Putting Democracy to Work by Frank T. Adams and Gary B. Hansen

Warning: This book was written in 1987 and updated in 1992, some content may be dated!

Preface

Worker ownership does not depend on unique people or time period, but fundamentals

• Democracy as bedrock
  • Formal equality of rights/privileges among worker-owners
  • Knowledge shared as widely as possible
  • Technical & democratic governance skills to run a business
  • Political & social skills to function as a democratic entity
• Mobilization & use of group savings
• Cooperative entrepreneurship
• Systematic & Continuous education & training

Book to assist people wanting to become worker owners

Introduction

What is Worker-Ownership

Creating good jobs, bringing democracy to the workplace, promoting labor entrepreneurship

Labor owns and manages capital - but there’s so little experience and advice out there, this causes problems.

Worker coops, for-profit owned by the employees on 1 person 1 vote.

All workers become members after a period, and payment of membership fee (can be automatic and wage-deducted)

No-outside owners

Profits allocated to workers based on contribution.

Worker ownership is a third way to organize work, besides for-profit or nonprofit/govt firms

Anyone can start one.

Same needs as for-profit biz

• Sound organization
• Skilled mgmt
• Adequate financing
• Careful biz planning
• Profitable markets

Close the loop between the board and workers - and sometimes extend democracy to shop floor

Tiny part of the current economy, but exemplify what ought to be - workplace of the future

No definite formulas. Book is for

• Workers who want to convert their job to worker ownership
• Unemployed wanting to start a worker co-op
• People who want to use the workplace for growth
• Unions & union members looking for new roles in the economy

Why Worker-Ownership

1. People dissatisfied with the quality & quantity of jobs provided through other means
2. Unfairness of capital, to be paid according to contribution
3. Intrinsically motivating work rather than drudgework

Workers want to de-commodify themselves

Ideally should alter or reverse role of managers - answer to labor rather than the board, are representatives

A solution to plant closures due to profitseeking, already implemented by workers.

An important means of economic development, keeping dollars local.

A role for unions to play as existing labor relations management experts.

Is Worker Ownership Successful

Not perfect, doesn’t always work, twice as likely to work and work well on all metrics as standard businesses.

1. Employee ownership stands up to critical analysis as preferential to collective bargaining for all
2. Employee ownership buyouts work better than bailouts
3. Tax incentives to ESOPs may lead to abuse (owner in name only)

Co-ops more agile in economic downturns

During growth, create regional development and jobs, during stabilization increase flexibility reduce job loss

Quebec’s co-op successes:

• Consulting groups - helping workers plan and organize
• Regional Development Coops - connect resources with people (education, finance, govt, etc)
• Coop Development Group - financial assistance, operating as a credit union and/or granting authority

Putting Democracy To Work

Companies try to implement “work ownership” without granting workers the rights of ownership.

Types of employee rights:

• Shop Floor/Workgroup decisions
• Management level decisions
• Boardroom decisions
• Profit sharing
• Equity/Stock ownership

Worker coops increase all

Encourage leadership, skill development

History of the Idea

Modern form started in industrial revolution, Chatham and Woolwich UK

Robert Owen trying to start self-managed communities in Indiana (which failed)

“Workshopping & working for themselves > profit > capital > independence” - Dr William King

Buchez principles:

• Members are workers/contractors, and elect from among themselves a few managers
• Pay:
  • Comparable to how the trade is normally paid
  • Profit divided annually based on contribution
    • 20% to company/pooled capital
    • remainder to assistance or bonus proportional to work
• If the firm is dissolved, its assets must go to another worker co-op, charity, or the state
• No employment of non-owner workers for more than a year - compulsory membership if they wish to keep working after that year

The Rochdale Pioneers

24 weavers in Rochdale started a consumer co-op: Society of Equitable Pioneers

Familiar with Owen, King, Buchez

8 principles:

1. Democratic control, one person one vote
2. Join/quit/rejoin without prejudice
3. limited interest on capital
4. profits or surplus distributed to members based on purchases
5. all sales for cash (not on credit)
6. all products sold pure at full measure
7. surplus has some set aside for education
8. co-op to remain politically neutral

Wildly successful, eventually faltered due to selling out to capital, but the principles carried forward by modern coops

Worker-Owned Cooperatives in the US

1836: National Trades Union funded starting co-ops, which was successful initially

1866: National Labor Congress: see co-ops as cure for the industrial(capital) system, urge promotion of co-ops everywhere.

