Hello, all
--
Do any of you have experience with using the worker co-op structure in employee
buyouts? Have any of you promoted the worker co-op an option for ownership
succession?
Employee Stock Ownership Plans are the primary means bringing about worker
ownership these days. But, besides the fact that ESOPs are not inherently
democratic (though they can be made so), they are not suitable for smaller
businesses because of the costs of maintaining them. I've heard mentioned
several thresholds for ESOP affordability (some say roughly a dozen employees, a
local lawyer who has done a bunch of ESOPs says the business needs to have a
value of roughly $750,000) -- all are well over the heads of many of the
businesses that are being sold here in Vermont, and everywhere else
too...
A 1988 book by Daniel Bell of the Ohio Employee
Ownership Center called Bringing Your Employees Into The Business is
mostly about ESOPs, but also has a chapter on using the worker co-op structure
for smaller businesses. It points out that, just as with a sale to an
ESOP, an owner selling to a worker co-op can defer taxes by rolling over
proceeds from the sale into eligible securities (stocks and bonds), and that it
would appear to be possible to sell over an extended period of time (the tax
deferment kicks in when the business is 30% owned by the co-op -- again, just as
with an ESOP).
Why hasn't this mechanism been used
very much? Why couldn't the worker co-op structure be used to make
employee ownership as common an option for very small businesses as it is
becoming -- through ESOPs -- for larger businesses?
I've heard two explanations.
First, it is said that turning a business into a worker co-op requires much more
of a cultural shift than does an ESOP. But I wonder -- if an owner planned
for a sale to employees in a timely way, and allowed for an adequate transition
period (either before the sale, or after -- with the former owner sticking
around as a consultant), why couldn't an "ownership culture" be
created in plenty of time -- with outside help, of course. Second, the
financing mechanism for an ESOP allows for a lot of leverage. There is
nothing comparable for the worker co-op. In most of the cases I know of
where an owner has sold to a co-op, owner financing has been part of the
deal. What would it take on the financing side to make sales to worker
co-ops more common? An equity fund dedicated to the purpose? A
willingness on the part of some CDFI to make loans for member share
purchases? What else?
These are not just idle
questions. I know of several business owners who would be interested in
selling to a co-op if we could figure these things out -- and we haven't done
much in the way of outreach. I'll soon be meeting with a local credit
union and a community loan fund, and could use your ideas! [This meeting was
last week, and all are enthused!]
Regards from --
Don Jamison
New Leaf Cooperative Enterprise Program
Burlington (VT) Community Land Trust
802-660-0640