Most important stakeholder

Could a corporation function without any executives at all? Thousands of workers around the world are saying “Why not?” and are willing to bet their livelihoods on it.

In this era of hyper–capitalism‚ as French President Jacques Chirac calls it‚ companies are bigger than countries. They make decisions that affect everyone on the planet and are themselves detached from most of the consequences. Workers are just cogs in the machine. The shareholder reigns supreme.

Someone forgot to tell 83‚000 Canadian workers. They are Canada’s contribution to a rising class of modern workers that has spawned the Self–Managed Enterprise‚ as entity in which the worker is the most important stakeholder.

Self–Managed Enterprises are organizations that exist first and foremost for their workers. They are not social experiments; they are businesses like any other. They operate in a competitive marketplace‚ where prices are set by supply and demand; they sell products or offer services; they make profits; they pay dividends and they invest; when they spend more than they make‚ they fail and go bankrupt; and they fire and hire.

The difference between a Self–Managed Enterprise and a Royal Bank or a Wal–Mart is not in what they do‚ but for whom they exist. Self–Managed Enterprises are‚ in two words‚ economic democracies‚ a form of organization that meets the highest aspirations of democracy and capitalism.

Self–Managed Enterprises are not new‚ either. The kibbutz (co–operative farm) is a Self–Managed Enterprise. Self–Managed Enterprises have been attempted on a nation–wide scale. In terms of producing pure economic growth‚ Tito’s Yugoslavia from 1945 to 1975 was more successful than the red–hot Chinese economy of the past two decades.

Self–Managed Enterprises put the decision–making powers in the hands of the workers. To some‚ such radical change would only spell doom for a corporation. It would mean taking power away from those with the “know–how” and allowing those with insufficient skills to tamper with the structure of a thriving corporation.

But to others‚ such changes to the traditional top–down business model would not only create more productive and profitable enterprises‚ they could also serve as a major force for social change‚ ecological sustainability and human rights. The infusion of more democratic principles into the market economy would serve everybody in the long term.

Increasingly‚ companies in Canada (and around the world) are giving more power to their employees; some are even being founded with ‘worker power’ from the start. For many‚ the desire for ‘economic democracy’ – a more equitable distribution of opportunity‚ wealth‚ and ultimately‚ power – is the inspiration and the motivation behind Self–Managed Enterprises. There are many forms self–management can take‚ but the outcome is the same: Those who directly contribute to a company’s financial success have a greater share in ownership and control.

One of the simplest ways a firm can spread financial control to its employees is through employee share ownership. A company where employees own 100 per cent of the stock is said to be “employee–owned.” This business structure is reasonably common in the United States – for example‚ United Airlines was employee–owned until its stock price crashed following the 9/11 hijacking of their planes. The National Center for Employee Ownership in California estimates that there are more than 11‚000 employee–owned firms in the U.S.‚ with assets exceeding $650 billion.

In Canada‚ the construction giant PCL‚ which turns 100 years old next year‚ is a notable example of a Self–Managed Enterprise. Roughly 80 per cent of its employees own shares‚ and 100 per cent of the shares are owned by the employees.

Marty Janowitz‚ Vice President of Marketing for international employee–owned geotechnical engineering firm Jacques Whitford‚ explains the benefits of shifting power away from the hands of venture shareholders. “Our founders realized very early on that if they wanted to have a company that was going to grow and be successful‚ the people who were really central to the company’s success had to directly and personally benefit by that success‚” he says. “A large group of our employees participate in this company as owners‚ and they act like owners and they take responsibility for the actions and the successes of the company like owners. It really has affected the direction of the company because it has given us a longer term perspective.”

Janowitz adds‚ “We’re looking out for the long–term success of the firm‚ not just what the firm could produce if you’re looking out for short–term profits for a couple of the oldest people.”

