What we could learn from French co-ops

Shame to see plans for SeaFrance to become a worker co-op have run aground.  This is despite having political, legislative and support structures that promote worker co-operative buy-outs.

"The cooperative, was to be financed by workers' standard lay-off  payments as well as "exceptional" cash of 60,000 euros per worker, paid by SeaFrance's parent company, state-owned rail form SNCF."

Reportedly, not enough workers were committed to investing their lay-off cash in the co-op and the Trade Union was holding out for Government bail-out. Other trade unions representing SeaFrance personnel, and the national CFDT trade union, criticised the hard line stance of the local branch.


So 880 people will lose their jobs and probably the same again indirectly. As well as the reduction in services and competition in the market. I had a good grumble in my head about trade union intransigence (coal mines all over again), unviable businesses being forced upon the workers due to management failures... grumble ...grumble....

But what struck me was, it even got to this point, Nicolas Sarkozy was in favour of the idea! Would this ever happen in the UK?

I know Nick Clegg and David Cameron talk about increasing employee ownership, but would this happen? and if it did how would the workers be supported to make a real go at success? Labour Governments have not had great success at top down saving of industries through worker co-ops. (Meridian Motorcycle Co-op)

Despite the situation with SeaFrance, France has a really good track record of worker co-op conversions and has a Government backed programme (both buying successful business from retiring owners and businesses rescues.)

Given the very large number of SME business owners expected to retire in France of the next few years this area has been a particular focus for the co-operative movement. There have been 70 enterprises converted to worker co-ops each year over the last few years. There is also a specific support network called “APERE” (Association for the Promotion of Enterprise and Takeover of Enterprise) which partners with CG-SCOP the worker co-op federation.

I've linked to this report before in relation to success factors in the Italian worker co-op sector, but there is also a section on France, well worth a read:

Bit of history:
In France, a worker co-op is called a “SCOP”, an acronym for “Société coopérative et participative;”.

The French worker co-op movement dates back to early in the 19th century. A law passed in 1791, the “Chapelier law”, forbid workers’ associations, including worker co-operatives and trade unions. However during the revolutionary periods many worker co-operatives formed clandestinely. In 1878, the Administration repealed the Chapelier law, stopped the attacks and eventually became supportive.

Recent Growth
At the end of 2008, there were 1,893 cooperatives belonging to national federation involving 39,929 employees. Between 1994 and 2009, there was a 40.1% increase in the number of SCOPs from 1392 to 1950 SCOPs, and a 41.8% increase in the number of SCOP jobs, from 28,691 to 40,685.

Since 2007, approximately 200 new SCOPs have started each year through start up, recovery or business transfer and generated an average of 1,500 jobs per year since 2007. During the economic crisis although affected worker co-operatives have proved resilient as recent CECOP reports show.
At the end of 2010, there were 1 959 co-operatives a growth of 3.5% per year over the last 15yrs with survival rates after 3 years of 74% (average in France: 66% - source INSEE)

Success factors
Indivisible reserves
According to Patrick Lenancker, President of CG-SCOP (the national Federation), a significant reason that SCOPs have been so successful is they have substantial stable capital. A minimum of 15% of surpluses must be placed in reserves (in practice,it’s 40% to 45% on average) with the key advantage that the reserves are permanently owned by the co-operative, ensuring financial stability in the long term.

Like Italy and Spain the principle of indivisible reserves in worker co-operatives is strong (a bit like the common ownership worker co-ops of the 70's like Suma or John Lewis being held in Trust on behalf of the workers).

This large indivisible reserve prevents the SCOP from being taken over by external parties; ensures the independence and sustainability of the enterprise in the long-term.

Positive Government and legislative environment
There is a recognised worker co-operative legal form with requirements: The re-investment of surpluses and indivisible reserves mentioned above. Also in a SCOP, the workers must have at least 51% of the capital, and 65% of the votes.

But worker co-operatives receive tax benefits from the French government. SCOPs do not have to pay the professional tax, which is 1.5% to 2.5% of revenues and income on worker shares is exempt from income taxes. There are also financial mechanisms for workers to use redundancy payments as part of wider financing package to buy-out and provide cash-flow for the business once they take it over.

Principle 6 in action with strong Federations and support organisation
One of the other requirements to gain SCOP status is to finance the worker co-operative movement. The membership fees are 0.42% of revenues. Interestingly that would be about £60,000 from current worker co-ops (Turnover around £150m) and £3.7m if you add employee trust owned co-ops like John Lewis. Imagine the support that could be offered to grow the economy if we had £3.7m! (anyway I digress).

SOCODEN (Société coopérative de développement et d’entraide) is a financial institution managed by the SCOPs since 1965 and offers equity loans and financing for working capital requirements.

Finally the sense of solidarity and mutual support between worker co-ops is high. CG-SCOP’s slogan is “A SCOP is never alone.” The “Confédération Générale des Scop” leads and coordinates the SCOPs network and represents SCOPs at the national level in France. There are thirteen regional unions providing day-to-day development, and representation at the regional and local levels. There are also three professional federations that represent the SCOPS in their sector and provide economic, technical and legal advice.

Here is a diagram taken from www.les-scop.coop (your French is probably better than mine.

Further Reading
But don't read my blog go straight to the horses mouth:
http://www.les-scop.coop/sites/en/index.html
English translation of economic stats

The Baker Boys: A Welsh Drama with UK-wide implications

A guest blog by the Wales Co-operative Centre: As the second series of Baker Boys draws to a close on BBC Wales it seems like a good time to reflect on the need to consider employee ownership and worker co-operatives as tools to help address some of the economic issues that so many of us are facing on a day to day basis.

