Union Co-op Overview

In 2009, the USW announced its collaboration with Mondragon to develop unionized, worker-owned cooperative businesses (“union co-ops”) in the U.S. and Canada.

About Mondragon

The Mondragon Corporation is comprised of over 100 separate worker-owned cooperative businesses in industrial, retail, finance and knowledge sectors, and was established in 1956 in Mondragon, Spain with the formation of its first co-op, ULGOR, comprised of 5 worker-owners. With over €12 billion in annual revenue and 74,000 employees, Mondragon is now the largest worker-owned business in the world. Overall, only about half of the workers are also owners, although within its historical core industrial sectors, 84% of workers are owners.

What is a Union Co-op?

Union Co-ops are for-profit businesses that are owned and directed by workers, which utilize the collective bargaining process and are guided by the core principles of sustainability, solidarity, accountability, and community.

In 2012, the USW, Mondragon, and the Ohio Employee Ownership Center (OEOC) jointly released an initial template for the Union Co-op model, to provide a starting point and rough road map for others interested in developing Union Co-ops and to respond to some of the more frequently asked questions about our efforts.

Why are the USW and other Unions interested in Co-ops?

We are engaged with co-ops and worker-ownership for two general reasons, to help our current members and to organize new members.

For our current members, worker ownership has the potential to improve their jobs, improve their earning potential and to improve job security. Studies have shown worker-owned companies to be more productive and as owners, workers would have greater earning potential sharing in all of the profits. With the potential for greater rewards, however, comes some degree of added risk. Even in difficult circumstances, workers have more options as owners (and more incentive) to help the business survive and/or to sustain jobs. As a result, layoffs are rare and unemployment is low. To use Mondragon as an example, amid 26% to 27% unemployment throughout Spain, the Basque region, where Mondragon is headquartered and which has a high rate of worker ownership, has about half as much unemployment. The Basque region also has the lowest poverty levels in Spain, and the highest average income.

Worker ownership also provides a unique way for us to organize new members. Whether by helping workers to buy-out or to start-up a business, we get the opportunity to demonstrate the value of a having a union. In comparison to a traditional organizing campaign that has low success rates due to overwhelming employer opposition, worker-owners that already have some relationship with us are much less likely put up those types of barriers. Even when we win a traditional NLRB campaign, improving wages, benefits, and working conditions through collective bargaining can be a long and difficult road. In the context of a worker-owned business that journey is likely going to be much smoother and shorter.

Why do Co-ops need a Union?

Probably the most common question is “Why would a co-op need a union if the workers own the business and run it democratically?”.

The first part of the answer is co-ops are still very much like traditionally owned businesses, in that workers who have a union, benefit from gaining due process protections, a means of communicating their needs and concerns without fear of reprisal, and a stronger voice to improve compensation and working conditions through collective bargaining. Workers in a co-op may democratically elect a Manager and/or a Board of Directors, but their ability to influence and impact the day-to-day management of the business is too often limited. The bigger the co-op, the less “ownership” (meaning ownership as an experience, not just an account balance) a worker might have in the daily business. By integrating collective bargaining, the workers gain an additional avenue to exercise their “ownership” and to help keep management accountable to the worker-owners as workers. In other words, worker-owners elected a Board of Directors to advocate for their interests as owners, but also benefit by electing a Union bargaining committee to advocate for their interests as workers.

The second part of the answer is derived from the network and connectivity among co-ops that has made Mondragon resilient and successful. The connectivity of local unions into larger unions and larger unions into federations means that unions are able to network and pool resources to learn, build relationships, develop expertise, and pool resources that co-ops in the U.S. may be lacking. Whether that means access to a health and welfare fund, a pension fund, staff that have expertise in finance, connections to and relationships with potential investors, knowledge of and relationships within state and federal governments, knowledge of and relationships with thousands upon thousands of employers, or the ability to identify and understand best practices drawn from all of those relationships and connections, unions bring a lot to the table. In essence, unions can become co-op lead generators as well as co-op incubators, as well as a provider of benefits and services, lobbyist, and advisor.

Partnering with Private Equity

For many, the words “private equity” bring to mind Gordon Gekko, or more recently, The Wolf of Wall Street, and the mantra that “greed… is good”. It is a reputation not entirely undeserved. Too often we’ve seen the dismantling of businesses at the hands of private equity funds that use junk bonds and leveraged buy outs to suck as much money as possible out of a business, leaving behind a shell of a company that eventually implodes into bankruptcy with nothing left but the aftermath of desolation and desperation for the former workers and the community.