Firms where the employees hold the financial cards tend to be more stable and responsible. According to researchers at the Ohio Center for Employee Ownership‚ the Enron scandal would not have occurred if the people who made the financial decisions were the same ones who really understood how the company operated‚ the employees themselves.

Not every firm with employee share ownership is fully employee–owned. Employees at publicly traded forestry company Tembec Inc.‚ the fourth–largest forestry company in Canada‚ own less than 10 per cent of the shares‚ but the company is still well–known for its efforts to address employee concerns and environmental and social issues. And while Tembec is not 100 per cent employee–owned‚ it does actively encourage its employees to purchase company shares to increase their stake.

Instead of simply giving employees a share of the company’s stock‚ some Canadian corporations are actively trying to formally incorporate workers into the decision–making process. For example‚ at water filtration company Zenon Environmental Inc.‚ employees from the shop floor to the COO are elected to sit on a “values committee‚” which meets to discuss and resolve company issues such as how to improve the employee benefits plan. “The COO is in the room so there’s not a lot of bureaucracy‚” says Mike Saulter of Zenon. “If a decision gets made in that committee it doesn’t have to go through many levels. It’s done right then and there – it’s very efficient.”

A growing number of Canadian businesses however are forming themselves around an even more democratic model‚ the co–operative model. Ten million Canadians belong to at least one of this country’s 10‚000 co–op firms‚ with assets worth $26.1 billion. And this number is before accounting for the credit unions. As of 2002‚ Canada’s credit unions and caisses populaires reported assets of $140.8 billion. The insurance co–operatives tallied up nearly $19 billion in assets and two trust co–operatives administered over $157.4 billion in assets (Co–operatives in Canada Report‚ Co–operatives Secretariat‚ Government of Canada‚ 2004).

Misconceptions about the efficiency‚ productivity and competitiveness of co–ops appear to be widespread. “People often think: Oooh‚ a co–operative‚ you know‚ touchy–huggy–feely‚ perhaps non–profit‚ not concerned with the bottom line‚” says Kevin Thompson of chocolate producing co–op La Siembra‚ worth half a million dollars‚ “and we’re the furthest thing from that. We are very business–oriented‚ and we just happen to have a structure that is democratic. We are very focused on things like budgets‚ margins and bottom lines‚ and yet we do it in a way that is conscious of each and every aspect of our business.”

Yvonne Chiu of the Multicultural Health Broker’s Co–op in Edmondon‚ which provides integrated health services to immigrants and refugees in over 23 different languages‚ has also run up against these kinds of stereotypes: “When we first started people literally would say‚ ‘Are you guys communists?’”

Co–ops have a simple structure – all members are owners and make decisions based on a one–member‚ one–vote system. Co–ops are not publicly traded‚ and profits are not transferred to private shareholders or even divided among employees. Usually the money is put back into the co–op and used to further the economic growth of the local community to serve the broader needs of the members‚ such as creating more jobs or donating the money to worthy causes. Co–ops can take many forms‚ but most co–operatives generally fall into one of four categories: producer (like a farmer’s co–op)‚ consumer co–ops‚ worker co–ops‚ and financial co–ops (such as credit unions).

Co–ops‚ by definition‚ tend to be locally run‚ but this doesn’t mean they are necessarily small. The world’s largest producer of maple products‚ La cooperative de producteurs de sirop d’érable Citadelleis‚ is co–operatively run‚ and accounts for one–third of the world’s maple production. Canada’s largest co–op‚ Mountain Equipment Co–Op‚ boasts a membership of over two million. Taken together‚ Canada’s credit unions are comparable in size to one of the big five banks. In its home turf‚ Vancouver City Savings Credit Union is as big as Scotiabank.

While employees in private enterprises may achieve some degree of control‚ such as that achieved through unions‚ in a co–op power unquestionably lies with the members‚ many of whom are employees. This heightened degree of control has obvious and significant benefits for the employees. John Restakis of the BC Co–op Federation says‚ “Time and time again‚ studies show that the levels of worker satisfaction‚ motivation and productivity are higher in co–ops because people understand and know that they have much more control over their work‚ in terms of decision–making‚ how they design their work and how they deliver their work – that is enormously important in the operation of any business.”