1874: Order of Sovereigns of Industry tried to start co-ops, but sold stock to anyone, and immediately collapsed

1878-1886: Knights of Labor opened 135 cooperatives, but collapsed under attack from the AFL

1900s: AFL and other unions discarded co-op model, and went after collective bargaining vs capital

1930s: coops returned to shore up economy, but wartime and government inconsistencies harmed them

Worker-Owned Cooperatives in Europe

1917: Russia started as a workers’ guilds (soviets), but crushed under authoritarian bureaucracy

1918: Workers Councils in Germany

1956: the start of Mondragon, expanded to 80 co-ops and a bank they control to this day

Basque/Mondragon concepts:

• Doctrine of labor-entrepreneurship
  • risk-taking
  • enterprise-building/growth
  • productivity husbandry
  • search for new opportunities
  • made it a broad social enterprise more than just closed corporation
• Internal Membership Account
  • Sort of a pension, but accumulated funds also financing for the co-op
  • Earns interest as coop borrows against it.
• What isn’t assigned to internal accounts funds new-coops or education/community

The Fundamentals of Workplace Democracy

Not easy to build a coop but there’s principles and knowledge out there.

A worker coop is a for profit business.

Workers own/manage business, hire capital, determine use of assets, set objectives, hire management, delegate authority.

Business decisions through representational democracy

Equity investments are equal, investment + work = right to vote = single ownership share = profit/loss sharing

No nonworker may get this.

Wages may increase/decrease depending on needs of business.

Consumer Cooperatives

Owned by the customers/consumers - profits are “patronage dividends” paid to member-shoppers

Management control from patronage/shareholding

Workers usually employees

Producer or Marketing Cooperatives

Cooperative buying of supplies and selling of products - may be individual farmers or companies as members

Management from growers/suppliers of crops/livestock/materials

Workers are usually employees not owners

Worker-Owned Cooperatives

Businesses established to provide employment & economic reward to worker-owners

1. Ownership/control are derived from labor not capital contribution
2. labor entrepreneurship is adopted

Labor entrepreneurship = workforce assumes responsibilities of growing/expanding business

Owned and controlled by employees

Other Forms of Employee Ownership

ESOPs do not give workers enough stock or control to self-manage individually or in aggregate.

Are a form of employee ownership, but not employee control, does not significantly alter the work relationship.

Coops may take advantage of ESOP tax breaks, but ESOP doesn’t make it a coop.

Foundations of Self-Management

Principles of worker-coops.

The Democratic Principle

Workforce controls upper management via 1 person 1 vote

The Equity Principle I

All workers must become members with an equal membership fee after trial period

The Equity Principle II

Surplus/profit/loss belongs to the members and must be distributed

The Voluntary Principle

Workforce participation is voluntary but open, no discrimination

The Openness Principle

All business records available to all vested members. Mutual aid is to be promoted.

The Limited Returns Principle

If capital is engaged, capital returns must be limited

The Evolution/Dissolution Principle

Cannot be sold/dissolved without a vote of the workforce, assets distributed to members

Worker-Ownership Values

• labor is of more value than capital, balance human/corp interests
• Democracy can be used in the workplace
• Workers can be responsible for business decisions
• Coops are inherently more productive/financially successful than corps
• Labor rewards can be equitable & just
• Workers can and want to help the business in this format

Problem solving can be done as a group

Membership Rights and Ownership Rights

Democracy is people governing themselves, not property/capital governance.

Voting and membership rights are human/personal rights, cannot be bought/sold/transferred.

1. voting rights
2. profit rights
3. corporate asset value rights

Worker cooperative is “laborist” (socialist?) rather than “capitalist”

Employment Security in a Worker-Owned Cooperative

Employment security as principle - direct labor as fixed cost (vs capital, where labor is variable/expendable)

Matching problem: production - sales = inventory, inventory should be minimized but production is based on fixed labor

Solutions:

• prices reduced to boost sales and match production (revenue reduced)
• work hours reduced ro reduce production with constant workforce (pay reduced)

Can mitigate these fluctuations through business plans, and company financing.

In a large multicooperative, flex workers to other divisions, innovate, etc.

