When we founded We Are Open Co-op [WAO], we asked whether it was only “yogurt-knitting vegans” who set up co-operatives. Almost seven years later, we’re going from strength to strength and part of not only CoTech but the emerging workers.coop. However, there are still too many people who ask us, “so, er, what even is a co-op?”
This post is for them. We’ve also taken some questions from our community which we’ll either weave into the body of the post or include in a separate FAQ at the end. If you have questions you’d like to ask, feel free to add them as a comment below!
If you search “what is a cooperative?” you'll get a definition like this:
A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.
That’s… quite a mouthful, especially if you’re not familiar with what some of those terms mean in practice. The International Cooperative Alliance (ICA) has a page which goes some way to explaining in a bit more detail, but it can all be a bit too abstract.
We know that the interests of workers and corporations can often be at odds. In fact, we somehow see it as ‘normal’ that people who run the company, or their shareholders, can cream off huge profits at the expense of workers. The latter are often paid the minimum that the corporation can get away with.
There are obvious and welcome exceptions. But, fundamentally, a sole focus on making a profit is at odds with human flourishing. Benefit Corporations (‘B-Corps’) are a step in the right direction with a public commitment to meet high standards of social and environmental performance, accountability, and transparency. However, B-Corps are not legally required to prioritise this social or environmental mission, and they are still controlled by an ownership class which has historically exploited workers.
Enter worker-owned co-ops, which are not a new idea. Cooperation has been around for as long as humans, but worker-owned co-ops have been around for over 150 years, being successful in a variety of industries, from retail to manufacturing to service industries. The Mondragon Corporation based in the Basque region of Spain, for example, is a federation of worker cooperatives that employs over 80,000 people and generates almost £11 billion in annual revenue.
The simplest way to think about worker-owned co-ops is “one member, one vote”. This means that each worker-owner has an equal say in the decision-making process and an equal share in its financial success. There are no outside investors or shareholders whose interests can be prioritised over those of the workers. Instead, the workers have a vested interest in the success of the company because their livelihoods depend on it.
That’s an easy thing to read and gloss over, but it makes a world of difference in practice:
- Democratic control: In a worker-owned cooperative, every worker-owner has an equal say in the decision-making process. This means that the workers are not just employees, but also stakeholders who have a direct impact on the company's direction and success.
- Fair financial distribution: In traditional corporations, ‘profits’ are distributed among shareholders. In a worker-owned cooperative, we talk about ‘surplus’ which is both reinvested in the co-op and distributed fairly among the worker-owners, who share in the success of the company.
- Job security: Because worker-owned cooperatives are owned and controlled by the employees, there is less pressure to outsource jobs or make layoffs. This results in more stable employment for the workers.
- Empowered workers: In a worker-owned cooperative, the workers have a greater sense of autonomy and control over their work. This can lead to increased job satisfaction, motivation, and productivity.
- Community impact: Worker-owned cooperatives are rooted in their communities and are more likely to prioritise the well-being of those communities over short-term profits.
Co-ops have always had a commitment to ethics, values, and principles. They go quite a bit further than ‘ethical business’ in the sense that co-ops are attempting to build a whole new economy. So, yes, while co-ops ‘play in the same sandpit’ as existing businesses, an explicit aim is for co-ops to work together.
For the avoidance of doubt, here are the seven principles of international cooperation:
- Voluntary and Open Membership
- Democratic Member Control
- Member Economic Participation
- Autonomy and Independence
- Education, Training, and Information
- Cooperation among Cooperatives
- Concern for Community
There's a really interesting ICA guidance document that goes into a lot of geeky detail about these principles, but let's keep things simple. A co-op is an organisation that people can choose to join, and which is controlled democratically by members, in a way where capital is held as common property, so that the organisation is fully independent. Members commit to education and training to help develop the co-op, and seek to work together with other co-ops to build a new/better economy. This work is deeply rooted in community — whatever that means in the context of a particular co-op.
