A Sustainable Economies Law Center Teach-In
How do you spread ownership and control across a group of people? In this 30 minute teach-in, Sustainable Economies Law Center's Ricardo Nuñez sped through a very short introduction to the principles and practices of democratic governance and management for worker cooperatives and worker self-directed nonprofits! He discussed:
- Governance & Management in Worker Coop Corporations & Worker Self-Directed Nonprofits, and
- Board of Directors Roles & Responsibilities
He was also be joined by a Kieron Slaughter, Chief Community Development Officer at the City of Berkeley’s Office of Economic Development, who shared how Berkeley businesses can access the Berkeley Revolving Loan Fund, particularly in light of the coop-friendly amendments that went into effect in 2020 and the influx of CARES-funded no/low-interest loans (so exciting!).
We’d like to thank the City of Berkeley for sponsoring this event and making more resources available to grow the cooperative economy in Berkeley!
If you are an entrepreneur, a business owner thinking about succession planning or transitioning to an employee owned company, or a worker coop with worker-members or candidates looking to skill up (Principle 5!), this training is for you!
Ricardo Nuñez: My name is Ricardo Nuñez, and if you're here for the teach-in intro to cooperative governance and management, you're in the right place. I work at the Sustainable Economies Law Center. I'm the director of economic democracy. And today we're going to be talking about how do you spread ownership and control across a group of people. And we're just going to do a very short introduction. It's a pretty short time that we have together, about 30 minutes, so we might go a little fast, but we are recording this so you can come back to watch it again. And anything that we touch upon today that you're interested in, or confused about, we have resources for you. So don't worry about that.
So just to give you a little bit of a flow of what we're going to be talking about today, or the agenda. Just going to do a really short intro on the cooperative difference. What is a co-op? Just in case there's folks who don't know. Then we're going to hear a bit from Kieron, our friend from the City of Berkeley, about Berkeley City support for cooperatives. And then we're going to talk about governance and management in worker cooperative corporations and worker self-directed non-profits. We're also going to touch on board of directors roles and responsibilities. That's part of governance that a lot of people ask us about at the Sustainable Economies Law Center. We're gonna touch on governance and management, in LLC worker co-ops. We're going to sprinkle in a few case studies, and if we have time, we'll have a little Q&A. But if there are questions that you have while we're moving through this, feel free to write them down. Even right now. If you were here for a particular question, if there's something top of mind for you that you're interested in hearing about — a topic, an idea, a question that you're moving through — drop it in the chat. My coworker Yassi is going to be collecting those questions and popping into to ask me or to ask your question, and sometimes we'll have a few questions that might actually be able to be merged.
Before we get started. Just a quick disclaimer. I am not an attorney. I'm a legal apprentice at the Law Center. In California you don't have to go to law school to become an attorney, you can apprentice under an attorney and become eligible to take the bar. And this Friday, I'll find out if I passed it. So everybody get your rocks out, do your — light the candles, bring that good energy. Hopefully, I can have some good news on this Friday.
So, cooperative foundations. What is a cooperative for those folks who might be new to cooperatives? When we think about a conventional business, we think about ownership in, and governance and control, all being sort of meshed together into one person who controls the operation, or maybe some stakeholders or shareholders that are outside of the company. But when we're talking about a cooperative, it's a different type of organization. And one of the simplest summaries of what a cooperative is, is how does the organization relate to its members, or to its owners, the members of the cooperative? And although we might have to redefine what "own" means when ownership is meant to break hierarchies instead of reinforce them, we can still think of this organization a cooperative organization, differently than a conventional one because it's spreading ownership and control, and governance. And governance is a mechanism to help spread that that control across the organization, across its members. The type of legal entity that you choose will give you more or less flexibility in your options, but we'll we'll get into that later.
