Re: Fw: Worker co-ops as a structure for buy-outs

[Shann Turnbull <sturnbull@mba1963.hbs.edu>]

May I add 'faulty governance' as a third reason why it is difficult to
make worker co-operatives viable in Anglo cultures?
Watchdog boards are mandated by law in other cultures and this is why
they are found at Mondragon.

It is my view that it is of little value to invest resources in solving
to the two problems identified by Don Jamison if a unitary governance
system is established in a cooperative.  A condition for solving the
second problem of providing finance should be made conditional upon
establishing at least at two, and preferable a three or more centres of
co-operative governance as found in Mondragon.  Refer to my case
study 'Innovations in Corporate Governance: The Mondragón Experience',
Corporate Governance: An International Review, 3:3, 167-180, July, 1995,
Blackwell, Oxford.
http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=6455

A division of: power, information and control, is required to provide a
reliable and democratic process to mediate genuine differences of opinion
without jeopardizing economic viability.  A division of power is
essential to mediate management succession.  Refer to my article in
the COG library on "Employee Governance"
http://cog.kent.edu/Author/Author.htm.
 This article has just been republished as "Democratizing
Employee Ownership" in 'Director's Monthly', Volume 24, No. 5, p.13,
May 2000, National Association of Corporate Directors, Washington,
D.C.!!!!!!

Regards

Shann

At 04:00 AM 1/6/2000 , you wrote: 
> Greetings!  At the
> suggestion of Dan Bell, I am forwarding the following message.  Any
> thoughts would be much appreciated.
>  
> -----Original Message-----
> From: Don Jamison
> <donjam@together.net>
> To: Cooperative business list
> <cooperative-bus@relay.doit.wisc.edu>;
> worker co-op list
> <workers-net@lists.services.wisc.edu>;
> Northwest Cooperative Federation
> <nwcf@seanet.com>
> Date: Friday, May 19, 2000 11:33 AM
> Subject: Worker co-ops as a structure for buy-outs
>
> 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
> donjam@together.net
> 802-660-0640
>  
>

Shann Turnbull

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