Cooperatives: Blending Business and Community - Activate World

Cooperatives: Blending Business and Community

Leslie Watson, Consultant, CDS Consulting Co-op

Leslie Watson is a consultant at the CDS Consulting Co-op working primarily in the natural food co-op sector. Her focus is supporting the unique governance structure of cooperatives working with their boards of directors. She has long been motivated by the idea that co-ops play an important role in business and local communities. In her home town of Minneapolis, she joined the board of the Eastside Food Co-op in 2002 during its startup phase and served on the board for nearly ten years. More recently, she helped to found and currently serves on the board of the Northeast Investment Co-op, which is bringing community members together to invest cooperatively in distressed real estate. Leslie has a Masters in Public Affairs from the University of Minnesota’s Humphrey School of Public Affairs. She is a recipient of a prestigious Bush Foundation Fellowship focusing on the cooperative model in local communities and a member of CoMinnesota, a group dedicated to connecting Minnesota’s cooperative community.

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Cooperatives: Blending Business and Community

Leslie Watson works for a cooperative of consultants whose co-op clients are primarily in the natural foods sector. By definition, “a cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.” Leslie discusses why cooperatives, and their community focus, are increasingly viewed as alternatives to the economic models of capitalism and socialism.

Listen to our conversation on cooperatives and consider starting your business as a cooperative.

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Cooperatives: Blending Business and Community

Leslie Watson, Consultant, CDS Consulting Co-op

Jon Mertz:          00:02          Welcome to the Activate World Podcast, a series on how business leaders have more power to solve a societal issues that any elected official. We explore business activism with substance and depth of thought.

Jon Mertz:          00:13          Today we continue this season’s exploration of business and organizational models with a look at cooperatives. We have Leslie Watson with us whose an expert in this field. Leslie, welcome to Active World.

Leslie Watson:      00:31          Thanks Jon.

Jon Mertz:          00:32          Describe your work with co-ops and what led you into your current role?

Leslie Watson:      00:35          Sure. So I currently work as a consultant. I’m a member of a cooperative of consultants. We work primarily in the natural food co-op sector. Although we do work in other sectors. But I’ve been doing that work professionally for about five or six years now. My focus is supporting the unique governance structure of cooperatives. So I do a lot of work with boards of directors. I also do work with startup food cooperatives and I help co-ops that working on generating capital for members, which is a unique thing that co-ops do.

Leslie Watson:      01:12          But I came to the work very much from the grassroots. I got involved about 16 or 17 years ago now in a startup food co-op effort in my home community of northeast Minneapolis. Folks who had been working for many years to try to build a food co-op and open one here. And I got involved near the tail end before we opened and I spent about 10 years on the board of that co-op. So really through getting it opened and then getting it established and working through growing pains and then finally really the joy of seeing it flourish in our community.

Leslie Watson:      01:50          Along the way I got really hooked. I kind of dabbled in co-ops in college and knew a little something about them but this was definitely a very deep dive. And along the way I got excited with some other people in my community to start an additional kind of cooperative. We formed a co-op in 2011 and 2012 to acquire and redevelop distressed commercial property in our neighborhood. So pool community capital to deal with some distressed property on our main commercial corridor.

Leslie Watson:      02:22          So it was a really fun additional, unique way to use the cooperative model to have community impact and so all that work my husband likes to joke all those years of volunteering and it finally turned into a job. So I got invited by the consultants to come in and help other people work on the co-ops in their community based on the lessons that I learned from my own work as well as many, many more lessons that I learned from working with other folks.

Jon Mertz:          02:51          Give us your insights on what’s unique about a cooperative and what makes it interesting both from a business and a community standpoint?

Leslie Watson:      02:58          Yeah, sure. So I always like to start by pointing out that in most people’s conception or general understanding there are two primary economic models. And there’s nuances and we can slice and dice them in different ways but if you think of the two that we’re most familiar with as being capitalism, where the means of production are held in private hands and socialism where the means of production are held in public hands. And everything kind of exists on a spectrum and actually that’s not really it. So cooperativeism is sometimes called, “the third way.” For the very reason that it actually is an alternative to those two and it’s one where the means of production are held privately but also collectively.

Leslie Watson:      03:45          So cooperatives are businesses that are owned and democratically governed by the people that use their services. And that simple explanation can encompass almost every kind of business you can imagine. There are cooperatives in almost every industry and sector. They can look radically different based on the people who are operating the businesses and their needs and benefits. But that’s the basic simple structure that the people who use the business own it together.

