Expanding across state lines? Be cautious.

This morning, we filed paperwork to cancel recognition of two of our subsidiaries in Delaware.  For those who may not be aware, a legal entity such as a corporation or limited liability company needs to be recognized by a state’s laws in order to operate there.  This is distinct from getting a business license, and the fees vary by state.  In the case of Delaware, maintaining an LLC costs $300 per year.

$300 a year may not sound like much, but we have five separate entities: our parent cooperative and four operating subsidiaries.  Each entity has to be registered in place where it is actually domiciled–Delaware for our handyman services company Paint and Patches, Virginia for the others–but it’s a big value to only register the others where they have enough revenue coming in to take it worth the registration, business licensing, and other fees associated with operations.  Dropping these two companies from recognition in Delaware will save us $600 in registration per year.

There’s one twist: cancelling registration for an out-of-state LLC requires a filing fee.  How much is that?  It varies by state, but in Delaware, it’s $200.  Delaware also has the indefensible practice of charging for processing priority, guaranteeing one-hour service for $1000 while 24-hour service costs $100.  There is technically a no-fee “order of business” option.  We have tried this before, and after six weeks of inaction, we paid the $100 fee for 24-hour service.  It is effectively a non-negotiable part of the filing fee, branding aside.  So, we’re paying $300 per company so we don’t have to pay $300 per company in January.

We have to do this because if we don’t file to cancel the LLCs in Delaware, we’ll be assessed the $300 franchise tax for each one every year for five years.  At that point, they will be cancelled anyway, but if we ever need to renew the recognition, we’ll have to bring the accounts current, including paying any penalties and interest that have accrued.  It’s not a good option.

How This Happened

We sought Delaware recognition for XENSHA Consulting in mid-2017.  At the time, we had just split our consulting work off from our parent cooperative as part of a general restructuring that put each line of business into its own subsidiary.  We did this to concentrate specific kinds of work in purpose-built companies, creating greater flexibility.

XENSHA Consulting’s revenues at the time included commissioned sales work in Delaware that accounted for tens of thousands of dollars of annual revenue, and paying $300 to keep that revenue in place made sense–or so it seemed at the time.  Actually, that commissioned sales work went away in September, leaving us with no reason to have the subsidiary recognized outside of Virginia.  As we pondered opportunities for new work in Delaware, January 1 arrived, and we received a $300 bill for 2018.

Two months later, we sought Delaware recognition for Co-Local, taking it beyond its Virginia origins based on enthusiasm expressed by one member.  To date, precisely nothing has been done with Co-Local in Delaware.

Don’t get me wrong: our cooperative wouldn’t exist if we weren’t willing to tolerate some degree of business risk, and that means committing our accumulated capital to try things out.  Those things don’t always work.  I’m not advising against taking risk.  Where you should be cautious is when your expansion takes you across state lines.

State lines are legal and regulatory boundaries.  Beyond the simple costs of registration and licensing, a business that moves into another state may need to supplement existing insurance, increase or alter its wage structure to meet state minimums, establish new benefits such as paid sick leave, and take other steps that can transform the cost of doing business both directly and in terms of administrative overhead.  We’ve actually been better than most businesses our size in addressing these challenges, but it’s costly to follow all of the rules, even if it’s a lot cheaper than breaking them.

We still have one investment in cross-state expansion that we’re maintaining as an experiment.  Paint and Patches is licensed and insured to provide handyman services in Maryland as well as Delaware, and the hurdles we had to overcome to make that happen went far beyond simple filing fees.  Whether that will turn out to be a smart bet remains to be seen.  One thing is for sure: we will be watching carefully.  No business gets ahead by pouring money down the drain.


This article explains we did and why.  Please don’t interpret our choices or views as professional legal or financial advice.  Your circumstances may be quite different than ours, or we may have made a bad choice that will come back to bite us later. 

Featured Image Credit: “401(k) 2012” (CC BY-SA 2.0)

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Best for the Workers

Every year, the nonprofit B Lab publishes a “Best for the World” list.  B Lab is oversees the Certified B Corporation® program, and the list consists of companies whose independently reviewed scores on the B Impact Assessment make them exceptional among their peers in one or more of several categories.  Consideration is made for how a business benefits communities, customers, the environment, and workers along with how it handles its own governance.  There’s also an “overall” category that recognizes standout performance across all of these areas.

A Foregone Conclusion

From the moment we became a B Corp last November, it was obvious that XENSHA was going to rank strongly in the “worker” category.  Our B Impact Report showed that we earned a score of 49 versus the median of 18, particularly impressive considering that this score is a median among other companies that complete the Assessment.

Then again, how could it be otherwise?  As a worker-owned cooperative, we exist for the benefit of our workers.  As exciting as it was to see that we had double the median score for compensation, benefits, training, and work environment, it would have been a rebuke if we had merely maintained parity with organizations that are expressly putting other priorities ahead of workers.  Add in that we’re currently a company of just five people, and there’s a limit to how much credit we can take for our performance.

