2017/09/10 10:50 Paul Cabaj, Russ Christianson, Margaret Vincent, “Coop Governance, Legal Frameworks”, Disrupting the Disruptors

Workshop @chickweedpatch Russ Christianson, Margaret Vincent, @CoopsCanada #platformcoop, platformcoop.ca/, Beeton Room, Toronto Public Library

This digest was created in real-time during the meeting,based on the speaker’s presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted by David Ing.

Intro by Paul Cabaj, Manager of Cooperative Development and Strategic Partnerships at Co-operatives and Mutuals Canada

[Russ Christianson], Rhythm Communications, co-op developer

Russ Christianson, co-op developer

Coops 101

Flexible model

Principles and values internationally

Survival rate of coops is at least twice as good as corporate

  • In financial collapse, credit unions didn’t collapse

Financial structure first, and then legal structure

If you want to get rich, coop isn’t the way

Types

  • Most people know consumer coops best
  • Producer coop
  • Worker coop
  • Multistakeholder coops:  new, more complicated, inherent conflicts within the stakeholder groups

The hardest part of a coop is getting people to cooperate

Paul: Some coops can give you a very good living

  • Agricultural coops can give you more of the value chain

If you knew then, what you know now, what would you do differently?

Margaret Vincent, Senior Counsel, Stocksy:

 

  • Producer coop, but multistakeholder structure
  • Founder class, employee class, photographer (contributor) class
  • Ties into revenue and profit sharing across classes
  • Redistributing as much back to contributors, 90%
  • 10% gets divided up across other participants
  • Started looking at Alberta farm coop model, made a lot of sense at the time
  • Probably should have gotten closer to the coop association when we formed
  • First contacted a normal lawyer in Alberta that we knew, and he Googled coop bylaws, rewrote them and redlined that
  • Had we been better associated with a coop association, we would have gotten better guidance
  • Would have flagged:  why do this in Vancouver, because head office is in Victoria, BC?
  • Second adjustment:  see how we’re scaling.
  • We capped employees at 25, and they get 5%
  • Now, we need a lot more staff, and we’re maxed at that class
  • Could amend the bylaws, it was easy for 500 photographers to 1000, but it’s harder with employees
  • We shoved everyone into the one class, as advisors
  • Started at 4 people

Russ:  Articles of incorporation, want to be flexible

  • Rather than being locked in
  • Articles of incorporation require government approval

Margaret:  Has moved a lot into bylaws from articles of incorporation

  • The more into contracts
  • Incorporation, bylaws, and member agreement
  • Didn’t want an easy exit, wanted to block acquisition and liquidation
  • Now making it difficult for us to grow
  • Regret, we should have had foresight to know we should have grown
  • Literally changed, when we started talking to the BC coop association

Paul: Be clear on income streams

SMart EU:  Multistakeholder model, for freelancers and permanent employees

  • Only 4 years, started as a non-profit
  • Had a community without representation, now talking closer
  • Platform, with stakeholders
  • Real life contacts, they come to our office
  • We have individual training centres
  • Not just technological side
  • Should have started earlier
  • On marketing, we spent a lot of time talking about ourselves, we should have talked about the community
  • Owners of the organization, not about the platform, but what the owners do
  • Should invest more on lobbying
  • Now 30,000 shareholders, we should go to public authorities every day to speak on their behalf

Paul:  Member benefits

  • Lobbying:  organizing is a political act
  • Member-focused, drive the market

Question:  Stocksy has 5% profit to founders, how different from equity stake

Margaret:  No equity

  • Surplus 95% to owners, 5% to rest
  • Share is $25 for B class, $250 for A class
  • Having more shares doesn’t impact what you get back
  • Equal division

Comment:  Share profit, but no equity

  • When you leave, you get your par value share, nothing extra from the value of the business

Comment:  Difference from partnership

Comment:  Dividends versus equity

Margaret:  You can’t own more shares to get more dividends

Comment:  In Quebec, can’t have difference classes of workers

  • Can split with number of hours worked
  • On committee to redefine the provincial laws
  • Any cap?