WAO is tiny, but other co-ops are huge. According to the ICA, 12% of people on earth are part of at least one of 3 million different co-operatives worldwide. That’s way more than the 3.5% of people needed to affect serious political change. Co-ops are members of the ICA through their national body, in our case Co-operatives UK. Excitingly, a brand-new organisation, workers.coop, is currently being formed specifically to help build the worker-cooperative economy. More on that soon.
Forming a cooperative is different depending where you live. In some countries, for example, it’s possible to set up a ‘co-op’ directly; in others, it’s a bit of a ‘hack’ of the existing system. Here in the UK, you can set up a cooperative society, but these are regulated by the Financial Conduct Authority. So many co-ops, including WAO, set up as a company limited by guarantee without share capital. This ensures that no-one can come in and buy up all of the shares and take over. If you check out our articles of incorporation, you’ll see that we’ve essentially used this model and aligned ourselves with the ICA principles.
Co-ops are not a magic wand to wave at a group of people to make them instantly cooperative. Although there’s a lot of upside, it can be hard work, you need to be very intentional about communication, and some people aren’t used to having to make decisions which materially affect their future. Conflict has to be defused in non-hierarchical ways, and you often have to think about things which go well beyond what you would usually consider the confines of a ‘job description’. This is because, in a worker-owned cooperative, a worker is also a business owner, so co-ops are a great place to learn about running a business.
Like any organisation, worker co-ops change as new members join. As every member is equal in terms of voting, shares and decision-making power, the procedures and policy of a cooperative are subject to change based on what works for current members. We learn from other co-ops within our networks, particularly around governance issues that might have crept up for sister organisations that have been around longer than us..
WAO is a small cooperative, so we use a consent and consensus based decision making model. We use sociocracy, which we’ve talked about on the Tao of WAO podcast and written more about it on our wiki. Doug also has several posts about this on his blog and Outlandish runs workshops on sociocracy and reframing conflict that we have found incredibly useful.
There is so much more we could add to this post based on our experience over the last seven years. We’re particularly interested in trying to explain, for example, how cooperatives are attempting to build a whole new economy. We’ll save that for another post.
We received a lot of responses from our network when we asked if anyone had questions about co-ops. We’ve attempted to answer them below…
¶ Setup
“What does the initial set up of a coop look like? Person I know tried to start one with their colleagues and were under the impression that they all had to form their own LLCs then combine as shareholders into a coop. Is that true? I’m sure it’s different depending on locality, the specific profession, and many other factors, but an idea or example of how one starts a coop would be great to hear.” (link)
When we set up WAO we formed it as a cooperative of limited companies. This was under the mistaken assumption that it would help limit our liabilities. As it happens, the liability of each member is limited to £1 and we’ve since removed the requirement for members to own limited companies.
The truth is that there are many different ways of setting up co-ops, depending on what it is you are trying to do and where you are trying to do it. We’re registered in the UK and also have a member in Germany, but the situation varies a lot. The best thing to do, as you should do when setting up any kind of business, is get some advice. You can get this through asking on the CoTech forums, from Co-ops UK, and soon through workers.coop.
¶ Structure
“[N]o worries if this is a bit too left field but I was wondering if you had any thoughts on co-ops and b-corp certification and how they might overlap (my understanding is that you can structure your business as a co-op AND be a b-corp since the latter is more of an audit/certification layer on top of your company structure)?” (link)
B-corps, or ‘benefit corporations’ are for-profit companies that have, in addition to ‘profit’, some goals around making a positive impact on society, workers, the community and the environment. This comes under the definition of things which are in the ‘best interest of the corporation’ - so while there might be a big difference in practice in some B-corps, for others it’s a certification layer that helps with their marketing.
Co-ops are structurally different, as the post above shows. So you’re right to say that an organisation could be both a co-op and B-corp (although perhaps there would be no need?)
“I work at a very large co-op right now that has, effectively, insulated the governance from direct action by co-op members by having elections and electing officers, but only from a pre-selected group of candidates. The group that pre-selects the candidates are the current board of directors. I know this is how *my* co-op works, but what I don't know is if this arrangement is common, the larger the co-op gets, and whether the author thinks this is desirable in some cases.” (link)
WAO is a small worker co-op and part of a network of other small co-ops, so this question is outside of our experience, I’m afraid!