So, when we're talking about cooperatives, there are internationally recognized cooperative principles that cooperatives all over the world use for different types of cooperatives, whether it's credit unions, which are financial cooperatives, housing cooperatives, producer cooperatives, agricultural cooperatives, and worker cooperatives. And these are the seven internationally recognized cooperative principles. And so different cooperatives look at these and try to figure out ways to incorporate them into their organization, particularly into their governance, which we'll get into. And certain cooperatives around the world, such as the Mondragon Cooperative Corporation in the Basque region of Spain, which has tens of thousands — I think the last time I heard it was about eighty six thousand — worker owners split up amongst over 500 enterprises. They've created their own cooperative principles. And so they have clarified these and incorporated them into their governance. And so as you're looking at these, they might seem a bit different than conventional businesses and their bottom line, and the different principles that drive their enterprises. So that's just a little intro into what a cooperative is and how it's different than the conventional business. Before we get into the the rest of our time today, I'm going to pass it over to Kieron. Kieron Slaughter is Chief Community Development Officer at the City of Berkeley's Office of Economic Development, and he's going to share a bit about Berkeley City support for cooperatives. Kieron.
Kieron Slaughter: Yeah. Thanks, Ricardo, and hello Yassi and everyone on the call. Thanks for taking the brief moment to learn about cooperatives and what the city of Berkeley is doing to support them. You know, first and foremost, just want to say, I want to reiterate our support for local, independently owned businesses, especially working on cooperatives. And this is not only on behalf of our Office of Economic Development, but from direction and policies that have been approved by our city council, in addition to funding for programs and events like this. And so, you know, we all know that small, locally owned businesses are essential, but especially to Berkley's local economy and our community vitality. You know, our small businesses have been facing some challenges that basically in the last year and a half have been exacerbated, and increasingly are threatened by the viability. And so, you know, it's a number of challenges that the city faces to keep our small businesses, and to keep the jobs they provide in the community, and to keep that spirit, and that entrepreneurship, and that institutional knowledge that small businesses retain year after year after year, and season after season. And so, you know, one of the strategies that we've implemented to mitigate this displacement is to partner with organizations like Project Equity and SELC. And this partnership began in late 2018, and it's been very successful to date, and I just want to reiterate that our partnership has withstood a pandemic and we continue to push forward and we continue to see success.
And so the project basically has three main goals. One wants to understand the data, to get a sense of the businesses that are at risk, to get a sense of how many folks are at that point in their in their business ownership that they're thinking about succession planning, or they're thinking about converting to another type of ownership model. We also want to raise awareness to help city staff, business owners, our partners learn about the need for succession planning and the opportunities for employee ownership transitions, and to support businesses. To provide technical assistance for businesses to assess the feasibility, to help advance their transition, to provide some incentive to make that transition. And so we're really happy with the progress that we've made thus far. And we continue to learn, we continue to learn from each other.
And so briefly, just some of the things that we've been able to accomplish so far, that I'd like to note, is that we have a revolving loan fund. And many people aren't aware that cities — some cities — actually have funding available to support organizations, non-profits, co-ops and businesses, but oftentimes those policies were geared towards more traditional business ownership models. And so even the language in our materials and some of the requirements weren't necessarily friendly or welcoming to cooperatives. And so with the work of our loan administration board, that I am the secretary of, with the work of our partners, Project Equity and SELC, we have made modifications to that administrative plan to make it easier and more welcoming to support worker co-ops, and to actually have a goal to allocate 10 percent of our loan portfolio to worker-owned cooperatives. And that's something that we continue to push for, and look forward to reaching that goal.
And so in addition to our revolving loan fund program, we did receive some CARES Act funding for a program that we call our resiliency loan program. And that's for existing organizations and businesses in Berkeley that are at least two years old and have less than 50 employees. And we have been providing low-interest rate to no-interest rate loans to businesses and organizations. And so we've done one round where we funded 11 businesses. We plan to launch another round in the first quarter of next year. And if any existing organizations or businesses are in Berkeley, we encourage you to sign up, follow our newsletter, and look forward to an announcement when we make that funding available again for the second round.
So once again, just want to say the City of Berkeley is very, very enthusiastic about this program. We're very enthusiastic about the work thus far, and the opportunities that we have in the future to make it even more — to make it easier and just normal for worker owned cooperatives to thrive and be successful in the city of Berkeley. So thanks again for having me. And I look forward to our continued partnership.