Is private equity the financial equivalent of Bram Stoker’s Dracula brought to life? Yes and no. Although the Gordon Gekko stereotype may be well deserved, not every private equity fund operates that way. Some private equity groups do actually try to build value by improving the health of the business and/or growing the business rather than bleeding it dry. To be honest, even these “good” private equity funds don’t always succeed at building a business up, and instead end up cannibalizing it, so there are no angels here, but there are potential partners.

Partnering with private equity may sound like selling your soul to the devil to those in social justice movements, but there are opportunities for – dare I say it – “win-win” partnerships. The key is finding the right partners with the right opportunities. No, really. Think of this analogy:

You get in your car one day, but it doesn’t start. Do you (a) sell the car; (b) dismantle the car and sell off the parts; (c) spend the money to repair it; or (d) declare bankruptcy after defaulting on the car loan and letting it be repossessed? For most of us, the reasonable answer would be to have the car repaired if the cost is not too high and the car is worth repairing. For some private equity groups, the answer is not as obvious and could be any one of those options or combination thereof. The private equity groups we want to partner with are the ones who see investing in repairs and keeping the car running as the preferred option.

Of course, even with the right partners, not every investment they are engaged in will make sense. Some are going to be sucked dry, some are going to be sold at a premium, but some will continue to be low margin, low growth – but profitable – companies where the exit strategy is less obvious. Even before the initial investment is made, the private equity group needs to have an exit strategy developed, but sometimes things don’t always turn out as planned. Whether as a “Plan B” exit strategy, or as the plan designed from the start, a transition to worker ownership could make sense.

Consider this scenario: A troubled business is in negotiations to be acquired by a private equity group.   The business could make money (or already does), but it’s a mature business with low growth and low margins. Instead of bleeding it dry, the right partner might be willing to invest in improving the health of the business, then transition it to worker ownership over a period of time, ultimately realizing a return on its investment from a combination of dividends and the sale of stock at a profitable, but fair, price that reflects the business improvements made by the private equity group. As an added benefit, there may also be tax savings on the group’s capital gains by using an Employee Stock Ownership Plan (ESOP) as a vehicle for the ownership transition.

The scenario runs essentially the same course for a private equity group looking for a “Plan B” exit strategy, but a shortened time-frame for the ownership transition could prove difficult to finance. A shorter transition time also means less time to transition the culture towards an ownership culture, which is as important – if not more so – than the financial transition and transaction.

Finding the right partners and the right situations may present limited opportunities initially, but success could breed more success as more “good” partners and “good” situations pop up. You and I might even start to imagine creating our own private equity funds and our own venture capital funds.

More to Come…

I haven’t been feeling well for the past couple of months, but there is still plenty more to come.  A few of the ideas I’m planning on writing about soon include partnering with private equity, culture is critical, and investing in inmates.

Some may find them a bit provocative and controversial, but the purpose of this blog is not only to write about why ownership makes sense, but also to brainstorm and develop ideas on how to push the envelope further and expand ownership opportunities for a more just economy.  Your ideas and comments are always welcome and encouraged.

Check back soon!

Organizing through Ownership

On Labor Day, many wrote about all the gains workers have made organizing through unions. Many others wrote about how union membership continues to decline, or what type of influence unions may have in upcoming elections. Some wrote that unions need to do more outreach, to be more inclusive. Some wrote about the need for raising the minimum wage to a living wage. There are seemingly endless prescriptions for what ails us, but it seems like we read the same stories every year. 

This Labor Day, many of us enjoyed a day off. A day that unofficially marks the end of Summer and the beginning of Fall. A day that too many of us take for granted.

Although many of us had the day off yesterday, it seemed like just as many, if not more, of us were working on Labor Day, and too many were working for low wages and few benefits. Some might even say they’re the “lucky” ones, because millions more of us can’t even find a job. Too many people are killed on the job every day, in fact over 4,000 people are killed on the job every year in the U.S.. Every day people are harassed or discriminated against because of their gender, their race, their sexual orientation, their age, their immigrant status, and so much more. Tens of millions of people still go without health insurance because they can’t find jobs, their employers don’t offer it, or it’s too expensive. Retirement “security” continues to become more and more elusive as employer’s do away with defined benefit pensions, even while making record profits. We need unions now as much as ever.