“How do you engage with external orgs such as those who might be commissioning your work and help them understand your structure and decision making?” (link)
Although all of our clients know that we are a co-op (it’s in the name!) our structure and decision-making processes doesn’t really come up that much at the commissioning/hiring stage. It’s definitely a plus in terms of being an ‘ethical business’, but we don’t have any examples of an organisation or funder wanting to dig into our internal policies, etc.
“What kind of reactions do you get from clients and people you work with about not having a traditional hierarchy of people?” (link)
People tend to be curious on the individual level, but it’s rarely an issue in terms of working with other organisations. This is because we agree the following roles between us for each project:
- Project Lead - owns the client relationship, makes final decision if there’s an impasse, ensures project stays on budget, etc.
- Context Understudy - attends all client meetings, can step into Project Lead role if necessary, default collaborator for co-working on the project, could be member or cooperator
- Skills Provider - brought into the project when needed, doesn’t need to have full context, could be member or cooperator
There seems to be an assumption that hierarchies are somehow ‘natural’ but in our experience we find that they tend to slow down innovation and make it less likely that the people closest to the work take the initiative. The above roles might seem to form a hierarchy, but the way we run projects is very consensual.
“Are there any dangers or risks around people initially from outside taking control of a coop and taking advantage of its structure?” (link)
As with anything that is seen generally in a positive light, you have to put safeguards in place to stop people who want to gain advantage from it without putting any work in. There’s several ways to do this. The first, as mentioned in the post above, is to ensure that there are no shares that can be bought up to gain control of the co-op.
The second, is to have some form of ‘asset lock’ so that people (even rogue founder members!) cannot simply asset-strip the co-op. In this case, if the co-op is dissolved its assets have to go to a specified party (e.g. another co-op or non-profit).
The third is to have decision-making processes that stop one person, or a small group of people, taking over. We use sociocracy, as mentioned above, which is a form of consent-based decision making.
¶ Membership/governance
“I'm interested in the ownership structure and how you deal with tenure. Ie. How does a new employee-owner get treated vs someone who was there from the very beginning and how does that change over time?” (link)
This can vary from co-op to co-op. At WAO, we recognise the ‘founding members’ but also accord them no special status in terms of seniority or pay compared to other members. All members should receive regular education and training, in accordance with Principle 5, and this is particularly important for new members - especially if they haven’t had much prior experience of co-ops.
“I'm not sure how to phrase this… “What does sustainability look like? If a coop is membership based, how to build that sustaining membership group so that rotating members in and out isn't A) onboarding all the time, and B) volatile because of member turnover?” (link)
Although we can’t share any hard data on this, our experience within a network of small co-ops is that people join and leave co-ops at a far slower rate than with regular jobs. We can speculate as to the reasons for this, but the chances are that they have strong relationships with people with shared values, own the business within which they’re working, and have the opportunity to ‘promote’ themselves (instead of trying to climb an artificially-imposed career ladder). All of which is to say: we don’t really have any experience of the situation you describe in your question.
“I’m interested in governance models. I’ve been doing a little bit of reading of late on various options in relation to open source, e.g., do-ocracy, founder leader, etc. Could you speak to governance challenges in the co-op space?” (link)
The answer to this question could be book-length, so the very short answer is ‘it depends’! In the workers.coop meetings we’ve been in recently, they have specifically used the phrase ‘do-ocracy’. It’s very rare to see ‘founder leader’ as a defined role in a co-op, but we’ve seen examples where a founding member has had a lot of influence, due to the combination of (a) helping set up the organisation, (b) personality, and (c) having a wide network to bring in new work.
That being said, Open Source is different to co-operatives. The latter is more overtly political (with a small ‘p’) than Open Source - and more like the Free software movement. Where co-ops differ is the explicit attempt to democratise the workplace and benefit through self-help, self-responsibility, democracy, equality, equity, and solidarity.
