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Worker & Consumer Co-op Succession

Owner/Employee Situation and Characteristics Conducive to Considering a Worker Co-op Succession

Owner Characteristics

A situation in which there have been positive long-term relationships among the owner of the enterprise, the managers or senior employees and line employees is a good foundation for a potential worker co-op. The owner, in recognizing the important role employees have played in the success of the business, may want to help ensure the future of the employees. The owner’s experience should provide him/her with the confidence that the managers and employees have the experience and skills to continue to make the business a success.

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The foundation for all business considerations must be the belief that the business has the potential for a strong future as an independent entity. As well as the potential for the business to continue as an independent entity, a strong commitment by the owner to seeing this happen. They see it as their legacy, one which can continue to grow and contribute to the community into the future through the employment and goods and services it provides.

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In some circumstances the owner may want to continue to be involved, but to a lesser degree over the course of a number of years.   Developing a succession plan with employees provides a good option for structuring such an involvement that can benefit both parties.

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Management Characteristics

For the worker co-op option to be considered, it is vital that the existing managers have great confidence in the future of the business as well as in their ability, with the other employees, to meet the challenges of the future. Managers must also be ready for a new level of commitment and must be prepared to invest some of their own financial resources.

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If managers have enjoyed a collaborative and team approach within the workplace, they are likely to be more open and ready to embrace the worker co-op model.

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Employee Characteristics

Employees also must have strong confidence in the future of the business if they are to be interested in the worker co-op option. This confidence must go with a desire to remain a long-term employee and the belief the business can and will meet their needs into the future.

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A situation where employees have come to recognize and respect the integrity and intentions of the owner and managers is an important foundation upon which to build their interest and confidence in employee ownership.

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The first understanding that you are being offered some sort of collective ownership will put the focus on one’s co-workers. Are they really the kind of people I can trust and commit to in order to make the enterprise succeed?

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The employees must also be comfortable in considering the required financial investment that they will have to make.  But more than that, they need to have a sense of excitement about the benefits and satisfactions working as a member-owner will have.

Worker Co-op Succession Considerations

Owners

Business owners are very likely to be unfamiliar with worker co-ops. They will need to be introduced to the concept and learn to trust that it can provide a successful option for their succession transition or, at a minimum; that it is a concept worth exploring.

Managers & Employees

The first issue for managers and employees, as with the owner, is to come to an understanding of the worker co-op option and how it can work effectively for all the participants.  It is very important that they receive assistance from a knowledgeable worker co-op development professional to ensure they have a good understanding of the option.

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One of the major challenges for the employee-management group is to identify effective an leader(s), capable of and committed to providing leadership focused on benefiting all the potential worker co-op members.

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Emerging leadership must have the trust and support of the potential worker co-op members. Key individuals that focus on the co-operative aspects of the organization and others that focus on the business’ aspects are both needed.

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Financing of the worker co-op is also another key activity. This has two key aspects. The first is securing the individual member’s equity contribution to the co-operative. The second, built upon the foundation of the first, is the complete financing package to purchase and operate the business.

Professional Service Providers

As noted in the Succession Issues section, professional service providers have an important role in assisting in succession planning. One service provider which wasn’t mentioned in the earlier section is the worker co-op development professional. Worker co-op development specialists have two broad areas of expertise. They are well versed in basic business issues such as business planning, financing, and marketing. They are also knowledgeable about worker co-op organizational development issues such as bylaw and policy development, member education and training for the various roles within the co-operative and developing effective organization structure on both the business and governance sides.

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It is very important that the other professionals play their various roles and that the owner and managers/employees have their appropriate and independent advisors.

Worker Co-op Succession Parameters

The worker co-op succession plan requires the marrying of three sets of interests. The owner’s and related parties, current management or senior employees, and line employees. The separation and scope of these parties’ interests will depend significantly on the scale of the enterprise.  

The marrying of these interests requires clear objectives for all parties, a transparent process with open and honest communication, negotiations, and sophisticated technical advice from professional advisors.

Discussion and color palette selection

The development of the worker co-op requires a coherent integration of three organizational elements: ownership/membership, governance, and management/operations with their concomitant aspects of responsibility, authority and accountability.

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Each co-op must find a structure that provides an effective framework for achieving the goals set by the members. Focusing on the relationship among responsibility, authority and accountability is a useful way in which to clarify the scope of the various organizational elements noted above and to outline their structure in a particular case.

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The section below is an example of a traditional hierarchical structure; however many worker coops have a broad participatory governance and management process.

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audience members

Members

Responsible for:

  • Contributing financially

  • Supporting activities of the co-op

  • Participating in member meetings

  • Electing the Board of Directors

  • Participating in setting the broad goals and objectives of the co-op

  • Monitoring the performance of the board and governance processes

Accountable to:

  • Other members

  • Community at large

Receives authority from:

  • Co-op legislation – one member one vote, etc.

  • Worker co-op’s Articles and Bylaws

  • Board of Directors (Approves individual memberships) 

Business Meeting

Boards of Directors

Responsible for:

  • Participating in the development of the strategic plan 

  • Approving the annual budget

  • Hiring and monitoring the general manager

  • Ensuring the financial viability of the co-op by monitoring the finances of the   co-op 

  • Approving key policies to guide the affairs of the co-op

  • Ensuring the co-operative meets its obligations to members

Accountable to:

  • The membership

  • Accountable to other directors

  • Accountable under law for some of the financial obligations of the co-op

Receives authority from:

  • Members through election

  • Co-op legislation

  • Co-op bylaws

Business meeting

CEO/Manager

Responsible for:

  • Guiding the overall affairs of the co-op to ensure it can meet is goals and obligations

  • Facilitating and assisting the Directors in carrying out their responsibilities

  • Organizing, leading, directing and supervising the management team 

  • Controlling the finances of the co-op through budgeting, monitoring and spending controls 

  • Mentoring the management team and other staff as required

Accountable to:

  • Board of Directors (acting as a whole)

Receives authority from:

  • Board of Directors (formal)

  • Co-op Policies (formal)

  • Management team and staff (informal)

Consumer Co-op Succession Considerations

Consumer Co-operative Option:

In many rural communities a small business, e.g.  convenience store, bakery, gym, or café which often provide not only needed goods and services but in many cases to bring the community members together. In these situations  the potential for a community based consumer co-op is strong. The community can pool its financial resources and business expertise to develop a co-operative that will ensure the business can continue to function and maintain not only the goods and services but also employment of the existing employees.

Key Ingredients for a Consumer Co-op:

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  1. An owner who will engage with the community as a genuine succession option.

  2. A viable business with a strong future within the community

  3. Agreeing with the owner regarding a fair price.

  4. Having community leadership and expertise that can inspire trust from the broader community.

  5. Engaging with the current employees to ensure their interest and support in a community succession

  6. Having a community engagement plan to promote the idea and build the membership including an appropriate level of member investment.

  7. Engaging with appropriate service providers including those with co-operative and community development expertise.

  8. Developing a business plan and securing member and external financing. 

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Resources

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