The number of worker-owned businesses are on the rise in Vermont, and according to the National Center for Employee Ownership, nearly 11,000 businesses nationwide are owned by their workers.
U.S. Sen. Bernie Sanders, I-Vt., introduced two bills last December that support an alternative solution to job loss, wage cuts, and business closures both in Vermont and the nation through employee-owned business education, funding and banking.
At an Aug. 26 hearing in Montpelier of the U.S. Senate Committee on Health, Education, Labor and Pensions, Sanders noted that “Vermont has been a national leader on the issue of employee ownership.”
Don Jamison, program director of the Vermont Employee Ownership Center (VEOC), said the Work Act [S. 2909] will “establish a department within the U.S. Department of Labor to support and encourage employee-owned business and worker participation,” through organizations such as the VEOC.
“It's a way to fund education [about employee ownership],” said Jamison.
S.2914, the “Employee Ownership Bank Act,” mandates establishment of an employee-owned United States bank that also encourages employee participation in decision making.
Vermont is home to 30 to 40 employee-owned businesses, according to VEOC Executive Director Jon Crystal. “Employee-owned businesses tend to perform better, pay higher wages, and provide better retirement,” he said, a sentiment that was echoed by Sanders at the Aug. 26 hearing.
In Windham County, Green Mountain Spinnery in Putney and Ronin Tech Collective in Brattleboro are two mature cooperatives that have proven successful after 10 to 15 years of operation and a few changes in members.
Chroma Technology in Rockingham produces optical filters and has run increasingly successfully since 1991.
Jason Mott of Ronin Tech Collective moved from New York State because he found Vermont to be “the most citizen-run and politically active state in the country.”
His two partners are in Brooklyn and Austin, Texas. “Our income is based on sales and is divided among us on an ownership: patronage basis. We make about $30,000 to $55,000 or $60,000 in a good year,” Mott said.
He added that the template for the business came from “some company in Connecticut.”
A big point, Sanders noted, is that “unlike large corporations that have been [outsourcing jobs], employee-owned businesses are not going to shut down and move their businesses [overseas].”
“It's cutting edge,” said activist Carl Davidson of employee ownership.
Davidson has a long history of support for workers and democracy in the workplace. He is a national board member of the Solidarity Economy Network and a national co-chair of Committees of Correspondence for Democracy and Socialism. He was a consultant on Cleveland's “GreenCityBlueLake” movement, and helped start Austin Polytechnic School in Chicago's Lower West Side for mostly lower-income black students.
“[The school] is worker controlled and owned in partnership between high tech manufacturers [in the area] and the union,” Davidson said. “It's in its third year and doing well.”
Last fall, Davidson covered talks between the United Steel Workers - North America's largest industrial trade union - and Mondragon International - the world's largest worker-owned cooperative based in the Basque region of Spain - to form a collaboration.
“I've been writing and talking about Mondragon since the late 1990s,” Davidson said.
Davidson said Mondragon is the most successful operating cooperative in the world. Its power structure is based on one worker, one vote. With some 256 companies employing more than 85,000 people, and revenues of some $18 million (as of fiscal year 2009), the Mondragon model sets the standard for successful cooperatives. The model is based on four areas of activity: finance, industry, retail and knowledge.
Davidson noted that the USW is proceeding cautiously to avoid the pitfalls of Employee Stock Owned Plans (ESOPs), an alternative structure to one worker, one vote cooperatives.
The USW's caution is a result of experience with Wierton Steel in West Virginia, for awhile the largest ESOP in the nation. In the 1980s, after suffering continued losses, the courts ordered assets auctioned off. The company was bought by International Steel Group in 2003, which later merged with Mittal Steel and eventually became Arcelor Mittal. The disenfranchised workers lost their jobs, and the USW felt burned, as reflected in the USW's cautious negotiations with Mondragon.
In Vermont, cooperatives and ESOPs do not come in one flavor, and it is possible for a worker-owned business to take advantage of the infrastructures in place for education, such as the VEOC, as well determine what structure works best for them, providing support and resources in education and funding to create small businesses.
Paul Millman's brainchild, Chroma Technology, is a cooperative that was named one of the “best small workplaces” in America in 2010 by Inc. magazine. It is, however, experiencing growing pains as a result of their success.
Asked about their cooperative with stock shares, Millman said, “We write our own rules.”
And indeed, that is the order of the day for cooperatives and ESOPs in Vermont today.
Jeff Clark, director of operations at Chroma, explained that as a cooperative that has stock ownership, “we do not get the tax-deduction that an ESOP gets and our value is based upon book value.”
“Lately we've been evaluating whether or not to become an ESOP,” Clark added.
Clark explained the process of going from a cooperative-based structure, to an ESOP. “We would …need to set-up a trust and buy ourselves out at 'close to market' rate [that] would …require us to put in place a trustee to oversee the account.”
The significant difference between an ESOP and a cooperative, Clark said, is that “[the trustee] would be liable and have the ability to override the Chroma Board of Directors if he/she felt there was an issue.”
Employees at Chroma get stock for each year that they work. Thus, when the rare occasions occur that a vote is taken based on stock holdings, some worker's vote counts more than others.
“There is some tension between the hierarchies,” said Jamison. “It doesn't happen very often but it can, and does,” he said, speaking of votes based on shares.
However, Clark maintained that, “the ESOP model could allow us to maintain the present management approach we have. The trustee oversight would be at a board of director's level, not the management level.”
This structural difference doesn't worry Clark.
“This could be a concern for [board members,] but as the operations director, I am not concerned,” he said. “I can still push to have the departments responsible for the decisions made in their departments, maximizing the participation of the employees.”
But Jamison said, “You can't get caught up too much in the details of the differences [between ESOPs and cooperatives]. That's what the lawyers are for.”
Jamison said that “it is true the cooperative structures have more philosophical roots, and ESOPs lend themselves to more traditional business models. ESOPs are highly qualified tax plans. You have to do everything right or you get in trouble.”
“Companies can be a whole lot more imaginative,” he continued. “They have a lot of latitude [now] that allows …extreme flexibility,” as a result of Vermont laws and proposed legislation Sanders is co-sponsoring in Washington.
Imagining what kind of company you want to have, and then creating a structure that's going to make it work is entirely possible, according to Jamison.
Vermont has about 30 “at least partially employee-owned companies” according to the Vermont Employee Ownership Center website. Windham County is second only to Chittenden County with five of those 30 located within its boundaries.
Those companies “represent one of the highest per capita rates …due in part to the work of the VEOC [education and funding support]…This model of ownership is most sustainable,” Jon Crystal said at the U.S. Senate committee hearing last month, “both in retaining of jobs and longevity of business.”
Tom Adler, president of Resource Systems Group, a diverse environmental, transportation and analysis consulting firm in White River Junction, sums up having recently completed the transition to a 100 percent employee-owned structure.
“Sixty-plus high-paying jobs …will stay in Vermont …and we will continue to grow here… Our company is among many who believe that employee ownership exemplifies and promotes Vermont's unique values…and most of us also believe …increased employee ownership could be valuable nationally as an approach to preserve and enhance employment in companies of all types.”
Vermont is setting the standard once again.
“By expanding employee ownership and participation, we can create stronger companies in Vermont and throughout this country, prevent job loss, and improve working conditions for struggling employees,” Sanders said last month.