The Four Paths to Employee Ownership
A Conversation with the Vermont Employee Ownership Center’s Matt Cropp
Matt is the executive director of the Vermont Employee Ownership Center, which he joined in 2014. With deep expertise in employee ownership models, he coordinates the Center’s work with a national network of employee ownership practitioners and providers. Matt received his M.A. in History from the University of Vermont in 2011 and is a self-described “renegade credit union historian.”
I want to ask about what you are seeing and hearing from your vantage point with the VEOC in Vermont. But before we do that, give us a little bit of your background at the center and your path in getting there.
During the financial crisis of 2008, I was finishing my undergrad and about to go into a very bad job market. I discovered the credit union model in the context of the financial crisis. This idea of a bank that’s run by its customers, so it isn’t incentivized to behave in a predatory way — that was an aha moment for me.
So my path into this was really around cooperative finance. I went back and got my master’s degree in history, did my thesis on the founding and first 25 years of the Vermont State Employees Credit Union, looking at how the concept of a common bond [legal requirement of a geographical or occupational bond among credit union members] played out and how that evolved over time in the credit union space.
I caught the co-op bug more generally but was wondering: do I want to start a co-op, how do I want to engage in this stuff? And in terms of opportunities for learning more about co-ops in a formal way, there were very few when I was in grad school.
I did a couple of Skype calls with the late Ian MacPherson, a credit union historian in British Columbia, but he was basically the only person I could find who knew anything about the history of credit unions. I think it’s gotten a little bit better now.
But at that time, the late 2000s, early 2010s, not so much. One organization which was around back then the Vermont Employee Ownership Center (VEOC) that offered a track of its annual conference on worker co-ops.
And so I bought a $25 student ticket to the one day conference, sat in on some sessions, and then I was in the orbit. I was working on some other co-op movement projects, and doing some social work day jobs just to pay the bills. When a part-time position opened up, I threw my hat in the ring, and then in 2014, joined VEOC as a half-time communications person at this two person, tiny nonprofit organization.
I became the assistant director as we’ve been growing and then became Executive Director around a year and a half ago. One of the founders, Don Jameson, has been around for 20 years now, still working part-time with us. And we brought in a new fulltime person in the last six months.
I want to ask you about some Vermont history, specifically the credit union movement. When did it get going there?
Vermont was actually a latecomer to credit unions specifically, because credit unions early on tended to be more of an urban phenomenon. With some exceptions, like the Quebec area, but for the most part it was built around industrial employment. You’d have a factory or a large employer, and the credit union would be formed with the common bond being people who work at that large employer. The first credit union in Vermont was formed at a rendering plant so its members were all folks who worked at the plant.
What years are we talking about there?
I think 1935 or ‘36 was the first one in Vermont. There was a lot of state level activity elsewhere around the country in the teens and ‘20s and then federal legislation enabled credit unions everywhere in the New Deal era.
That’s interesting. I’m in South Bend, historic home of Studebaker. Which in the 1950s had an internal credit union. And they had a company store run as a co-op. So it was like, labor union plus co-op, let’s just get it done.
Right. And then things changed.
Yes, the Cold War kicked in, and people got more wary about their politics. Tell us about what Vermont is like and the state of things there?
It’s a very rural state, and it was probably the ‘60s or ‘70s when there were some big political transitions. It had been an old line Republican state, one of the few states to vote against FDR every time. It had some of that rural de-centralist activity — in terms of agricultural co-ops, electric co-ops. One of our senators from back in that period was very much an advocate for those kinds of projects.
I’d say the big resonance in terms of the co-op world was the “back to the land” movement in the 60s and 70s. A lot of intentional communities that came and went. But one of the leave-behinds was food co-ops, where you’d have a buying club that gradually institutionalized into a store. As of a few years ago, Vermont had the most food co-ops per capita of any place in the country. There’s a handful still around from the 1930s wave, and then others which are descendants of that 1970s wave.
And does most of this kind of work go on in Burlington, or the Burlington area?
The Burlington area, certainly, but you go outside of Montpelier to the Plainfield area, where Goddard College, that was kind of a center of activity.
There’s an interstate corridor through the state where you can map where the companies and the most economic activity is, including the employee ownership work.
And there are a smattering of community projects in rural areas where the town store would go away if there wasn’t a community effort to keep it there. Which, in some cases, is the local food co-op. For instance, in Hardwick, Vermont, which is a fairly small rural town, the grocery store which had been competition for the food co-op went out of business. And now their food co-op is raising money to expand and move into the facility the grocery store used to occupy.
That’s interesting — a little sustainability case study there, right? Matt, what is your sense of how many state ownership centers there are in the country?
Vermont was the second, and we were modeled after Ohio’s, which has been around since the ’80s and was created by John Logue, the late political science professor at Kent State University.
This was the remarkable guy that was part of the braintrust behind Evergreen Co-ops in Cleveland.
Yes, from that 1980s era of Rust Belt company rescues during the wave of de-industrialization. The state of Ohio was the first mover on that. Our VEOC organization was incorporated in 2001. So we were the second. A handful of others have emerged over the years.
And then more recently local groups like Rocky Mountain Employee Ownership Center. And the Employee Ownership Foundation, which is connected to the ESOP Association. They created an organization called the Employee Ownership Expansion Network to provide support to groups starting more new state centers. Steve Storkan is the executive director there. Since they’ve launched, there’s 10 or 12 new state centers. Their goal is a center in every state, with some like the Rocky Mountain center that cover a larger area than just one state.
Very cool. So tell me about VEOC programming and where you want to go with it.
