Employee Owned Business Cooperative Success Stories

City Governments Formally Adopting Employee Owned Business Cooperatives as an Economic Development Strategy

New York City has approved a $1.2 Million initiative to fund the development of Employee Owned Business Cooperatives within the City budget. This is the largest municipal program of its kind in the U.S.. Other Cities adopting formal EOB programs, although with smaller budgets, include Austin, Texas, Madison, Wisconsin, and Richmond, California. Cleveland, Ohio has developed one of the most extensive network of EOBs as the core of its redevelopment of the University Circle neighborhood.

Evergreen Cooperatives

Evergreen Cooperatives is one of the most unique and successful cooperatives in the country. Founded in 2008, it is a collaboration between the Cleveland Foundation, the Cleveland Clinic, University Hospitals, Case Western Reserve University, City of Cleveland, and the Evergreen Cooperatives. Their goal is to create jobs that provide a living wage to the low-income neighborhoods in Cleveland, particularly those surrounding Greater University Circle. The unique combination of anchor institutions and employee-owned businesses has created employment opportunities that have historically inaccessible to low-skilled labor. The beauty of the Evergreen Initiative is that not only do they create jobs, but they also recruit and train the workforce [Wang and Filión, 2011; Dubbs and Howard, 2012].

Evergreen’s success is attributable to significant institutional support. The Cleveland Model, as it is called, leverages funding to create jobs and wealth for the community. Evergreen operates in the green technology industry. Evergreen has been credited with stopping neighborhood destabilization by providing job and wealth building opportunities, reducing unemployment rates and building community around Greater University Circle [Wang and Filión, 2011].

Mondragon, Spain

Mondragon is one of the oldest and most successful worker cooperatives in the world, started in the 1950s in the Basque region of Spain. Although there have been many cooperatives and names associated with Mondragon, today the company has grown to 103 worker cooperatives. The worker cooperatives have grown internationally including some within the United States. The history of Mondragon is braided with the political struggles of Spain during the latter part of the 20th century. In the 1980s, the Mondragon Co-operative Group was established and the company of today began to take shape [Azurmendi, 1984]

According to its 2014 annual report, Mondragon employs 74,000 worker-owners worldwide and has $26 Million in assets. Mondragon works primarily in health care and green technology. They partner with other worker cooperatives around the globe to provide services and grow the model of worker cooperatives. One of the unique aspects of Mondragon is its legislated wage structure agreement the ratio between executive salaries and new workers cannot exceed 9:1 and averages 5:1[Herrera, 2004].

Keys to Success

Employee Owned Business Cooperatives can address a number of the prosperity building block policy targets, including: expanding the supply (pipeline) of higher wage job opportunities, providing better preparation, providing targeted business development and wealth building underserved segments of the region’s population, and focusing physical investment in historically distressed neighborhoods.

Leading research indicates that EOBs have survival rates equal to or better than traditionally structured businesses. However, forming EOBs face a number of challenges, including:

! Employee Owned Business Cooperatives represent two forms of risk for their worker/owners: if the business fails, they lose their job and their equity investment in the business;

! Capitalizing EOBs is harder than traditional businesses. Since the workers own the company, it is difficult to bring in equity partners or sell ownership in the company to raise capital;

! Debt financing for EOBs, particularly start-ups, has been difficult to obtain; and

! Many workers do not have management experience.

Given these challenges, growing research indicates common characteristics of successful EOBs include:

! Sufficient and available capital;

! Mentorship and/or technical assistance for start-ups;

! Operating within a significant and established (as opposed to new) regional industry sector; and

! If available, a local network of other cooperatives and employee owned business cooperatives. [MIT CoLab, 2010]