a bad decision by having hierarchies, but that hierarchies have the uncanny ability of redefining a bad decision as a good one. At least that's been my experience.
Every co-op is different. Co-ops in general value the "wisdom of the crowds" and may be more proactive in seeking opinions of every member, but there are still hierarchies in place that have final decision rights.
This is how a lot of co-op living arrangements work. Everyone has a say, but the final decision is made by someone whose job it is to manage the health of the house.
By the way even companies can adopt some of these ideals without being a full-blown co-op. I have worked in several organizations where decision-by-committee is highly popular, and in each case, there are processes to prevent deadlock or processes for override if something starts to go badly. Usually these processes are triggered by very senior level individuals who have decision rights, or by regulatory experts (e.g., someone in Legal).
Seems like it might be an appropriate place for representative democracy. Every year or so, everyone votes on a new CEO, etc.
There's probably a lot of decisions that could still be left up to workers, but I agree that having some clear direction is important, and there's lots of questions that just need a "no". The BDFL model of open source is a good example of how this can work without excessive hierarchy.
> I was under the impression that every business decision was put to a vote by the entire cooperative.
Depends on the co-op.
I lived in a student co-op in college. Every Sunday night we had a group meeting. Every major decision was made by a consensus making process. Other decisions were delegated to committees or individuals in a particular position: food manager, garden manager etc.
I also worked at a student composting/waste disposal co-op that operated the same. Everyone has a voice in either the actual decision or in electing someone to make a decision.
This type of decision making basically requires lots of communication between members and usually at least one long meeting a week. It also demands that people have mutual respect for each other and the group decision making process.
In both instances it definitely helped me learn to relate with, communicate with and respect others and their opinions.
I have no particular experience with this, but it seems like another drawback is that you're missing the outside view? If all shareholders are "true believers" with a vested interest in the company doing well, then that makes it hard to set a fair price for shares when someone enters or leaves.
> There are two major downsides to operating a business as a coop, though. One is that you have to raise all of your capital from your members, rather than relying on outside investment.
That's only true of equity, which isn't the only form of capital financing. But, yes, its an important limitation.
All private companies have shareholders. The shares they own are just not publicly traded shares. "Shareholders" is, in this context, the same as "owners," and all private companies have owners.
So, what's the difference between a coop and a private, for-profit company in which everyone who works for the company owns the same portion of the company and gets an equal say in decision making? Not much practical difference, really, although with a coop, those things are enshrined, whereas with a private company, they're optional.
> So, what's the difference between a coop and a private, for-profit company in which everyone who works for the company owns the same portion of the company and gets an equal say in decision making?
Initially that would be effectively the same, but in a coop the equal ownership by all employees (and only employees) is also supposed to stay that way through employment changes: if a person quits the company, they don't take an equity share with them, or they'd become an outside investor. Instead the company is equally owned at all times by the current employees.
It might be possible to write up a complex contract that does that with regular shares, forcing people to hand them in if they quit the company (and prohibiting sales), but since regular shares are considered property there are a lot of pitfalls around making that work (if it's even possible), along with opportunity for shareholders to challenge the structure. A coop structure avoids that issue by not having regular equity shares in the first place.
A cooperative is type of a business entity that does not have outside shareholders. Rather, its members are its owners.
So, in the case of a worker cooperative, the people who work for the business are its member-owners. (In the case of a consumer cooperative, its patrons are its member-owners.)
What are some benefits of cooperative businesses?
For one thing, because the business is not beholden to outside shareholders, who typically only have an interest in the financial health of the company, it can make decisions that a for-profit company might not be at liberty to make.
For instance, a for-profit bank, under shareholder pressure, might introduce sneaky hidden fees to increase its bottom line -- but at the expense of irritating its patrons. That just wouldn't happen with a credit union (a form of cooperative), because the investors and patrons are one in the same, and their interests are aligned.
Another big benefit, and this is especially true with tech companies, is that the member-owners are invested in the company's success in a way that mere employees are not -- and they have the decision-making power to actually influence how the company operates, because coops are democratically controlled. A lot of tech companies grant stock options and offer profit-sharing programs, but stock options can be a crap shoot (there are a lot of ways for them to end up being worthless, even when the company is profiting handsomely), and profit-sharing doesn't necessarily mean power-sharing.
There are two major downsides to operating a business as a coop, though. One is that you have to raise all of your capital from your members, rather than relying on outside investment. That can be really tough, especially when you're just starting out.
The other downside is regulatory. I'm not sure how it works in other countries, but in the U.S., there are a lot of restrictions and hoops you have to jump through. For instance, consumer cooperatives must restrict membership based on some type of common bond -- a geographic area or an alumni association, for instance. But some types of businesses just don't flourish unless you open them up to everyone. This is less of a problem, though, for worker cooperatives.
I'm a big fan of the cooperative movement, and the broader distributist movement (http://en.wikipedia.org/wiki/Distributism), and I wish more people knew about the benefits coops offer.