Loomio
Wed 5 May 2021

Worker Coops v Employee Ownership

SBH Simon Ball (Blake House) Public Seen by 136

Maybe worth a discussion about the recent proliferation of employee ownership trusts and their promotion.

Broadly, I can see them as a kind of 'better' alternative to trad business organising, but am finding myself becoming more and more mystified as to why they get roped together with worker co-ops (and indeed dominate the 'start a worker coop' page on the coops uk website - bizarre).

Do we have any resources that can be pushed as an alternative to employers who want to hand over the keys? Presumably with furlough ending soon there may well be a deluge of companies that may find worker co-op conversion appealing.

Maybe we need to have something in place to counter all of this employee ownership cash/propaganda?

Is there something already in place?

JA

John Atherton Wed 5 May 2021

Yes, worth discussing. Just for info our policy officer is holding a series of meetings with the worker co-op council to raise understanding across all sides, get some shared views and discussion going. As people would expect there are a lot of nuances to this and different ways of looking at it.

For me you can break the conversation down in two ways, the first is about use of language/ brand of using terms like worker co-op or employee owned actually means, and how we define them and clearly for some audiences worker co-ops sound too radical. whole conversation here I'm sure we will get into.

The second is about the legal model used of Employee Owned Trust and something we should separate out.

I believe, co-ops should see legal models as just tools and you use different ones in different circumstances, as long as they dont compromise on principles. My understanding is, nothing stops you from baking in full 1m1v democratic ownership and control into the EOT model it just works slightly differently. The issue is most practitioners who understand that model or clients asking for it aren't shown a co-operative version.

I'd like to get to a position as with LLP's, companies and societies where we have a fully co-op complaint EOT model for co-ops. That way if for whatever reason it is the right tool, we have a co-op version. But equally if it isn't the right tool we are confident in promoting LLP's, companies or societies.

NBC

Nathan Brown (Co-op Culture) Wed 5 May 2021

You're right @Simon Ball (Blake House Coop) . we need to do more to sell the worker co-op option for buyouts but maybe not as "oppositional".


Just to back up what @John Atherton has said, the use of Employee Ownership Trusts is often about how the process of the "deal" to buy out the business from the owner is structured rather than the final organising form. It's often about tax efficiency and a staged process of the transfer of ownership.

As John says, the advisors working with employers often don't know about co-op options. If you're an employer and you want to sell up you speak to your accountant first, then maybe a lawyer depending on what they say. So, there definitely needs tyo be greater awareness among advisors. Hopefully something in the Co-operatives UK strategy.

The choice of worker co-op vs what amounts to a management buyout funded by the employees can be as much about how the workers/workplace is organised (there is demand for a worker coop answer to this problem) as the employer choosing a particular model because they are paying for the advice. They are cashing out. They want to know whether they can get a good price for their business. In some instances they care about the company name/legacy or employees who have shown them loyalty/impact on the community of closure. Whether this is through a co-op or an employee ownership trust that isn't a co-op may not matter to them if they are presented with a range of options that meet their preferred outcomes equally.

SBH

Simon Ball (Blake House) Wed 5 May 2021

So, do any co-op developers have resources that deal with this issue that other co-ops can begin to promote? If not, maybe it's worth bringing up a SF proposal so that we can develop these resources in advance of furlough ending.

I guess I'm a bit simple in that for me a worker co-op is a worker co-op by agreeing to practice co-op values and principles - do all employee ownership trusts do the same? I couldn't find any mention of co-op values and principles in the Ownership Hub prospectus pdf.

BC

bob cannell Wed 5 May 2021

As MarkS once said the jam is the coop and the jamjar is the rules. If you have a jar that does not permit the jam to be cooperative, it doesnt matter what it says on the label. It isnt a coop and therefore cannnot be a workers coop.
Ive researched EOTs for many years, and VME in great detail. (VME is the new one that claims to be a bona fide worker coop and is currently being considered for membership by CoopsUK).
We have uncontested criteria to use,t he International Cooperative Alliance declaration/definition says a cooperative is "an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise."

