The Rise of the Worker-Owned Business

Guess what: there is a third way that businesses are owned. You know the first two - private ownership and public ownership (via the stock markets). But then there is a third way: worker-owned businesses and, said some academics, their numbers are rising.

“This is a moment for worker-owned businesses,” said Joseph Blasi, a professor at the School of Management at Rutgers University and co-author of The Citizen’s Share: Reducing Inequality in the 21st Century.

“There is a renewed interest in worker ownership,” said Frank Shipper, a professor at the Perdue School of Business at Salisbury University. The core reason: “They are a way to give average people financial security.”

Agreed Ted de Barbieri, an assistant professor of clinical law at Brooklyn Law, “There are reasons to be optimistic about the future of worker cooperatives. They address income inequality and that’s needed.”

Ultimately worker-owned businesses are solidly capitalist. They are about making money. Except in their case the profits accrue to the workers who happen to be owners.

There may be more worker owned businesses than you think. Blasi, for instance, said there are about 400 worker-owned cooperatives in the U.S. - but then there are another 10,000 companies with significant employee ownership via so-called ESOPs (Employee Stock Ownership Plans). All manner of businesses are involved. A tech collective in Somerville, Mass.; a taxi company in Madison, Wis.; a bakery in Petaluma, Calif. are cases in point of worker-owned cooperatives.

As for ESOPs with significant worker ownership, they too cover a range. There’s Publix Super Markets in Florida. W. L. Gore (Goretex) in Delaware. In California, Parsons, the engineering firm, is 100% employee owned through an ESOP.

Many ESOPs, incidentally, are hybrids, with employees owning a chunk, but the rest is owned by others (such as public shareholders).

Just about any business can be configured as worker owned, and a plus is that many of them find that worker ownership is a magnet for new hires. “A lot of workers go to a worker co-op because they are fed up with the other structures,” said Shipper.

You say you’ve had it up to here with working on Maggie’s Farm and want to make this plunge? Not so fast. “They are not utopias,” said Shipper. “People get fired. And they usually are very selective about who comes in.” He added: “They have a no bozos rule. They have to.”

At Harpoon, a Boston craft beer maker that embraced worker ownership via an ESOP in 2014 (employees now own 48%), employee-owner Jessie Cox said that in lots of ways the company - which was founded in 1986 - is still managed much as it has always been. Employees have bosses, they can be fired but, she said, there is one difference: “We all have to make it work. It’s on each of us to be thinking about how the company operates and how it can do things better.”

That is a big shift in embracing employee ownership.


The employee has to be more engaged, said Shipper. “They are good places to work - the evidence suggests they are happier workplaces - but you have to buy into the values.”

Added Blasi: “Worker ownership is linked with lower turnover and employees reporting far more positive attitudes.”

Why aren’t there more of them? A big reason: ignorance. “There is not a lot of teaching about worker ownership,” said de Barbieri.

Agreed Shipper: “They get confused with communes. A lot of people don’t understand worker ownership.”

Another reason? “Financing is a problem,” said Shipper, speaking specifically of worker cooperatives. Few banks will lend start up money to them, he said: “That’s been a big hurdle.”

Blasi said money matters are different for ESOPs where 1974 federal legislation provided a clear framework. Banks accordingly have been keener on lending to ESOPs, many of which are formed when an aging owner of a private company wants to retire, but rather than selling it off to the highest bidder, he wants to find a way to pass ownership to employees. ESOPs are the answer in many cases.

Either way, worker ownership appears to be gaining fans as more workers want more than a paycheck - and part ownership may be the ticket.

So thinks Bud Caddell, founding member of consulting firm NOBL who has set as a goal converting the company - currently configured as an LLC - into a worker-owned cooperative by January 2016. “Highly skilled workers - the people we need to hire - want the empowerment that comes with worker ownership,” Caddell said. 

"There are a lot of myths about worker cooperatives," he added. "People think there are no bosses, for instance. We have to do a lot of education.”

But, said Caddell, the conversion is worth the effort. “People want a say," he said. "We believe doing this will be huge.”

This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.

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