We knew all that.  Even so, it was a thrill to beBFTW-2018-Workers-Color (small) announced on the list of “Best for the World” in the Worker category for 2018, and we remain proud of the accomplishment.  On each of our Web sites, the basic B Corp™ logo has been replaced with the Honoree recognition image.  We updated some of our promotional material to include it, too.

Justifiably Proud

Wait,” you might be thinking.  “If you knew that we were going to score highly for your treatment of workers, why are you making such a big deal out of this award?”

It’s because we are justifiably proud of the accomplishment even though it was a foregone conclusion.  Our structure and cooperative values require us to operate for the benefit of our workers.  That doesn’t make it any less impressive that we actually do operate that way.  It’s not as if it’s easier to run a business for the workers’ benefit, and it’s also not as if we had this choice imposed on us—or that, having made it, we can sit back and relax.

Every day, we have to balance our roles as workers and owners, remembering that each role as its place in our structure and needs to be respected in order for us to continue what we are doing.  Seemingly obvious at first glance, this is actually not so simple as it seems; in fact, the inability to balance these roles is what doomed the great producer cooperatives of the 1880s, which for a time seemed ascendant in the manufacturing of everything from shoes to barrels.

When You’re the Fat Cats

Calling for higher wages and more generous benefits to be funded by someone else’s money is pretty simple.  Flexible work arrangements, paid leave, a funded retirement plan—these are just no-brainers among protestors on the street screaming about fat-cat shareholders siphoning wealth to the Top One Percent.  When you are the people to whom whatever residual value is siphoned, however, the situation is different.  Wages and benefits that are owed to employees must be paid, even if the owners lose money in the process.  When you are the owners and the workers, you are making promises to yourselves, but being on both sides of the deal makes you no less liable should you fail to honor the deal that you made with yourselves.

We regularly re-evaluate what we’re doing and how we’re doing it.  Right now, there’s a vote underway to decide how we’re going to handle paid vacation.  We used to have a plan where we could buy vacation by deferring pay, but it turned out that such vacation could not be carried over from year to year because of a tax doctrine called “constructive receipt.”  An accrual system of the sort you see in many businesses has special implications for us, because every benefit literally means fewer dollars for operations.

A few months back, we had another big decision.  We had just adopted a wage model to replace our earlier commission structure, so that we could better implement our commitment for a living wage and also because we were finding it hard to pay bills without any economies of scale.  Very shortly thereafter, a big windfall came in, a final commission payment from a program in which no one was doing any work and which was the result of some customers renewing under our umbrella before we formally left the program.  Our new model made clear that this revenue belonged solely to the cooperative, with no wages owed on it because there was no work done.  The worker who had been responsible for the original sales wanted a commission, on the basis that the windfall was attributed to his effort whether work had been done or not.

This was a serious challenge to everything we were doing, and it looked for a time as though it could cause a lasting split.  Instead, we reached an agreement that whenever we got revenue for which no work had been done but whose attribution could be made to one or more specific members, we’d divide among them a cash bonus equal to 15% of the windfall.  That agreement took shape because everyone involved had a strong desire to keep the cooperative functioning, which would be impossible if any one person acted solely out of personal interest at the expense of the others.

Towards the Bright Future

We’ve never been clear how long XENSHA will last.  Our overhead costs are quite low in absolute terms, and we can easily envision a sustainable workload that provides living wages, strong benefits, and social value for the long term.  We’re also a company based on incredible flexibility that makes part-time employment common, which in turn makes it hard to guarantee even the relatively modest revenues needed to support our overhead costs unless and until we get to a minimum number of workers.  XENSHA could just as easily disintegrate within the next year as thrive for the next decade.

Whatever the outcome for our cooperative, however, that outcome will not be a referendum on the strength of the cooperative model of worker ownership and democratic control.  The challenges we face at the same as any typical small business: capitalization, scale, demand, and above all, commitment.  If we can’t make what we’re doing work, it will be because we have too few customers and too little revenue to cover unavoidable costs such as licensing, insurance, and supplies.  We’re struggling with these things, for sure.  We’re doing that without blaming the problems on our workers, or trying to cut their pay to rates that need government subsidies to live, because our values demand that we put people first.

That’s why we’re proud to be Best for the World in 2018.


This article explains we did and why.  Please don’t interpret our choices or views as professional legal or financial advice.  Your circumstances may be quite different than ours, or we may have made a bad choice that will come back to bite us later. 