Margaret:  It’s a percentage of the surplus

  • Cap the number of the people in that class
  • It’s in the articles
  • Could have a cooperative with 95%

Comment:  Money as fungible, form of consideration

  • What’s the coupon?
  • If you’re using a debt instrument that is close to equity, e.g. a debt instrument that is close to 20%
  • Dual problem:  if price it high enough for investing class, then it really is like equity

Margaret:  We have no investor shares

Comment:  If you price too low, you’re looking for investor subsidizing for risk

  • As a collective community, how do we scale when the rates aren’t so good

Paul:  No secondary market for coop shares

  • Business dividends
  • Consumer coops get return according to how much you spend with the coop
  • An incentive for engagement

Savvy:  Marketplace to connect healthcare innovators with patient base

  • Haven’t yet founded bylaws
  • Will have founders, employees, investor class
  • Struggling with legality of it being an international project
  • Not localized
  • Forming a cooperative, that could only be in a current area
  • Would like to be like Stocksy, to figure it out
  • How do we take on the volunteers who can help us out? Wary
  • Founder class will eventually be paid back
  • Then haven’t wanted other people, because not a non-profit, don’t want other people to say I was helping, where’s my share?

Russ:  Sweat equity

  • Time you might not get back, risk you take
  • When new members come on, they’re free riders
  • Cooperative needs to think up front about how to renumerate:  bonuses, higher pay
  • Can’t just ignore this
  • Coop development, people get excited at vision
  • So focused in the weeds
  • Legal structure, HR, conflict resolution, when focused on just getting business started
  • Have answered so many coops from lawyers, what’s a coop?
  • Find a coop lawyer, don’t just go to any lawyer

Comment:  A group around the country (if you’re not from Ontario), of accountants and lawyers that refer to each other

  • Look at Coop Zone, the coop developer network (not the student coop in Quebec)

Comment:  Special accountability, to create a coop of coops?

  • Special services?
  • Costs, e.g. with lawyer

Paul:  Consortium, looking for a community-wide model

  • Growth, structure:  fundamental, beyond local, then federate centrally
  • Arctic coop, aboriginal:  localizing for effect, centralizing for efficiency

FairBnB:  Will soon operate with initial operations

  • Becoming multistakeholder
  • Producer-members, workers, employees, neighbours
  • Should have worked more on structure on the beginning, less focused on policy
  • Should have incorporated with a specialist, rather than using friends in our sector

Russ:  Now, specific questions?

Question:  Starting social economy, social enterprise

  • Have business plan to bring in market
  • Want to start operating, and creating some revenue
  • Still haven’t done bylaws, structure and governance
  • How to pilot as a social enterprise, and not yet be incorporated?

Russ:  Opinion, do it.

  • Position as the brand, and keep the name the same
  • Coop doesn’t have to be the brand, trademark could be owned by the coop
  • Could do as a private individual, or a collective

Brian:  Be clear with clients that you’re thinking of going there, and it will evolve

  • Don’t create expectations

Comment:  We had a non-profit, but then had to sell part, because we couldn’t take advantage of 75% R&D credit

  • Sold to a single employee, so that he could have credit
  • Otherwise, wouldn’t have the capital to refund

Brian:  Create a for-profit company under the not-for-profit

  • Centre for Social Innovation has done this

Comment:  In Quebec, a non-profit company can’t be on R&D project

Brian:  Have done this, in Ontario

Comment:  Private business, could be mutualized

Comment:  Focus on business

  • If you’re considered coop, won’t get consideration from the government
  • Small businesses would need to be educated
  • Tell customers to save you cost
  • Created a brand, Direct Coop, didn’t find the recipient
  • Clear to leverage efficiencies, but have to be a corporation
  • Then told small businesses, could become a cooperative, then go public or give everything to everybody

Comment:  Dividends?

  • Want to be either non-profit or coop that is accountable to government
  • Trying to reconcile before having structure

Comment:  Ask your co-owners, you’re saying “I” a lot

Comment:  Can still work on ethical parts of the coop, later

Savvy:  Even though we have incorporated as a coop, we don’t yet have member

  • We have Facebook groups, focus groups, to make people feel they’re a part of it
  • Can’t take on members until we have bylaws
  • Will allow people to use the platform, as long as we have members

Russ:  Don’t get too hung up on bylaws, they can change

  • As the organizations start up, you can massage them

Brian:  It’s easy to spend money on lawyers

  • You have more important places to spend money
  • Start with boilerplate

Russ:  Start with needs

  • This room has a lot of proactive coop development, recruiting the members later
  • Use boilerplates first

Comment:  Want to become a fiscal sponsor in arts and culture

  • Only know one organization that has been getting by Canada Revenue Agency every year
  • Markers:  higher artistic quality
  • Need a robust information system to generate impact reports to convince the CRA
  • Need technology, want to make it available
  • Artists to manage day to day, content, decide how they want to share
  • Could become a distribution platform, to compete against Netflix
  • Future proofing, as an internal information system?
  • Open to workers, then open to consumers, tied to charity?

