More than three years ago, A Slice of New York—called ASONY for short—became the first brick-and-mortar retail business in Santa Clara County to invite their workers to become equal partners in the company.
Three years later, ASONY is still one of the few retail business in Silicon Valley to hold that distinction. If Kirk Vartan, who co-founded the pizzeria in 2006 with his wife, Marguerite Lee, has his way, a number of businesses will start making a similar transition to the cooperative model.
“We don’t want to be the only ones doing the co-op model,” Vartan said in an interview with San Jose Inside. “We want more businesses implementing this structure, and we’re going to do whatever we can to increase that number.”
Step one of that process begins at noon Wednesday, when Vartan will be part of a roundtable discussion to talk about how retiring Baby Boomer business owners—those born between 1946 and 1964—can turn to worker cooperatives rather than selling to a private investor or shuttering their company for good.
The event, called Worker Cooperatives: An Alternative Business Model in the Covid Economy and Beyond, will also include panelists Zen Trenholm, of the Democracy at Work Institute; Hilary Abel, of Project Equity; Santa Clara Mayor Lisa Gillmor; and Assemblymember Ash Kalra.
The event will be streamed via Facebook Live, hosted by Rep. Ro Khanna’s office.
“Worker cooperatives are a proven, effective tool for creating sustainable, dignified jobs in the modern economy,” Khanna said in a statement to San Jose Inside. “The worker cooperative business model empowers entrepreneurs to benefit directly from their hard work, the pinnacle of the American dream.”
Under the cooperative model, workers can become equal partners with the founders by becoming a member, gaining ownership and a vote in policy decisions. Worker proprietors also divvy up profits at the end of a business year.
“Cities all over the world have implemented this structure, but we don’t do it a lot here [in the U.S.],” Vartan said. “A big part of that is mostly due to a lack of awareness.”
So why would an owner transition to a cooperative model, and what benefit does it have to them and their employees? One of the biggest benefits, Vartan says, is it allows the business to live on, run by people who are already invested in its success.
“If I was an owner looking to get out and find something that is equitable, not just for employees but for myself, this works because I’m selling at a fair price to people I care about,” he said. “I know the business will be cared for and I’m making money off that transaction.”
Vartan is quick to admit the business co-op model may not be for everyone. To be most successful, a company’s culture should align with the co-op values of worker equity, empowerment, respect and decision-making, “which is part of the challenge—if these things are not part of your work culture, you can’t force that,” he said.
Race to Retirement
Baby boomers own close to half of the nation’s privately-held businesses, employing one in six workers nationwide, according to the National Cooperative Business Association.
That’s why the landmark Mainstreet Employee Ownership Act came at a pivotal moment in 2018, as a generation of Baby Boomer small business owners began to prepare for retirement. The law, which allows the Small Business Administration to guarantee loans to employees wanting to buy the company they work for, also gives the cooperative model some major credibility.
“That’s a really big deal because by that legislation passing, it takes kind of what is a formerly hippie fringe idea ... and makes it mainstream,” Vartan said.
Khanna has long championed worker cooperatives as a way to break down growing economic inequality in California and across the country.
“If we’re serious about tackling the dire income inequality in our country, we need to support alternative forms of corporate enterprise,” he said. “We’ve seen U.S. worker co-ops double in the last five years, and that number is only going to climb. Let’s put workers first and ensure our economy benefits every participant.”
Note: The roundtable discussion will be streamed live on Facebook.com/RepRoKhanna from noon to 1pm Wednesday.
The two-line executive summary:
> Vartan is quick to admit the business co-op model may not be for everyone.
> a company’s culture should align with the co-op values of worker equity, empowerment, respect and decision-making, . . . —if these things are not part of your work culture, you can’t force that,”
The usual case, is that a business is THE OWNER’S life savings, and the owner has an obligation to himself and his family to maximize the OWNER’S equity.
Um…what makes you think the owner is not being taken care of? It would be refreshing if you provided a balanced perspective.
> Um…what makes you think the owner is not being taken care of? It would be refreshing if you provided a balanced perspective.
The whole point of ownership is that the owner gets to decide if HIS investments are adequately taking care of HIS current and lifetime needs.
If you would like me to, Mr. Vartan, I would gladly decide for you if I think you are being taken care of adequately. My current assessment is that you are probably being taken care of better than you deserve to be.
Other people could be better taken care of with the money you are spending on yourself.
The problem with the article is that it has “SV Lawmaker” in the title and involved in the agenda.
Now, the fact that this allows for employees to get loans and perhaps may offer the current owner some tax advantages may be a good or bad thing. As long as there are not “social justice” bypasses that will later be caste as “predatory lending”, then great, the broader the set of business owners (and home owners for that matter) the better.
The issue I see here is the slow creep of social justice equity overshadowing solid business practice. I think this in the end may be a scam in favor of the current owners, being able to get higher price for their business (backed by government pressured loans.) Also, I would be concerned that there were not advantages passed to those who follow this model in day to day operations, such as the city only doing business with co-ops or other preferential treatment. As far as the business being run poorly due to committee decisions vs top down, results certainly may vary and while I am biased against committee decisions they may work in certain circumstances, data would have to determine that conclusively.
When Mr Khanna steps in, I see no other outcome but bad loans which will be called “predatory” ten years from now and preferential treatment. He is a grandstanding clown who virtue signals and gaslights on the regular.