How Worker-Owner-Members are Selected and Paid

Not everyone can/should join worker co-op (at this time?)

Screening criteria

Social screening - at interview

Trial period to see if they are acceptable to work with

Once member, extensive socialization process w/ classes in cooperative ethic

Financial - require purchase of membership share (up to a year’s min salary at some co-ops)

Once accepted, workers can join and leave as they see fit.

Voluntarism

Pay governed by:

Proportionality 

pay based on the added value produced by the work

External solidarity 

comparable to pay at other companies

Internal solidarity 

not excessive pay scale between bottom and top pay

Characteristics of Successful Employee-Owned Businesses

Things that don’t matter:

• Company size
• Capital:labor ratio
• Union presence
• Workforce demographics (though education helps)

What does matter:

• Worker dividends
• Worker decisionmaking
• Workers treated like owners
• Worker education on worker-ownership

Ingredients of a Successful Labor-Managed Enterprise

• Commitment to Worker-Ownership
• Shared, viable business concept
• Access to capital (including sweat equity)
• Entrepreneurial skills and knowledge

Entrepreneurial skills:

• responsible/accountable
• self-confidence, urgency, awareness
• grounded: realistic, big picture, low need for status, objective/ emotionally stable
• High energy, positive self-image, communication skills
• Decision-making skills
• Interest in learning
• Sense of adventure

Function of Cooperative Labor-Entrepreneurship

Labor-entrepreneurs practice innovation - converting opportunity/resource to value

Sources of opportunity:

• unexpected
• incongruous
• process need (better way)
• unpredicted changes in industry/market
• demographics changes
• perception/mood/meaning/culture shifts
• new knowledge

Making a Preliminary Assessment

Common starting points for worker-owned businesses:

• existing business shuts down and lays off its staff
• individual or group wants to start a business with human values & democracy
• corp owner wants to retire and leave business to the workers
• large firm splits off a subsidiary to its workers
• governmental/union sponsorship of new coop

Stages of development:

Organizing 

designing the business strategy and figuring out whether it will work, legal forms filed

Startup 

business strategy is tested to see if it works

Growth

business expands into its role and grows

Consolidation 

business has hit its growth goal, and assesses/retargets

During organizing: learn how worker ownership works, decide go/no go, create business plan, ratify, and incorporate.

Important Questions in Starting a Worker-Owned Business

1. What reasons for starting a co-op?
2. Options, possibilities, probables?
3. Will it sell - is there actually a viable biz concept?
4. What will it take to get everything running and earning revenue?
5. Can it be done with the group involved?

Explore the reasons for starting a worker-owned business

Do you understand it and actually want to practice it? Want new challenge/opportunities?

Identify the options

1. start a business from scratch
2. build off an existing company as a franchisee or contractor
3. purchase an existing business

List the Possibilities

Brainstorm possible/potential businesses, possible marketable ideas

Narrow to several probables

What if? Which possibilities would probably work if attempted?

Consider market issues

Will it sell? Hit up leancanvas or similar biz model worksheets. Can you get customers before there’s a product?

Obtaining human resources

Do we have the skills - what’s missing, can we get those skills? Including managerial/executive skills?

Calculating the costs

What will it cost? Rent, payroll, insurance, equipment, advertising, etc? How does the price compare to the competition and will it sell?

Making comparisons

Do the numbers add up, compared to other businesses?

Assessing the risks

There are risks in every endeavor, can we afford them - can we find ways to take them?

Two Types of Preliminary Feasibility Assessment

Preliminary Business Feasibility Assessment

Is there a market, is it growing, can you compete, are there new niches, is your competition growing, staying, or shrinking? Is there enough revenue to pay for labor? Can you manage and market it?

Preliminary Risk Assessment

Is the goal worth the risk? Can it be minimized? What information’s needed? Is it important? Willing to take risk to achieve goals? Not missing skills that would minimize risk, everyone shares the risk, no particular reason to be afraid of it? Success is likely? The group can work together long enough to hit goals?

Pre-Startup Activities

Education and Training

Start training on workplace democracy and business running, most people need to learn this stuff!

