The newly minted worker owners of Ward Lumber

Employee Ownership: The Power of the Cooperative Model to Build Opportunity and Wealth for Worker-Owners and Their Communities

Co-ops are having a moment. That is to say that cooperatives, which have existed for generations, are currently being recognized for their ability to build economic power for the workers who own them. This point has become more underscored as communities have  been touched by the instability that the COVID-19 pandemic has caused within our health and economic systems, as well as decades of racial injustice. 

Still-rising wealth disparities across the country have left people living with low incomes with little ability to create a viable financial future. Earning low wages means that, if people decide to become entrepreneurs, they have fewer savings to invest into their businesses and less equity to bring to the financing table.

With so many people in communities across the country looking for viable opportunities not just to survive but to thrive, cooperatives are rising as a model that builds and holds wealth, especially for workers who earn low wages. There are many good examples of how workers can come together to shape their financial future through democratic ownership. As part of our mission to help create places of opportunity, Capital Impact Partners  has long centered cooperative development, particularly employee ownership, as a strategic model for building wealth for communities.

Employee Ownership Provides Many Benefits to Workers…

Employee ownership is not new; it has supported workers to engage in dignified work and earn living wages and create generational wealth for themselves and their families. Owning their business enables worker-owners to make decisions that are in their best interest and the interests of their community, from setting wages to selecting health care benefits to deciding staff time that promotes a work-life balance.

Worker owners of Tighshift Laboring Cooperative
Worker ownership provides a pathway to economic stability and mobility, esp. for workers earning low wages.

Worker co-ops build wealth, create quality jobs, stabilize communities, and provide essential services.  When workers who are traditionally at the lowest level of the organization are able to be represented at the highest level of the company’s governance, “co-ops will almost always choose the path with the most security for their workers,” says Kate Khatib, executive director for the Baltimore Roundtable for Economic Democracy.

Democratic ownership also has a ripple effect. Training is a core tenet of co-ops, transferring skills that workers can utilize throughout their careers. Seeing worker-owners commit to the economic and social future of their community, other businesses stay in the community as well and invest in its growth, support other local businesses, etc. It can also improve involvement in community engagement, volunteering, voting, and more by fostering a stronger sense of harnessing local assets. At a time when home ownership is increasingly out of reach due to stagnant wages and limited opportunities, employee ownership provides a way for workers to own their business and build generational wealth.

…and Has Helped Worker-Owners Weather the COVID-19 Pandemic 

A powerful model for economic empowerment, employee ownership has also been vital to keeping workers employed and financially grounded throughout the pandemic. Our economy’s least-protected workers were the most impacted by the COVID-19 pandemic and in many cases lacked the financial safety net that the generational wealth of business ownership creates.

Worker serves customers at a cafe
Resiliency for worker owners has meant that they can maintain income, housing, health care, and more.

Recent research suggests that employee-owned firms showed higher job quality and resilience during the 2020 public health and economic crisis. Companies owned by their employees significantly outperformed other firms in retaining employees, protecting worker health and safety, and maintaining hours, salaries, and wages in a time of tremendous economic upheaval and uncertainty.

In the face of historical barriers to expanded cooperative participation, the co-op model is again being adopted by communities in larger numbers than before. The most recent Worker Co-op Census in 2019 conducted by the U.S. Federation of Worker Co-operatives showed 465 worker cooperatives and democratic workplaces that were operational. These co-ops employ an estimated 6,454 workers and produce about $505 million dollars in revenue each year. The average wage paid is $19.67, more $7.00 higher than the minimum wage in the states with the most co-ops. Worker co-ops distribute surplus profits as patronage; the average worker owner earns $8,241 in addition to wages. 

And the growth continues.

The options for employee ownership vary, including:

  • Worker-owned Cooperatives;
  • Employee Stock Ownership Plans (ESOPs); and
  • Employee Ownership Trusts.

Watch this video to see how the workers of Ward Lumber, with support from Capital Impact, came together to form a worker-owned cooperative to ensure their future and the future of their community.

Worker Co-op Conversions Addressing a Crisis in Small Business Closures

With the growing interest in worker-owned cooperatives, worker co-op conversions present an opportunity to grow and scale the field.

A sizable number of the small businesses in the United States are owned by Baby Boomers, many of which do not have a succession plan. With Baby Boomers retiring, many healthy businesses have no one to inherit and no buyers; as a result, these businesses are closing in record numbers, and that trend was only exacerbated by the COVID-19 pandemic. In New York State alone, even before the pandemic, an estimated 3,700 businesses closed each year due to owner retirement, leading to a loss of 13,260 jobs annually. Surveys indicate that 79 percent of business owners want to retire in the next 10 years, 57 percent in less than five years, and 33 percent in less than three years.

