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Worker-owned cooperatives aren't a new idea. I should really find a good book or web site with some case studies about how they've been done in the past. In particular, I really ought to look into the Mondragon Corporation, which I always hear about but have never really studied.
But lack of background knowledge won't stop me from trying to spin up my own thoughts on how a person might structure a worker-owned cooperative, so that's what this article contains.
My starting point was that I wanted a structure where people build equity in the cooperative as they work, and when they leave the cooperative (by retiring, for example, but also for any other reason), that equity is paid back to them.
Or maybe they are paid back continuously, while still employed and working for the cooperative? In this way, each worker would have both a base wage/salary and also an "equity redemption bonus".
One critical aspect is that each person gets the same hourly "equity rate", regardless of their wage or salary. And, of course, as a cooperative, each member gets exactly one vote, regardless of how much equity they hold in the organization overall.
So here is what I came up with, loosely organized into the kinds of sections you might see in an Articles of Incorporation or bylaws document.
My intention is for this to be useful for any for-profit business enterprise that has more than one worker.
The cooperative would have a few different types of shares to serve different purposes. All shares would be non-transferrable, and can only be sold back to the cooperative.
Class A shares would be "membership shares". Each worker may own only 1 class A share. Class A shareholders have voting power in anything the cooperative votes on. Each holder of a class A share is entitled to only one vote, regardless of any other holdings. Class A shares cannot be purchased, only converted from B shares.
Class B shares would be "equity shares". Each worker earns 1 equity share for each hour of labor that they perform for the cooperative. Partial shares are allowed as needed. Each worker earns exactly 1 share per hour, regardless of their wage or salary. Shares are only earned for hours actually worked, not for other payments, such as paid time off. Class B shares cannot be purchased, only earned.
Class C shares would be "cash shares". These are fixed-value shares that can be used as a proxy for actual cash. For example, if the cooperative needs to redeem another share, it could issue equivalent value in class C shares immediately, and then redeem them for actual cash as the financial situation permits.
Preferred stock could be issued to raise funds for a particular project as needed. This could be something like a fixed-price share with fixed dividends. Preferred stock shares would be sold, probably only to members.
It's possible that the cooperative's net worth might be negative, especially in the early days, when just getting started. If the net worth is negative, then shares may have a value of zero, but they may not be redeemed. Maybe there should be a lower limit to when shares can be redeemed, defined in the bylaws, to avoid weird accounting tricks that would allow buying off a lot of shares for an artificially deflated value.
A worker's class A share is acquired by converting a certain number of class B shares, and the value of a class A share is relative to the value of a class B share. For example, let's say that a class A share equals 500 class B shares. This means that the worker must work 500 hours to earn 500 class B shares, which would then be automatically converted into 1 class A share.
The total of all class B shares and all class A shares should equal the net worth of the company, I guess. This should be recalculated periodically for accuracy. Keep in mind that each class A share is worth (in this example) 500 class B shares. And a full-time employee would earn about 2000 class B shares per year.
Class C shares are fixed at a dollar value. For example, each share could be valued at 1 dollar. Is there any reason to call this a "share" instead of just a "cash owed" account? I don't know. I've seen it done sometimes but I don't really know the reason why.
Preferred stock would be valued at whatever price is determined by the cooperative. Maybe $1,000 per share, or some other value that fits the purpose.
Of course, each founder would be granted one class A share so that the cooperative can have members from its inception. For fairness, maybe each founder incurs a debt, where their first 500 B shares are voided to "pay back" the initial class A share. I'm not sure how to structure that. Can a person hold negative shares in a company? Seems like the answer should be no.
Class A shares are redeemed immediately when a member leaves the cooperative. This could happen due to retiring, quitting, getting fired, dying, or maybe other reasons. Class A shares are redeemed by converting them to an equivalent value of class B shares. Or they can be redeemed immediately for cash if the cooperative's finances allow it.
Class B shares are redeemed periodically. Not less than once a year, but ideally this could be spread out across smaller periods of time, such as quarterly or monthly, or even on each paycheck. Based on recent profitability or other appropriate factors, the board of directors determines a dollar value to be redeemed. This total value is divided by the number of members who own class B shares, and each member receives a redemption of an equal number of shares. Of course, there are some edge cases to consider, such as new workers who have not yet earned their class A membership. Their class B shares would not be redeemed. Maybe it makes sense to define a separate share type to clarify bookkeeping? Or just let them earn partial A shares directly, up until they earn a complete A share? Or define membership as "500 A shares, and 1 A share equals 1 B share" instead of "1 A share, and 1 A share equals 500 B shares". Or maybe having separate A shares and B shares is needlessly complicated, and membership could simply be defined as "500 equity shares".
