Celebrating 15 now 17 Years of Cooperative Ownership at BT
From the ‘mobile desk’ of Merle Adams:
I started writing this blog in the summer of 2014 to talk about what we have learned in the 15 years since BT became a workers’ cooperative. Obviously, I didn’t get very far and almost 2 years I have decided that I need to finish what I started. I have plenty of excuses for my terrible blogging performance: job description changed and not in the office much…had a heart attack on Thanksgiving day of 2014…picked by 125 year old house up last summer, moved it in the backyard to give it a new foundation…actually finished the house after 25 years of living there! Oh yeah, I forgot that I also had some jobs to get done for paying clients!
The reality is that I’m enjoying building things for people so much these days that talking and writing about it doesn’t provide as much satisfaction for me. I now remember why I started my building career almost 40 years ago!
We’re frequently contacted about the workers’ cooperative that we formed at BT in 1999. The contacts usually come from two likely groups: the first group are folks (often students and professionals involved in economic development in lower income areas) enamored with the idea of cooperative ownership and how it could make capitalism more palatable and equitable of the works of the world. The second group is business owners that are often struggling with the personal toll their business of having on their lives. They are looking for a better model that improves their lives as well as the lives of their employees. Many are also looking for a succession plan that will allow them to move on someday.
I was part of this second group when I started talking with my friend, John Abrams, in 1998 about the model of cooperative ownership for a business. John is the author of a good book about coops entitled “The Company We Keep” (Chelsea Green 2005) and the CEO of South Mountain Company, a building company (which some similarities to ours) that has been a workers’ coop for almost 30 years on Martha’s Vineyard in Massachusetts. With John’s help and advice and the dogged determination of Ellen Saputo (our general manager at the time) working with lawyers and CPA’s, BT converted from a C corporation to a Sub Chapter T corporation (IRS designation) in 1999 and by 2008 had paid me off for a business of Big Timberworks. Man, I was so rich that I probably should have just retired or maybe I could have invested more wisely and become a ‘dental floss tycoon’!! But here I am, still working!
We started out with 5 members in our new cooperative, See Top Left Image, and by 2005 had ballooned to 17 members in a company of almost 50 employees.Currently, we have 12 members out of 25 employees, See Top Right Image.
Here are some particulars of how membership works in our coop:
-Employees must work for a minimum of 2 years before being eligible and must be approved by 2/3′s of members. Approval for membership on your first try is not a given!
- Membership fee costs $10,000 and is payable in three years. If you quit, are fired or retired, membership rights are forfeited and BT pays the membership fee back. This has allowed the company to sustain itself relatively painlessly when members leave. It’s a lot easier to come up with $10,000 to pay back membership fee than to come up with 1/10th of the value of the company to pay someone back. Also, it is much easier for members to come up with $10,000 to buy in rather than 1/10th of company’s appraised value.
- Currently we have 12 members who have paid $10,000 each to become a member of the BT coop. That means that the current members have invested $120,000 into BT. BT is worth more, a lot more than $120,000 if it went through an evaluation (I think), so coop members are not actual owners of the equity of BT. They own a membership which entitles them to a voice in how the company is run and it entitles them to a share of the profits. I will talk more about this importance difference between a cooperative and an equity corporation later in this blog.
- Monthly member meetings are held and all members can make their opinions known on company culture and policy issues, election of new members, election of leadership positions for the boards, and of course, major financial decisions.
- For our first 7 years, a general manager was in charge of running BT. Now (for reasons to be explained later), management of BT is delegated to a 3 person executive committee that consists of the board president (elected annually by members), an employee or member at large (elected annually), and the CEO (me). This arrangement has allowed a lot of our members to gain experience in the nitty-gritty of making business management decisions. I so love that I’m always on this committee!
- Wages paid by BT are commensurate with contribution, performance, and responsibility. We practice meritocracy when it comes to wages.
- BT can share up to 50% of annual profits to its members as patronage dividends. Dividend formula is based on hours worked…therefore, a hard working joiner, sawyer or welder/fabricator who works a lot of overtime can earn more dividend than an old outdated has-been like me who takes a lot of vacations and usually doesn’t roll into work until 11am! Dividends have ranged from $20k per member to zilch in lean years or years where the members have decided to invest profits into company improvements.
- There are tax advantages to BT for functioning as a cooperative. The main one is that up to 50% of our profits that are shared with our members as patronage dividends are usually taxed at a much lower individual tax rate than typical corporate tax rates. This means less money for the government and more money in the worker/members’ pockets! Hooray, I like wealth redistribution to people that are doing the work rather than to a government bureaucracy that takes their cut before passing it back to the same people who paid them in the first place!
The Good, The Bad and The Ugly…A Look Back at 17 years!
I’m often asked if I would do the “cooperative thing” again if I had the choice. I will briefly retrace our history as a coop that should give some insight into our journey. As you read the narrative, you will understand why I might answer, “depends on when you asked me”!
Good! Hey, I’m paid off, we’re still in business and they still keep me around here! I’ve been able to delegate some of my responsibilities to others and enjoy the second ten years of my son’s life after having been too distracted to even notice the first ten years. Because others had a stake in BT, they stepped up to the plate and made things happen, mostly good but sometimes bad! I’m not sure if I wold have made it physically or emotionally without changing the dynamic at BT. After my heart attack, I am especially grateful for each day that I have been given and I ‘m glad that I was proactive in accomplishing my succession plan!
Bad! The beginning of our coop also coincided with the building boom that marked the start of the 21st century. As I look back, our company probably grew too fast and became too big and unwieldy for our new coop structure. The new “everyone has a voice” mantra became stifling…we have meetings about how to hold meetings…navel-gazing became rampant…our business decision process became based on what was read in the latest trendy business books…we were continually creating positions to hire new people in our quest for ultimate business success…it seemed that we became more interested in job descriptions and organizational flow charts than getting dirty and getting things built!