Leslie Watson:      04:19          Cooperatives distribute profit not on the basis of invested capital but on the basis of use. So they do not exist to serve external capital or invested capital. If they’re successful, if they are profitable that profit or that surplus actually goes back to the members or the patrons of the cooperative on the basis of their use. So it’s much more equitable in that sense and it really profoundly and fundamentally shifts the purpose of the business itself.

Leslie Watson:      04:49          And I think the last thing that I’ll just share is the technical definition or the widely internationally accepted definition of a cooperative which really lifts up the complexity of the kinds of organizations that they are and that comes from the International Cooperative Alliance which defines a cooperative as, “an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.”

Leslie Watson:      05:22          And when I teach and talk to people about cooperatives, as do many others, we really like to lift up two features of that definition that it calls out that is an association of people who are engaged in an enterprise and that really captures the dual identity of cooperatives, the associative part is about human beings coming together to meet their needs. And the enterprise in an indicator that it’s also a business, that it does have to exist in the market economy. So we have to think about the people but we also have to be able to operative successfully as businesses in order to be successful as cooperatives.

Leslie Watson:      05:58          And there is a tension but also a creative tension between those two things very often.

Jon Mertz:          06:04          Would you say employees are more directly engaged in the organization because of the cooperative nature of the business?

Leslie Watson:      06:10          So it varies. There are many different kinds of cooperatives. I think that you’ll find employees that most directly engaged in the governance, and the ownership of the cooperative in a worker co-op of course. And in a worker co-op the purpose of the cooperative can be to … well the purpose of the business can be many, many different things but the purpose of the cooperative is for the laborers, the employees to own the means of production and to own the business together.

Leslie Watson:      06:41          So that is in that model, and the governance of that can look very different, strictly consumer co-ops and that type of co-op the business is actually owned by the consumers and not buy the workers. And so in my world certainly and hopefully in many different cooperatives there is very deep desire to provide dignified labor to really honor the contributions of labor that happen to pay people fairly. But the people who work in the businesses are not owners of the cooperative.

Leslie Watson:      07:14          There are a few exceptions to that. There are several grocery co-ops and other kinds of co-ops in this country, many more and other kinds of co-ops that have a hybrid model in the consumer sector where there is a class of consumer owners and a class of worker owners and they share ownership and governance of the organization together. That is one variant.

Jon Mertz:          07:35          It seems like co-ops have a reputation of treating their employees better than in some traditional business models, that a living wage is much more front and center as a key principle is that an accurate assessment?

Leslie Watson:      07:47          I think it’s an aspirational assessment. I mean in the natural food co-op grocery world and in actually every co-op grocery that I’m familiar with there is a really deep desire to achieve living wage. It’s a challenging business … it’s challenging sometimes for co-ops to get there because … and now I’m just talking about grocery co-ops because they are independent grocery stores, it’s really difficult to operate an independent grocery store. It’s a very thin margin business.

Leslie Watson:      08:17          It is a business that really requires scale to achieve profitability at any significant level and even so. I think 1% profitability would be kind of the standard in the grocery store these days and there’s a lot of competition. So all of that put together really makes it really challenging to generate enough margin to be able to pay workers … where the consumers and the workers themselves aspirationally would like that to be. That said that is definitely something that is an ongoing conversation in every food co-op that I work with and some have successfully made a commitment to a living wage and others are working toward it.

Leslie Watson:      09:01          So it’s definitely a value that I would not … I would be mistaken and incorrect to say that every food co-op in the world successfully pays a living wage to its employees because it’s just not true.

Jon Mertz:          09:15          Since the community is involved with the co-op in terms of being owners and board members, do co-ops tend to focus on community issues?

Leslie Watson:      09:23          The short answer is “yes.” There a set of guiding principles for cooperatives that all cooperatives theoretically manifest in order to demonstrate their character as a cooperative and one of those principles is concern for community. So in co-ops that shows up in different ways in different co-ops but I know it’s certainly true in food co-ops. It’s true in rural electric co-ops. It’s true in many different co-ops that they demonstrate that concern for the communities in which they operate in a variety of ways.

Jon Mertz:          09:58          Would you say business leader accountability in the co-op has been baked into the model?

Leslie Watson:      10:03          Well, absolutely in a worker co-op. I mean it’s inseparable from the model in that instance. I think in some co-ops it’s true and in other co-ops it’s less true. And I’m thinking in my mind I’m thinking of food co-ops because I’m most familiar with that model. So some food co-ops even if they’re consumer food co-ops allow employees to serve on the board of directors. Some do not. Some food co-ops are unionized. Some are not. As I mentioned a handful actually have the hybrid structure.