Learning the Fundamentals of Governance

Sample working rules:

1. Any rule is to be uniformly enforced
2. Leaders will not be elected longer than 45 day terms, until people get used to the new format
3. All meetings organized to ensure work gets done but greatest possible participation
4. If you accept a task you are responsible for completing it within its parameters (due time etc)
5. Personnel/personal conflicts resolved as they occur without blame, when possible
6. Problems solved in timely manner
7. group to figure out how to evaluate effectiveness of goals, deadlines, problemsolving

Defining who is making what decisions sorts out conflict.

Learning how to make policy

A statement of template decision that can be applied without a vote in the future

Steps:

1. Agenda Building : identifying a problem to solve
2. Formulation : drafting and debating the policy and approving it via vote
3. Implementation : Creating procedures and rules to follow the decision in the policy
4. Evaluation : determining if policy is working and how well

Policy is done by the board or steering committee, or at the will of the general meeting NOT individual members or managers.

Made at open meetings

Managers implement policy

Membership can evaluate managers’ performance by measuring how well they implement policy

Preparing a Business Plan

THIS CHAPTER IS OUT OF DATE. Entrepreneurial communities have switched to using 1-sheet canvas-based business modeling, and financing is more interested in seeing the start of customer acquisition, than in a 40 page business plan.

Once prospects appear good for getting started, what's next?

Planning the business, making sure that all the aspects of income/expense add up! 3 advantages to initially planning on paper:

• Involve members en masse in planning before they are busy with actually doing the business
• Engage finance with paper proof-of-work that the plan has been well thought out.
• Save money/time/resources that would be wasted on structuring it incorrectly.

Business plan contents / How is it Prepared?

• Product Plan
• Marketing Plan
• Raw Material Plan
• Financial Plan
• Taxation Plan
• Personnel Policy and Staffing Plan
• Governance Plan
• Social Audit Plan
• Education Plan

Engage the group and distribute the labor, to get an early start on worker-ownership and worker-management!

Also create a budget for:

Pre-start costs 

planning, legal, consultants, research

Pre-start capital costs 

facilities, equipment, furniture, IT hardware

This will take time, planning the plan can reduce the time involved however (make a schedule)

People working on part of the plan should:

• Research and formulate their section of the plan answer all the unknowns
• Present findings
• Submit report document
• coordinate with other related groups
• work in a timely manner

Components of the Business Plan

Answers questions, should be well organized, no jargon (banks will be reading this!), should also be accessible to all worker-owners

Summary of the Plan

A page of the project idea, objective goals, finance requirements. Explanation of worker cooperatives would be useful.

PUT THE CANVAS HERE.

Product Plan

What product or services the coop will make, costs, selling prices, development plans, pricing policies, quality maintenance

Marketing Plan

Estimate the size of the market now and in year plans

Unique Value Proposition

Raw Material Plan

Where do we get what we turn into what we make, and how much does it cost? How to make it appropriate to production

Financial Plan

Budget for how financing will be used for business. Detail cooperative financial operating (capital does not control labor, internal capital accts, etc)

Taxation Plan

How the organization will be registered for tax purposes, Subchapter T taxation

Personnel Policy and Staffing Plan

Internal structure, payscale, roles, hire/fire procedures, policy metaprocedures, management approach (emergency decision making process)

Governance Plan

• Responsibilities of the membership as a whole
• Responsibilities of the board of directors
• responsibilities of grievance process

Democratic principles

Social Audit Plan

Audits:

Democratization of work 

how decisions are made, power and governance structures/flow

Humanization of work 

the experience of working - job design, satisfaction, responsibility, training/advancement, recognition

Product/service contribution 

customer satisfaction, environmental, honesty, community - how does the company "do good"

Measures impact of co-op on its members and community.

Education and Training Plan

Education is core to a productive worker cooperative!

• vocational
• managerial
• interpersonal
• democratic

Help workers skill up as owners - to run the business effectively.

Education cannot be cut or postponed, it is vital to the initial and ongoing health of a co-op.

Principles of education, goals, methods, how will needs be identified, who does the education, when will it happen, onsite, offsite?

Verifying the Business Plan

Once drafted, but before the general presentation, do a sanity check to make sure the numbers add up and match between sections.

Is the biz efficient enough?

Maybe have an accountant look at it

The Break-Even Point

At what point do sales cover both the fixed and variable costs of production- when does the business begin to earn money?

Risk Cover: Current and Quick Liquidity Ratios

Ways to estimate risk:

risk cover 

ratio of assets to liabilities

Presentation of the Business Plan to Members

Let the workforce look it over, amend, ratify or reject before giving to lenders.