Ian MacPherson of the BC Institute for Co–operative Studies at the University for Victoria points out that the worker co–ops have better staying power than their traditional counterparts‚ “Worker co–ops have a tendency to survive better because the members will shoulder the problems and the losses for longer than if they were strictly employees‚” he says. And indeed‚ in a study by the Quebec government of forestry co–operatives‚ the co–operatives were found to be twice as likely to succeed as private enterprises.

Beyond simply empowering the employees‚ however‚ co–operatives are dedicated to being accountable and responsible to social‚ economic‚ democratic and environmental issues in their communities. Most co–ops say they have multiple bottom lines‚ weighting environmental sustainability‚ local and international economic development and human rights along with profits.

“If you survey the general public‚ they’ll tell you they would rather choose a product that has a low impact on the ecology‚” says Tom Webb of Saint Mary’s University Master of Management in Co–operatives and Credit Unions in Halifax. “For a co–operative this is simply good business. But in an investor–owned company you are not asked to look a year down the road‚ you’re being asked‚ what is your next quarter?

“The way the current economic system works‚ there is tremendous pressure to pay low wages to cut wage costs‚ to cut benefits‚ to move from full–time to part–time‚ to produce offshore in China‚ to pollute‚” he continues. “There’s tremendous pressure to cut wherever you can for the short run. And it’s difficult in this climate for business managers‚ no matter how good they are as people‚ to do the right thing. On the other hand‚ in a co–operative‚ it is a good deal easier. In fact‚ the expectation is that a co–operative manager will address other bottom lines. But that involves a whole new way of thinking.”

Co–ops are extremely diverse‚ ranging from the traditional farmer’s and fishery co–ops‚ housing‚ funeral services‚ and a variety of co–ops: The sex shop Come As You Are in Toronto is co–operatively run.

Co–operatives are starting to appear in the tech sector‚ having already gained a foothold overseas in companies like Poptel in the UK. Vancouver’s Tech Co–op‚ founded last year‚ is staffed with four technical support specialists and is run by 50 clients‚ or members. “It seems like there’s no trust in the tech industry‚ but the members in the Tech Co–op can trust us because they’re our bosses essentially‚” says Chris Palacek‚ a serviceman for the Tech Co–op. And because there are no shareholders to pay‚ the co–op can be more competitive and still pay higher wages. “We charge members $80 an hour – the tech gets $40 and the co–op gets $40‚” says Palacek. “At other firms rates may be as high as $100 an hour‚ with the serviceman only getting $12 an hour.”

Co–operatives achieve a number of indirect effects by empowering parts of society that have traditionally had little economic and political power. Co–operatives are one of the largest employers in northern Canada‚ second only to government. Women hold over 30 per cent of all directorships in Canada’s co–ops‚ compared with 12 per cent on corporate boards. Several studies indicate that people who work in co–ops devote a much higher percentage of their time as volunteers in the community than do employees of private enterprises. Many fair–trade co–operatives have appeared recently‚ and a number of them purchase their supplies from co–operatives in the developing world‚ such as coffee producers.

One of the biggest contributions of the co–operative sector is supposed to be the expansion of skills among workers‚ which ultimately leads to a more democratic and egalitarian society. This idea is perhaps most dramatically illustrated in Canada’s north‚ where a number of people who now lead the government of Nunavut first gained experience in management and decision making as members of the boards of one of the 40 co–ops that belong to the Arctic Cooperative Limited System.

But while co–operatives show great potential as an alternative to shareholder capitalism‚ Canada’s co–operative sector generally pales in comparison to that in countries such as Italy and Spain (although French–speaking Canada has traditionally had a strong co–op movement).

