Evergreen Cooperatives

Evergreen Cooperatives- Cleveland, OH

There are recent efforts in distressed inner cities in Cleveland, Milwaukee and Atlanta in which anchor institutions have collaborated with foundations to create worker-owned cooperatives, employing neighborhood people to serve the needs of anchor institutions such as hospitals and universities. The most developed of these is the Evergreen Cooperative group in Cleveland. The Democracy Collaborative consultants who have played a leading role in Cleveland are also working in Milwaukee and Atlanta. Their website (www.community-wealth.org) has information not only on their efforts, but on a wide array of other community wealth building efforts. The Democracy Collaborative’s Research Director, Steve Dubb, serves on the C2BE Board of Directors.

• High profile, top-down, foundation-led development process
• Organizers were the entrepreneurs - came up with the concepts, wrote business plans, got capital
• Organizers (Anchor Institutions and the Developers they hired) remain as majority board members for several years
• Hired workers as employees on track to become owners after 1 year (this is how most worker co-ops bring in new members once established)
• Workers were found through a local work readiness training center
• Hired an outside manager for each business to be replaced from within the workforce after 3 years
• Evergreen has a central organization that supports the existing co-ops and helps develop new ones; each co-op puts 10% of its profits into this organization

WAGES (Women’s Action to Gain Economic Security)

• Worker co-op developer in the San Francisco bay area that helps low-income Latina women create worker co-op green cleaning businesses
• Has created 5 co-ops with a total of about 90 worker-owners since 1995
• WAGES takes complete responsibility for planning, feasibility and launch of each co-op
• A general manager is hired before launch & enters as WAGES staff
• Co-op members are recruited 1 month before launch
• Co-ops reach independence in about 3 years

Mondragon Cooperative Corporation (MCC)

The Mondragon Cooperative Corporation (MCC) began 50 years ago when the Basques were on the losing side of the Spanish Civil War. Their capital city, Guernika, had been leveled by Franco and their language was banned. Their children were leaving. They had lived in the mountains around Mondragon for 1000 years. A Basque priest, who had studied the distributist teachings of the Catholic Church, began to teach classes on self-management of businesses and worked with the community to create an industrial school. The first five graduates of the industrial school, purchased some used equipment and started a stove company, which is now, Fagor, the 3rd largest producer of appliances in Europe. Fagor started 14 years after the priest began his classes on self-management. Shortly thereafter they created a bank to help finance and to provide technical assistance to the various cooperative businesses in their group. The organizing drive to start their community bank was “savings or suitcases”. Fifty years later they have 85,000 people working in 120 companies with €38 billion of assets and annual revenue of €13 billion. Their industrial school is now an engineering and business university. Approximately 20,000 of those working in the co-ops are engineers. The co-ops jointly own second level co-ops that provide insurance, research and development and other services to the co-op companies that own them.

Mondragon’s growth and development was strengthened by its comprehensive approach:

• 1941 Basque region of Spain - after capital bombed flat - Priest arrives teaching about independence through mutual self-reliance, self-managed businesses and continuous education
• 1943 created a technical school for area youth to learn work skills
• 1956 first 5 graduates of the school borrowed money from everyone in town to open the first business – making stoves. They purchased an existing plant and equipment from a nearby town.
• 1959 created, Caja Laboral, co-op development bank with savings from co-ops and community members
• 1959 Bank created an entrepreneurial division that provided R&D for all group businesses & hands-on lending
• 1974 created Ikerlan – Technology R&D center
• 1991 group of cooperatives incorporate as Mondragon Corporacion Cooperativa (MCC)

Source: http://www.mondragon-corporation.com/ENG.aspx

Emilia Romagna - cooperation between co-ops, family owned businesses and local government

Emilia Romagna is a diverse group of 8,000 cooperatives and family owned businesses that collaborate with each other in the Emilia Romagna region of Northern Italy. Their collaboration enables groups of small companies to jointly compete for large jobs that none of them could do alone. Their collaboration is aided by regional government supported business resource centers.

“Emilia Romagna came out of World War II as perhaps the most devastated region in Italy. Its strong cooperative and labor movements had been decimated by 25 years of Mussolini’s fascism that suppressed all independent organizations and jailed many co-op and union leader. Emilia Romagna ended up just behind the Nazi’s Gothic Line in 1943-45. It became the focus for Allied bombing, guerrilla warfare by the Resistance and Nazi reprisals against the civilian population. It emerged from the war impoverished with heavy unemployment.” John Logue,  Economics, Cooperation and Employee Ownership, the Emilia Romagna Model  http://dept.kent.edu/oeoc/oeoclibrary/emiliaromagnalong.htm

“The left-wing government in Emilia Romagna embarked on a strategy of promoting small business for economic development. It encouraged employee ownership, consumer cooperatives, and agricultural cooperatives, and it encouraged the development of cooperative institutions for all small businesses – co-ops and family owned firms alike.”John Logue,  Economics, Cooperation and Employee Ownership, the Emilia Romagna Model  http://dept.kent.edu/oeoc/oeoclibrary/emiliaromagnalong.htm

“The regional government’s economic development agency ERVET, created publicly funded small business ‘industrial sector service centers’ that have supported small business clustering in the region. They provide shared services in research and development, purchasing, education and training, workplace safety, technology transfer, marketing and distribution, exporting and more for scores or hundreds of small businesses in industrial sectors like ceramics, textiles, footwear, construction and agricultural machinery. These service centers combine the economies of scale with the advantages and flexibility of small business. They have supported the so called “flexible manufacturing” of the region in which small businesses in the same industry collaborate on joint bids for major contracts.” John Logue,  Economics, Cooperation and Employee Ownership, the Emilia Romagna Model  http://dept.kent.edu/oeoc/oeoclibrary/emiliaromagnalong.htmMajor firms supplied by these networks include Ferrari, Lamborghini, Maserati and Ducati. John Logue,  Economics, Cooperation and Employee Ownership, the Emilia Romagna Model  http://dept.kent.edu/oeoc/oeoclibrary/emiliaromagnalong.htm

Italy has a long cooperative history, and a number of laws that benefit co-ops including tax deductions for the funds they retain in collective reserves, and a requirement that co-ops contribute 3% percent of their annual profits to a co-op development fund run by one of the various co-op federations. John Logue,  Economics, Cooperation and Employee Ownership, the Emilia Romagna Model  http://dept.kent.edu/oeoc/oeoclibrary/emiliaromagnalong.htm

Unlike Mondragon – in Emilia Romagna multiple company types collaborate, including:

• Family owned
• Owned by communist cooperatives
• Owned by Catholic cooperative
• Owned by social democratic cooperatives
• Some cooperatives own publicly traded companies

Co-op federations include all sectors: workers, consumers, agricultural, and housing. Most companies are unionized. Coopitalia is a consumer co-op that is Italy’s largest retailer, comprised of 169 local retail co-ops and 4 million consumer members, though highly decentralized & democratic. Wal-Mart avoids Italy due to competition from Coopitalia.

Southwest Detroit Construction Cooperative (SWDCC): Full Case Study

Southwest Detroit Construction Cooperative (SWDCC), Painting and Plastering and Janitorial Cooperatives – to be sustainable most (but especially inner-city) worker co-ops need a supporting joint business resource or community support organization. That is why the Mondragon, Emilia Romagna, Evergreen Cooperatives in Cleveland, WAGES and the Arizmendi Co-ops in Berkley have all created mutual support organizations for back office and business development functions. SWDCC’s story explains why that is.In 1985, Ed Bobinchak, then executive director of WARM Training, created Southwest Detroit Construction Co-op (SWDCC) to create a worker co-op as an employment mechanism for neighborhood residents who were trainees of WARM. People who took the training would join the co-op and begin paying their membership share through payroll deduction. The early organizing group agreed on a $1,000 membership. Members felt it was reasonable.WARM as a non-profit had a lot of relationships with non-profit housing groups as a market for co-op. Ed became a licensed builder so they could bid on contracts. Ed did the outreach and bidding on most of the contracts. Co-Founder of WARM, Michael Laughlin, a college grad, teacher who had done home repair work also became a licensed builder and served primarily as the initial crew leader for the co-op. He subsidized the co-op with his own labor. WARM subsidized it with Ed’s work and the back office accounting and reporting on taxes, filings on the state, putting together the monthly financial statements for the members. WARM raised some grant dollars for training and workshops in management and business training for members.During the first year of the weatherization contracts, Atty. Deb Olson structured a Mondragon style co-op structure. Ed and Mike sought the co-op structure because they were doing most of the work. The trainees would show up irregularly when it was part-time employment. WARM wanted the workers as co-op members to enable them to help the workers learn bidding and take on more responsibility.The co-op worked up to about $50,000 in year one gross revenue and $300,000 gross in year two. Work in the 1st year was weatherization contracts funded by the utility companies for around $50,000 total. Second year WARM bought a building on Michigan Ave. The City of Detroit provided facade improvement federal block grant (Neighborhood Opportunity Fund) funds to renovate the building. In year 2 the revenue of $300,000 was for the WARM facade renovation and similar facade work for local non-profit Michigan Avenue Community Organization (MACO). The co-op bid and won contracts on other facade renovation for MACO members.Although the original co-op idea was around weatherization, the members did not want to stay with weatherization, which is a dirty, messy job, crawling around in cellulose powder. The more skilled members wanted to get into more skilled and interesting work. WARM recruited several people who had more construction experience. There were now 3 different crew leaders. SWDCC began bidding on contracts through non-profits MACO, Church of Messiah Housing Corp. and other non-profit housing groups were getting city contracts to do home repairs. Co-op bid on and got many of those contracts. Ed and Mike were doing most of the bidding. There were a couple co-op members who, within their expertise, did the costing and bidding on those contracts.At the end of 2nd year there were 5 or 6 full time employee owners, and 6 trainees who came into contracts as needed. They were not invited to become members until they proved their reliability and skills. A number were invited into membership. Some early members left and joined the carpenters union as apprentices. Another went back to school. The overall level of proficiency didn’t grow. SWDCC started bidding on kitchen and bathroom rehab that had higher profit margin and required more skill. There were fewer new trainees joining the co-op. The number of skilled and semi-skilled trainees decreased. SWDCC wanted the people with greater skills to have dependable full-time employment. WARM continued to bring in trainees.By the end of the 3rd year the co-op was not making enough money to employ people full time. SWDCC needed the more skilled work to support co-op, but the members’ skill was not growing. The members went through a planning process to figure out what to do about it. They felt they needed to offer membership to more experienced and skilled workers and couldn’t continue to have 6 full-time members. WARM and SWDCC didn’t want to treat people as contract workers we would pull in when there were jobs. SWDCC did not have contracts enough to pay full-time wages and benefits for 6 members. The non-profit housing groups were SWDCC’s primary source of income and they were less dependable. There were a lot of roofing contracts. SWDCC bid in the spring and often didn’t get the work until November and were roofing in the snow. The work would bunch up in a few months of the year. With lulls in the winter.WARM Training funding and the co-op profitability was not enough to keep employing all the members. A lot of the trainees who became members were basically looking for a job and accepted ownership as a necessary requirement. They were not joining as entrepreneurs. Without that entrepreneurial sense we could not get people to seek contracts or get work done quickly and effectively. There were a lot of callbacks and need for repairs that ate into the company’s profit. Ultimately, the bills put the company out of business. We had too many debts and not enough income. The company downsized from 6 members to 3 members who had more skill. They kept it going at a much reduced level. The members decided to do other things. Jim Sweeney started teaching at a vocational technology school. Michael went back to teaching. Several guys kept the insulation machine and continued doing insulation contracts. Jerry Jackson continued to do insulation jobs on his own. Former co-op members bid for jobs on their own, not as a co-op. No one got back their co-op share, but we distributed tools in lieu of co-op share. The insulation machine was in one person’s garage and when they got contracts the individuals could use it. The company did not go bankrupt legally, but the assets were distributed as fairly as possible.WARM set up a painting and plastering co-op and a janitorial co-op both had similar fates. WARM provided the back office for these 2 co-ops. They never got the contracts consistency needed to have more than one or 2 members. When one lost interest they tended to fall apart. The janitorial co-op ran into hard times not having consistent contracts. There were accusations of theft from a well-placed customer, although we think there was not really theft. The janitorial co-op did not survive that.Ed and another employee were doing the back-office for the co-ops throughout.Dave Horning who worked w/ ch of mess did Painting and plastering and wanted to organize the painting and plastering. He did the costing and bidding. Pastor Ron Spann worked in the co-op and later wanted to become pastor. Horning late went to seminary and became a pastor too. The other 2 members never did any of the costing, bidding or creation of a business plan.Recommendations from Ed Bobinchak: Look for people with entrepreneurial drive and experience who appreciate the need for efficiency and keeping within budget. It doesn’t come naturally and it is hard to create it.There never was a business plan before we started and what we came up with turned out not to be the right market. Neither Ed nor Mike had previous experience running a company. Dave had never had full time employees before. We never thought it would make sense to hire the members as contractors. That seemed to go against the idea of creating decent full-time employment to support a family.Ed realized he was not the right person to move the company forward. WARM hired Karen Brown, who had managed Cass corridor Food co-op to work with the co-op in the last year, as they needed someone with more experience. Working for the non-profit was a real benefit and a limitation. WARM and SWDCC chose contracts with non-profits because it was easy to get the contracts, but it was limiting due to timing of payments and timing of the contracts themselves. There should have been a lot more market research done before starting a company.

Franklin Forge: Full Case Study

Unprofitable SubsidiaryUnprofitable subsidiaries are often offered for sale to employees. Employees should approach such opportunities with care and predicate their actions on feasibility studies conducted by skilled consultants who know when to say no to a bad idea. The feasibility and success of the Franklin Forge worker buyout depended on a number of factors including strength and skill of both the workers and management, the community's need for ht plant, the fact that the workers initiated the buyout, and the parent corporations' motivation to sell at a low price and make the deal work.Located in West Branch, Michigan, Franklin Forge was a subsidiary of Capitol Manufacturing, a company in the oil field equipment business. Franklin was and continues to be one of Capitol's suppliers. During most of the years it was owned by Capitol, Franklin lost money. These losses resulted mainly from Capitol's cost structure and lack of experience in the forging business. Yet because Capitol was quite profitable prior to 1982, Franklin's losses did not become important to Capitol until 1983 and 1984.In early 1984, Franklin Forge employees sensed that the company's continuing losses threatened their future. The union, International United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) Local 1874, organized a jobs committee to explore how they could save their jobs. After investigating Franklin's financial condition, the employees determined that purchasing the company was the best way to protect themselves.At the same time, Harsco Corporation, which owned Capitol Manufacturing, decided to sell Franklin due to the increasing significance of Franklin's losses. Harsco could not close Franklin without a buyer because it had a take-or-pay contract with the gas utility that ran a gas line to Franklin. Since the contract was in effect for at least another year, and no buyer seemed interested in the less than desirable West Branch manufacturing location, Harsco knew that the employees' offer was the best it would get.The employee effort to buy Franklin began in earnest when UAW International Representative Jack Laskowski sought assistance from the Michigan Employee Ownership Center (MEOC). The employees subsequently formed a buyout association, retained Groban Olson and Associates as counsel, and commissioned a feasibility study. The employees recognized that they needed strong management to make Franklin profitable and asked the company's former manager to be the plant's new manager and chief executive officer. He had managed the plant for several years, was well-acquainted with the forging business, and was well-respected by local businesses and lenders.Franklin's recent losses made it difficult to raise the money to finance the buyout. Union members made numerous calls to lenders and worked hard to raise funds from employees and various government bodies. The perseverance and positive attitude of the buyout association impressed the lenders. The National Bank of Detroit (NBD), for example, became involved in finding other lenders to join it in financing the deal.In addition to raising money, the buyout association worked hard to educate themselves and the community on the concept of employee ownership. Aided by MEOC, the association developed its own employee ownership education program. As a part of this program, the Industrial Cooperative Association (ICA), MEOC, NBD, and the Michigan Department of Labor, led education sessions attended by those involved in the buyout and interested community members.As a result of the buyout association's efforts, Franklin Forge became a worker cooperative. Each worker owns one voting membership share and a proportionate share of capital in the company's internal equity accounts. The workers were able to purchase their membership shares, which initially cost $5,000 with loans primarily from the Industrial Cooperative Association Revolving Loan Fund and the Farmers and Merchants Bank of Hale. These loans required down payments of $250 and payments of $1 per working hour for 3 years to settle the $4,750 balance. Other lenders whose help was essential to finance the buyout included the State of Michigan, Ogemaw County, the National Bank of Detroit, the seller, and Franklin's chief executive officer. In the fall of 1986, employees invested an additional $2,000 each to cover working capital costs caused by a rapid increase in business.In 1984, when the employees first contemplated a buyout, Franklin employed 20 people and had 82 on a seniority list. At the time of the buyout, management projected that Franklin would employ 38 workers by the end of the first full year of operation. After six months of operation, Franklin already had 38 employees, and by the end of 12 months, it employed 54 people. By December of 1986, Franklin employed 68 people. The 1988 employment averaged 82. For the year of October 1988 through September 1989, the average employment is expected to be approximately 100. 

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