An EOT is a business owned by a Trust, a legal entity, which has as its purpose the benefit of specific beneficiaries. The beneficiaries of an Employee Ownership Trust are the employees, the John Lewis model. The Trust is controlled by trustees who decide what and how the beneficiaries benefit. Trusts are private. Their controlling documents are private. The Trust Register is not accessible by the public (the Tories did that because so many trusts are used for tax avoidance.) In many cases we cant even know who the trustees or beneficiaries are

A Trust cannot be controlled by its beneficiaries by law. That hasnt changed. It is acceptable for a minority of trustees to be elected by the beneficiaries but not a controlling majority. The other trustees are appointed by various means (often 'Hi Fred, old friend, old chum, do you fancy being a trustee. We have a vacancy. Its a good cause and the lunches are nice.) They are frequently the previous private owners of the business. Its charity culture.

There is no way around this. The employees as beneficiaries cannot control the trust. If they dont control the Trust they do not own the enterprise, regardless of the management culture which might be highly 'cooperative'.Therefore, by ICA definition, a majority EOT cannot be a coop let alone a worker coop. (there are models where the EOT owns a minority of the shares and the workers individually own a majority between them, but thats another argument.)

Of course anyone can say they work cooperatively but that doesnt make them a coop, as various 'cooperative' businesses discovered when the owners decided to sell up or block changes or make changes the 'cooperative' workers didnt want. Who remembers Community Foods? A New Age 'coop' in London importing and exporting fruit and nuts, making lots of money for its worker 'members'. The owner came back from his decades long travels. Everyone thought he had disappeared or died. He wanted the money so he sold it over their heads. It happens more frequently than you think.

But EOTs make lots of money for specialist lawyers, allow owners to retain 25% shares in the business so they retain significant control and lay off the risk onto the employees and have big tax advantages over just selling the business to someone else. So we have a well promoted production line of EOTs now, converting boomer businesses into EOTs.
We dont have similar for worker coops, for various reasons none of which are insurmountable. Its commonplace in France, Italy, USA, Spain, to convert boomer businesses into proper worker coops. There hasnt been the committment here in the UK to make it happen like they have.

JA

John Atherton Thu 6 May 2021

@bob cannell this is why we are running a session with the WCC and I know the gov panel are discussing our conversation with legal advisers was different to what you suggest. Our view is the employees of the "co-op" can have full ownership and control over the trust and elect/appoint all of the trustess. The issues is the trust/trustees have to act on behalf of all employees, not just members. The obvious way round this is to ensure all employees are member, and all members are employees but there maybe an issue s around voluntary and open memberhsip.

SG

Steve Gill Mon 24 May 2021

Hi @bob cannell, I'm really excited to read you've been studying the VME EOT in great detail. I'm currently sitting a Masters in Cooperative Management from St Marys University in Canada, so I welcome challenge, particularly on VME's implementation of the values and principles. Not many people know the EOT was the fourth attempt to convert VME to a co-op, having been 'left at the alter' by some of the retail societies whilst trying to create a multi-stakeholder co-op using FairShares rules in 2020.

I was thinking it might be of great value for me to host a zoom call, where members of this forum (and others - all welcome) could come together and discuss in detail what we did, and why we did it? More of an open discussion than a presentation. Would there be interest in that?

JA

John Atherton Tue 25 May 2021

@bob cannell the WCC and CDB session we did went really well and VME explained their approach which I think reassured most people, but will let other speak for themselves. To be honest with the inclusion of Sociocracy as well as the hard governance stuff, it seems VME are more "co-operative" than some other co-ops.

If there is demand very happy for CUK to host a session to share what VME have done.

MM

Martin Meteyard Tue 25 May 2021

Please count me in Steve - would love to know more.

