Should a Worker Co-op Have Investor Owners?

[Editors's note: this is a clip from last month's livestream. If you'd like to join in the conversation, our stream runs for about an hour, the second Monday of the month, starting at 7 pm Eastern. Our next one is one week from today — 4/10/23.]

Ajowa and Josh share their thoughts on whether worker co-ops should have investor shares with voting rights.

Reference: ILO statement and request for proposals on pseudo-cooperatives (2018).

Transcript

Christopher Preciado: Yeah, so the on the last stream we were talking about worker cooperatives or so-called cooperatives, where shares are part of the structure. And so I was curious if y'all have any thoughts about the situations where the workers - who are also the owners - are part of this share share system, right? - it's a corporation, has a share system - and the workers have 51% of the shares, or 51% of the vote at board of directors meetings, 51%. And then other investors, they have the 49%. You know, what have y'all seen about how this works out, or are there any benefits to this to consider, or what are the weaknesses or dangers of that?

Ajowa Ifateyo: I haven't seen any co-ops with those kind of numbers, but it really seems pretty high for the investors to have 49%. That's really dangerous. They could easily flip that to some kind of control. I believe Equal Exchange had some investors, but they didn't have voting power. They didn't have a lot of way that they could overturn the whole balance, and I haven't really heard of others that have similar kind of structures. But that one really, really sounds a bit too much. I think something much, much smaller would be more appropriate.

Josh Davis: Yeah. I mean, and the standard, as Ajowa just said, is like what Equal Exchange has done with preferred shares. And there are many co-ops that offer preferred shares as a way to get equity from outside their members, without having to get a loan. But preferred shares, as Ajowa just said, have no voting power. And they pay, you know- they're not required to actually pay anything back. They're called preferred shares because if there's money at the end of the year, that excess is going to be distributed - before it gets distributed to the members as patronage, it gets distributed to the preferred shareholders. They're preferred in that sense, they get paid out first. But like with Equal Exchange, they have a target rate. And the last time I read an article that they wrote about it, it was- I think their target rate was 6% per year. And if the business did bad, and they didn't have as much money as they thought they would, they might not pay 6%, although I think they'd always managed to hit their target.

But that's the thing, they come with no voting control. So the standard up until now - until recently, anyway - has been outside investors get zero voting control, zero board seats. And that's because one of our co-operative principles is independence and autonomy, or autonomy and independence.

So having a board of directors that 49% has been voted into that position by outside investors - by just people who have nothing to do with the co-op except putting money in - that to me- now you're 2% right? If the investors had 3% more, they'd have a majority. And then we'd just be back at capitalism once more. So we're 3% now away from capitalism. So no, this is not okay. I mean, we didn't even have the conversation as to whether or not investors should be allowed any voting share. Like where is the, "Should we give them 5%, 10%, let them elect one board member of ten, or something?" Like, it's right to nearly 50%. I mean, 49 it is - it's 50%, it's half. Let's not kid ourselves, 49% is half.

And so yeah, no I think that it's a problem. I'm not a fan of it. I know there are a couple of states with cooperative incorporation statutes that allow for this kind of thing, but I think we should really be pushing back on it. And, yeah-

But I could ramble on forever. I want to- you know, Chris asked what's the argument in favor? I know the argument favor is going to be 'it's how you get money for your co-op.' You need financing. And so most investors - because they just want to take their big pile of money and make it into a bigger pile of money - they're not just going to give it to you for nothing in return or just, you know, the promise of maybe getting some money. They want control, just like in- because we live in America in a capitalist economy. And so that's why you would make these concessions as a co-op. And so, yeah, there's a whole lot more to unpack there. But I don't want to talk forever.

Ajowa Ifateyo: Yeah, that control thing is really serious. When Equal Exchange did it, the investors were churches and nuns groups who wanted to make a contribution, not to make money. So yeah, that's quite a long ways. And it sounds like some people who want to make money have discovered the cooperative, and figure out a way to try to turn it into something that they can benefit from. And we have to be on guard against that.