The Merits of a Wage System

Update: October 25, 2018

While the basic rationale for a wage system continues to make sense for most jobs within our cooperative, we did decide recently that people working in outside sales roles could be paid on a commission-only basis.  We made this decision for three reasons:

  1. A current Member who worked in outside sales and preferred this results-driven approach to pay over tracking individual hours that may have produced no value.
  2. The Fair Labor Standards Act expressly allows outside sales workers to be exempt from both minimum-wage and overtime requirements.
  3. Many potential workers from sales backgrounds expect to be paid on a commission basis and regard it as superior, even where it can be shown that they earn less.

We continue to use a wage system for other work roles besides outside sales, and we expect to continue to do so, in part because a wage basis is preferred or assumed by most other sorts of workers.


Original Post

Back in August last year, we established a Basic Wage Rate of $15: no work would be paid at less than $15 per hour. As I articulated at the time, we made this unanimous decision because “any work that doesn’t generate enough value to offset a living wage isn’t work that’s worth doing.”

Despite that bold commitment, XENSHA continued for the next seven months to operate on a commission model, wherein workers were paid a percentage of attributed revenues. This model — a carryover from our origins as a partnership, before we adopted the cooperative plan — was reconciled with our stance on the Basic Wage Rate by taking each worker’s commission earnings and using those earnings to identify an equivalent number of hours at the Basic Wage Rate. Far from a worker protection, it had the effect of transforming any number of actual work hours into notional work hours, so that we always paid a fair wage for an hourly distribution that might not reflect actual work.

This is a good time to remind readers that our Basic Wage Rate and the mechanism of its application were both adopted unanimously by the members of the cooperative, who were at the time were XENSHA’s only employees, and that this infringement was applied by the workers upon the workers of their own accord. Such qualification makes the exploitative element no less real, but it is consistent with what would occur within a partnership (the original form of XENSHA before cooperation). We may have fallen short of the cooperative ideal, but the infringement was mutual if not entirely just.

In any case, on February 21, we took action to resolve that problem, voting that evening on a unanimous basis to replace our commission model with a true system of wage rates delineated by work product. This was not without contention — one member expressed concern in advance of the vote that a wage model might create perverse incentives for a company whose revenues were fundamentally inadequate to sustain operations under the prior model — but a discussion of the matter led to unanimous support despite the reservations.

Why did we make this change, after previously discussing in March of last year the merits of a commission model, under what was then a 65/35 split between workers and cooperative? The answer lies in the same article wherein we argued for the merits of that pay split: companies have their own expenses that must be paid. Our model at the time was intended to meet the requirement. As time went on, we realized that it failed to do so, not only at a 65/35 rate but by its nature — and that it threatened our cooperative model in its entirety.

A wage system serves two purposes. The first is that it guarantees payment for time rather than productive value, which is important where some portion of work may be necessary to get to the point where a prospect becomes a paying client. For us, this includes putting up flyers for tutoring services and giving free lessons, doing estimates on handyman work, and meeting with local business owners to present our cooperative advertising program. Under our commission model, this time was simply unpaid, because it created no value on which to base a commission. Now, workers receive regular pay for that work.

By fixing the cost of worker pay on an hourly wage, a business also accomplishes another goal: the remainder of revenues after wages and other expenses becomes much more variable, so that higher-value projects done in less time deliver more money to the cooperative and less to the workers. This mechanism creates profits for the owners of a capitalist company, but even in the case of a cooperative — where the workers and owners are the same people — the mechanism remains vital, because it ensures that the cooperative has enough resources to operate and invest strategically, before money is distributed.  Commissions took the same percentage of revenues at any level, driving up the revenues needed to break even in ways that were hard to predict, and regular annualized losses were the result.

Of course, any fundamental change in pay is likely to have winners and losers, and ours was no exception. People working on projects with very high payouts after a variable amount of work get less as workers under a wage system, although their pay is more predictable. To partially offset this change, we decided to distribute one quarter of the net income from each month on the 15th day of the following month. Making these distributions of net income monthly helps worker-owners see the merit of being owners over time, rather than feeling shortchanged as workers throughout the year and getting one distribution at the end of it.

Time cards can be a challenge.

Probably the biggest “pain point” for this has been timekeeping. Work that we do for others at an hourly rate has always required timecards, but people are not accustomed to tracking their non-billable time. These hours are now included in wages, so they need to be tracked, and we’re gradually evolving a convenient means of doing that record-keeping as part of a regular workday.

We also ran into a clear controversy almost immediately after voting for the wage system, when we received a large payment that we did not expect as a result of renewals obtained by a client for subscriptions we had originally helped them acquire.  That the cooperative was entitled to this windfall was beyond question, but the matter immediately arose of whether the worker who had been responsible for the subscriptions at the time would receive a commission under the old model.