Policy action is being taken both locally and nationally to expand co-ops, particularly within the Biden-Harris administration. Capital Impact has signed support for the Capital to Cooperatives Act, legislation that aims to ensure that cooperatives can access Small Business Administration lending to create jobs.

In addition, new funds have been recently launched that combine technical assistance and financing to be competitive in the market and help the cooperative sector overcome some historical financial barriers to expansion. Apis & Heritage and Accelerate Employee Ownership are two examples.

Strong relationships are needed with national allies, including social justice allies, labor unions, and advocates, as well philanthropy and local government playing a larger role in building opportunities for co-ops, especially in historically marginalized communities that have been shut out of generational wealth building and might not have equity to start a co-op.

Capital Impact’s Efforts to Support Employee Ownership

Since our founding in 1982, we have been grounded in the power of the cooperative model, and have worked to foster employee ownership nationwide.

In 25 years, Capital Impact has lent $250 million in support of cooperatives, dispersing about $10 million last year.

Cooperative owners of a manufactured home community
ROC USA has helped communities preserve the affordability of their housing and helped community members achieve homeownership.

In 2008, Capital Impact and several leading nonprofit organizations helped form ROC USA Capital, a nonprofit CDFI and subsidiary of ROC USA, LLC, a nonprofit that helps residents form cooperative corporations to purchase their manufactured home communities from private owners and manage their neighborhoods in perpetuity. 

Seven years ago, we created and have managed our Co-op Innovation Award to amplify innovative co-op business models in communities living with low incomes and/or communities of color. Awardees are focused on community-driven co-op development initiatives broadening opportunities for quality jobs, wealth creation, and asset building. Since Capital Impact Partners launched the Co-op Innovation Awards in 2015, the 12 grantees have:

Worker owners of ChiFresh Kitchen
ChiFresh Kitchen, owned and determined by formerly incarcerated Chicagoans, received our Co-op Innovation Award and pivoted to deliver freshly cooked, prepared meals to its community in the midst of the COVID-19 pandemic.
  • Leveraged their combined $385,000 in awards to secure more than $6.2 million in additional funding from foundations, investors, and government.
  • Replicated programs regionally or nationally (6 grantees)
  • Worked with with over 20 local or state governments to further co-op development goals
  • Reached over 2,000 community members through meetings and training.

The vast majority of our awardees have been worker co-ops. Co-op Innovation Award winners include ChiFresh Kitchen and The Driver Cooperative (incubated by The Independent Drivers Guild), both of which received their first funding from Capital Impact Partners, which allowed them to move from the idea stage to getting national recognition and financing, including from our partner Shared Capital

The for-hire drivers of The Independent Drivers Guild
The Independent Drivers Guild, another Co-op Innovation Award winner, incubated and launched the Drivers Cooperative. This co-op focuses on offering well-paid, dignified work for for-hire vehicle drivers and recently launched a ridesharing app.

Capital Impact provided seed funding for the Workers to Owners Collaborative, a national collaborative of organizations working to transition small businesses to employee ownership. Workers to Owners is a clearinghouse for ideas and best practices, a place where worker owners can go to network with peers, get feedback, learn about trends, and advocate for employee ownership. Ownership transitions through Workers to Owners member organizations resulted in the preservation of more than 980 jobs and the transfer of more than $31.9MM in business assets according to a 2019 data brief.

In August 2018, we published “Co-op Conversions At Scale,” a market research report to assess the growth potential of employee ownership (worker co-op) conversions in several markets, particularly how to scale co-op conversions of businesses with 20-100 employees. Following on the report, we convened Community Development Financial Institutions (CDFIs), small banks, and credit unions from around the country at our Financing the Preservation of Legacy Businesses event — funded by Citi Community Development in October 2018 — to learn about opportunities for scaling co-op conversion and train them on the specifics of financing and underwriting. The event featured Representative Nydia Velazquez, who was a champion of the Main Street Employee Ownership Act, federal legislation passed that improves small business loan programs for employee-owned businesses.

Most worker co-op conversions have been very small businesses with under 20 worker owners, but there has been an intentional focus in the sector to target companies with larger workforces. This is where Capital Impact sees its value; as a larger CDFI, we can support the conversion of businesses that require more financing. In collaboration with our co-op partners, we have been able to strategize ways to support employee ownership growth.

This year, we are proud to announce the financing of our first worker co-op conversion with long-time partner Cooperative Fund of New England. This proud new cooperative, Ward Lumber, is another example of the power of worker co-op conversion to maintain and augment wealth and stability within communities. 

Ward Lumber is a 130-year-old business in New York, employing more than 40 workers. When Jay Ward realized that the family business would not pass to his next generation, he and his workers looked for another way to ensure that the business continued. This is an important transaction, not only for the workers themselves, but because the ripple effect of this business closing would have been felt throughout the local economy for years to come. Instead, this effort helps preserve a community pillar for years to come. 

