Worker-owner cooperative as a business transition alternative: Part 1

The combination of a changing workforce and the need for business owners to retire creates a great opportunity for mutual benefit.

According to the Democracy at Work Institute (DWI), “Worker cooperatives are values-driven businesses that puts worker and community benefit at the core of its purpose” DWI, a part of the U.S. Federation of Worker Cooperatives, reported that some 300 to 400 worker cooperatives exist in the United States, employing some 7,000 people and generating nearly $400 million yearly ­– 31 percent of them having sales in excess of $1 million.

Some 26 percent of worker-owned cooperatives started as traditional for-profit enterprises. With many of the boomer generation retiring in the next decade, the transition to worker-owner cooperatives is a viable alternative for business owners. Many challenges exist to accomplish a smooth transition. To better understand these challenges. DWI, in conjunction with the University of Wisconsin-Madison Center for Cooperatives, conducted a study to examine “Successful Cooperative Ownership Transitions”.

The study included a landscaping company, an architecture/energy firm, a natural conservation consultancy firm and two café-bakeries. This series of articles focuses on the café-bakeries, but observations and conclusions from all of the entities will be included. The necessities for support systems to assist conversions are in two general categories: Technical assistance and Resources.

New worker-cooperative businesses need to secure technical assistance for facilitating meetings and developing a conflict resolution models. Partners that provide this service include regional cooperative development centers and experienced peer cooperatives, like The Madison Worker Cooperatives. Both were utilized by the worker-cooperatives in this study.

Not to be overlooked in developing a worker-cooperative is legal counsel. Drafting articles of incorporation, and assisting with bylaw development are duties that legal counsel may provide. It is essential that the legal counsel be familiar with cooperative structures and have a firm grasp of conversions from one entity to another. Finding the right counsel can prevent future difficulties if done properly.

The study noted that converting from a hierarchical management system (one owner, partners or small corporation) to a worker-cooperative needed time to evolve. The New Moon Cooperative Café uses flexible committees that meets weekly. Each has specific responsibilities in the following areas: food, operations, marketing and finance. The worker-owners benefited from college experience in this type of management.

The Blue Scorcher Bakery and Café is managed by inter-acting and embracing worker circles with an elected board. The circles are responsible for specific departmental activities, but Blue Scorcher elects a board and has a revolving elected general manager. It is driven by the principal of sociocracy that empowers people to make decisions within their domains and fosters trust and effective decision-making.

Michigan State University Extension educators working with the MSU Product Cooperative Development Center assist cooperatives in both formation and ongoing educational projects.

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