He argued in favor, others were opposed (believing that windfalls should be purely income to the cooperative), and it seemed for a time like we might have reached a substantive matter on which consensus was impossible.  Instead, that same worker proposed an entirely different solution: for any windfall revenues lacking direct labor, but for which one or more workers’ indirect labor paved the way, those workers should be paid a bonus equal to 15% of the windfall, divided among them according to their respective portions of that indirect labor.  This unexpected proposal was seen as recognizing workers’ specific contributions in a measured way, and it gained unanimous support.

I doubt that these will be our last substantive changes in matters related to pay as we continue down the path of cooperation. Any proposal can be brought at any time under our model of universal democratic management. There’s also the question of the wages themselves, which may need to be adjusted for different types of work depending on circumstances. Already, we have created a differentiated wage system that takes into account prevailing norms for different levels of effort and expertise, and what is ideal is always subject to veto by what is possible.

Still, this has been a positive change, and it brings us closer to the normal mode of operations for many cooperatives, which in turn means that we are better able to learn from their experiences. That we could make this sort of change on the basis of unanimous consent is a testament to the flexibility of cooperation, and we trust that flexibility will allow us to handle whatever comes next.


This article explains we did and why.  Please don’t interpret our choices or views as professional legal or financial advice.  Your circumstances may be quite different than ours, or we may have made a bad choice that will come back to bite us later. 

Workers of the World, Cooperate!

Today, more than 80 countries are celebrating International Workers Day, which traces its heritage back for more than a thousand years to the traditional celebrations of feudal peasants who danced, sang, and enjoyed a time of rest on “May Day.”

We recognize the sacrifices, commitments, and accomplishments of workers around the world in bringing us the opportunities that we have today to gather, plan, organize, and cooperate.  In their honor and memory, we chose to establish and celebrate International Workers Day as one of our cooperative holidays, when all of the workers of XENSHA receive bonuses and patronage credit is transformed into new equity shares.

A Brief History of Labor Holidays

Americans celebrate Labor Day on the first Monday in September.  May Day was made into a pageant by Communist dictatorships that used (and still do use) the occasion to showcase their armies, so some people assume that the U.S. set up Labor Day in September to avoid overlapping with Communist parades.

This is incorrect: when the holiday was proclaimed in 1894, there were no Communist dictatorships.  However, there was plenty of social strife surrounding labor.  HACAT_DE1May 1, 1885 had been the deadline for industry to meet demands of the American Federation of Labor for an eight-hour workday, and the first days of May in 1886 were when the Haymarket Riot had taken place in Chicago.  Aware that the anniversary of a violent event could create lasting problems, those in power had a clear reason for wanting to avoid making May 1 the focus of labor attention.

Still, that is not the whole story.  The history of the labor movement places May and September as prominent times for rallies and events associated with labor action and accomplishments.  Labor Day had been made a holiday in Oregon in 1887, and by its Federal proclamation, 30 states had adopted it.  Support for Labor Day came from the Knights of Labor, which in 1887 had been by far the largest and most comprehensive of the labor organizations of the United States (and a strong advocate for the formation of cooperatives).  The Knights’ influence had waned to the point of obscurity by 1894, but the same workers who had supported Labor Day in their time as Knights were still around as members of different labor organizations, including the AFL.

What’s with the “Hammer and Keyboard?”

Our use of this striking image* in our 2018 International Workers Day banner is not an endorsement or glorification of Communism.  Communist terror killed at least 100 million people and systematically oppressed half of the world in the guise of liberation.  There should be no nostalgia for its legacy.

Communists appropriated May Day, the hammer of industry, and the red flag of revolutionary assembly, just as they appropriated all of the trappings of labor identity, from trade unions to cooperatives, discarding the intent of the workers’ organizations and using the labels to justify their totalitarian system.  As surely as we defend the cooperative plan and trade unionism in their true forms, we must reclaim these symbols for the workers who envisioned and created them before anyone was reading Marx.

Hammer and Keyboard

XENSHA is a cooperative whose work spans white- and blue-collar labor.  We bring residential carpentry and handyman services under the same umbrella as consulting, tutoring, and advertising, so we are well represented by a symbol that combines a keyboard and a hammer.  We embrace this image and encourage people of all industries, trades, and professions to examine their roles and associations as workers and look for ways to come together for mutual benefit.

Cooperation for the Future

Cooperatives brought and continue to deliver electricity to most of rural America.  Based on the same cooperative plan, credit unions provide credit and deposit services to millions of people, and millions more safeguard themselves with mutual insurance policies that are also cooperative in design.  Untold tons of fresh produce is brought to market under recognized brands brought together in cooperation among small farmers, and workers are rediscovering in a new economy the opportunities and advantages of adopting cooperation as the basis for the social-labor enterprise.

The Marxists dreamed of seizing the means of production by force and brought disaster to themselves and others even when they succeeded in their goal.  We call upon people everywhere to look to cooperation as the essential foundation for a new and better world, one of voluntary self-help in which we develop the ways to solve our problems.  Working together, we can own and control enterprises that we run for our mutual benefit, democratically and with a long-lasting positive impact for humanity.