Would love to see more SC businesses adopt the co-op model, I’d say that almost all restaurants would be better run if workers could have more of a say in how they’re run. Kirk, you’re a pioneer in the valley. Ignore the cranks, losers, and haters in the comments.
Being in the comments, I take the smear “cranks, losers, and haters” as an attack, albeit unsubstantiated, so please back that up or renounce it. Instead of name calling, please point out where I am off base, or Bubbles. I think he makes a very important point in the danger of giving others ‘the’ say on what exactly is “fair” value. As long as “fair” value is what the owner agrees to, then fine, but I think that is the open question in that comment.
Mr. Lee unfortunately left out an important piece of the story here. The reason Santa Clara City Mayor Lisa Gillmor was invited to participate in the Worker Cooperatives event (the date and time for which are conspicuously missing in Mr. Lee’s piece) is because of the progressive thinking and actions of the City Council there to support the establishment and development of worker cooperatives (see https://ncbaclusa.coop/blog/santa-clara-california-is-taking-steps-to-invest-in-worker-cooperatives/; https://www.theselc.org/santa_clara_says_yes_to_worker_coops; http://santaclara.granicus.com/MediaPlayer.php?view_id=1&clip_id=1158 (watch the first 68 minutes)). This augurs well for the longevity, productivity and income-generating potential of many small businesses in that city.
An intuitive way to think about worker cooperatives is to start by asking two questions: 1) What particular knowledge, expertise or resources do owners/managers/administrators contribute to a given enterprise/business that sets them apart from first-line/ front-line workers/employees? 2) What is the share of the total revenues generated by the enterprise/business that accrues to owners/managers/administrators?
The next step is to ask: “Could first-line/front-line workers/employees acquire or develop the particular knowledge, expertise or resources possessed by owners/managers/administrators?” If so, then over time and with proper training and education, front-line workers can take on all or most of the roles–as well as the share of total revenues–of the previous owners/managers/administrators. That’s the crux of it. Under the right conditions, workers can take on the management of the enterprise while boosting their incomes at the same time.
As it turns out, the Mission City Federal Credit Union in Santa Clara is a not-for-profit cooperative enterprise established in 1959 and is owned by city employees (https://www.missioncityfcu.org/why-choose-mcfcu). It only serves residents of Santa Clara. The more you look, the more you see why Santa Clara has an exceptional municipal government that translates into greater affordability and a higher quality of life for its residents.
Cooperatives are a viable alternative economy. Check out the Mondragon cooperatives in Spain, which started in the 1950s. Judging from the negative responses here they should do some research before throwing out the idea of cooperative businesses.
PS another SC county co-op is Umunhum Brewing, a beer co-op. Cheers!
Mr. Lee has overlooked how Santa Clara Mayor Lisa Gillmor figures into the mentioned Worker Cooperatives event (the date and place for which are not specified in the article, by the way). As it turns out, the Santa Clara City Council is one of a very few municipal governments nationwide that have decided to seriously support the establishment and development of worker cooperatives. The idea is to help small businesses, in particular, to transfer ownership (in particular from retiring Boomers) to others such that output and employment in the city can persist (https://ncbaclusa.coop/blog/santa-clara-california-is-taking-steps-to-invest-in-worker-cooperatives/;https://www.theselc.org/santa_clara_california_is_taking_steps_to_invest_in_worker_cooperatives; (see first 68 minutes of this council session http://santaclara.granicus.com/MediaPlayer.php?view_id=1&clip_id=1158)).
It is noteworthy in this vain that Santa Clara has been the home of a very significant employee-owned cooperative–the Mission City Federal Credit Union (MCFCU)–founded by municipal employees in 1959 that has served Santa Clara residents for more than a half-century. Such a worker-owned banking institution can greatly benefit its members, and the larger society, more so than for-profit commercial banks.
As an example, Wells Fargo currently gives customers who hold a $2,500, 6-month certificate of deposit (CD) an interest payment of 0.02%, that is, two one-hundredths of a percent (2 basis points) (https://www.wellsfargo.com/savings-cds/rates/). This amounts to $0.50 (one-half dollar) for “lending” your $2,500 to Wells Fargo for six months.
At MCFCU, the same type of CD currently earns members–0.90%, i.e. nine-tenths of a percent or 90 basis points (https://www.missioncityfcu.org/dividend-rates). This yields $22.50 in interest payments over the same 6-month period, 45 times more than what the Wells Fargo customer receives.
Moreover, a $10,000 personal loan with a 3-year duration from Wells Fargo for its preferred customers currently costs the borrower 5.74% as an annual percentage rate (https://www.wellsfargo.com/personal-credit/personal-loan/). Over the duration of the loan, the borrower would pay about $911 in total interest to Wells Fargo (https://smartasset.com/personal-loans/personal-loan-calculator#INqavDSgsA).
By comparison, a MCFCU member who takes a personal loan for the same amount and for the same period currently pays 3.00% above the interest rate payments they earn on their deposits at the credit union (https://www.missioncityfcu.org/personal-other-loans). This means they pay about 4.00%-4.50% as an annual percentage rate or about $629-$709 in total interest over the term of the loan (as compared to $911 for the Wells Fargo borrower). Thus, the MCFCU member gets a discount of between 28.5% and 44.8% on a $10,000 personal loan.
This is a small but powerful example of what can be achieved when we replace investor-owned and profit-driven businesses with worker-owned, mission-driven cooperative enterprises.