Labor unions and labor laws haven’t changed a whole lot over the past 50 years or so, but many of the jobs and workplaces have. Here in Pittsburgh, big manufacturers like U.S. Steel, Alcoa, and PPG once dominated the economy, now it’s UPMC, Highmark, Pitt, and CMU (aka “meds and eds”). Jobs have become increasingly subcontracted (and those subcontractors then subcontract out to others), not only fragmenting any workplace or employer identity, but also giving rise to a fast growing number of “freelancers”. The use of “temporary” employees has also grown to become an increasingly significant part of the full time workforce. Even low wage retail and service sector jobs are becoming increasingly part-time.

As much as we have tried to turn the tide on the erosion of good jobs with good wages and good benefits, success has been elusive. Yes, unions have made a big impact in protecting what we have, and slowing the erosion, but we have yet to stop it. And so, as much as we try, the trend lines continue.

In 2009, our big push was for EFCA to make it easier for workers to join unions, creating a way-over-the-top pushback from employers, almost predicting the end of all freedom. Although EFCA might have made it easier for some to organize, it would have little to dampen the openly hostile and threating anti-union campaigns and tactics that many employers use. Unions have also tried organizing in non-traditional sectors and jobs, like home health aides, teaching assistants, adjunct faculty, even college athletes. While those efforts are worthwhile and sometimes fruitful, maybe we need to go even further outside the box.

For much of our history in the U.S., unions have waited for businesses to start up and hire people at whatever wages, benefits and working conditions the company can get away with, then we try to help them join the union and improve those wages, benefits and working conditions. In short, we react to employers. Sometimes we even react in proactive ways, such as political action, legislation and trade policies. If we are going to shift the path we have all been on, union and non-union alike, for the past 40 years, then we do indeed need to change the paradigm, and that is to start creating our own jobs.

Let’s get to the heart of the matter: the whole point of organizing, of unions, is to take collective action for a collective benefit. In today’s world, in today’s economy, taking collective action is difficult and gaining a collective benefit is even harder.

A weird thing happened this past summer; employees of Market Basket – both management and hourly – took collective action against the company’s majority shareholders and their Board of Directors, and won! Those workers may never have signed an official union card, paid union dues, or negotiated a union contract, but they certainly formed a union, even if only for a summer. Part of the narrative coming out of that action is that maybe lots of working people are becoming fed up with benefits being eroded, wage increases (if any) barely covering their increased health insurance costs, and any hope of retirement being slowly extinguished – but are too unsure about how to push back. So maybe there is an appetite for collective action for a collective benefit, but no mechanism to do so appears accessible.

The opening for organizing through ownership is here. People have been organizing themselves through collective ownership for over a hundred and fifty years, through worker-owned cooperatives. Yet, so far, worker-owned cooperatives exist only on the margins of our economy. Is it because those businesses are less productive or less profitable? Actually, studies have shown worker-owned cooperatives to be more productive and more profitable, on average, than businesses with more traditional forms of ownership. The answer, I believe, comes down to resources and organization. If the organization existed to provide education and training, as well as the resources to financially back new co-ops and provide ongoing support and networking, then growth could become significant.

Not only is there one organization that has begun to provide those types of resources and networking, there are several that have recently emerged. The U.S. Federation of Worker Cooperatives (USFWC) was formed 10 years ago by existing worker-owned co-ops to do that type of work at a national level. USFWC has recently taken another big step forward and launched a non-profit, the Democracy at Work Institute. In Cincinnati, a group of labor and community activists launched the Cincinnati Union Co-op Initiative (CUCI), which has been an incubator and has already launched several unionized worker-owned cooperative businesses (Union Co-ops) in the Cincinnati area. This year, 1worker1vote.org launched to expand upon the work of CUCI and the USW-Mondragon collaboration to promote and incubate Union Co-ops around the country. The Freelancers Union was formed a few years ago as a support network for freelance writers, graphic designers, and others who no longer had an employer and were out on their own. As freelancers collaborate more and more, interest in co-ops has been growing.

So here we have a growing interest in a form of collective action for collective benefit, co-ops, yet unions continue to come under attack and face declining membership. Maybe it’s because we’ve become an easy target. Our collective actions *have* created collective benefits, and as a result, union members have significantly better wages and benefits than non-union workers. Where we have been unable to lift them up, they appear ready to tear us down. However, organizing workers through co-ops may be able to lift us all up.

In addition to all of the work our unions already do, we can make collective action for a collective benefit accessible to more working people through ownership. Unions have the skills, the resources, and the network to reach millions of people – also the reason some people and organizations are afraid of us and what we might be able to do, even with union membership as a percentage of the workforce at historic lows. Unions have the ability to change our economy, and change it for the better. Tapping into the ability, however, means taking a slightly different approach.