We say, “Workers of the World: Cooperate!”


* We did not create the “hammer and keyboard” image.  It was posted to OpenClipart on March 20, 2013, attributed to the name “worker.”

Why We Became a B Corporation®

Like all modern cooperatives, we subscribe to seven principles that define how we operate.  Back in August, we started an impact assessment with the nonprofit organization B Lab to get a sense of how we were doing.  At the time, we weren’t sure whether it made sense to go beyond the assessment and seek formal certification from B Lab.  Even at our member meeting in early November, there was some question as to whether it was worthwhile, mostly hinging on the annual fee that is based on revenue and starts no lower than $500.

In the end, we decided to do it, because one of us felt strongly that it was the right thing to do and the other were willing to spend the money to see whether it turned out to be as worthwhile as the advocate claimed.

I was the advocate, and ever since we signed the B Corp Declaration of Interdependence on November 3, I have taken the lead in all of the updates to our Web site and other materials needed to reflect our status as a Certified B Corporation®.

Cooperatives and B Corps

A few weeks before this decision, I represented XENSHA at the first annual Co-op IMPACT conference put on the National Cooperative Business Association.  While I was there, the topic of B Corp™ certification came up.  People expressed mixed feelings about the efforts B Lab has taken to enshrine a sense of purpose beyond profit in the governing documents of for-profit businesses, in part it seems out of shame that the cooperative movement that began more than 150 years ago with the goal of showing a better way to meet people’s needs than what was offered by cutthroat capitalism could have fallen so far behind that it was less popular in the public media than a new idea that sought to reform what cooperatives sought to replace.

Cooperative advocates and business leaders have good reason to be ashamed of this: they spent much of the Twentieth Century hiding their identity for fear of being associated with communists, and when the Cold War ended, many were content to stay comfortably silent on how their activities were structured and present themselves as “just another business.”  The B Corp concept, created by a new generation of social entrepreneurs who expressly wanted to do good in the world while leveraging the power of markets that operated much more smoothly than they had at the time of the Rochdale Society, stepped in to fill the void that cooperatives allowed to exist.

Today, there’s an effort to bring cooperatives back to the forefront of social enterprise.  Cooperatives also have a renewed focus on branding, and I have every confidence that the COOP marque will ultimately gain the prominence that it deserves.

The Benefits of Measurement

What drew me to the B Corp program wasn’t brand identity but rather accountability.  Reading the history of the cooperative movement, I was surprised to see how often worker-owners found themselves so devoted to their own interests that they became virtually indistinguishable in the broader community from the owners of wage-paying shops and factories.  Our cooperative principles demand that we have positive impacts on communities but give us no clear way to hold ourselves accountable to those requirements.

Getting the results of a B Impact Report changed that dynamic.  For the first time, we could see how we were doing both in terms of a third-party standard and relative to other businesses our size.  The B Impact Report helps us measure how we are doing today and highlights where we can improve.

Compatible Values

Cooperatives are democratic and allocate net income on the basis of use.  The B Corp standard makes no specific demands for worker empowerment or equitable division of profits.  I have no doubt that cooperative values are the better business form for positive community, environmental, and social impact.

B Corp Stamp - Red Trans.pngBut in this case, “better” is a meaningless distinction, because the two identities are entirely compatible.  Cooperative principles align well with B Corp commitments, and we’re also not the only ones to reach that conclusion.  One noteworthy example of a cooperative B Corp is Cooperative Health Care Associates (CHCA), the largest worker-owned cooperative in the United States.

We’re getting ready to launch a cooperative advertising program for local businesses through our subsidiary Co-Local, and we’ll be showcasing our B Corp status as a way of building credibility.  Whether the enhanced branding will resonate with our prospective customers remains to be seen, but you never get a second chance to make a first impression.  I think it was the right choice for us to do this now, for ourselves and our cooperative and also for our prospective customers.  I’m glad that we’re a B Corp.


This article explains we did and why.  Please don’t interpret our choices or views as professional legal or financial advice.  Your circumstances may be quite different than ours, or we may have made a bad choice that will come back to bite us later. 

 

 

 

 

 

 

The Quest for Identity

It’s an exciting time to be in the cooperative movement.  The International Cooperative Alliance (ICA) recently launched the co-op marque (logo) and .coop domain extension to promote cooperative identity.  You’ll see the marque incorporated into XENSHA’s logo and featured on its Web site, which you’ll notice is now a .coop rather than a .com extension even though we own both.

The .coop domain extension is exclusively for cooperative organizations.