Then reformatted for presentation to lenders

A Final Note

It can take a week to a year but this is a living document and blueprint for the co-op.

Making it is an educational process as much as a financial/managerial one

Putting Capital to Work

Workers need to know finances and capital sources, besides putting their own assets in.

2 kinds of capital - equity and debt.

Equity capital 

business ownership value (stocks)

sum of membership contributions including share price and stored ICA value.

Net worth, total assets minus liabilities

Debt capital 

borrowed money

liquid assets minus loans

current liabilities: accounts payable, ICA accounts, taxes, interest, payroll, etc

current assets: cash on hand, accounts receivable, inventory, prepaid expenses

some profits reserved for expansion, difference is what happens to the rest

traditional corp 

remainder distributed to shareholders proportionate to shareholding

worker coop 

remainder distributed to workers proportionate to work/compensation

Mondragon-style worker co-op

remainder distributed to ICA accounts, as loan to company, building capital.

Mondragon model solves issues:

• keep cost of initial membership share low
• creates a retirement system (ICA accounts pay out slowly)
• prevent shares from being sold to nonworkers (in places where share contracts cannot prohibit their sales)
• creates a large pool of year to year capital

Sources of Capital to Finance Workers’ Cooperatives

Banks and governments rarely provide loans to worker co-ops.

Internal Financing

Internal Capital Accounts financed Mondragon, ensured stability/dynamic growth of the whole thing

Mondragon splits profits:

initial split 

70% ICA, 20% retained earnings (pool), 10% education

current split 

50% to ICA, 40% retained earnings (pool), 10% education

ownership share 

purchase fee is deposited into ICA, share is forfeited back to company when retired

This prevents share price from escalating to hundreds of thousands of dollars

interest paid to ICAs also

Some profit distribution can be bonus cash too

External Sources of Capital

Best to tap a variety of sources, rather than just one. Diversify!

Special Credit Sources for Cooperatives

• ICA revolving loan fund
• Self Help Credit Union
• NCB Development Corporation (part of national cooperative bank)
• Churches and foundations
• State/provincial programs

Private Financing Sources

• Commercial banks
• Insurance companies?
• Asset-based Lenders (product deals, this would be network distribution!)
• Commercial mortgages on land/buildings
• Leasing buildings
• Venture capital (generally not compatible with worker coops)

Public Financing

• Small Business Administration
  • Regular Small Business Loan Guarantee
  • Certified Development Companies (section 504 loans)
  • Small Business Investment Companies (SBIC)
• Economic Development Administration (only applies to distressed areas caused by sudden economic discruption)
• Dept of Housing and Urban development (HUD) - UDAG grants, revitalize distressed urban areas
• State and Local Sources
  • Industrial Revenue Bonds - state underwriting of a loan through a participating financial institution
• misc state/local programs for development & growth

Using Consultants

Planning avoids regretting not planning if a business fails

Doing business plan is great education and team building for a worker cooperative

Good reality check for everyone involved.

There is help available if people still don't feel they are capable of planning

Free or Low Cost Sources of Technical Assistance

First and sometimes best resources

Fellow workers

Share experience and knowledge about the biz

Suppliers

People you'll be giving money as a course of business are willing to share info to help you succeed.

Customers

Good source of info to find out what customers expect and want.

Make sure to sanity check it, they don't know the expenses or market spread behind their ideas.

Other Businesses

Non-competitors in different niches may be willing to share info

Libraries/Internet

Lots of research, books, blogposts, magazines, podcasts, trade journals, videos

Trade Associations

Share proprietary info with their members. Might not be bad to have a cooperative trade association!

Business Extension, Productivity, Innovation Centers

Universities may have community outreach wings that can help nonstudents/nonresearchers out

Education and Training Programs

Actual college courses! Especially if they have a cooperative focus

Fee for Service Resources

Getting Value for your Money

Before hiring someone, check their reviews, interview them, get a price rate/quote

Business Consultants

fix problems in a specific area

• policies & procedures reviews, accounting/bookkeeping audit
• single issue fixers for emergencies
• feasibility studies and business plans
• financing

Careful, financing ones may be scams if they charge high fees on potentially having good contacts

Make sure the contract is S.M.A.R.T. bound

Bankers

Make sure the bank is co-op friendly, will set you up with a predictable representative, and knows the industry

Lawyers

Should offer alternatives and recommendations, then let the client choose.