Leslie Watson:      10:39          And many of the food co-ops really try to practice their business in a way that looks to cultivate leadership and capacity within the co-op to higher from within, to develop staff, to really make that a core for how they run the business. It’s smart business anyway but also it aligns with the values.

Jon Mertz:          11:01          What are some of the key skills that leaders need that are involved in a co-op?

Leslie Watson:      11:04          In a case of a worker co-op I think you need people who know how to build a culture of folks who want to operate business differently. Who want to share power, who want to practice democracy in a really deep way. So the skills that you need at the beginning are all the regular skills of a entrepreneur plus the skills of really cultivating other people, certainly technical skills or the ability to secure them when you need them and a real commitment to sharing power in ways that aren’t very customary for us in other parts of contemporary society.

Leslie Watson:      11:51          So that’s a startup. As you move on those skills remain important but as you move into a thriving cooperative now you have really a lot of multiple stakeholders who have different interests. You have to be able to be a successful enterprise in the business so you’re actually some co-ops have failed because maybe they’ve embraced too much some of that aspirational or philosophical ideals around community or aspirational business society and it’s made it hard to function as a business.

Leslie Watson:      12:22          And then some co-ops have failed because they’ve swung to hard to trying to be a business and they’ve kind of forgotten that they’re really there to meet member’s needs and to demonstrate commitment to the cooperative principles. So you have to be able to do it all. You have to be an enterprise and you have to be able to foster the association of people and in the leadership capacity if you think about someone who is a managerial leaders, someone who is in the top of the org chart, a general manager of a food co-op or a CEO of an electric co-op or whatever it is.

Leslie Watson:      12:55          They need to take responsibility for the business and they also aim to steer it for success and they also need to be able to work productively with board of directors who are not handpicked by the previous board of directors for people who have like minded approach to everything but rather are elected at large from the membership and so you have to be able to really understand how to work with this truly democratic board of directors that ultimately governs the cooperative and has the power over it.

Jon Mertz:          13:32          It seems like co-ops force leaders to lead in more diverse way and listen closely to all the different stakeholders to try to find that middle ground to move the business forward and manage profitability.

Leslie Watson:      13:43          Yeah, we often cite the model of servant leadership as one that feel pretty appropriate for the kind of leadership that’s necessarily for cooperatives for the reason that you mentioned.

Jon Mertz:          13:55          What interest do you see in the cooperative business model either entrepreneurs or even some existing businesses?

Leslie Watson:      14:01          This country has had scants worker co-op really a very few worker co-ops relative to some other countries. But that there has been a shift and there has been growth. It’s still modest but it’s really inspiring. And they are currently those two areas that you’re talking about. I don’t work in the skill so I’m just … I can only describe it generally.

Leslie Watson:      14:27          Certainly there’s a lot of excitement around the idea and there have been some successful conversions of businesses that … where maybe there’s a retiring owner and they’ve chosen to sell the business to the employees so that’s happened a number of times and there’s a lot of people who are doing work to develop better systems and processes to support businesses that want to do that.

Leslie Watson:      14:50          So that’s one area and the other really exciting and inspiring area is co-op developers and sometimes just strictly grassroots folks who are coming together to form worker co-ops in everything from software engineer, cab drivers, all the way to people who are maybe … English isn’t their first language, immigrants who are house cleaners trying to find a way to build a business together where the can really have a lot more economic power or they can use the power of solidarity to turn that work into something that can be sustainable and actually allow them to own something together and there are a number of nonprofits in the country that are working to support worker co-ops among a variety of color and people who are working in traditionally low wage industries who are finding success by using the worker co-op model to own it themselves.

Leslie Watson:      15:44          We have seen now another great development which is people in underserved communities where there hasn’t been a grocery store, what some people call a “food desert” some places where there’s not access to fresh food and communities like that, there are people often communities of color, people working together to build grocery stores. And figuring out often speaking as someone who works in co-op development. I think one of our real challenges and joys is figuring out how can we support these co-ops that don’t look like the natural food co-ops that marginally field by middle class communities and figure out how to support people who are cooperating build grocery stores to meet their needs and how to support them appropriately.

Jon Mertz:          16:33          Because of the diversity of the members, it seems like board meetings would be very colorful and dynamic in a co-op model, what are the challenges in governing a co-op?

Leslie Watson:      16:40          Well, it’s funny that you say that and have that impression. I think it definitely can be the case that governance can be dynamic. It can also be the case that people who step forward to serve in that way can be sometimes surprised by what governance really entails. So for especially if you’re … especially as businesses grow in size and complexity the governance becomes increasingly distinct from operations of necessity and so people, like in a food co-op for instance might be really motivated to get involved in a food co-op because they really care about the local food system and maybe even on a granular level they would like to see xyz thing happen in the store.