Meanwhile, the National Cooperative Business Association (NCBA CLUSA*), which represents the United States in the ICA, is celebrating its 100th anniversary.  October is Co-op Month, which kicked off with the Co-op Festival on the National Mall in D.C. (September 30-October 1), followed by the inaugural Cooperative IMPACT Conference (October 4-6) in neighboring Virginia.  One of the receptions for the conference was held at the D.C. flagship store of Recreational Equipment, Inc. – better known as REI and one of the country’s largest consumer cooperatives.

 

In fact, there are an estimated 29,000 cooperative businesses in the United States.  Producer cooperatives sell food sources from member farms under recognizable brands like Florida’s Natural, Land o’Lakes, and Organic Valley.  Credit unions provide communities with access to funds and use their net income to offer lower interest rates.  Utility cooperatives provide electricity across much of the United States, and grocery cooperatives are outlets for quality produce and packaged foods in many areas.

Even Washington is paying attention: the Congressional Cooperative Caucus exists because cooperatives provide some 850,000 jobs in America and have revenues of nearly half a trillion dollars, and it’s a rare display of bipartisanship in a polarized country.

Despite this enormous success among cooperatives in general, American worker cooperatives struggle.  The Democracy at Work Institute (DAWI) estimates that there are about 300 worker cooperatives in the United States, and while the 7000 jobs that these businesses sustain and their estimated $400 million in revenues are not insubstantial in absolute terms, they represent a very, very small portion of the American economy.

Cooperatives can do amazing things, and we know that Americans are always starting businesses, so why is it so uncommon for entrepreneurs to form cooperatives as the basis of pursuing their dreams?  I think it’s a matter of identity.

The Cooperative Left

Although cooperatives in general are apolitical structures that transcend party lines and have existed in a form reasonably close to their modern model for about 150 years, worker cooperatives tend to be associated with the political left.  This is partly because they carry a history of union affiliation, but it goes well beyond social memory or popular assumptions.

There is little overt partisanship in organizations like DAWI or its affiliate organization, the U.S. Federation of Worker Cooperatives (USFWC), but you’d be hard pressed to come away from a meeting or presentation without noticing the ideological agenda of social justice as Americans currently define it in terms of race, ethnicity, and gender identity.  In answering the question of why people should attend, the biennial Western Worker Cooperative Conference offers the following statement:

During our three-day conference, you’ll gain the tools and connections you’ll need to create and sustain inclusive, anti-racist worker cooperatives. Workshop themes range from basic topics on starting and operating a worker co-op, to improving communication and decision-making, to exploring the role of the worker cooperative model in society.

Together, we will make workplace cooperation the most potent antidote to bigotry, fear, and hate!

What’s wrong with that?  Well, nothing – until you remember that a worker cooperative is a business structure that exists to provide employment to its members under democratic control and make sure that they receive the proceeds of their labor.  Consider how the cooperative value of open membership is commonly defined:

Cooperatives are voluntary organizations, open to all people able to use its services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.

This standard is easily met by a consumer cooperative.  How does it apply to a worker cooperative, where potential workers are generally interviewed based on their skill sets and work histories and may be subject to a probationary period or other process before being allowed to join as co-owners of the business?  Certainly, we can request fair consideration of any applicant, but no one has a right to be made a co-owner of a company simply for asking.

As a pure reflection of its members’ will, a worker cooperative will predictably be as biased as its members and as inclusive as its members actually are.  To advise otherwise is to tell worker-owners that their ownership rights over their own labor are actually secondary to some broader social agenda, subordinating democracy to an imposed outside standard of what outcomes ought to be.  That’s very much the social argument that underwrote socialism under Josef Stalin, for whom cooperatives were made a handy surrogate for state control by requiring workers to express their support for whatever the Party demanded.  Cooperatives predate socialism and are not a Stalinist plot writ large, but recognizing how they’ve been used in the past does put a rather ominous spin on training to help “improve” decision-making.

We should focus on improvements to process rather than outcome.  Changing that is not as simple as issuing a decree, and we need to be honest that not everyone who forms a business does so first and foremost to enact a broad social agenda. Most are looking for a way to pursue an idea and make a living.  In focusing too strongly on a particular definition of social justice based outside of economics, worker cooperatives risk alienating themselves from their fellow cooperators in other sectors and excluding entrepreneurs and innovators who fail to pass a progressive litmus test.  We should take care to avoid that trap.

This was the thought in my own mind at the Worker Cooperative National Conference in 2016, when the USFWC Member discussion turned to support for the Palestinian cause.  It came to mind again when I gave a presentation on the history and workings of cooperatives earlier this year at a liberal arts college in central Virginia where self-described conservatives outnumber progressives by a wide margin.  Social justice can and should be part of the conversation, and it should be secondary to practical education on the workings and business potential of the cooperative model.


* NCBA was previously the Cooperative League of the USA, and when it changed its name, it retained “CLUSA” in its abbreviation and logo in order to better retain recognition abroad.