Make sure their area of expertise is relevant. (a personal injury lawyer is not going to be great at contracts!)

Accountants

CPAs are certified. Not to be confused with bookkeepers.

Should teach how to understand financial reports.

Help structure financial framework and recordkeeping system, teach how to use

Insurance Agents

Lots of different insurances required: unemployment, workers comp, health, liability, equipment, etc

Request bids from multiple firms

Information from Government Agencies

Government agencies frequently are set up to provide information and assistance to businesses

Federal Government Agencies

Department of labor - Labor Mgmt & Cooperatives 

co-op backning group.

US Dept of Commerce - Minority Business Development Agency 

doesn't really apply to me, but depending on co-op makeup...

SBA Office of Procurement and Tech 

federal contracts clearinghouse

Service Corps of Retired Executives (SCORE) 

good training classes and counseling.

Active Corps of Executives (ACE) 

like SCORE

Small Business Institute (SBI) 

university students training to be consultants work in teams as part of studies

Small Business Development Centers (SBDC) 

more assitance, working with SCORE, ACE, chambers, trade groups, etc

National Science Foundation 

innovation centers provide assistance to tech businesses

State and Local Agencies

Offices of business and economic development - usually to attract businesses, but can help co-ops too Job Training Partnership Act - worker retraining A bunch of stuff to deal with plant closures (not applicable)

The Legal Structure

Choosing a Legal Structure

You can set up worker coops different ways, with the actual operation rules in the bylaws. Choice of structure does make a business difference however.

• sole proprietorships
• partnerships
• associations
• joint ventures
• corporations
• nonprofits
• cooperative corporations

Corporation

legal entity in its own name

limited liability, do not dissolve when shareholder sells or dies

Issue and sell stock shares

Shares usually freely transferable

Board of directors elected by stockholders

Double taxed on income and dividends

Nonprofit corporation

Similarly limited liability, but no stockholders

Chartered by the state

cannot pay dividends

wages must be comparable to wages in similar fields

have some tax benefits if qualify as 501c3

Cooperative Corporation

Under a state's cooperative statutes

Entitled to all benefits of corporations

Can use "Coop" or "cooperative in name"

May use memberships instead of shares of stocks

can restrict stock transfer

Can use IRS Subchapter T to avoid double-taxation (though this applies to any business the IRS deems a cooperative)

Coop laws vary widely from state to state, may be able to incorporate as a "foreign corporation" in more favorable state.

New Developments in Cooperative Law

Massachusetts, Maine, New York, Connecticut, Vermont all have added Mondragon-inspired co-op laws

Massachusetts Worker Coop Law

1. expressly makes the corporation a democratic membership org
2. permits equitable contribution-based allocation of earnings & loss
3. authorizes ICA capital structure system
4. ensures allocation follows Subchapter T guidelines

Membership

Requires issuing voting rights to members who work

Other classes of stock that don't get to vote, except on amendments that could affect their rights adversely.

Cash Distribution

allocations of earnings/losses to ICA accounts or written obligation. org does not pay income tax on allocations

Can retain some allocated earnings and reinvest them

Internal Membership Accounts

ICAs prevent excessive membership share fees.

Separate membership rights from personal property rights.

Requires interest paid on ICAs.

Incorporating a Labor-Managed Cooperative

Do your homework

Articles of Incorporation

Stub charter submitted to Sec of State

Usually contain:

• Company name and address
• Purpose in general terms (eg any lawful activity)
• number and names of original directors
• stock structure
• any other provisions required by state laws

Bylaws

Effectively the constitution of the organization

• name and location of company
• more specific purpose
• how it will do its purpose
• principal business office
• membership requirements and restrictions
• privileges and responsibilities
• scheduled and special meetings, notice period, quorum
• number of directors, terms, election methods, quorum, etc
• voting rights of members (1 person 1 vote)
• officers
• amendment procedures
• how profit/loss is distributed
• dissolution procedures
• anything else that needs to be included by the state or by membership

See also: your parliamentary authority

Directors

Determine basic poicy, annual budgets, major contracts, work plan, keep records of meetings and legal docs the state may need

Failure to operate in good faith CAN make directors individually liable for anything that harms the org

Directors usually have liability insurance to protect them

States may specify min or max number of directors

Managers or Officers

day to day business ops, appointed by directors or in small coops hired by membership.

