Who’s the boss? In worker-owned cooperatives, everyone is.

Neil Hall/Reuters
Employees of John Lewis and Waitrose wait for the announcement of their 2015 bonus in London. The 150-year-old employee-owned group runs Britain's biggest department store chain as well as its sixth-largest supermarket. Interest in worker-owned businesses is growing in the United States.
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For most U.S. workers, what the boss says goes – no matter what. But for 17 million people, decision-making on the job is decidedly more democratic.

Worker cooperatives, where workers collectively own their business and share a voice in business decisions, are seeing renewed interest in the United States.

Why We Wrote This

While political pundits dicker over the merits and perils of socialism, 12% of the U.S. workforce are experimenting with business models that challenge top-down capitalism.

The support is broad, coming not just from socialists and liberals, but also conservatives.

Part of the surge in interest is driven by demographics. The so-called silver tsunami is well underway, with about 10,000 baby boomers retiring daily. Many boomers who started their own businesses are now wondering what will become of their life’s work.

“Owners typically of small and medium-size businesses … are discovering that nobody directly descended from them or really close to them was in a position to keep the business going,” says Richard Wolff, a Marxian economist at The New School university in New York and an advocate for workplace democracy. “They were often amazed when we sat down with them ... and explained to them the reality of an altogether different option.”

The chain of command at PV Squared, a solar panel installation company in Massachusetts’s Pioneer Valley, is admittedly convoluted. 

“Technically, I’m Kim’s boss,” says general manager Jonathan Gregory of bookkeeper Kim Pinkham. But “Kim’s on the board, and the board oversees my position, so technically she’s my boss.”

As members of a worker-owned cooperative, the 40-plus employees elect their own board of directors and make decisions based not on majority rule, but by consensus. When they’re not holding the microphone, members at meetings express themselves with hand signals: a flat palm for a question or statement, a raised index finger for direct response, and a hand cupped in a “C” for a clarification. 

Why We Wrote This

While political pundits dicker over the merits and perils of socialism, 12% of the U.S. workforce are experimenting with business models that challenge top-down capitalism.

Workplace democracy “challenges us as humans and as colleagues to think about what is the ultimate level of respect and mutual benefit,” Mr. Gregory says. 

Employee-owned enterprises date to the 19th century, but the idea is gaining renewed interest in the United States. It’s fueled by demographic shifts that are causing businesses to change hands, as well as growing worries that the economy rewards elites instead of the common worker. Advocates see worker ownership as a practical way to reverse that trend, creating financial assets for those otherwise unable to claim a stake in the economy. 

The support is broad, coming not just from socialists and liberals, but also conservatives, and this gives Marjorie Kelly, executive vice president of The Democracy Collaborative, a nonprofit that advocates worker ownership, cause for optimism.

“It’s really a healing idea,” says Ms. Kelly, the co-author of a new book, “The Making of a Democratic Economy.” “We don’t have to be at each other’s throats to build the kind of economy that will benefit all of us.”

Melanie Stetson Freeman/Staff/File
Millennials enjoy a cafe operating out of Miller's Point, a retrofitted factory in the Remington-Charles Village neighborhood, on January 13, 2015 in Baltimore, Maryland. Charmington's, a worker-owned and collectively run cafe, uses locally, organically grown ingredients in the food.

Meet the new boss

Currently, worker-owned entities employ about 17 million people, or 12% of the U.S. workforce. Such business can take a variety of forms, from equity-sharing plans like those found at Publix super markets, Land O’Lakes, and King Arthur Flour, to more radical models, like at PV Squared. Not all of them are equally democratic.

By far the most common are employee stock ownership plans, or ESOPs, which offer tax advantages to businesses that adopt them. In an ESOP, shares are often allocated according to pay or seniority, giving some workers a larger stake than others. Members of ESOPs are typically able to vote on only a limited class of matters, such as a merger or a liquidation. According to the National Center for Employee Ownership, some 14.2 million workers participate in ESOPs.

On the other end of the spectrum are workers collectives, where each worker gets one share, one vote, and where there is no hierarchy. 

Collective Copies, a copy shop with 11 workers and locations in Amherst and Florence, Massachusetts, operates according to this model. After a trial period of six months, new hires are invited to become owners. 

