Worker cooperatives have a long history both within and outside of the U.S. At their most fundamental level, worker cooperatives are democratically governed and structured to ensure workers benefit fully from their labor by exercising control over company decision-making and by co-owning their companies instead of receiving just a salary from their place of employment.
The renewed interest in worker cooperatives and other employee ownership models comes at a moment when increasingly widespread focus on a host of social injustices and environmental threats have led many to reconsider the role our business and investment structures play. Events of the past year – from the Black Lives Matter protests to the unequal impact of the COVID-19 pandemic on the health and financial well-being of front-line workers and marginalized communities in particular – have increased our sense of urgency.
These challenges have made manifest the limits of our traditional corporate structures, which are based on the primacy of shareholder returns, to share the profits, decision-making authority, and other advantages of ownership equitably. Employee ownership models are therefore galvanizing participants – from employees to investors in funds like the ones mentioned in the ImpactAlpha story – to push back on these traditional structures.
However, the arguments in favor of worker ownership structures go beyond their offering a more equitable approach to profit-sharing and better worker protections. There is growing evidence that worker-controlled and democratically-organized businesses make decisions that are better for the communities in and for which they operate.
Further, studies show that participation in democratically governed businesses build both individual and collective agency, and that these worker ownership models both inspire and equip workers to become more active participants in democratic processes at a local, state, and national level.
However, investments in worker cooperatives and other forms of employee ownership models need to be considered with care. Since these types of structures elevate the needs of workers in a way that is intended to supplant the traditional shareholder primacy paradigm, the tools of finance and investment that were designed for traditional corporate models may not fully align. Investors in worker cooperatives and employee-owned businesses should therefore carefully consider whether their investment vehicles and investment terms are structured in a way that preserves the primary intentions and benefits of these worker ownership models.
For impact investors looking to make a difference the timing could not be better. As the authors of this piece so rightly point out, baby-boomers own more than 2.3 million small businesses that will need to be passed on in the coming decades. By carefully and thoughtfully facilitating the sale of these businesses to their workers, mission-oriented investors looking to make a difference have an opportunity to help rewrite at least part of the traditional owner / employee playbook and transform our workplace environments in the process.
Marie’s practice focuses on a wide range of corporate transactions including M&A, cross-border financings, fund financings, and other secured and unsecured debt structures as well as a focus on impact investing and other innovative transactions. She is based in RPCK’s New York office.