Brian:  Charity coop

  • Some coops are registered charity:  public benefit, not for profit
  • Some coops have affiliated charity, raises money, owned by common
  • Common Ground Coop in Toronto
  • Laundry coop in Ottawa is a registered charity, laundry for homeless

Company:  Have a company with shareholders

  • Designed a platform, in workforce development
  • Potential stakeholder is workers, potential employers
  • Want to do a service level agreement for a new coop
  • Social impact fund?  Sharing benefits with a class of users?
  • With or without share capital?
  • Without share capital, can I share revenue within the coop?

Brian:  There are non share capital organization that are not coops

  • Linked to member status, still pay dividends
  • Not for profits are prevented from paying out, all of share capital has to go back to coop

Russ:  Patronage dividends, depends on the amount of business done with the coop

Comment:  If shareholders are working in the business, can pay them as part of HR plan even if they don’t want to be members

Comment:  Company has shareholders who aren’t workers:  patent, trademark

  • Market is in the social space
  • Investment opportunity, they don’t like non-profits, but that’s not where we’re making money

Comment:  Should look at other business people

  • Many corporations don’t pay benefits

Comment:  We see an important role in providing infrastructure to make connections easier

  • See a technical solution
  • Don’t want to be in the business of providing workforce

Brian:  An estate freeze, can freeze the ownership in the business, and passes growth portion onto children

  • Could probably do this in the coop
  • Worth exploring

Comment:  There’s a list of companies that do this in the U.S.

Comment:  Managing an online governance model?

  • 30,000 customers, how to convert them?
  • How to manage the transition?

Russ:  Go to MEC, and see how they do it

Margaret:  Have seen people go onto a Google Hangout for an ID check

  • AirBnB, show ID to webcam, recognizes images from 250 sources, not storing their IDs

Brian:  Membership requirements are internal to the coop

  • Legislation in Canada aren’t able to deal with the electronic verification

Margaret:  Moving from Alberta to BC, now allows a little more flexibility

  • ID verification, so we know who we’re dealing with
  • Can pay to Paypal, Payoneeer

Brian:  Trek markets back office services to other coops

Comment:  Colorado coop, have got investment with a safe note, doesn’t have to convert to debt

  • When went from individual investors to institutional, had a 3x return
  • Institutions were fine with taking more risk, but wanted more benefit
  • How to structure finance?

Russ:  Point of coops is limited ROI

  • Could be employment, pension
  • Could have a for-profit company inside the cooperative (and eventually fold it in)

Nathan:  Silicon Valley may be okay with investment without control

Brian:  Managed to get rid of cap of investment in preferred share

  • Sometimes have to pay market rates for capital
  • Issue is not giving up equity
  • More equity investment, it’s harder to get rid of it
  • When CSI bought community bonds, had lots of people who wanted to buy equity, CSI said we don’t want equity, as it would later cost an arm and leg.  This worked

Dionne:  Coop developers helping people start coop

  • People who start coops will always invest more than they will every get back
  • No way around that
  • Have to find a coop catalyst, who is willing to do that
  • Be transparent of that, then can find like-minded people
  • Important to get more people than the initial catalyst
  • Coops start with one person, but then have to find like-minded people
  • Could start a business, but coop is a different mindset

Russ:  Toured Mondragon 1986-1987, met one of the founders

  • Ask yourself, what is enough?
  • If the vulture capitalists want to get 50% more, there’s lots of market
  • We have to find the tri-bottom line, responsibility
  • Coops leading:  we want a world with more intergenerational
  • Mondragon, in 4th generation, talk about how they’re part of the workers, not precariot

Comment:  David Suzuki asked bankers, how much is enough, none had an answer

Comment:  Royalty financing

  • Not equity
  • Percentage of revenue, with some close-off target
  • e.g. $1M, paid off until $5M return

Comment:  Want access to capital to build the business

  • Only people willing to take the risk are Silicon Valley
  • Everyone else said business plan is too flaky

Paul:  Alberta, second tier coops, i.e. coops of coops

  • Could have an equity owned inside coop
  • Agricultural, will allow investment shares
  • Small town, 3000 people, bought a grain station
  • No secondary market, Westloft terminal, there’s a board of people who want to sell and buy

Comment:  Multistakeholder coop, how easy is it to change classes?

  • Can put it into bylaws

Margaret:  Ongoing supply requirement, you have to continue to contribute

  • After they pass on, how to work with that
  • Now, keep it open for year, and then pass it on
  • There are portfolios that the coop would welcome to keep open
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