15 February 2020 Courier Weekly

Worker co-operatives: a model for success?

From craft breweries to taxi companies, a growing number of businesses are becoming worker-owned co-ops. Research shows higher productivity and motivation, lower staff turnover and greater resilience in times of economic downturn. So, what’s the catch?

Worker co-operatives have existed for centuries but remain underrepresented – the Federation of Worker Co-operatives estimates there to be 800 of them in the US. That number’s on the rise though – partly down to startups embracing the model and, increasingly, businesses transitioning as retiring owners look to leave their creation in trusted hands.

There’s no single way to create a co-operative and that, combined with a lack of accessible intel on how it’s done, gives a clue into its relatively low uptake. Businesses looking to transition need an experienced facilitator to determine whether they’re suitable – that’s before the challenges of raising capital and deciding upon structure and governance. But while a shared ownership structure doesn’t seem a way to make a quick buck (investors don’t dig them), their benefits transcend big profits.

Expert Opinion

Professor Joseph Blasi is director of the Rutgers Institute for the Study of Employee Ownership and Profit Sharing and co-author of The Citizen’s Share: Reducing Inequality in the 21st Century. He outlines the key strengths and weaknesses of the model.

STRENGTHS

Individual motivation, company performance. ’Workers are more committed, engaged, innovative, loyal to the company and willing to help others improve their behaviour. Employee ownership and a supportive corporate culture leads to better productivity and lower turnover.’

Earning $$$. ‘In an era of flat real wages, 100% employee ownership offers a way to gain significant wealth. In the ESOP sector, workers have a separate diversified retirement plan in addition to the ESOP – that makes it a stable model.’

WEAKNESSES

Not a quick fix. ‘Since most majority owned firms are a result of transitions, if the corporate culture is poisoned or if the company has not had a previous history of stable and successful growth, employee ownership won’t rescue a bad situation.’

You still need managers. ‘Despite the common view that the workers are managing themselves, you need a strong executive management willing to be more collaborative and participatory.’

Hard to find optimum level. ‘Each company has to find the appropriate level of worker empowerment. You have to get that right. Research shows employees are most empowered at job and department level – not being on the board of directors.’

The TWO other main models of employee-owned co-operative:

01. Employee Stock Ownership Plan (ESOP) – an employee benefit plan that gives workers ownership of stocks or shares in the company. Dominant in the US. 

02. Employee Trusts – an indirect form of employee ownership in which a trust holds a controlling stake in a company on behalf of all its employees. Dominant in the UK.

Case study: the stock photo agency

Frustrated at the state of the stock photo and video industry, the founders of  Stocksy United decided to reinvent the roll and launch a multi-class co-operative.

The starting point for Canadian company Stocksy is from a familiar narrative. Members of the founding team had sold their business iStock to Getty in 2007, which was subsequently bought by a VC firm. Targets shifted and the founders lost sight of their mission.

The stock agency market became saturated – royalty rates (typically between 15% and 45%) and photo quality were decreasing. Photographers felt exploited. Seeing a gap in the market to create an agency offering a superior product through better business practice, a group of six, including iStock founders Bruce Livingstone and Brianna Wettlaufer, founded Stocksy in 2013 as the world’s first co-operative stock agency.

‘We wanted to grow in real-world sales and not to be beholden to external stakeholders more interested in numbers than treating its contributors fairly,’ explains co-founder Dan Ross. The British Colombia-based company now has around 1,100 contributing members (carefully picked from over 20,000 applications) and 30 employees. It operates as a multi-class co-op with three tiers – board of directors, employees and contributors – all of whom have a say.

‘We’re not here to take down the big guys, we want to provide our contributors a place where they can create their best possible work without worrying we’re going to cut the royalty rates behind them,’ says Ross. As such, images are priced between CA$10 and CA$100. The artists are paid a high percentage of the royalties: 50% on standard licenses and 75% on extended licenses. And, if Stocksy is left with a surplus at the end of the year, it’s shared out between members depending on how much they contributed. Between 2013 and 2019, Stocksy paid out over CA$24.7m to its members.

Getting to this point wasn’t easy. Knowledge of what a co-op is and how to set one up was pretty limited back in 2012. Even finding a lawyer who knew what a multi-class co-op was and could help them draw up their initial bylaws proved difficult. The real hurdles arose, however, once they started selling and running the business, which continues evolving today.

‘Being decisive and competitive in the market while also being responsive to our members – sometimes those things can be at odds with each other,’ explains Ross. With so many stakeholders, the decision-making process can be slow. Members are sent emails on small changes but substantial decisions are voted for, with a minimum of 10% of members having to agree to proposals before it is advanced to the board.

Financially, it has been a success. It was launched with a CA$1m loan in 2012, paid back within three years. It continues to turn a profit but more importantly, it has stuck to its mission – creating a better model for its contributors, and a better product for clients.

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