Ricardo Nuñez: Thank you, Kieron. Yeah, and if folks are in the city of Berkeley, they have been an amazing support and leader in showing that other cities can do this, can make these modifications. And we just, at the Sustainable Economies Law Center, want to thank Kieran specifically for all the work and leadership that he's brought, but also the City of Berkeley for doing this work and showing that this can be done. So thanks. Keep popping those questions in the chat. We'll try to get to those. So now on to our co-op governance and management.
So, at the Sustainable Economies Law Center, we figured out that it's all about governance. The systems of governance that you decide on can be just as important as the business planning, and market research, and all the other ingredients you'll need to be a successful entrepreneur, or to run a sustainable business or sustainable nonprofit. So there's a few things that everyone should know about governance, like what is governance? One of the great things about our organization or our organizations, whether they're for-profit or non-profits, is that they act as a microcosms of the larger economy. The way that power is distributed, the way that money flows, who can make decisions and who benefits from the organization. All of these things are places for us to think differently about — at the small level — about ways that we can actually influence the larger systems that we are a part of.
So, what does that look like in a cooperative environment? It looks like this one worker, one vote. In a worker-owned cooperative, workers own and control the company. So one member has one vote. And if you're a California cooperative corporation, that one member, one vote rule is mandated by law. So this is different than a typical business where your vote depends on how much money you've invested in that business. In a cooperative business, money does not equal speech. So that's good in principle, right? So what's that look like in practice? Well, we are trying to institute workplace democracy. And part of that is democratic governance. So if we don't want to reproduce the power dynamics of dominant systems, we must be very intentional about designing for the power dynamics that we do want. Issues of power, privilege, oppression exist within every organization to varying degrees, and some organizations choose to engage in them. And so in cooperatives, one of the things, one of the big learnings for myself — at Sustainable Economies Law Center, we ourselves are a democratic workplace — is that all of those contradictions, all of those issues that exist in society, they are reproduced in our organization; and the difference for democratic workplaces is that we get to decide how to confront them. We get to decide what choices we make and how we want to live in right livelihood with our work and with our communities.
So cooperatives then end up having lots of meetings, because governance is about making these decisions together. And I think a lot of times people have this perception of what cooperatives can look like — whether it's in a governance meeting, or a management meeting, or a work meeting — is that there's these spaces where people just go off on tangents and there's no real system in place for who's making decisions, how they're making those decisions, and how those decision makers are being held accountable. So, deciding on no or very little hierarchy is one thing — because I know a lot of people come to cooperatives trying to take down and tear down those hierarchies that exist — but having no clear governance structure is a completely different issue. So how do we make cooperatives function better?
Well, one of the things that we've learned at the Sustainable Economies Law Center is that — or that we've learned from from past movements — is this idea of the tyranny of structurelessness. The tyranny of structurelessness was a term coined about organizations during the women's liberation movement. The organizations were resisting the very idea of leaders, and discarded any structure or division of labor. However, as one feminist organizer observed — Jo Freeman, the writer of a great article called The Tyranny of Structurelessness — that this apparent lack of structure often disguised an informal, unacknowledged, and unaccountable leadership that was all the more pernicious because its very existence was denied. So these early versions of cooperative and collective management inform our work today in advising clients on how to structure their organizations. So we would just like to throw in that this is how, when you don't have structure, this is sort of what happens. Whoever's the loudest in the room, who's ever the most confident or comfortable person speaking out, is the one who usually will take up a lot of space if there isn't structure to the governance or to the meeting spaces. And a lot of times, those systems that we're trying to deconstruct are recreated, because the people who are more often than not more comfortable showing up in those spaces, and speaking up in those spaces, are the people in society that we have ascribed particular leadership roles and identities to. And so part of cooperatives is that we get to decide these structures — governance and management structures — distributing that power so we can actually account for these inequalities that exist and that we bring into the workplace.
And so, when you're deciding and defining cooperative governance — who's making decisions, what decisions are being made where, and how those decision makers are being held accountable — co-operatives often have to decide all of these things beforehand, or at least as they're moving through, to create clear governance procedures because a lot of times in the past we've seen that co-operatives and democratic organizations make the mistake of adopting — of not adopting — clear governance procedures. And so these governance procedures are typically laid out in the bylaws for corporations, or your operating agreement for a limited liability company.
