You'd expect worker-owned businesses to be better for workers, but they're also delivering better bottom lines during the recession. Here's why.
While the global economy crawls toward a jerky recovery from the 2008 financial collapse, a subset of businesses is outshining the rest. Cooperatives—companies owned by their employees or customers—are proving surprisingly steady and sound during these dour times. That's especially good for the workers, who in this case, are also owners.
A United Kingdom study found that over the past four years, co-ops have grown at twice the rate of the rest of the U.K. economy. In the United States, anecdotal evidence paints a similar picture.
“It's almost like it's co-ops’ time because of people’s dissatisfaction with old greedy ways, even though co-ops are still about profit,” says Roberta MacDonald Senior Vice President of Cabot Creamery, one of the oldest farmer cooperatives in the U.S. Her company, owned by almost 1,200 dairy farmers in the Northeast, just became the first farmer co-op certified B Corporation, and profits are rolling in. Cabot’s parent company, the Agri-Mark co-op, pulled in a $15 million profit last year, the second best year ever.
The point of the business is farmer welfare—which is the same as company welfare—not shareholder profits. That philosophy explains long term decisions that run counter to quarterly profit reporting like paying farmer-members for the price of milk, even if they weren’t able to get their goods to Cabot in the wake of flooding and road damage after Hurricane Irene a year ago.
“Co-ops are built to be permanent businesses. They’re built for the long term,” explains Rodney North of Equal Exchange, an employee-owned Fair Trade brand selling foods from 40 co-ops in the developing world. It is designed to raise farmer incomes and welfare. “If you designed a business for a quick profit or stock appreciation," he says, "it’s not designed to weather hard times so it’s not surprising if it doesn’t.”
In fact, in the utterly non-scientific sample of about half a dozen established and larger cooperative businesses that I contacted, all of them have been growing strongly.
Equal Exchange averaged 11 percent annual growth since 2008, according to figures they provided to GOOD. “After the ra-ra 90s, we looked like a real tortoise because we pay a five percent yearly dividend and a fixed share price,” North humbly boasts. "Well, in hindsight, that’s not so bad. We’re still ahead of the market.” Equal Exchange isn’t dealing in chump change either: 2011 revenue was almost $50 million. The company has added 20 new jobs, 24 percent growth, since 2006.
Maybe that type of job creation is why big institutions are paying special attention to co-ops this year. In May, the White House convened 150 cooperative leaders to find out how their stable worker-supporting practices might spread. The United Nations declared 2012 the year of the co-op.
Eco-business agitator and founder of Seventh Generation Jeffrey Hollander says co-ops are a path to rebuilding the national economy: "This economic recovery, if and when it takes place, must lead not just to jobs, but to employee ownership if it has any hopes of being sustainable and resilient.”
Cooperative leaders argue that handing over ownership to employees naturally steels a company from rough business cycles because a large group of owners will be more cautious than a single leader, for whom bouncing back from failure would be easier than it would be for the average less wealthy worker. If you have to ask 100 warehouse staffers, or 1,000 family farmers whether to leverage the company’s assets on a big new venture or cut pay to boost profits, those strategies probably won’t go over so well as asking a board of directors. Group governance is a tried and true method for risk reduction.
Stable staffing also contributes to recession resilience. The National Bureau of Economic Research found some evidence that employee turnover plummets in companies that offer high levels of “shared pay” like stock ownership, or profit sharing and employee decision making in company affairs, a.k.a, in co-ops (also explained here in non-academic terms).
Naturally it’s a tradeoff. Don’t expect troves of tech firms dependent on eureka moments, fast failures, and speculative investment to adopt a co-op model. But all kinds of businesses can bloom and spread the wealth with employees through collective ownership.
Oakland’s WAGES network of women-owned eco-friendly cleaning businesses has raised the median income of their workers from $24,000 to $41,000 while growing steadily.
At the depths of the recession in 2010, the Rappahannock Electric Cooperative power company acquired a large swath of territory previously served by non-co-op Alleghany Power in rural Virginia expanding its customer base by about a third.
You may not even know your favorite brand is a co-op. Ocean Spray cranberry juice comes from 600 family farms, but the $1.6 billion global brand leads its snappy commercials with snark instead of a moral sales pitch. More power to them. The farmer is better served by whatever boosts the bottom line when the farmers own the ledger.
This smattering of anecdotal examples are all to show it’s not just your local bike shop or food store that thrives under a co-op model, and it’s not just farmers selling milk that are making smart business of collective ownership in tough times.
In the U.S. cooperatives employ more than 2 million people, generate over $500 billion in revenue and $25 billion in wages and benefits, according to the National Cooperative Business Association. Green Futures reports there are $1.4 million cooperatives globally, employing 1 billion members.
Some of those members, like Cabot's Roberta MacDonald, are seizing this moment of relative strength for the co-op sector. She's becoming something of a torchbearer for the resilience of co-ops in tough times. Cabot organized a summer roadshow called the Cabot Community Tour down the east coast to tout the benefits of shared ownership. As MacDonald sees it, her way of doing business is lending a “light and honesty and staying power” to the pursuit of profit. And why shouldn’t there be more of that?
Image courtesy of Cabot. Special thanks to Jeffrey Hollender for providing a yet-to-be published essay on the business benefits of cooperative ownership, including copious research citations.