As job creators, unions would have the ability to organize large segments of the workforce, such as independent contractors, that have been out of reach for too long. The Cooperative Home Care Associates in New York, NY is already an example of how homecare workers might be better organized. Union Cab in Madison, WI is already an example of how taxi drivers can organize into ownership. WAGES in the San Francisco Bay Area is already an example of how house cleaners can organize. And there are so many more examples… but replicating and building on those examples (and more) takes organization and resources. That’s what unions bring to the table.

By recognizing unions and co-ops are part of the same labor movement, and by creating a strong collaboration between them, creates the opportunity for unprecedented growth in worker ownership, while improving wages and benefits, and lifting up whole communities to become more viable and more sustainable. 

Sell Market Basket to Workers

Market Basket continues to lose up to $10 million per day, according to the Boston Globe, since Arthur T. DeMoulas was fired and the workers went on strike in late June. As loses mount, the pressure on Arthur S. and his side of the family continues to rise.

The Governor of Massachusetts, Deval Patrick, has reported the parties are close to an agreement to sell the other 50.5% of Market Basket to Arthur T. and has asked employees to return to work. Governor Patrick’s call for an end to the strike is premature, as no deal has been announced.

A deal to sell Arthur T. the other 50.5% of the company may not be in the best interests of the strikers either. Such a deal would likely be financed almost entirely by debt incurred by the company, and we have seen all to often how highly leveraged companies struggle to survive. Since a highly leveraged Market Basket would have to pay a substantial amount of money to meet its ongoing debt payments, there will be fewer profits to distribute as bonuses or profit sharing to the employees. With higher debt payments to make, Market Basket will also have less money to invest in growth and to invest in maintaining its current stores. Prices are likely to go up to offset some of the added costs. In other words, many of the reasons Market Basket has been successful – highly motivated employees dedicated to customer service, low prices, and well maintained stores – would be directly affected by a high amount of debt. Arthur T. may end up with his side of the family owning 100% of the company, but also potentially forced to cut back on the programs that made him so well liked by employees.

A better scenario would be to sell Market Basket to its workers. As a privately held company, reliable information on its finances is hard to find. There are 71 stores, with a total of 20,000 to 25,000 employees depending on the source. Annual revenues are reported to be in the range of $3.5 billion to $4 billion a year. The Boston Business Journal cited the sale of Harris Teeter to Kroger last year for $2.4 billion as one potential benchmark for the valuation of Market Basket.

Using those rough numbers, that would mean it would cost each employee an average of $100,000 to buy out the company completely. That may seem unattainable, but keep in mind that workers wouldn’t have to buy 100% of the company right away, just enough to put the CEO they want into place, Arthur T. If each employee were to put $1.00 an hour in deferred raises or wage reductions into buying stock, they would own over $2,000 in additional stock each year. Over several years, even the lowest paid employee could accumulate a significant share.

There are three main benefits to workers buying Market Basket: (1) the tax savings to the current owners by selling to an Employee Stock Ownership Plan (ESOP); (2) the reduction in the amount of debt needed to complete the transaction; and (3) the long term ownership by the employees when Arthur T. eventually decides to retire.

Employee ownership of a grocery store chain is not unusual. According to the National Center for Employee Ownership (NCEO), grocery store chains that are majority owned by employees include: Publix (160,000 employees), Price Chopper (23,000 employees), WinCo Foods (15,000 employees), Brookshire Brothers (5,600 employees, 100% owned), Harp’s Food Stores (4,000 employees, 100% owned), Homeland (3,740 employees, 100% owned), and Piggly Wiggly Carolina (3,000 employees).

Market Basket workers and the extended DeMoulas families have a unique opportunity to turn this difficult time into a positive result. By gradually selling to employees, the family has an opportunity to wind down its feud, the workers get to invest in themselves and their company, the company doesn’t get overburdened with debt, and the customers get to return to grocery stores that offer low prices and excellent customer service.

If such a deal can be reached, the short-term crisis can be resolved, but further steps ought to be taken: (1) employees should form a union; and (2) workers should plan to transition to a more equitable cooperative structure once they achieve majority ownership. As we have to often seen in the past, an ESOP becomes an important tool to save and/or invest in the company, but the ownership of shares doesn’t necessarily create a stronger “ownership” of the business in the sense of accountability and participation.