We have four key focal points. The first is ecosystem building where our work is building relationships with the local economic development community, organizing and connecting with capital providers. It’s also speaking to college classes to help make sure these students are aware of employee ownership.
Then there’s the more formal educational work that we do — training and assistance with partner organizations aimed at business owners who are thinking about an exit to employee ownership. Often they get referred to us by the Small Business Development Center or their business advisors.
First we have a screening conversation, a sniff test to see whether employee ownership is realistic for this company. And then we also have employee groups that are looking to either start a business or do an employee-led transaction.
We do seminars around the state, as well as an annual conference in June that brings together people from existing employee-owned companies with people who are considering it.
For larger companies that are going the ESOP route, we would provide a little more education, but then it’s handed over to the lawyers and trustees, ESOPs being a somewhat technical transaction.
For smaller deals, including worker co-op deals, we’ll work with a steering committee of employees to look at model bylaws and work with the SBDC advisor on evaluation and the business plan. Then we start talking to capital providers. Once the deal is done, we’ll be a convener and connector for the company to the local employee ownership community.
There’s a local group called Employee Owners of Vermont and a monthly human resources peer group.
People think of the two main roads to worker co-ops as conversions and startups, right? So comparing those two kinds of activity, what are you seeing in your center? Is there interest in both strategies?
I’d say there’s actually four paths, with some gray areas. The paths I see are 1) conversion, 2) straight startup, 3) rescue, where a company is going down, and then 4) a strike — i.e., a group of workers who don’t like the employer and decide to split off and start their own business.
When the Ohio Employee Ownership Center first started, coming out of severe deindustrialization, there were a lot of these counties and other governmental entities trying to kind of keep the businesses alive. There were some moderate successes using public and community money that might have succeeded for a few years. But the core industries kept declining and it all just died. In the aftermath, some folks felt a bit burned by that experience.
So that pivoted the focus to ownership succession, where now you’re dealing with a healthy business, an owner ready to sell. You can go to a lender, show the cash flow, and a proven business model. That’s a much lower risk opportunity to create a worker owned company, as opposed to starting something from scratch.
I’d say we average one or two serious expressions of interest in a co-op startup in a year. And sometimes there’s a project with legs, but it’s been rare.
Since the pandemic, on the other hand, we’re seeing a blending of the rescue startup, sometimes even a little bit of the strike in terms of co-op dynamics. Something like the approach of the Main Street Phoenix Project, where you have a business that went down, and you look at it from the rescue angle.
Did it go down because it’s in a declining industry and / or it’s an unworkable business model? In which case, you don’t want to saddle the employees with failure. Or were there extraneous factors — the previous owner was incompetent, or they had some sort of unexpected shock to the business.
In that case, you have a group that has already worked together, unlike a startup where people who have an idea but don’t have experience with the work. People with pre-existing relationships and trust makes a startup a lot easier — you’ve already got that built-in social capital.
So in the last year we’ve seen far more volume than we would normally see in that mold. Some have been successful, some have just turned out OK. But I’d say that’s a pandemic trend that we’ve seen.
Really interesting, these different scenarios. I hadn’t heard about the one where you have the disgruntled employees that split off to go do their own thing. It’s a little bit like the recovered factories in Argentina, right? Workers standing up and saying we can run this thing. We need to do our own thing.
We had a physical therapy co-op here, a dozen folks who had worked together in different places and were all dissatisfied with their various experiences. They got together and said, let’s start planning and fundraising a business. When they were ready to launch, everyone quit their jobs within six months of each other and started working for the new business.
It’s easiest in businesses that are really strong on human capital, where the value of the business is primarily in the human beings who are in it. They weren’t trying to raise several million dollars in order to get some equipment. But it wasn’t totally a human capital business. If most of the value is in people’s heads, then that’s going to be easier than if you’re leaving and then trying to recapitalize a factory.
You’re in a university town. Does that mean there’s a tech scene? Anybody tinkering with platform co-ops?
Yeah, there’s definitely a tech scene I’ve been talking to on the platform co-op topic. One is trying to do an interesting multistakeholder data co-op but in the ag sector. They’re figuring out fundraising and structure currently. And a few more.
In terms of looking ahead this year, what do you see coming for the center? What are you interested in working on in some new areas?
I think the big thing we’re seeing is just the flip side of the great resignation — i.e., business owners who also want to quit. But it’s a little harder for them to quit. So we’re seeing a lot more of those folks, as are the business brokers.
It’s people choosing an earlier retirement than they had originally planned. It’s that “silver tsunami” [the oncoming wave of Boomer CEOs trying to exit their companies — ed.] that’s been talked about for years but has just accelerated — five years’ worth in maybe the last two years.
For us, I think the question is do we have more of those kinds of technical assistance contracts active right now than we have ever had in the past? If so, can we manage all the opportunities that are kind of coming in this wave?
I think there are various new funding mechanisms at both the state and federal level which might provide some short term opportunities. And, if some of those developments pan out to allow us to increase capacity to support more deals and do more outreach, that’s what we will be watching for.
Great work you’re doing. Thanks for your time, Matt.
Don’t miss Matt’s recent article for Employee Ownership News on the rollout of the State Small Business Credit Initiative (SSBCI), a $10 billion program being launched by the Biden administration as part of its American Recovery Plan. SSBCI specifically created an opening for states to use their programs to finance employee ownership transitions.
In the first in a series of state-based case studies, Matt describes how the Vermont Employee Ownership Center, one of the oldest employee ownership centers in the country, is working with the state’s finance development actors to ensure that its financing initiatives will be inclusive of employee ownership.