Investment in worker co-ops

Hi Mark,

there is always the model of an asset being owned by the community
through a bencom using comm shares but the business run by a
workers co-op.

cheers

Andy

Yes. That's an option I'm keen to explore as a succession option to community pubs moving from a managed to a tenant model - employees form a worker co-op to be the tenant.

Loanstock is one option.

Somerset Rules allow for non-user members to invest in a co-operative (which could be a worker co-operative) but their voting rights are capped at 25% - explicitly to prevent the non-user members being able to block anything.

I think the FCA would not register a Society which gave investor members a veto over significant strategic changes wanted by the user members. But Companies House would.

Dave

We are fairly clear than non-user shareholder s can invest up to 25% in the equity of a co-op (and is it £100,000 for Societies per person?), but the caveat is obviously the 1m1v element which personally I think is non-negotiable. We haven't come across many examples of golden shares (can veto specific decisions) or ability to nominate a specific place on the Board, so we haven't really had the precedents to see if these would pass the co-op test. Personally I think relying on traditional capitalist approaches to raise finance from wealthy 1% who expect more of a say than anyone else, just goes against the whole point of co-ops to me.

I have helped convert a Community Interest Company that was a trading subsidiary of a charity into a Community Benefit Society where the members were the workers and the charity became a "custodian trustee" with a guaranteed place on the Board and a veto on certain decisions (this is a little used option in a Ben. Com.). This was with a view to the Charity eventually "cutting the cord" and the Society becoming fully autonomous. I don't think that this has happened yet.

Thinking out loud (and agreeing with all before me) Worker co-ops and finance, could be put simply as a turning of "capital employs labour" on its head i.e. - Labour employing capital. If the capital starts to dictate the terms to the workers it is no longer worker controlled. If the workers want to stop making missiles and start making rubber ducks but someone can stop them the enterprise is not truly worker owned, worker controlled or independent. I think what the researcher is describing is a social enterprise with strong worker control.

Yes, you sum this up well, Mondragon specifically write this in their principles "Capital is always subordinate to labor"

I think the guidance on community share issues that no one member should hold more than 10% of the equity (even though it's one member one vote) comes into play.

I would see difficulties with one or two wealthy individuals putting in equity into a worker co-op, even if this was capped at 25% of the voting rights.

But say a dozen or more friends, family and supporters of what the co-operative is about holding 25% of equity between them does not breach co-operative principles, albeit there is some dilution of worker control and the co-operative would have some features of a worker co-operative and some features of a multi-stakeholder co-operative

Thanks

Dave

Building on my worker co-op pub thought experiment. It would be nice to incentivise the investment of a community in a worker co-op in that community. If we used loanstock then only Social Investment Tax Relief (SITR) can be used - providing 30% tax relief to community investors (it's my understanding that all other reliefs apply only to equity). However Co-operative Societies are excluded from SITR. So would the FCA allow us to create a worker co-op Ben. Com. that would be able to offer eligible investment opportunity thru loanstock? (I suspect not). You could create a worker co-op CIC that would also be eligible for SITR, but not able to benefit from the exemptions that Societies enjoy around offer of public investment. Bit of a Catch 22.

We really need Co-operative Societies that can offer loanstock to their community to be able to benefit from SITR (Policy Ask 1) and this might need Co-operative Societies to be able to implement a statutory asset lock (Policy Ask 2). @jameswright

@marksimmonds Both asks are very high on our wish list. We know a statutory asset lock for co-operative societies would be the very minimum change required for the legal form to be made eligible for SITR. I've been working quietly on building the asset lock case on and off for a couple of years now. There are a few things we need to investigate and evidence before we can progress further. By the end of the year I want to have a decent legislative case to put, with the main stakeholder groups among co-operative societies as onside as they will ever be.

On the worker co-op pub, I don't see why the worker co-op has to be a regulated social enterprise eligible for SITR. The community can form a CBS to raise the money and ultimately own and control the pub, and the worker co-op can be the company that has the management contract. There are community-owned pubs leased out to private companies. Of course the problem is that at the moment that community ownership model is ineligible for SITR.

On external investors, the FCA Guidance (6.31and 6.32) sets out its policy on what it calls "non-user investor members" which I would read as equity investors that only have an investment relationship with the co-op. These must be a distinct class of equity shares. I think it would be possible to issue equity shares with NO VOTING RIGHTS at all. What the Guidance says is that where voting and representational rights are attached to these shares, that they can never amount to a controlling stake (which I guess means at the most 49% of shares, @johnatherton might recall a previous FCA policy paper that mentioned 25%) and no right to vote on conversion to a company.

The idea of a worker co-op with debt and equity community investors is attractive I think. Again, things like asset locks and statutory common capital seem absolutely essential prerequisites for developing this with co-operative societies.