After many years of ecosystem development, we are excited to see the number of cooperative development projects growing, and we plan to work with our partners to continue fostering this growth as part of our long-term strategy to expand wealth building and dignified work for our communities.

Learn more about Ward Lumber’s worker co-op conversion in this video. For more about our support of cooperative development, visit our website.

Podcast: Everything Co-op Interview about Capital Impact’s 2020 Co-op Innovation Award

By Alison Powers, Cooperative & Community Initiatives Manager

In early 2020, Capital Impact Partners, in partnership with the National Cooperative Bank, awarded a total of $100,000 to three awardees, – ChiFresh Kitchen, The Guild, and the Bronx Cooperative Development Initiative – through its Co-op Innovative Award. Capital Impact’s Co-op Innovative Award aims to increase co-op development in communities with low incomes and/or communities of color. This year, the Co-op Innovation Award focused on organizations educating new audiences on the impact and potential of the cooperative model to disrupt income inequality, steward community ownership, and create strong vibrant places of opportunity.

​Rosemary Mahoney and Paul Bradley, Cooperative Hall of Fame Inductees

Capital Impact Honors Rosemary Mahoney and Paul Bradley, New Inductees into the Cooperative Hall of Fame

By Alison Powers, Program Officer, Strategy, Innovation & Impact

So many qualities define the life of a Cooperative Hall of Fame hero. Conviction and focus. Vision and persistence. Innovation and leadership. All contributing to a life dedicated to cooperative development and shared prosperity.

These characteristics are a perfect way to describe Rosemary Mahoney and Paul Bradley, lifelong champions of cooperative development. This week, Rosemary and Paul join other cooperative heroes as they are inducted into the Cooperative Hall of Fame, commemorating decades as cooperative developers. Rosemary and Paul’s contributions to the cooperative industry are undeniable; both have shaped our cooperative framework through their work and insights. It is great to have two long-term innovators in the co-op space so closely connected with Capital Impact, and we are proud to see them join this illustrious group of cooperative visionaries. A brief look at each of their histories shows why they are truly Co-op Heroes.

Opening Up Possibilities in Co-op Innovation

Since Benjamin Franklin launched the first mutual fire insurance company in 1752, the cooperative sector has seen waves of success in the United States. Dairy and cheese coops were first organized in the early 1800s, and other agricultural cooperatives followed. By the Great Depression, cooperative businesses were developing in urban and rural areas, bolstered by President Roosevelt’s New Deal legislation. In the late 1960s and 1970s, a new wave of consumer food co-ops grew out of the counterculture movement. In 1981 Capital Impact was born out of federal legislation to keep up that momentum. And for the last four decades, Capital Impact has sought to do this through a mix of financing, capacity building and technical support.

“Co-op development is evolving and picking up steam with an excitement that we haven’t seen in decades,” says Alison Powers, program officer of cooperative development at Capital Impact Partners. “We’re seeing growth in food and worker co-ops as well as bigger attendance at national co-op conferences and more investors entering the co-op conversation. Co-ops solve problems and empower people around a lot of issues.”

To meet the needs of the growing cooperative market, Capital Impact Partners will be expanding its programs and increasing its co-op lending over the next five years. Working with loan funds and CDFI partners is a big part of this strategy, says Powers.

“We’re also involved in national conversations and working groups around opportunities for growth,” she says. “One area that we are excited about is worker co-op conversions, retiring baby boomers are selling their businesses and hopefully they will choose to sell to their workers. We’re working with partners to bring the field to scale, and we’re very excited about the next few years.”

To further this work and expand its outreach, Capital Impact Partners created the Co-op Innovation Award in 2015, providing grants to organizations that support food, worker and housing co-ops in underserved communities. Democracy at Work Institute (DAWI) and United States Federation of Worker Cooperatives (USFWC) were the first two recipients, each receiving $20,000.

With the first year of the awards completed, the recipients are excited to share about their projects’ successes.

Democracy at Work Institute

The grant from Capital Impact supported DAWI’s Conversion Collaboration, a national effort designed to help small businesses transition to worker-owned co-ops.

“Conversions offer an opportunity for worker co-ops to grow to scale in the U.S. and that’s something we are looking at strategically,” says Powers. “The work DAWI is doing aligns with our strategy on a larger level, and choosing them as a grantee was a great opportunity for everyone.”

“The award opened up more possibilities than we anticipated,” says Melissa Hoover, DAWI executive director. “We’ve seen a massive amount of interest in worker co-op conversions from other organizations, capital providers, local governments and even civil rights groups. And we’re gaining a better understanding of the challenges we need to address.”

Capital Impact recently announced the second round of Co-op Innovation Awards, and DAWI was selected again in 2016.

“The second year of funding is really important to us,” says Hoover. “It’s going to help us use the tools and research we did with the first year of funding to implement a clear strategy, specifically conversions in the minority-owned legacy business community.”

Since its launch, DAWI has focused on developing metrics, such as job quality. “One of our goals is to influence the field of economic development and community development, and to influence policy makers,” says Hoover. “By pointing to data, you can illustrate the real impact. Also, you can’t track what you don’t measure. The act of measuring sets our compass. If we measure job quality, for example, then that’s what we will foster. One of the best ways to set an intention is to commit to measuring it.”

The intensity of interest in worker cooperative conversions surprised Hoover. “It’s exciting to see interest from many different quarters,” she says. “We heard from economic development people from the City of Miami and a representative from a national civil rights group,” she says. “We were also invited to do a live chat on Forbes.com. We’re seeing a large breadth and range of interest.”

And the future looks bright. “I’m excited to see cooperative conversions at larger scales, whether that means the size of business converting or that there are more and more of them,” says Hoover. “If we can provide models and support, this idea has potential to gain a momentum of its own to be self-generating and sustaining.”

United States Federation of Worker Cooperatives

USFWC received the Innovation Award for its Grants for Growth fund. This revolving grant fund provides small technical assistance grants to existing co-ops that want to grow their business, increasing the number of loan-ready worker co-ops and their capacity to create new jobs.

USFCW-member Pedal People hauls trash and recycling and delivers farm shares by bike in MA. Photo courtesy of Maureen Flannery.

“We’ve heard from lending partners that there aren’t as many deals in the pipeline for successful worker co-ops trying to expand, and that’s one reason we were excited to support the USFWC,” says Powers. “Their members had told them they needed this kind of funding. This program is a direct response, and supporting the US. Federation is a perfect fit.”

“We were spot on with the fact that people need loans for growth, but we learned that we had to reorient and go deeper,” says Amy Johnson, Co-Executive Director for the USFWC. “I have to remind myself that this is a pilot program, and we don’t have all of the resources to help everyone. We are working to address the needs of three specific organizations, and we’re hoping with each comes lessons that we’ll learn to support future programs. We’re staying grounded in knowing that this program is making a contribution to an ecosystem that is growing.”

A small organization, Johnson says the grant has enabled USFWC the time and space to think about how to provide the most benefit and value.

“At the core, we’re a connector and base builder,” she says. “We’re reorienting around how a federation can be a network of advisors rooted on the ground in a community. We have great experts across the country, but what doesn’t work is to fly in for an intensive training and leave. It’s about who stays on the ground and who is doing the work, and that requires a long-term relationship over time. Our contribution is figuring out how to support a network of locally rooted and national experts.”

Co-op Strategy for the Future

“We’re excited to see how far these organizations have come in the last year,” says Powers. Their progress is the reason our board and management team decided to renew the Innovation Award in 2016.”

The Co-op Innovation Award represents just one part of Capital Impact’s strategy to promote food, worker, and housing co-ops that support underserved communities. The organization also provides direct capital to food co-ops looking to grow and expand through its National Co-op Grocers Development Cooperative Loan Fund. Over its 30-year history, Capital Impact has disbursed more than $283 million dollars in financing to more than 200 cooperative businesses that serve close to one million customers.

“The convergence of the growth of worker co-ops and a wave of retiring small-business owners offers a unique opportunity that is attracting the attention of foundations and investors previously unfamiliar with co-ops,” says Powers. These award winners are leading the charge in building a nationwide ecosystem for worker co-op conversions with a focus on low-wage jobs. This aligns with our strategic focus on stabilizing low-income communities and increasing cooperative growth nationwide.”

Putting Down Roots For A Better Future

By Alison Powers, Program Officer

More than 10,000 low-and-moderate income homeowners are sleeping better at night thanks to our partner ROC USA. Instead of worrying about rent increases or land sales that might force them to move, residents of manufactured-home communities (what many commonly refer to as mobile home parks) across the country have purchased their land and put down roots through ROC USA’s cooperative ownership program.

Since 2008, the nonprofit social venture’s innovative model has spun off 182 resident-owned communities in 14 states, ranging in size from eight to 300 dwellings. The 10,000th home was recently secured at Turnpike Park Cooperative in Westborough, Mass.

Collaboration for Co-operative Improvement

By Clair A. McDevitt, writer

Picture it: the freezer breaks and you’re scrambling to save all your frozen food. In a home, a big cooler or the generosity of a neighbor may solve your problem – but for a grocery store, the goods in a broken freezer cannot be housed at a neighbor’s house until the freezer is fixed.

Customer_BulkHoney_blogThe freezer, top of the line when it was purchased in the 1970s, was just one challenge faced by First Alternative Cooperative, a community co-op market in Corvallis, Oregon. Along with replacing equipment, including its critical point-of-sale system, which was past its prime, the grocery store needed to make some building improvements and consolidate debt to improve its cash flow.