Most representatives for the BC Co–op Federation‚ the Canadian Co–operative Association‚ the Canadian Worker Co–operative Federation‚ and researchers in government and academia agree that in order to foster the co–operative sector‚ the government needs to provide more support to co–ops‚ especially at their inception. Co–ops frequently suffer from a difficulty in raising capital and a lack of sufficient management skills. Accounting can be a significant challenge too‚ as standard formulas and tools are not adequate to address multiple bottom lines‚ says Webb.

The co–operative movement‚ although struggling‚ is gaining ground. In Argentina workers are taking over operation and ownership of bankrupted factories‚ a phenomenon that was the subject of the 2004 documentary‚ The Take. Although the co–op movement in the US has always been very small‚ and even unacknowledged (the US government for example does not keep proper statistics on American co–ops)‚ American co–op employees took a step forward last May when they founded The US Federation of Worker Cooperatives. Back in Canada‚ Saint Mary’s University introduced a Master’s program in Management in Co–operatives and Credit Unions‚ which was formed with an international co–operative of people from the UK‚ New Zealand‚ Australia‚ the United States and Ireland.

Restakis feels that co–ops’ multiple bottom line philosophy will make them ultimately more appealing to a public increasingly concerned by social and environmental sustainability. “Because [co–ops] have more than simply an economic bottom line – they also have a social bottom line – and consumers‚ when they become aware of this‚ choose to support it … co–ops seem to be very well placed to present themselves as an alternative to traditional corporate forms‚” he says.

It could be that traditional businesses could learn a thing or two from their co–operative cousins to win over public support. “It’s certainly an intriguing area‚” says Carol Hunter of the Canadian Co–operative Association in Ottawa. “We’re seeing many co–operatives‚ as they try to professionalize their image and focus on things like being efficient and profitable‚ [that] many corporations are shifting the focus on profitability and productivity to being good corporate citizens. It’s an interesting value shift.”


VanCity Financial Co–operative

Vancouver City Savings Credit Union (or VanCity for short) is Canada’s largest credit union‚ with over 300‚000 members and over $10–billion in assets. The financial institution operates only in Vancouver‚ the Fraser valley and Victoria‚ but “in Vancouver we’re about the same size as the Bank of Nova Scotia‚” says CEO David Mowat. “As a player we’re right up there with the big banks.”

But unlike the big banks‚ all of VanCity’s bank members are shareholders‚ and shareholders get one vote each regardless of how big their balance is. “That’s different than running an organization to extract as much value as you can out of your customer base‚ and then return it to a different set of shareholders‚ [which is what the big five banks do]‚” says Mowat.

VanCity members each get a vote in electing the nine–member board of directors‚ which works in concert with the executive. “We feel we have different roles from the executive‚” says Board Chair Elain Duvall. “Our role is to represent the member’s interests‚ to represent the long–term vision for the credit union. The executive’s job is implementation. We set the direction‚ we set the policies‚ and the executive’s job is to implement‚ to report and to be accountable to us for their results. These are not the executives plunking a business plan in front of us and us voting on it.”

As well as investing assets back into the co–operative‚ VanCity devotes a significant amount of money every year toward social‚ environmental and community projects. In addition to numerous small grants‚ VanCity donates a mullion dollars each year to an organization chosen by its membership. Past recipients include Better Environmentally Sound Transportation‚ which constructed and eight–kilometre–long bike greenway from the city to the valley; Women Wishes‚ a safe haven for prostitutes; and the Phoenix Society‚ an integrated drug addiction treatment centre. Both Mowat and Duvall agree that VanCity’s social commitments have contributed to the credit union’s success. “The community sees and believes what we’re doing‚ people like doing business with companies like us‚” says Duvall.

“Our members pay us more regularly‚ we have lower delinquency on our loans overall than a normal financial institution because people feel more of a loyalty to the organization‚ people tend to stay with us longer‚ there’s less churn in our portfolio‚” says Mowat.
But‚ he adds‚ VanCity’s good works are not the only reason for their popularity. “People at VanCity are fiercely proud of their abilities as bankers. One of the little pet phrases we use is: ‘At VanCity we are damn good bankers.’”