Leslie Watson:      17:29          And a board of directors may certainly have at a high level influence over that but generally in order for a grocery store to operate successfully you really need to delegate a lot of authority for how to run the business to the folks who are the professionals. So the boards are in the governing and oversight role maybe in a long term vision setting role, connecting to community as part of it but kind of deciding the placement of products on the shelves is not part of the governing work in may co-ops. Not all.

Leslie Watson:      18:00          So sometimes the passion for local food or the passion for kind of whatever it might be isn’t that’s not what you get to live out to its fullest when you step into a governing role. That having been said though because of the way that we do have democratically elected boards of directors and I’m thinking specifically of consumer food co-ops, people of divergent perspectives can come in and can be really interesting to figure out how to reconcile those divergent perspectives about what should be happening in the business itself.

Leslie Watson:      18:37          So, when I think about other kinds of co-ops, you know like I know rural eclectic co-ops we haven’t really talked about those but that’s a pretty notable sector of the cooperative economy. You know there are really important utilities that serve their critical, provide a critical service to communities and have for many, many decades and the governance of those cooperatives tends to be less dynamic and they have less turnover. They have people who sit on the board for very long periods of time, can be older. And so it’s actually very different kinds of governance questions that come up for those kinds of very established rural electric cooperatives that you might find in a grocery store in a dynamic urban environment or something like that.

Leslie Watson:      19:29          So I’m sorry I’m not quite answering your question with any sort of neat. I can’t tie anything up in a neat bow because it’s co-ops and if you’ve seen one co-op you’ve seen one co-op. They’re really fascinating individual microcosms of the people that they serve and the cultures that they exist in and the sectors that they’re doing business in and it’s endlessly fascinating and not easily reducible to platitudes, I guess.

Jon Mertz:          20:02          So if I’m starting a business as an entrepreneur or a small business owner, what’s the best argument for starting as a co-op?

Leslie Watson:      20:08          Well, I like to think of cooperatives as a great form of business for people who are entrepreneurial but risk averse, if that makes any sense. Only because … and I’d like to think of that for myself. I mean it’s really fun to start business, it’s really challenging and it’s really frightening if you’re … could be frightening. Could be much more challenging and risky if you’re putting up your own resources and your house for instance to back a business.

Leslie Watson:      20:44          So obviously the payoff is great if you own the business and it’s successful then it belongs entirely to you, that’s great but if you are interested in starting a business but not staying in it for the long haul and really just want to bring the service to the community and work dynamically to shape it. Then a cooperative is a great source because … a great form because people come together. You have to draw on a lot of different talents. You have to draw capital from all the people that are interested in it and you ultimately you don’t own it. You share the ownership of all [inaudible 00:21:19] including the responsibility.

Leslie Watson:      21:20          So it’s a … it’s great for people who want to bring their business to the community and have the energy for that but don’t necessarily want to own it themselves. So it’s also great for when people are trying to meet a need that the market doesn’t necessarily see. So this is the case of “market failure.” So this is bringing a grocery store to the place that hasn’t had one for many years because grocers don’t think it can work. If you can get 800 in your people excited about that you know do you create the energy to support the business that others thought couldn’t make it.

Leslie Watson:      21:59          So that’s another instance. And then I would say that in a case of a worker co-op obviously those are for people who want to own the business together. Who are entrepreneurial, who want to be in it for the long haul but really believe in either need to share the ownership of it but also or believe in that desirable economic model to support over the long term. So it’s gradations I guess. But if you are an entrepreneur who wants to have your own way and likes to make all the decisions yourself and wants to get things done really fast. Then I would say cooperative probably isn’t the form for you. Because it is a slow process to bring people together and to work through collectively there’s power in it but it requires a very different kind of sense of timing and scale then what conventional business startup might link.

Jon Mertz:          22:59          Well Leslie thank you so much for your time. You’ve given us some great insights into the cooperative business model and there’s a lot of things that have been exciting about it through the years but even more so I think in today’s society where business leaders are trying to figure out how to lead profitably as well as more in a community-oriented way, co-ops seem to provide a great business model and organizational model to do just that.

Leslie Watson:      23:20          Well thanks very much.

Jon Mertz:          23:30          Activators, let’s continue the conversation in our Activate World LinkedIn group. We look forward to hearing your thoughts and perspectives.

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Let us know how we’re doing by leaving a review. Your reviews mean a lot to us. Activate World is a team endeavor. Special thanks to Kaela Waldstein and Kent Nutt. Music by Jason Goodyear. For Activate World, I’m Jon Mertz.