So, we're talking a lot about cooperative governance and cooperative ownership, but what does governance have to do with ownership? We're going to talk about how we share information and power within our organizations and through our governance structures. So this can serve as guidelines when it's time to write or update your bylaws or operating agreements. Whether you decide to legally become a cooperative, or a nonprofit that is run cooperatively, or something else, you can categorize an individual's relationship with the business into three different categories. First there's ownership: and typically, for a for-profit company, that means what's their equity stake in the business? Control: which is having a say in day-to-day or strategic decision making of the business. And then the benefit: who's receiving what portion of the profits? For a cooperative, this usually is based on patronage — which that's a cooperative term for what's the value that you've contributed over a set period of time, and that you should get that proportional benefit from that value that you've contributed. So these three things for conventional businesses are usually lumped together into one thing, and for cooperatives, it is really great because we actually get to distinguish and define these as separate pieces of the organization.
So just as a real quick: what is governance with a little bit more specificity? It's the space in the organization that you're setting mission and vision, you're deciding the strategy, you're defining the management structures, you're setting policies, and you're evaluating the business against its goals that you set out. So that's a little bit about what is governance specifically. If you decide to be a cooperative corporation, there is those pieces, some of those decision making and the one member, one vote, is already embedded in the legal entity itself, which is good if you want to make sure that your business or organization continues to run cooperatively into the future. And here's just some other pieces of the benefits of a cooperative corporation: you can use cooperative in your business name, you get a special tax deduction, and there's a limit on the extraction of outside investor capital if you needed it.
So, board structures. If you form a corporation, whether it's a for-profit or a nonprofit, you have to have a board. And so cooperatives have typically formed along a spectrum, and I'm going to show the two different ends of that spectrum. So one is a representative board who's making those governance decisions and doing all those things that I just laid out. So a representative board is where all of the members of the cooperative vote and elect a small body of individuals to make those decisions: so that representative board. The other side of the spectrum is a collective board where all the members of the cooperative actually just vote every year. Because it's legally mandated that you have to vote for the board of directors every year as members of the cooperative. So every year, at places like Arizmendi, they kind of have fun with it, because every year they just have a vote and they vote all of themselves onto the board of directors. So that's a collective board. And so these two different models work at different scales, but collective boards can actually work at a big scale. So, for example, Rainbow Grocery which has — the last time I heard, I think, over 120 worker-owners — they actually have collective board governance, and they've separated out these departments to have have those types of decision making and governance structures in those different places. And even smaller cooperatives can have a representative board, because sometimes depending on what the membership wants, they can decide and define that they only want to have a small body of people making certain decisions
Another thing I'm just going to touch on really quick is that corporations have to have officers, and officers are typically members of the board of directors, and they're the executive agents empowered to carry out specific responsibilities for the cooperative, like signing legal documents. These officers — secretary, the president and the treasurer — they don't actually have to have any more power than any other members of the organization or the cooperative. It's just that the state of California wants to know that someone is doing this stuff, signing those documents, filing those reports, et cetera.
And so how does this look in practice? We're looking at the board and the governance, and we're talking about democratic accountability for a cooperative. Here's one example of how it can work. So the membership all comes together once a year, and they vote for the board of directors and that board of directors, in this context, hires management, and the management is the one that carries out the day to day operations of the cooperative. But it doesn't just have to look like this. It can look lots of different ways. So, for example, at the Sustainable Economies Law Center, this is a little outdated, but it's representative of how we've defined and decided how to designate governance within an organization into smaller units called circles. We take a lot of inspiration from socioracy, from holacracy and these different types of governance tools that were developed by various organizations and individuals, and we even try to incorporate indigenous practices into how we're spreading power and decision making in the organization.