“Everyone’s on the board of directors,” says Matt Grillo, a worker-owner who has been with Collective Copies for 20 years. As with PV Squared, decisions are reached by consensus.

Mr. Grillo says that the copy shop, which opened in 1983, has successfully weathered the rise of the internet and fended off competition from Kinko’s. He sees several advantages over traditionally owned copy shops.

One of them is low turnover. “We had about 10 years where there really weren’t any new hires. And so we became really efficient.”

Another is the lack of layers of management. “My customers are getting a better product,” says Mr. Grillo. ”It’s right here. You’re talking to the owner. The buck stops here.”

Mixed performance

Some research suggests that employee ownership is linked to higher productivity. But a 2005 paper from the National Bureau of Economic Research concluded that worker-governed firms often fail to maximize their economic potential. Their track record is mixed.

In an earlier round of ESOPs during the 1980s and 1990s, big companies such as Avis, Weirton Steel, and United Airlines adopted worker ownership with great fanfare only to see them fail because of corporate reorganization, international competition, or the lack of management-employee buy-in.

“There are, in fact, lots of bad jobs in our society,” says David Hammer, executive director of the ICA Group, a Massachusetts nonprofit that helps businesses transition to worker cooperatives. “If it was a lousy job yesterday and then you own it, now you own a job that’s lousy. And that’s not enough.”

Now, the pendulum is swinging back.

“There’s a lot more interest for employee ownership writ large in all of its different forms today than there has been in a very long time,” says Mr. Hammer. 

Two leading Democratic presidential candidates have floated plans to expand worker ownership and workplace democracy. Last August, Sen. Elizabeth Warren proposed the Accountable Capitalism Act, which would require large corporations to have 40% of their board of directors selected by their workers.  

In May, Sen. Bernie Sanders of Vermont proposed a rule by which large employers would be required to contribute a portion of their stocks to a worker-controlled fund that would pay out regular dividends to workers, who could then become voting shareholders. He also proposed a rule that would require workers to occupy seats on their corporations’ boards of directors.

Conservatives also like the idea. In 1987, President Ronald Reagan called it “the next logical step” in the development of capitalism (oddly echoing Karl Marx, who wrote more than a century earlier that worker cooperatives “represent within the old form the first sprouts of the new.”) Last year, a Republican-controlled Senate passed the bipartisan Main Street Employee Ownership Act, empowering the Small Business Administration to guarantee loans for worker-owned enterprises.

A “silver tsunami”

Part of the rising interest in worker ownership is driven by demographics. The so-called silver tsunami, the transition of baby boomers into retirement, is well underway, including for business owners. 

“Owners typically of small and medium-size businesses who had spent lifetimes building them up … are discovering that nobody directly descended from them or really close to them was in a position to keep the business going,” says Richard Wolff, an economist at The New School university in New York and an advocate for workplace democracy. Many of his clients are “just this side of tears” as they try to decide whether to close their business, sell it to another company, or go public, he says. “They were often amazed when we sat down with them, often with accountants and lawyers and so forth, and explained to them the reality of an altogether different option.” 

For Professor Wolff, a Marxist, worker ownership represents a path to economic equality that avoids some of the mistakes made by previous generations of socialists, who relied too heavily on state intervention. “It is a new and different way of conceptualizing what the transition from capitalism to socialism is all about, and coincidentally it also demotes the state from playing a dominant role to playing the role of a facilitator.”

Of course, being a worker-owner often requires more mental investment, and can carry more risks, than a traditional job. When PV Squared opened in 2003, none of the original four members drew a paycheck for the first 10 months.  

“We had very understanding spouses,” says Ms. Pinkham, one of the founders. As the cooperative grew, its members had to figure out how to scale up while still retaining its democratic character.

“We had these growing pains going from five to eight people who could sit around a table and decide how the company is going to run to suddenly being 40 people who don’t fit around a table,” Ms. Pinkham says.

Under PV Squared’s current model, new hires work at the company for about three years before they are allowed to purchase a share in the company.

To Mr. Grillo, a father of four, Collective Copies has offered more than just an income.

“It has been pretty amazing for my life. I’ve since bought a home and raised a family,” he says. “Just being a small business owner in downtown Amherst, it’s really rewarding for me. It’s like I’m the shopkeeper from ‘The Muffin Man’ nursery rhyme or something. I say good morning to all the other shopkeepers.” 

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