Class C shares are redeemed periodically. Probably in some way proportional to class B shares, or maybe in preference to them? I don't know that I have an opinion.
Preferred stock shares would be redeemed at the discretion of the cooperative, I guess.
The board of directors makes determinations about whether to issue redemptions, and how much to issue. A portion of net earnings may be set aside as a capital reserve, as decided by the board of directors.
The governance and management of the cooperative would be handled by a board of directors. Members of the board must be members of the cooperative. Board members would be elected by a vote among all members of the cooperative.
The number of board members would be determined as needed by the cooperative. My feeling is that 3 is appropriate for a cooperative of, say, fewer than 20 people. Maybe 9 for fewer than 500 members? I could make up a chart, but really anything seems fine, as chosen by the membership of the cooperative.
Board members should serve for some term as defined by the cooperative. Ideally there would be rotating elections, to ensure some continuity of experience at all times.
The board of directors is allowed to hire staff, including a chief executive officer, who would report to the board.
The board should consist of the usual officers of an organization: president, vice president, secretary, treasurer. Their exact duties should be defined in the bylaws.
Membership is open to individuals who have worked for the cooperative long enough to earn an A share. Membership is granted automatically when the individual has worked the number of hours determined by the cooperative to confer membership.
Membership can be terminated voluntarily by the member by resigning from the cooperative. Membership can be terminated by the cooperative by terminating the member's employment with the cooperative. (Presumably their manager does this, not the broader cooperative.) There should be some avenues of appeal for termination by the cooperative.
When membership is terminated for any reason, the member's A share is immediately converted back into class B shares. These B shares may be immediately redeemed into cash at the discretion of the cooperative.
If a non-member's employment is terminated, the individual's B shares may either be redeemed immediately into cash, or else held and paid out along with normal B share redemptions.
There should be an annual meeting once a year, or more often as determined by the cooperative. The format will depend on the size and nature of the cooperative.
Members should be able to call a special meeting on a particular topic by submitting a petition representing some portion of the total membership.
If any voting occurs during a meeting, each member is allowed one vote on each topic up for vote. Voting outside the context of a meeting (such as by mail or electronically) would need to be defined by the bylaws of the cooperative.
This section is even less fleshed out than the rest, and is kind of a tangential concept, so consider it as a separate document maybe.
I kind of like the idea of an organization (whether a corporation or cooperative) having a clear and formal path towards division of the organization. Think of the opposite of consolidation. Instead of buying up competitors to form monopolies, I want to see organizations split on good terms so that each part can evolve independently.
How would that work exactly? A significant minority of the cooperative would have the right to spin off a separate cooperative? With the assets of the company somehow being split in proportion with the number of members who are leaving? Maybe scale the number of off-shoot votes, to make it easier as the cooperative grows.
In reality, I don't know how you could formalize this ahead of time in any bylaws, since the details will depend a lot on the reasons for the separation. Maybe both cooperatives continue to operate the same business but divide up the geographic regions where they operate? Maybe one department of the cooperative spins off into an independent business? Who decides who goes to each of the new cooperatives? (It must be voluntary, but what if the new coop doesn't get the staff they need?)
The important thing is that I want both groups to enter a division in the spirit of cooperation, up until the moment of separation when they become independent organizations. Codifying it (to the extent that is possible) seems like it would be a helpful step toward that goal.
I think that covers all the interesting parts. Maybe too many of the uninteresting ones, too.
To recap, my intention is for ownership of the cooperative to organically shift from former employees to current employees, while providing a gradual compensation to former employees as the new employees essentially "buy them out". Would it work out as intended? Who knows. I wouldn't mind trying it, if I ever had a business that I wanted to start.
I should do some math to see how the numbers work out. Does it make sense for every employee to earn additional shares based on hourly work? How many B shares would a cooerative expect to redeem each period? How many B shares would the company expect to have issued at any given time? Doesn't hiring new employees dilute the anticipated value? Is that a problem? How many B shares would an employee expect to have at the end of their career? A lot? Almost none? I imagined it being a kind of retirement plan, but would it actually be the right amount for that to work? What if someone wants a slower payout so their payments lasts longer? Should the cooperative support that? Doesn't this mean that only people who work longer hours build equity and part time employees wouldn't (or not as much)? Is that okay, or should the redemption be proportional, so that part time employees build proportional equity? Is equity even "good" or would people rather just make more money now than get an unknown payout later?
emptyhallway
2023-06-01
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