As I look back on my role in all this, I was a willing and naive participant. At the time, I was glad to give up some of the responsibility and control of BT because I was burned our from our first 16 years! Truth be know, I have always been a ‘reluctant’ businessman and a ‘reluctant’ leader. My first love is making things…buildings, components in buildings and as it turned out, a business. I realized early on in my career that I couldn’t make all the things I wanted to make without help from all the talented people that work at BT.
Ugly! We became completely immersed in these heady times and we have built a behemoth (50 employees) to feed! The good thing is we seemingly had no end of extremely wealthy clients who thought we were magicians! With the advent of a new general manager came high priced consultants who whispered intoxicating promises into our ears about what would happen if they were allowed to rebrand us. They could take us to the ‘promised land’!
Big Timberworks was renamed, our marketing budget was increased by 500%, our ‘public face’ because beautiful (that ruled me out!), and glitzy ads appeared throughout America in exclusive publications. Most of these moves were done without complete disclosure of the real costs and coop members were lulled to sleep because they were receiving wage increases and bonuses. Hey, everything is great! Just trust us!
Bean counting became our god; it became apparent that two of our four profit centers were extremely profitable and the others were only marginally profitable. Subtle and not so subtle pressures were applied to the marginally profitable crowd. The company atmosphere was no longer fun or even tolerable.
Coupled with these happenings was an effort by the general manager to restrict voting by coop members, to consolidate his power by getting rid of members who were not essential to the proven profit centers (the first one he wanted gone was me), to move the company to a new location, and the biggest threat was to change the coop back into an equity corporation.
Remember earlier when I talked about the difference between the membership fee contributions of coop members being way less than the actual value of a company. These financial assets (potentially a million dollars) of BT became a target for a hostile takeover. It’s the ultimate pyramid scheme to take a $10,000 membership fee and turn it into $100,000 or more with the stroke of a pen on a legal document. You can bet that most of the members of the coop would have been fired and given their $10,000 fee back and the BT bank account and assets would have ended up in one guy’s bank account! That’s how these things work!
Strong resistance sprang from a few members when the plot was exposed. The ringleader couldn’t wait to get out the door before it hit him in his proverbial ‘you know what’. BT was left in disarray from the divide-and-conquer strategy and it has taken lots of reconciliation to heal the wounds between members. We also abandoned the ‘general manager’ model and transformed into an executive committee to run BT.
You know what they say, “what doesn’t kill you make you stronger”. We made it!
Good! When the building bubble finally burst for us in 2010, we were in a strong position financially because we hadn’t speculated heavily or been leveraged like many other building businesses. It’s hard for a coop to borrow big chunks of money because banks are somewhat skeptical of the coop structure; the members don’t necessarily have impressive balance sheets. That turned out to be a good thing!
When it became apparent that we have to cut our overhead by at least 40% to keep out doors open, the members of the coop steeped up to the plate and willingly accepted a cut of 15% in wages plus other nonessential benefit cuts. We ultimately made it through 3 mos. of no paying jobs because of this shared sacrifice and eventually we were able to pay back the wages that were lost during this time. We are now a leaner and meaner version of our former selves because we learned that we had to work together to keep our doors open! We weren’t getting a bailout!
Good! We’ve decided as a company to stay small after recovering from the last bust. We have found that we actually make as much money with 25 employees as we did with 50 employees. We don’t need as much management or overhead! We still do most of the things we’ve always done but we’ve added metalworking and live edge furniture to our repertoire as we saw their potential to complement what we already offer. We limit the jobs that we take so we can actually chose the right projects to be involved with.
As a rule, we have more experience and skill on our jobs than ever before. Two of us have been here more than 30 years; 5 more have been here over 20 years; 4 more have been over 10 years. Experience and skill must be balanced with youth and inexperience so that the company has a future. We are always trying to attract young folks who are eager to learn and work in a place that is doing fun, good, meaningful work. It seems to me that many have stuck around because our coop is a good place to work. At least, I’d like to think so.
What Have I Learned From This Experience?
As I look back at my working career, I’ve been involved in business in almost every ownership form: self-employed independent contractor, sole proprietor, partner in a partnership, shareholder in a regular corporation, and now a member of a worker’s cooperative. There is no business structure that doesn’t present its own set of unique challenges. The challenges always involve humans!
Building is fun and enjoyable, when you do it with a team that works cooperatively together. 25 people working together can accomplish way more than 25 individuals working independently. I’ve been fortunate to be surrounded with great talented people who bring their ‘A’ game day in and day out!
I’ve experienced great disappointment with members who squandered their opportunity to improve their lives by being a part of this great group. I’ve decided that it is better to give opportunity that can be rejected rather than to perpetuate the myth that anyone can exert tight fisted control over everything that happens around them.
I was idealistic to start with and thought that our coop could positively change the way business is done. Now, I’m realistic enough to know that its not a structure for everyone…I often wonder if human nature is all that receptive to cooperation? Now my goals are simple and humble…I hope we can improve the lives of our members and their families!
I don’t even think much about the future sustainability of Big Timberworks. Once that was a goal for me…I realize now that there are so many factors involved that no one can possibly predict or control. We are positioned to last for awhile…that’s better than most!
Writing this has been cathartic for me. It has forced me to remember the past that had some painful memories associated with it. I thought I would be more pessimistic after reexamining the past but I’m actually feeling quite optimistic that we made it through and are functioning quite well. An old wise man (he was as old as I am now) told me once, “It often doesn’t matter what decision you make. What matters is that you have the patience and fortitude to make that decision right”! Perhaps that is why I’m optimistic!
Thanks for reading!
the happy (b)logger!