Why form a union? Market Basket workers have already taken part in an extended collective action and seem to be succeeding without a union, right? Although many workers have been able to find work elsewhere, many appear to not be so lucky. By pooling resources, aka dues, unions are able to provide at least some money and benefits to striking members that need it the most. Unions are also able to hire experts, such as attorneys and financial analysts, to advise and assist members in such difficult situations. Without a union, striking Market Basket workers have none of these resources.

Another reason to have a union, even when employees own the company, is that the collective bargaining process helps to keep management accountable and due process language helps to ensure workers are treated fairly. Having a union helps to ensure that “ownership” will mean more than just the value of a share.

As the situation at Market Basket continues to gain national attention, it has also created a unique opportunity to consider how we want companies to be managed and how we want them to be owned. Too often we have seen the greed of the bottom line overrun the lives of the workers and the needs of the community. Let’s help Market Basket workers continue to make history and support an employee buyout.

Owning a Better Future

“The mass of men lead lives of quiet desperation. What is called resignation is confirmed desperation.” – Henry David Thoreau, Walden

     In an era of stagnating wages, persistent unemployment and underemployment, rising costs of living, health epidemics and climate change, one might come to believe that Walden’s observation of quiet desperation and resignation is as true today as it ever was. Even though that desperation might not always be so quiet, it is the creeping pervasiveness of resignation that poisons our reservoirs of hope.

      Resignation that we are stuck in a quickening race to the bottom by working harder every day for less pay and fewer benefits, with little job security, all aimed at being “competitive”. Resignation that we get to buy cheap stuff, because that’s all we can afford, by allowing companies to exploit workers and pollute the environment elsewhere in the world. Resignation that billions of us live in poverty. Resignation that the wealthiest 85 people in the world have as much wealth as the poorest 3.5 BILLION people. Resignation that our most of kids will have to take on decades of debt to pay for four years of college, while half of them will end up unemployed or underemployed when they graduate. Resignation that maybe the American Dream is dead.

      Perhaps poisoned with cynicism and resignation, there is still hope. Take a minute and imagine. Imagine the world you want to live in, the world you hope for. Did you hope that you can provide your kids with a better life? Hope for “life, liberty, and the pursuit of happiness”? Hope that you will have a job that not only provides a good wage and good benefits, but also is enjoyable and fulfilling? Hope that someday you will be able to retire with dignity and good health? Hope that you will be able buy a nice home in a good neighborhood? Hope that you can send your kids to college? Hope that your kids will have the opportunity and freedom to be who they want to be and to do what they want to do?

     Hope is the foundation of the American Dream. A world full of inequity, poverty, disease, prejudice and pollution is not what any of us hope for, it is the world we have resigned ourselves to.

We can own a better future.

     How? By not only having the hope that things can be changed for the better, but also the courage to make change happen. There is no silver bullet, no road map, and no guarantees, but certainly we can keep working to make inroads and together begin to shift the momentum towards a better world. One such inroad might be to start reclaiming ownership of some of things that now see beyond our control. A community standing up to a polluter to reclaim ownership of their environment. A neighborhood that others have resigned to be a ghetto, coming together to reclaim ownership of vacant lots in order to plant community gardens. A laid-off worker reclaiming ownership of their livelihood by starting their own business.

      Why ownership? Because if it’s your land, you’re not going to pollute it. If it’s your job, you’re not going to give it to the lowest bidder.

    Worker owned businesses, including worker owned cooperatives, root jobs and money in their communities. The community, in turn, supports the worker owned businesses. Two important examples of this ecosystem are the Mondragon cooperatives, located in the Basque region of Spain, and the thousands of worker owned cooperatives in the Emilia Romanga region of Italy.

     Although unemployment in Spain is currently 26%, the unemployment rate in the Basque region is half of that. Why? Because the worker-owners in the Mondragon cooperatives prioritize their own employment over the maximization of their profits, layoffs and closures are the absolute last resort rather than the first option. Rather than syphon off profits to anonymous global shareholders, worker-owners in the Mondragon cooperatives keep their profits and give 10% to their communities. Because money stays in the community, it supports other jobs in the community as it recirculates from one community-based business to another.

     Owning our own jobs, our own livelihoods, gives us the power and ability to work for the kind of world we hope for. As worker-owned cooperatives, we can share the risk of ownership in order to minimize it, without giving up the power of ownership. The power of ownership, the control of our own lives, becomes a power antidote to the poison of resignation and desperation.

To learn more about worker ownership and union co-ops, visit: