How are Worker Cooperatives Different from Conventional Businesses?

Worker cooperatives offer an approach to doing business that places democratic participation and shared ownership at its core. Unlike conventional businesses, which often separate ownership and labor, worker cooperatives empower employees as co-owners, giving them a direct say in decision-making and a stake in the company’s success. This approach is rooted in the Cooperative Principles, which guide the democratic ethos of cooperative businesses. Understanding the differences between conventional businesses and cooperatives should help you understand whether this model of doing business is right for you.

The Cooperative Principles

The seven Cooperative Principles originated from the Rochdale Principles that were drafted in 1844. Most cooperatives today work from the revisions that were adopted in 1995 by the International Cooperative Alliance (ICA). These principles are:

1. Voluntary and Open Membership

2. Democratic Member Control

3. Member Economic Participation

4. Autonomy and Independence

5. Education, Training, and Information

6. Cooperation among Cooperatives

7. Concern for Community

While it is not a legal requirement, worker cooperatives often reference and operate according to these cooperative principles. They provide a framework to encourage democratic governance and a general culture of cooperation.

Differing relationships between ownership and labor

Cooperatives, like conventional businesses, generate revenues from the sale of goods or services. In that sense, they operate within the free market in precisely the same way as any other business. They differ, however, in how they are structured internally, and how they value and reward their employees’ perspectives and labor.

Conventional businesses separate ownership (shareholders) from labor (employees). In this model, shareholders own and control the company in proportion to the shares they own, while employees are tasked solely with fulfilling the duties assigned to them by the owners and managers.

Under the cooperative model, every qualified worker is also a co-owner of the business. These worker-owners are legally recognized as members of the company. In some cooperatives, members vote on company decisions collectively. However, in most cooperatives, members elect a board of directors, which appoints managers responsible for the company’s day-to-day operations. Unlike a conventional business, where the weight of a shareholder’s vote is determined by their percentage equity in the company, votes in a cooperative are equally weighted under the principle of one member, one vote.

Members of a cooperative may also be entitled to a share of the business's profits based on their particular contributions to the business. This is called Patronage, and it is typically based on the relative percentage of hours worked by each member. This differs from a conventional business, where profits are distributed solely to shareholders, and bonuses are given at the discretion of management.

Becoming a worker-owned cooperative

While worker ownership may not be for everyone, cooperatives offer plenty of personal, social, and economic benefits. By taking on the added responsibilities of ownership, members are given the opportunity to continuously learn, develop, and bear the fruits of their labor in the workplace.

If you are interested in pursuing cooperative ownership, you can start by exploring some of the leading resources available online. The Sustainable Economies Law Center offers an extensive library of free resources, beginning with "How to Create a Worker-Owned Business."

As a fellow of the Sustainable Economies Law Center, and as an experienced cooperative attorney, I am always available as a resource for those embarking on the cooperative journey. Once you have decided to start a cooperative, my firm can help walk you through the process of preparing your governing documents and organizing your company, ensuring you have everything you need to begin doing business. You can visit us at our website or reach out directly on LinkedIn.