Building a Community Economy: Exploring Worker Co-ops as a Succession Strategy

Four workers "bump fists" over an office table with various notebooks, tablets, calculators, and other items.Generational changes are often a topic in popular culture. Think about the many popular press articles about changes in home buying, workplace culture, and more. Another important generational change is happening in the small business world. Baby boomers are estimated to own almost half of privately held businesses in the United States.[1] An article from the U.S. Small Business Administration cites that about 70% of privately owned businesses are expected to change ownership in the next 10-15 years, a change that “will represent the largest intergenerational transfer of wealth in U.S. history.”[2] In Ohio, 54% of private businesses, an estimated 94,000 firms employing approximately 2.6 million people, are owned by baby boomers[3], generally defined as those born between 1946 and 1964 who are currently reaching retirement age[4].

Business Succession Strategies and Worker Co-ops

As small business owners plan for retirement or other transition scenarios, they might consider passing the business to a family member, selling to a co-owner or key employee, selling to an outside buyer, or other options.[5] The cooperative model may be able to play a role in these transitions. Worker cooperatives are businesses where worker-members own most of the equity and control the voting shares of the business, while participating in profit sharing, oversight, and sometimes, management, using democratic practices.[6]

A 2021 report authored by experts at the Ohio Employee Ownership Center at Kent State University discussed the potential for worker cooperatives and other employee-owned structures to be viable options for business transitions while helping to retain jobs, build worker wealth, and reduce economic inequality.[7] Watch a recording of a webinar hosted by the CFAES Center for Cooperatives with report co-author Michael Palmieri about the research on the potential benefits of employee ownership.

Worker Co-ops Across the Country and in Ohio

In a 2022 report, the Democracy at Work Institute estimated that there are 612 worker cooperatives or similar democratic workplaces employing just under 6,000 workers across the United States. Ohio has an estimated 20 worker co-op firms, ranking it 9th among U.S. states and territories. These businesses tend to be small, with a median firm size of six workers. Approximately 12% of these businesses originated as ownership transitions.[8]

What Makes A Business a Good Candidate for Potential Transition to a Worker Cooperative?

After studying 12 cases of existing businesses converting to worker cooperatives, authors Alison Lingane and Shannon Rieger[9] identified common motivators for business conversions to worker co-ops. Succession for an exiting owner was one motivator, in addition to goals of building wealth for employees, supporting the business’ mission, and as a way to tap into the strengths of employee-owned models. Based on real-world cases, Lingane and Rieger developed a set of business “readiness factors” for conversion to worker-ownership, including:

  • A commitment to the worker co-op model by the transitioning owner and employees
  • The business being in a strong and sustainable financial position
  • A culture of participation and transparency within the business
  • A program or emphasis on training, advising, and support for both employees and transitioning owners
  • Financing strategies that create a viable path for the conversion
  • Engagement by the transitioning owner throughout the conversion process
  • Phasing the conversion process in stages to lower risk and decrease the cost of capital
  • Securing a third-party financial valuation for the business before agreeing on a price

Some of these factors were identified as “prerequisites” to worker cooperative conversions, while others were identified as important for developing during the conversation process or even simply as helpful for the success of the conversion.

Learn More at Upcoming Free Webinar on March 30

Join the CFAES Center for Cooperatives and guest speaker, Ellen Vera, Director of Development and Co-op Organizing for Co-op Cincy, for a free online webinar on Wednesday, March 30, 2022 from 3-4 p.m. Eastern to learn more about worker and community owned cooperative models, including learning from Co-op Cincy’s decade of experience organizing worker co-ops, including a recent focus on conversions from existing businesses to worker co-ops.

Register by visiting: go.osu.edu/BCE

 

This event will be presented with automated closed captions. If you wish to request traditional CART services or other accommodations, please contact Hannah Scott at scott.1220@osu.edu or 740-289-2071. Requests made by March 20, 2022 will generally allow us to provide seamless access, but the university will make every effort to meet requests made after this date.

 

References

[1] Palmieri, M. & Cooper, C. (2021). Building Legacies: Retaining Jobs and Creating Wealth Through Worker Ownership. Ohio Employee Ownership Center at Kent State University. Retrieved from https://www.oeockent.org/the-ohio-worker-ownership-network

[2] Giltner, E. (n.d.). Business Succession Planning. U.S. Small Business Administration. Retrieved from https://www.sba.gov/content/business-succession-planning

[3] Palmieri, M. & Cooper, C. (2021).

[4] “Baby Boomer,” (2021). Investopedia. Retrieved from https://www.investopedia.com/terms/b/baby_boomer.asp

[5] Newcomer-Dyer, R. (2019). “Business Succession Planning: 5 Ways to Transfer Ownership Of Your Business.” Fit Small Business. Retrieved from https://fitsmallbusiness.com/business-succession-planning/

[6] Hoover, M. & Abell, H. (2016) “The Cooperative Growth Ecosysem: Inclusive Economic Development in Action.” Project Equity & Democracy at Work Institute. Retrieved from https://institute.coop/resources/cooperative-growth-ecosystem-inclusive-economic-development-action

[7] Palmieri, M. & Cooper, C. (2021).

[8] “2021 State of the Sector: Worker Cooperatives in the U.S.” (2022). Democracy at Work Institute. Retrieved from https://institute.coop/resources/2021-worker-cooperative-state-sector-report.

[9] Lingane, A. & Rieger, S. (2015). “Case Studies: Business Conversions to Worker Cooperatives: Insights and Readiness Factors for Owners and Employees.” Project Equity. Retrieved from https://www.project-equity.org/wp-content/uploads/2017/02/Case-Studies_Business-Conversions-to-Worker-Cooperatives_ProjectEquity.pdf

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