“Given that so many companies nowadays are announcing layoffs, how do co-ops handle layoffs? Or maybe a better question would be how do co-ops handle the underlying issues that would often lead to layoffs?” (link)
While laws differ between jurisdictions about how and when corporations can layoff people, what they have in common is that the person is there to fulfil a job description. When that is no longer necessary, or the people in charge of the corporation decide they need to cut costs, they can let people go. Those doing the work don’t have much say in the matter, often even if they are part of a union.
Co-ops are different as they are more flexible and member-led with a diversity of thought that doesn’t depend on the traditional C-Suite. Although like any business, co-ops undoubtedly need to change their size according to how much work they have, workers have more autonomy in the way that this takes place. So, for example, some co-ops pay members a wage which takes into account their circumstances and what the co-op can afford while retaining a surplus. Others, such as WAO, have members invoice for work done, and have an internal hourly rate for work done for the benefit of the co-operative. We call this ‘the pot’.
¶ Money
“As a huge advocate for co-ops and active member of an electric, food, and real estate co-op, we can never have enough conversations. I think helping people understand, who aren't familiar with the "co-op" structure, about the value of membership and that a co-op is not exclusive, a closed club, and that they are so good for the commons. But what is my question? I guess how to explain how/that co-ops are commons-good, and (hopefully) not closed groups. Thanks for this and good morning from Northern Michigan.” (link)
Yes, the commons is a difficult thing to explain to people - especially as people have only usually heard of it through ‘the tragedy of the commons’. But, as you point out, co-ops hold things in common such as goods and resources, which are (or should be) available to all members equally. Perhaps the most important aspect of this is money; whether someone joined as a founding member, or has only just joined, they should have equal access to, and say over, financial resources.
In practice, WAO has a central ‘pot’ which is made up of a sort of 25% ‘tax’ on money coming into the co-op. The rest is paid out to members for work done on projects. From that pot comes internal work such as our podcast, business development work, creation of resources that go on our website, etc. That money doesn’t belong to one member, or one class of members, more than another. It is held in common and what to do with it is decided democratically.
¶ Conflict
“I know almost nothing so everything is welcome. One big concern is probably how funding works as well as conflict resolution.” (link)
In corporations, conflict is often dealt with through discipline imposed through hierarchy. Theoretically, if there is conflict between two people with mismatched positions within the corporate hierarchy, there are mechanisms to deal with this.
Things are quite a bit different in small worker co-ops such as WAO. We have to have ways of defusing conflict that don’t rely on discipline or reference to hierarchy. Mainly because we have no ‘sanctions’ as such, and no hierarchy.
So how do we figure things out? We’ve found consent-based decision making an extremely useful tool in reducing points of conflict when discussing important issues between members. In addition, reframing conflict using techniques taken from nonviolent communication. We have our friends at Outlandish to thank for teaching us these approaches through their excellent workshops.
¶ Miscellaneous
“What is the average lifespan of a co-op business? Why aren't they more common? What are the largest co-ops in the world? How does their level of democracy change with scale?” (link)
The World Cooperative Monitor reported in December 2022 that the following are the world largest co-ops, in terms of turnover in USD:
- Groupe Crédit Agricole (France) - $88.97 billion
- Group REWE (Germany) - $77.93 billion
- BVR (Germany) - $58.02 billion
- Zen-Noh (Japan) - $57.69 billion
- ACDLEC Leclerc (France) - $54.83 billion
In terms of the types of organisation they represent, the top 300 in terms of turnover are:
- Producer (42%)
- Mutual (28%)
- Consumer/User (23.7%)
- Non Co-op controlled by co-op(s) - 3.7%
- Worker (1.7%)
- Multi-stakeholder (0.7%)
- Producer + Consumer/User (0.3%)
So you can see that co-ops are more common than you think (e.g. as producers of milk and grain, or as insurance companies or mutual societies) and turn over a lot of money.
In addition, cooperatives are more likely to keep trading than other forms of business - for example in 2020 during the pandemic, just 1.5% of co-ops were dissolved compared to 6.5% of businesses overall.