By Darren Dahl , CONTRIBUTOR
August 14, 2016
Everybody knows that members of the Baby Boomer generation have begun retiring. But it’s the pace at which those folks are leaving the workforce – some 10,000 people will turn 65 every day for the next 19 years! – that promises to have an impact on local economies across the country. After all, some 12 million businesses owned by Baby Boomers across the country are expected to change hands over the next 15 years. But what happens to a small business, and eventually the community it operates in, when the owner is ready to retire and there isn’t someone ready to take over?
One option just might be selling that to the employees of the business via a worker cooperative.
While the number of employee stock ownership plans, or ESOPs, continue to grow around the country, they may not be an ideal fit for every organization – especially smaller businesses with less than 50 employees who might be intimidated by the administrative costs of setting up an ESOP. That’s why some 400 businesses around the country have opted to become worker cooperatives, according to Project Equity, an organization whose goal is to reduce income and wealth inequality by promoting employee ownership.
Not to be confused with consumer cooperatives, which include examples like perhaps your local food co-op or even a national retailer like REI, worker cooperatives are owned by their employees. And, unlike in the typical ESOP model, each worker-owner has an equal share – and thus an equal vote – in the company and how it’s run.
But that’s also part of the reason the cooperative model has drawn skeptics who wonder if it’s something that can scale. One of the pioneers of this flavor of an employee-owned model is The Arizmendi Association of Cooperatives, which currently operates six bakeries as well as a support company in California. Another isCooperative Home Care Associates in New York, which has more than 2,000 employees.
The highly democratic nature of the cooperative model appeals to Franzi Charen, who co-owns a retail shop called Hip Replacements in Asheville, NC, – though she also admits that the idea of shared ownership and decision-making draws detractors who somehow equate it with communism or being fairly “hippy dippy.” But Charen, a strong advocate for the buy local movement who is now working with Project Equity to spread their message, says that many businesses that convert to cooperatives are not run by consensus and maintain similar day-to-day decision-making processes as before.
She is also quick to point out that the cooperative model is potentially very appealing to Millennial workers who want the chance to take on a bigger role in their workplace without waiting to climb the traditional corporate ladder.
Charen says that one of the key goals of Project Equity is to help build awareness about cooperatives as a way to keep local businesses in their communities over the long haul. As they state on their website: “We envision a future where business decisions are made through a lens of what is good for workers and communities, leading to businesses that are more successful, communities that are more resilient, and workers who have stable jobs and economic security.”
That’s a message that’s near and dear to Charen, whose father is also a small business owner. But without a clear successor, he is battling with options to pass on his manufacturing company that has been in business in Gastonia, NC, for more than 30 years. She sees worker cooperatives as a potential solution to keeping businesses like that in place for the next generation “I’m passionate about helping communities find ways to preserve their small businesses,” says Charen.
Project Equity plays a key role in helping business owners and employees understand how cooperatives work and what they can be doing to prepare themselves as they transition into them (Here’s a case study about a Maine business that went through such an evolution). That includes understanding the by-laws under which the company will operate and how the financing of the transaction will work. Unlike the ESOP model, where the company rather than the employees fund the purchase of the company, employees in a worker cooperative interested in owning a piece of the business are asked to invest their own money as part of the transaction.
Selling to a cooperative also takes patience on the part of the former owner as well, says Charen, because they typically help with the financing of the sale. That said, Project Equity has begun a campaign to help educate lenders about the potential of helping finance deals involving a sale of a company to its employees (Here’s more on that topic involving that same Maine retail company).
In future posts, I plan to follow up with the folks from Project Equity as well as dig into other case studies on companies that have embraced the worker cooperative model. Meanwhile, please use the comment section or email to let me know what questions you might have about this model or any other topic of interest connected to employee ownership.
To read the original article, click HERE.