Worker Cooperatives

Phil Kenkel
Bill Fitzwater Cooperative Chair
Oklahoma State University

 

Worker cooperatives, or employee-owned cooperatives, are relatively rare in the United States, making up around 1 percent of all cooperatives. This form of cooperative is more common in Europe and Canada. In the United States, most worker cooperatives are located in urban areas and operate in retail operations.

To become a member, the employee/owner must make an initial investment, which is sometime financed through payroll deduction. In some cases, the investment is substantial. Isthmus Engineering, a worker cooperative in Madison, Wisconsin, requires a $10,000 investment, which must be financed by the member.

Profits are allocated on the basis of patronage, which may be calculated as hours worked, earnings or a combination. Governance is usually on a one-member, one-vote basis. Small worker cooperatives typically operate with all of the employee/members serving as a board of directors. Larger firms have a board and management structure similar to that of agricultural cooperatives. Some worker cooperatives do not allow the CEO to be a member because they believe that management is a separate role.

Worker cooperatives are formed as start-up businesses and as conversion of existing firms. Some firms have converted to a worker cooperative when they were unable to acquire traditional financing. Another common rationale for conversion is when a long-time owner/manager decides to retire and transition away from the business.

Data on employee well being at worker cooperatives relative to other comparable firms is scarce. The evidence seems to suggest that employee/members enjoy higher job satisfaction and job security, and perceive more access to training and development. On the other hand, they face additional risks because their earnings are linked to the cooperative’s profitability.

Employee-owned cooperatives are another interesting example of the cooperative model and could be a vehicle for business development in rural areas.

 

Different Systems for Cooperative Governance

By Phil Kenkel
Bill Fitzwater Cooperative Chair
Oklahoma State University

 

Members of U.S. agricultural cooperatives are familiar with the basic governance structure. The membership elects members of the board of directors from within their ranks. The board of directors hires the CEO. The board sets policy, oversees the manager and sets the strategic direction. The CEO manages all other employees and makes operational decisions. Interesting enough, governance structures for cooperatives vary among cooperative sectors and across the world.

At one end of the spectrum is direct member control. This structure can work for a new smaller cooperative and is more related to the lifecycle stage of the cooperative than its geographic location. As the membership grows and the members become less homogenous, direct member control becomes less workable.

The next stage of the continuum towards centralized control is the board-controlled cooperative. In this structure, the board makes operational as well as strategic and policy decisions. It is popular in both Europe and South America. The board chair often functions more like a CEO, but subcommittees of the board may be charged with specific decision areas. The board-run structure is sometimes supplemented with a supervisory committee. This committee is elected from the membership and takes on the role of the audit committee and the oversight role of the risk management committee. The committee may also review regulatory compliance and the policies created by the board. In essence the supervisory committee watches the board to safeguard the members’ interests. The committee members do not take action or create policy. They evaluate the board’s actions and policies. Many credit unions in the Unite States have a supervisory committee as well as a board of directors.

The traditional (at least to us) structure of a board and CEO is also used in other countries. The addition of outside (non-member) board members is more prevalent internationally. The cooperative bylaws typically specify the number of appointed board members. In European countries, the outside members are typically outside experts, while in Australia and New Zealand, employee representatives to the board are more common. These expanded board structures are often combined with a supervisory committee. The addition of the supervisory committee becomes more logical with the blended member and non-member board. The role of member oversight becomes important to ensure that the board is protecting member interests.

It is always interesting to observe how the cooperative business model is used differently in different countries.