Workers Deserve Living Wages

There’s a lot of talk in the U.S. today about the “Fight for $15,” a campaign pushing for higher minimum wage laws at the state level.  Business owners often claim that if they have to pay higher wages, they won’t hire as many workers.  That’s probably true, but it’s not relevant.  If we simply wanted to create full employment without regard to compensation, we could enslave all unemployed people and put them to work.  The goal isn’t to put people to work despite wages; it’s to put them to work for wages.

The fact is, any work that doesn’t generate enough value to offset a living wage isn’t work that’s worth doing.  Business owners aren’t entitled to make a profit just because they would like to do so, and they don’t often hire out of benevolence.  Companies hire workers to do work that they think is worth doing.  Not only that, it’s work that owners are unable or unwilling to do themselves.  They part with some of the proceeds of their business to get help doing those tasks.

Companies are not able to operate at a loss over the long run, so if the work can’t be done at whatever the wage rate is, it will get cut, but that means it either wasn’t worth doing in the first place or the owner is able to pick up the slack (or other workers can).  Either way, that’s fine.  What is not fine is for a business owner to benefit from the work of people who are being paid too little to cover their necessary expenses–first off because it’s immoral, but also because we have social safety net programs that make up the slack at common expense.  In other words, when someone is allowed to get the full-time effort of a person for less than we’ve all agreed that person needs to live, everyone else is footing the bill for that business owner to do less work or make higher profits, and that is absolutely not okay.

Our cooperative took a stand on this yesterday, when we decided to boost our basic wage rate to $15 per hour.  We aren’t generally paid on an hourly basis, but we do guarantee full-time workers a minimum rate of pay calculated from that basic wage rate.  It used to be $650 per period, derived from $10 per hour across our standard 30-hour work week; now, it’s $975.  The Sick Leave we offer to every worker is being adjusted to meet the new wage rate.  Under the XENSHA umbrella, the “Fight for $15” has been won.

We encourage other businesses, cooperative and otherwise, to follow our lead and raise their wages to guarantee a basic standard of living.  We know that there’s a trade-off, but if the work you’re having people do isn’t generating enough value to put them above the level that we’ve all agreed is the basic standard of American living–the standard that we all finance through our tax dollars–it’s really not work that’s worth doing.

We encourage owners to think of their workers, who are spending most of their waking hours contributing their time, attention, and effort to making businesses successful, and recognize that without those workers, they’d have to do that work themselves.

Pay your workers living wages.  It’s the right thing to do.


This article explains we did and why.  Please don’t interpret our choices or views as professional legal or financial advice.  Your circumstances may be quite different than ours, or we may have made a bad choice that will come back to bite us later. 

When You Don’t Get Your Way

Ah, the wonders of business ownership!  When you work for someone else, you have to do what that person says, but when you become the boss, you get to the call the shots.  Well, maybe – unless your ownership comes in the form of a worker cooperative.

People setting out to start businesses rarely consider democratic models of management beyond a few closely known friends and associates.  The autocratic model of majority control is by far the norm, with the founder exercising outsized influence over activities.  Recently, efforts have been taken in the corporate world to further enshrine this primary role, with Mark Zuckerberg asking his Board of Directors to approve super-shares that would guarantee him absolute authority even if he were no longer working for the company while the Snap IPO famously sold eager investors shares that conveyed no voting power whatsoever.

Cooperatives offer a countervailing approach to this command-and-control mentality.  Here, there is no “might makes right” answer imposed on everyone by whoever put in the most money or came up with the idea first.  Even partnerships that begin on a 50-50 basis usually morph in a short time into balanced coalitions as new partners are added and depart.  In a cooperative, the voting interest is not divisible.  Every member gets one and only one vote, whether that member founded the cooperative or joined yesterday.  It’s democracy in practice.  Sounds good, right?

Democracy has its merits, to be sure.  It also has its downsides.  Imagine something critical, such as changing policies that as written are incompatible with a particular state’s employment law.  Not changing those policies might mean not being able to do business in that state, or hire a key person for a new role.  In a business structure based on relative power, the boss could just decide to make the changes.  In a cooperative, maybe that decision has to be brought to the members for a vote.  Maybe they’ll reject it.  The repercussions can be enormous.

Of course, cooperatives don’t have to function as direct democracies, and many don’t.  It’s typical for a cooperative to have a Board of Directors elected by the members and an executive accountable to the Board, so that the practical power of day-to-day operations can be concentrated in the same way common of autocratic businesses.  But there’s a clear downside to that, made clear as far back as the producer cooperatives of the 1800s: outside of the narrow window where every member gets a say, the members are mere workers subordinated to the choices of those they elect.  We see this play out in housing cooperatives that look nearly identical to condominiums or even apartment complexes in practical governance, and we see it in our own democratic governments, which do as they like while periodically coming back for our endorsment in the form of an election.