Officers have legal authority, and statutory responsibilities

Shareholder-Worker-Members

traditional corps shareholders only elect directors and are otherwise uninvolved

Worker coops, members are involved in business ops

Voting

Make clear it is one person one vote, especially if not required by law!

Sharing Net Profits or Losses

Belong to the members Distributed based on labor contributed to ICA accounts Some profit retained for growth and education

(also pay bonuses - pay adjustments based on profit!)

Creating a Democratic ESOP

Worker stockholding - but do not necessarily set up voting rights or worker self direction or control

ESOP buyout leaves company run by trustees not workers

Normal ESOP is not a good worker ownership strategy

Ways to make it work:

• All votes made by trustees, but that trustees must follow instructions of the employee-owners
  • This creates a potential conflict of interest on behalf of the trustee
• Two classes of stock, voting and nonvoting, every ESOP member gets one share of voting stock, the rest accrue as business is paid off
  • may violate ESOP voting share requirements in law

1986 Tax Reform Act may allow one-person-one-vote

ESOPs may offer hybrid structure that is more flexible

ESOPs may imply financial oversight that lets capital sources trust the structure

ESOPs provide a third party that can allow a retiring owner to leave quickly, while gradually transitioning to worker ownership (see: Moog)

Members’ and Directors’ Checklist

• Adopt and amend bylaws
• Adopt resolutions at annual meetings
• Elect or remove directors
• Approve and formulate policy
• Approve major capital expenses & purchases
• Receive annual company performance report
• Assist in financing firm
• Require directors & managers carry out membership-set policies
• Actively participate in governance (committees, meetings, etc)
• Leave membership when leaving employment
• Set policies approved by membership
• hire management and delegate only powers the membership's approved
• elect officers of the board/firm
• raise capital, do financial stuff, approve budget (treasurer)
• Select lawyers/accountants
• Remove managers for cause
• fill vacancies on board
• keep records (secretary)
• contracts, leases, loan arrangements
• establish personnel policies with social council
• evaluate performance, growth plan
• keep the firm going!
• present policies, records, budgets, resolutions, amendments to general meeting

Managing Worker Democracy

Governance

political, decision method important

Management

economic, decision quality important

Should be united in a worker cooperative, though very little combination of the two experiences exists.

Principles of Democratic Decision-Making

Branko Horvat's principles of democratic decision making.

Work unit 

first decision making level, small face to face group

Federation 

work units federate as a work community. Work communities federate as enterprise community. Electoral process needed

Waterline 

Decisions that will affect others climb the federation structure to involve everyone affected

Rights & Responsibilities 

work units are responsible for outcomes of their decisions, competent administration and implementation of decisions - basis for managerial authority

political vs economic functions 

policies rise from the work unit to the board democratically, administration of them is technical competency based

gestalt management 

membership invents social councils to maintain the spirit of the co-op, also judiciary for grievance handling. Could be implemented by a union

Political decisions are best done electorally

Economic decisions are strategic - made in response to situations, quickly, by policy

Work unit provides greatest direct influence and experience/practice of democracy to every member

Grievances > union?

Workers need intrinsic motivation aspects (autonomy, mastery, purpose) - jobs based on people importance.

Job design & Job rotation integral to Mondragon planning/management

Job rotations help with morale, also buffer against economic environment shifts

Levels of Decision-Making Power

Problem solving steps:

• Recognize/define problem
• work unit or individual shows problem to others
• data gathering
• discussing options / making decision
• implementing decision
• evaluating outcome

Responsibilities of Managers

• coordinate & administer according to policies
• develop reports budgets financial projections, lending summaries
• bookkeeping/accounting system and have it audited
• attend board meetings to present reports & options (nonvoting)
• no conflicts of interest

Rights of Managers

• hire/fire within policy allowance
• make recommendations to any working groups
• organize/admin/plan/control finance and administrative operation
• oversee production processes
• performance appraisals
• set up training/education

Managers need to derive authority from the membership, not capital needs

Peter Barnes lessons:

• growth happens, accept/plan for/enjoy it
• Democratic orgs need leaders, who need to be supported & rewarded like any other job
• Authority matched to responsibility (managers get their authority from being given the responsibility for the thing)
• get sophisticated not cynical
• make the org and its values self-renewing
  • power / responsibility sharing > risk sharing
  • new member-owners get responsibility too
  • education is essential

Areas of Potential Conflict

If these are not true:

• management/board agree to company objectives
• board/management duties must be spelled out & agreed to
• management's compensation spelled out
• board doesn't manage, they work on planning and policy
• board decides/adopts policy, mgmt or membership suggests policy
• board should involve mgmt when deciding policy (make sure it's feasible)
• board should require reports from mgmt to inform decisions
• mgmt must not have control over the board through those they manage/employ
• board may not interfere directly with workfloor management
• board must represent the workforce's interests
• workers should be involved with work decisions

Democracy on the Workfloor

worker-owners internalize the contradiction:

as workers 

want to govern the work

as owners 

want jobs to be done predictably

In a small group, electing a board may initially be enough - however representational democracy ultimately isn't sufficient.

A mediation plan between management and workers must be created, arbitration/grievance system etc.

workplace democracy creates some issues unique to its form that cannot be solved by copying a traditional firm.

Assumptions from capital corps that need to be reconsidered:

• workers work for managers, managers work for the company
• managers alone know what's best for the company
• managers give orders workers take them
• managers and workers share few goals and are adversarial groups

Worker coop changes these:

• workers and managers own the company
• workers and managers have knowledge/info the company needs
• both workers and managers must treat each other as equals
• both are owners, therefore share some goals

First barrier is an educational one - business skills must be returned to labor

Start learning workplace self-governance in the job.

Second step - building a dialog between worker-owners and manager-owners

• ground rules
  1. avoid intimidation, threats, control dramas, power plays
  2. agree to communicate openly - address anger/resentment rather than letting it build
  3. equitable consideration of every member's opinions
• cooperative agreement - policies of operation for the coop, agreed to by members before starting it
• decision agreement - understanding of how decisions are made, for worker-owners
  • who makes which decisions, exactly
  • what decisions each category of person makes
  • small groups/task forces/committees to make decision options to present to larger group, or make a decision authorized by larger group
  • split decisions into categories (policy, mgmt, workshop floor) or policy vs procedure
  • decision appeal/review process
  • thorough information dissemination for decisions
• belief/value or business philosophy statement
  • workers are responsible and can make corp decisions
  • workers must have a decisive voice in governance, via one person one vote
  • corp values balanced with human values
  • income distributed equitably and internal accounts administered prudently
  • problem-solving should be group work as much as possible
  • decision-making authority shifts to lowest level appropriate
  • opportunities for anyone to learn skills or new jobs
  • membership open to (required of?) anyone employed

Transforming management relationships is not a "nice to have" that can be postponed!

WSP (small group problem solving) waterline tests:

• Extensiveness Test
  • How many people affected, how?
  • How much time?
  • How much cost?
  • How much savings?
• Significance Test
  • Will this change the basic nature of the company?
  • Will this put the company at risk?
  • Will this affect the company's profits?

Education for Ownership and Participation

Members have a responsibility to know how the company works and how to make it better.

Worker-ownership democratizes knowledge

Financially-successful cooperatives make provisions for the education of their members, officers, general public - in techniques of economic/democratic cooperation (CICOPA)

Lack of education identified repeatedly to coop business failure. Education leads to success and growth.

Difficulties in getting started

Barriers to creating own jobs

1. lack of knowledge/skill/experience
2. psychological reluctance - lack confidence, assertiveness, etc

Insecurity about these can breed gossip/rumors and lower morale

Developing an educational plan

any work experience can be categorized and taught

education/training program must come from the workers' collective interests and needs, and collaborate with teachers

should include:

vocational 

job skills

performance 

management skills

political learning 

leadership, democracy, community improvement

cultural 

labor-based vision of social change

building of worker self-confidence and personal competence achievements is integral

workers identify needs, and call teachers or train each other

community is vital, to keep workers from trying to keep up with the JonesCorp

Assessing Educational Needs & Interests

Survey the members for what they need.

1. opportunity to learn any job is open to any member
2. learning occurs through work, dialog, or classes - members should use any or all of these to build learning
3. aim of education is to increase abilities, skills for all to improve corporate decisions, resources, policies, results, social benefit, community, etc