And so in both conventional and decentralized organizations, it's common to designate and empower one or more governance bodies, which we've done at SELC. And so here's some questions just for you to think about as you're defining and deciding your governance structures. So what are common configurations of governing bodies and democratic organizations? You can look into that. How are their powers and selection processes generally defined? And when there are multiple governing bodies, what is the relationship among them, and how is power balanced? So, we have lots of resources to help show how that's actually done, which I'll get into a set in a second. I know we have only about five minutes. So sorry, everybody, I'm just like speeding right through this. Here's another example of what cooperative governance structure can look like. That sort of is like the previous model. This is Equal Exchange, which is a worker cooperative, one of the largest in the country, based in Massachusetts, and they're a coffee and chocolate company. But they have their members who vote for their board of directors, and they've decided that out of nine seats, three of those are going to be filled by outside participants. So for you, for your organization, you can actually decide how many of those board seats should be outside participants just as long as you meet the legal requirements for your state. Sorry, I'm just here a little bit of feedback, so I don't know if somebody is trying to talk or what was it.
And so, for example, in California for cooperatives, I believe — I'm pretty sure — that you have to have a majority of the board members being members of the cooperative. So, they have to be members of the cooperatives serving on the board, and then you can fill the rest with outside participants. Maybe they represent certain stakeholders that you want to have on the board from certain communities. That's all the things for you, as a cooperative, and your membership to decide. So in this example, the board of directors hires and supervises the Office of Executive Directors, which is a team who hires and oversees the department managers, who oversees the day-to-day work. Arizmendi does it a bit differently. All of the members elect themselves onto the board and then they actually separate all of their work into committee work. And part of becoming a member and Arizmendi bakery is that you have to move through each of these committees to learn and understand what this work actually is, and the value of it for the business. So that's a way for training members as well in the cooperative, to understand their role as cooperative members.
So if you're on the board of directors, you have legal duties called fiduciary duties. You have a duty of loyalty, you have a duty of care, and you have a duty of disclosure. And a duty of loyalty basically means that you should act in the best interests of the company. Duty of care is that you should pay attention and try to make good decisions. And a duty of disclosure is that when you're making decisions, you should disclose all material facts when a conflict arises. So if the company is going to start a contract with another business, if you have a relationship with that business and you're on the board of directors, and you're one of the people also participating in that decision of whether or not to work with this other business, then you should disclose that fact. I'm going to skip those really quick because I know we're coming up to time.
So here are some cooperative governance design considerations when you're building out your cooperative governance. Specify only the basics up front. A lot of people get caught in trying to make the perfect thing for every scenario, and that ends up eating up time and actually might not be the best thing for you. So just get the basics up front. Recognize individual differences among members and use them wisely. Cooperatives are membership based organizations, and they're as strong as their members. So figure out where are the gaps, where are the strengths, and build out your governance, at least initially, to meet those those gaps and to build on those strengths. And then you can make it so that it evolves over time. Get the governance systems functioning quickly so you can get up and running. Don't turn away expertize, but be careful how you use it. A lot of people are going to be giving you their opinions and perspectives. Just be thoughtful. You don't have to to take it all. Be careful that the small intense governance issues do not drive out the big, important ones. And watch out for the blurring of boundaries between governance and management. Let's skip this one really quick.
If you're interested in starting a worker self-directed nonprofit, we have created a toolkit for worker self-directed non-profits, a guide that lays out the process and templates for how you can establish a self-governing organization deeply rooted in your values and politics. And this distributes — it shows how to distribute the power across a nonprofit organization. So I think we're at time. I apologize for not getting through all of my material today, but we have a legal café starting right after this, or right now, actually, and that's where we do three times per month legal advice and provide legal information, and also just talk about worker self-directed nonprofits and worker cooperatives, if you have questions. So, Yassi's been sharing some resources in the chat. We're going to share the slides. We're going to share the recording after this, and I hope this is this is a nice little taste for everybody to get their appetite wetted around cooperative governance. I'd like to thank Kieron again and the City of Berkeley for supporting this work and continuing to support this work. And also just want to thank all of you for showing up and and learning because you were all the reason that we do this work. So, OK, that's that's all the time that we have today. The there's folks waiting to get some legal advice using this same same Zoom line. So I think we got to, we gotta rollout. So we'll be sending you resources if you RSVP to the event page with all the things that I mentioned.