But, first a quick recap.

For those of you unlucky enough to not live in Wales, Baker Boys is a fictionalised account of the creation of a worker co-operative in a South Wales Valleys town.

The original series followed the trials and tribulations of the bakery staff as they formed a buy-out team and raised the finances to take over the company. The series examined the issues a real buy out team would face – distrust, initial reluctance, the fear of investing redundancy payments and the effects the process can have on relationships with family and friends.

This second series has addressed issues that encompass not just the trials and tribulations of making a worker co-operative work but the real effects that the economic downturn has on businesses, communities and families.

The drama offers a warts ‘n’ all insight into the benefits and hardships that a worker buy out or worker co-operative offers. All is not looking good for the bakery. The business is struggling, their key investor has disappeared, there is dissention in the ranks, cash flow issues and the ongoing search for new business.

But it was never going to be an easy ride.

This is often the reality of a new business. Whether the business is created by a single investor, a partnership or is owned by its employees there will always be business challenges to live up to. The hard work, sweat and sometimes, tears are the building blocks of future success and this is the reason that both business owners and employee groups should consider employee ownership options and opportunities for the future of their companies.

If you didn’t get a chance to see Baker Boys, the good news is you can still catch the second series on BBC iPlayer here. The Wales Co-operative Centre has been blogging about worker co-operatives throughout the series – read more here

Wouldn’t it be great if the BBC showed it across the UK at some point next year in support of the International Year of the Co-operatives?

Business Succession in Wales

In Wales we are dependent on our SME sector. The sector accounts for more than half of total employment in the Welsh economy. However, in 2010 Wales lost over 11,000 businesses with only 8,000 new businesses being created– a net loss of 3000 businesses. In the UK overall there was a fall of 42,000 businesses between 2009 and 2010. For the second consecutive year business deaths have outnumbered business births. (Office for National Statistics).

Federation of Small Business research shows that the average business owner in Wales stays with his or her business significantly longer than in the UK as a whole. Over 1 in 5 business owners have been involved with their businesses for 21 years or more.

These figures have obvious implications for the future of the SME sector in Wales and throughout the UK.

Business owners expecting a trade sale to materialise out of nowhere to fulfil their retirement plans may be in for a nasty surprise in the current climate.

How worker co-ops can be part of the solution

Worker co-operatives engender a sense of ownership and commitment that a normal enterprise can’t. Workers who have a stake in their business want it to succeed and will endeavour to make it do so. Worker co-operatives and employee owned enterprises have a proven record of stability and growth in comparison to their privately owned equivalents.

Think about it. If everyone had a share in the business, wouldn’t everyone want it to achieve more? More turnover, more sales – more profit?

The approach makes good business sense as well.

The decision to set up a worker co-operative is a big one which will affect each employees work life, family life and potentially their financial stability. However, if the business succeeds the benefits would include long-term job security, financial security as well as ownership and control of the future of the business. It is essential that every employee is aware of this and is given the correct information to make their own decision. 

The potential benefits of forming a workers co-operative could be enormous:

·         Ownership of the business and a share in future profits

·         A say in the future of the business

·         The chance of long term security

·         The chance of long term financial benefit            

  

When Budelpack International, a Dutch owned packaging company, closed down their operation in the South Wales Valleys, 19 staff members decided to invest their redundancy payment into setting up a new employee owned company. With manufacturing jobs on the decline in Wales the staff were keen to preserve their livelihoods and keep jobs in the local area. The Wales Co-operative Centre provided legal and business planning advice and helped the company access funding. The new company, PrimePac Solutions Ltd, makes bottles, sachets and tubes with clients including leading brands in the health and personal care sector. The company’s new production facilities in Ebbw Vale were opened at the end of 2005. 

“Establishing our business co-operatively means that all employees feel that they can become masters of their own destiny and develop our company into a real success story for South Wales”, says Steve Meredith, Managing Director of PrimePac Solutions Ltd

As with any business communication and a widespread understanding of the aims and objectives of the business are paramount. But, in an employee buyout situation it is essential that everyone involved, including family members, are aware of the level of risk involved. In the case of PrimePac solutions the risk paid off and the company is now worth several times the investment paid into setting it up.

We’ll have to wait until series 3 to find out how it turns out for the Baker Boys.

Some simple steps to setting up a worker co-operative

1.         Communicate. Speak to your colleagues and consider forming a buy-out team

2.         Get help. Coops UK, Wales Co-operative Centre, Co-operative Development Scotland are there to help you. Use them.

3.         Assess the business’, strengths, weaknesses, opportunities and threats before committing.

4.         Accept it will be a long, and at times difficult, process but that the potential rewards for you and your colleagues could be enormous.

The Wales Co-operative Centre has set up a project with Welsh Government and European Union backing to support business owners and employee groups develop employee ownership approaches. Our advisors work with both parties to ensure that the process is fair for both the owner and the employees. We offer support to employees on their journey from the initial formation of a buyer group to management support throughout the first months of the new business. Find out more at the Wales Co-operative Centre website here.

Similar opportunities exist in England, Scotland and Northern Ireland.

To give the story impact the scriptwriters pit the Valleys Bara employees against some big business challenges. Fiction needs drama to make it interesting. However, in real life, the Wales Co-operative Centre can be there to support employee buyout teams and worker co-operatives to minimise the drama that they face on a day to day basis.