La Siembra Worker Co–operative

With only nine employees‚ chocolate producer La Siembra is worth over $500‚000. Incorporated six years ago‚ the small Ottawa–based company is the largest producer of fair trade and organic chocolate products in Canada. They purchase organically grown coca and sugar from farmer co–ops in the tropics‚ then send it to Switzerland for processing‚ before distributing it in Canada under the name Cocoa Camino.

The founders of La Siembra all worked in fair trade before opening their co–op. “It was a way for us to continue working in fair trade‚ and to be co–owners and have a vested interest in the well–being of the business‚” says Tia Loftsguard‚ one of the original three founders‚ who had worked in Sri Lanka researching fair trade tea. “We think we can show the larger chocolate companies that fair trade can be profitable for them‚” she says.

The world’s cocoa farmers are notoriously underpaid for their products‚ and reports from the International Labour Organization (2001) and UNICEF (1998) indicate that this has resulted in a rise in child labour and even the enslavement of children on Africa’s Ivory Coast. La Siembra‚ in addition to producing fair trade products‚ actively seeks to promote fair trade and organic farming through corporate donations and by providing chocolate gift baskets for fundraising campaigns. They are the official provider of chocolate for Montreal charity Santropol Roulant‚ which provides meals on wheels to people who can’t leave their homes. Inspired by La Siembra‚ the charity plans to switch to organic food.

Importantly‚ La Siembra also tries to educate children about fair trade cocoa and child enslavement by donating chocolate to schools for fundraising. “It’s important to teach kids to realize what’s going on when they’re selling chocolate–covered almonds that are not fair trade‚” says Loftsguard. Owl magazine recently collaborated with La Siembra in a contest for children to design the inside of the chocolate wrapper.

Mountain Equipment Co–op (MEC) Consumer Co–operative

“What is primarily different [about our company] is the fact that the environmental and social values of the organization are so present in every decision that is made‚” says Mountain Equipment Co–op’s vice president of communications and marketing Peter ter Weeme. “It’s quite unique to be part of an organization where‚ when ideas are being considered or decisions are being made‚ they’re all filtered through those social and environmental values. I don’t think that that is particularly common in this day and age.” The outdoor outfitter has over two million members and is worth over $185 million‚ making it the largest consumer co–op in Canada – an impressive feat considering they operate with only 10 retail stores. Their camping gear is known for its durability and urbanites across the country can be found sporting MEC backpacks. In line with their eco–friendly values‚ the co–op also aims to protect the landscape that its members enjoy. They devote 0.4 per cent of their annual sales‚ along with the interest from the MEC Endowment Fund for the Environment‚ to Canadian–based conservation projects and environmental campaigns.

MEC also bills itself as being committed to economic sustainability‚ aiming to create stores that minimize their greenhouse gas emissions‚ and that produce “zero waste” through rigorous recycling and reduction initiatives. MEC has also marked itself as a leader in the construction of “green buildings” that seek to minimize energy consumption by using recycled construction materials‚ maximizing building insulation and minimizing electricity consumption. MEC’s Ottawa store was the first retail building in Canada to meet the national C2000 Green Building Standard – a Natural Resources Canada program that encourages buildings to achieve a 50 per cent reduction in energy consumption.

Moreover‚ “anything that displays the MEC brand on it has been manufactured in a factory that has been evaluated for 168 different social and environmental criteria‚ to show that there’s no sweatshop labour‚ no serious environmental regulations that are being contravened and that employee human rights are being respected‚” says ter Weeme. “In the world of retail‚ where sourcing is a very real issue‚ and where commercial bui9ldings are one of the largest creators of greenhouse gas emissions in the country‚ we’ve taken a leadership position in both of those areas and I am proud of that.”