Christopher Preciado: Thanks. Thanks for answering that curiosity I had. Because I was thinking about it recently, I saw- I'm not pursuing it anywhere, I wouldn't pursue it anywhere, but if I see it becoming a pattern here, it's good to have something like this recorded. Allows you to just slide it someone's way.

Josh Davis: Yeah, I think there's going to be more. I think you'll see more in Chicago, and we'll see more in other places as well. Like I said, there are already a couple of states - I think Wyoming is one of them - with a really nasty co-op incorporation statute that basically allows for co-ops that look nothing at all like co-ops as we know them, just using- keeping the same name. So I think at some point it's going to get to where we have to be like- co-op is not going to be good enough anymore.

I mean, I would like to think that we'll be able to stop even just the worker co-op brand from being watered down so much, to where it doesn't mean much anymore. But the way things are going, you know- like Ajowa said, there's a lot of big money people who seem to have discovered co-ops, and maybe it's they've exhausted everything else, and so they're finally coming for us. But, you know, they're going to keep doing their thing. And if they keep talking about their co-op stuff and and keep doing these 50% investor owned, quote-unquote co-ops, it is going to get to a point where we're just going to have to come up with a new name, or something, that designates, "no, this is the real ones," not one of those co-ops, right?

Ajowa Ifateyo: Right. Yeah, they're going to give co-ops a bad name. Something that they did in, I think 2004 in Europe, and the ICA had to come out and say, "these guys are not really co-ops," because they were really horrible to the workers. And so there was a whole movement, even in the US Federation of Worker Cooperatives, to define what a worker co-op was, so that these guys could not pretend to be worker co-ops.

So we may have to go back to something like that, where we make it very clear what the difference is in a real worker co-op, or some corporation masquerading as a worker co-op, because that name has a lot of pull, and people want to support worker co-ops now. And so they wanted to cash in on the hard work that the co-op movement has done to get people to be in solidarity with workers - and so they want to use it for their own benefit.

Josh Davis: Yeah. And I will say, I don't want to be just completely negative. I can certainly imagine a situation in which you have one of these co-ops, that's 50% investor owned and controlled, and they start a co-op and they employ a bunch of people and they do have a business that makes money and provides jobs that are in better conditions, and have better wages, than your standard capitalist job working in low wage service sectors. I can see that that would be a thing. But is that all we're going for? Is that, you know- should we not just be pushing for a $15/hour minimum wage and Medicare for all, then? I mean, it can be better than the really messed up situation that's the norm right now, and still not be good enough, I guess, is what I'm saying. At least from my perspective.

So I don't want to make it sound like there's no possible way in which anybody could benefit from any of this stuff if it's not a real co-op in our view. But still, it doesn't mean that it's- they should come up with a different name for whatever it is they're doing, and don't call it a co-op, right?

Ajowa Ifateyo: Right. Yeah, I think your point is we have to be very careful to make sure that it really is a cooperative, and not something that a corporation is going to use to just make more money, and screw the workers in the end.

Josh Davis: Or just not live up to our ideals. Even if it doesn't rise to the level of totally screwing people over, it doesn't have to get that bad to still be like, "No, that's not cool," you know?

Ajowa Ifateyo: That's true.

Josh Davis: And there are lines to be drawn. There's no easy answers for a lot of this stuff because everything is always fuzzy, but we need to have the conversations at least so we can kind of agree where we all think the line should be, rather than just not have the conversations at all. And then somebody can just go and say, "my line is way out here." And if it's completely different than the consensus, who even knows, because we never even have this conversation. So I'm all about just being more open about all this stuff. I know not everybody agrees with me on that, but we're the ones with the livestream, so I guess too bad.

Christopher Preciado: Have the conversations and get the phone calls, right?

This transcript has been lightly edited for readability.