When we formed XENSHA, we rejected representative democracy as enshrining the principle-agent problem by creating two classes of members: the empowered representatives and the generally disenfranchised workers who served as their power bases and little else.  Our structure does have an elected Executive Member who can make certain decisions without a vote, but that basically comes down to matters such as choosing one insurance policy over another; the decision to pursue insurance for a given purpose would be made be the members.  We carried this down into our operating subsidiaries, where management is democratic among the employees and the Manager appointed by the cooperative may veto a decision but not enact one.

All of this was designed to ensure that topics would be brought for regular consideration and decided by those affected rather than by a chosen few, and that part of it does work.  The challenge arises from different members having different levels of understanding and interest, especially the latter.  After all, if a matter up for consideration has big implications and some people don’t understand it, the solution is more education and better explanations.  If some people don’t care about it, that’s harder, especially if they decide that their not caring will manifest in not voting.  We’ve had that happen on three different occasions, with varying degrees of impact.  It can be frustrating.

Of course, not caring is itself something that can be addressed by engagement, education, and discussion.  It just takes time, and that’s what causes the frustration.  We have an embedded view that business should be something like a military organization, where orders are given and carried out.  As the founder of XENSHA, I’ve personally struggled with having to argue for my point of view and convince other members to take the time to consider something or vote for it.  I’ve said from time to time that I should just walk away and pursue my vision in the “traditional” boss model, paying people wages to do what they’re told.  I see the appeal.

The thing is, this discipline-centric approach is actually only one way to run a military organization (not always the most effective way).  It’s also showing its age in a business context, where creativity and personal expression are increasingly linked to more productivity and higher returns.  Engaging employees takes time and effort but produces better results over the long term, and sometimes, the reasons people have for pushing back may help you see that there’s something wrong with your own ideas (even if it’s not what they were seeing).

When you don’t get your way, hang in there.  Every now and then, you’ll be faced with someone who is a real obstructionist, someone your cooperative never should have brought into membership in the first place, and you’ll have to argue why that person should go, but most of the people you welcome as employee-owners are going to be good people with something to contribute.  Be patient, listen, and stop to think.  Take the time to engage with them.  You’ll be surprised how much potential there is in a democratic system of management.


This article explains we did and why.  Please don’t interpret our choices or views as professional legal or financial advice.  Your circumstances may be quite different than ours, or we may have made a bad choice that will come back to bite us later. 

Planning to Fail

This evening, we opened a vote on a new amendment to our Operating Agreement.  Our cooperative is only a few years old, so proposing amendments to our basic governance isn’t unusual.  So far, we’ve revised matters of compensation, patronage, membership, and management.  That said, this is the first time that we’ve brought up for consideration an amendment dealing with dissolution.

An old saying goes, “Failing to plan is planning to fail.”  In the case of a worker cooperative, planning for how failure would be managed is important.  Cooperatives operating under Subchapter T of the Federal tax code have some special considerations here, but XENSHA is taxed under Subchapter S like a typical small-business corporation, with its cooperative elements written into the Operating Agreement.  We have an article on dissolution in there too, but the problem is that it was written in the typical manner for an S-Corp: it directs that distributions be made in dillution solely in proportion to share ownership, reflecting the S-Corp requirement for one “class” of stock.

That’s fine in so far as it goes, but it leaves a lot out.  Using this standard, we can decide that one member gets 56% of the value and another gets 12%, but what about the actual property — does it have to sold for cash?  We realized that without clearer instructions, this might indeed happen.  Moreover, non-valuable property like our subsidiaries and trademarks, which have no inherent value on our books, might have to be dissolved.

Instead of this dollars-only way of looking at dissolution, the proposal was to augment the proportional language with a series of clarifying statements that would reflect the basic cooperative principle of patronage in a right of first-refusal.  For valuable property, the member who most often used the property would get a right to have it intact as part of his or her distribution of value, contributing cash to “buy out” the other members’ interest if the value of the property was higher than his or her distribution rights.  If that member didn’t want it, any other member could claim it, with disputes resolved by a two-thirds vote; only if no one wanted it or no decision could be reached would it be sold for cash value.  The amendment offers a similar standard for our subsidiaries, offering them first to be transferred on an equal-share basis to direct ownership by the members who had worked for them, then to any other members who might want them, with dissolution a last resort.  For trademarks and intellectual property, ownership rights would revert to those who created them.

Are we planning to dissolve?  No, but that’s exactly why now is the right time to consider this amendment.  We want to provide a stable foundation for all of the possible outcomes of our operations before we need to rely on that foundation for urgent decisions.  If you haven’t planned for failure, you might be setting yourself up for it.


This article explains we did and why.  Please don’t interpret our choices or views as professional legal or financial advice.  Your circumstances may be quite different than ours, or we may have made a bad choice that will come back to bite us later. 

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