G

Graham Thu 6 May 2021

"...the advisors working with employers often don't know about co-op options"

If this is the case I'm struggling to understand why Cooperatives UK seems to be enthusiastically support this current programme about employee ownership where the EOA will clearly be the benneficiary, whilst worker cooperatives - which is where Cooperatives UK should be investing its energy and resources - are effectively being sidelined.

JA

John Atherton Thu 6 May 2021

@Graham we have a joint project at the moment with the EOA funded by the open society foundation. There are many strategic reasons to be involved in this project no least to raise the worker co-ops as a viable approach to the existing EO practitioner network. The project is expressly about (from our end) promoting the worker co-op model, particuarly for start-ups. As the challenge is (and what we are working through it) EOT's are seen as the tool to use for succession/buy-out. So we either need to create an EOT model that meets our worker co-op principles, which is more likely to be successful or we need to try and convince people and develop a model were a succession, at scale can take place into a company/society without a Trust. Its really basic things like the seller gets tax relief if a trust is involved and so financially it is the obvious choice.

G

Graham Thu 6 May 2021

Many thanks John for the clarification. I guess my frustration around this is that it seems to have taken so long to get to the point where a "worker co-op friendly EOT" is being developed. The current boomer bubble of business owners looking for exit strategies could be seen quite clearly years ago, and conversations about business succession have been happening for as long as I can remember. Better late than never I suppose.

G

Graham Thu 6 May 2021

At the very least the programme could have included a strand whereby the professional advisors are skilled up to understand what a worker co-op is? And where is the framework that advisors can follow to simply organise a conversion direct to a worker co-op?

G

Graham Thu 6 May 2021

"We dont have similar for worker coops, for various reasons none of which are insurmountable. Its commonplace in France, Italy, USA, Spain, to convert boomer businesses into proper worker coops. There hasnt been the committment here in the UK to make it happen like they have."

Why not? This looks like a huge strategic mistake.

MW

matt wilson Mon 24 May 2021

Hi Steve - I'd be really interested in that!

MJH

Maggie Joan Haggas Tue 25 May 2021

About 20 years before I got old I began to research how walkers/cyclists' hostels and intergenerational housing co-operatives might support one another: My Olympic standard proclivity to procrastinate has not helped but I still haven't found a legal entity that would be suitable for 3ahh's project: https://www.facebook.com/3rdager. Please take a look at our Fb page and @3rdagehostels and let me know what you believe would suit us. We are based in the UK. I visited Barcelona with Cath from Radical Routes and few years ago and, if anybody knows her, I'm enjoying following Claire de la Lune's adventures on her Fb page; the last time we met was at a co-operative farm in Barcelona. Cheers from @3rdagers.

CMI

hi everyone. James Wright (CUK policy officer) and I organised a study circle looking at co-operative business succession and the barriers to worker co-op buyouts. The 5th session will be on 26th August 9-10.30am, looking at the lack of worker agency in the narrative around buyouts and at the lack of worker confident/capacity. That session will be at https://rr.meet.coop/cat-0r5-itt-vad

Notes from the first four sessions, plus recordings and links to extra reading are here:
https://files.radicalroutes.org.uk/s/GaXZoeAsKogTqTs

A lengthy paper with policy asks has been drafted to input into CUK's strategy process - the legitimacy of the asks comes from individual and group endorsements and we are keen for anyone who's particularly supportive of CUK putting more resource into supporting co-operative buyouts to have a look, make comments and add their name to the bottom.
Deadline for comments & endorsements 6th August: https://docs.google.com/document/d/1QlH7IGXdL8Unf8zGbh1dUWiOEurmYtksryp_8Y4kB1k/edit

There is potential for a development programme and possibly some kind of advisory group, it would be good to explore that further

G

Graham Tue 3 Aug 2021

A really important initiative. My only surprise is that it is only just happening now.

ST

Sam Toland Mon 2 Aug 2021

Looks good.

AB

Alex Bird Mon 2 Aug 2021

Excellent paper. So pleased to see this initiative going forward

JS

Jenny Stein Tue 3 Aug 2021

Really pleased this work is being done. Thank you.