Ownership Matters

When workers own a bank, when a town provides high-tech infrastructure, when non-profits go into business - these are enterprises that sustain communities and empower employees.
Bill Marshall is vice president of a Missouri bank's loan department, where he has responsibility for more than $80 million in current outstanding loans. At times though, he comes across less like a banker than a social visionary. Marshall is fond of saying things like, "It really is not important how much the bank trusts its customers; what is important is how much the customer trusts the bank." And, "If we are going to make money in this community, it's important for us to give something back." And, "This is one of the most challenging places I've ever worked, and also the most fun. You end the day with a great deal of self-worth."

Clearly, the bank where Marshall works – the Phelps County Bank of Rolla, Missouri – is a different kind of financial institution than the one I use in Washington, DC. Where I deposit my pay check, so many mergers and buy-outs have taken place over this decade that I sometimes wonder what my bank's name will be this month. My banking experience is about as intimate as a stop-by at a Wal-Mart; not a single teller recognizes me when I approach his or her window. These days, I mostly frequent the outdoor ATM, being sure to smile at the video camera recording my transaction. Welcome to banking in the '90s.

But not so in Rolla, Missouri, population 15,000, home to an employee-owned bank. CEO Emma Lou Brent and her 60 fellow employees own 100 percent of the bank through their Employee Stock Ownership Plan (ESOP). Over the past decade, they've seen the bank's assets more than double and their outstanding loans nearly triple. In the process, Phelps County Bank has surpassed the town's other two banks in size.

What sets the bank apart is the commitment of its owners to customer service and satisfaction. According to Marshall, each employee is given not only the responsibility, but the authority to deal with customer problems. To ensure the staff has the training to meet the needs of customers, the bank has established in-house classes, and to round out each person's understanding of the workings of the entire bank, employee/owners go through cross-training days during which tellers, for instance, sit with accountants. As a result, employees are empowered to deal with customer problems without having to clear their solutions with management. As employee/owner Sherry Snelson puts it, "I can use my own good judgment. It's good for us and for the customer."

How does all of this goodwill translate into financial benefit? At the Phelps County Bank, profits are broadly shared; all employees will likely retire or leave with substantial stock holdings. Today, the average Phelps Bank employee's vested ESOP account is worth more than a quarter of a million dollars, and growing.

Businesses that don't get up and leave
The Phelps County Bank is clearly different from most businesses in America today, but it is far from unique. Indeed, beneath the surface of what we normally think of as the US economy – giant transnational corporations and banks, international trade, stock markets, and individual business owners – an alternative approach to organizing economic activity is growing.

Some businesses trying out this new approach are like the Phelps County Bank, owned by the people who work in them. Others are owned by their customers, by the community at large, by the city government or by locally based nonprofit groups. All share in common one essential quality: they are "rooted" in the community. Or to put it another way, unlike many businesses today, these firms cannot get up and leave in the pursuit of higher profits or less regulation. These real-life innovations in cities large and small are creating enduring jobs, spreading ownership of wealth, fostering democracy and participation, and stabilizing their communities.

These neighborhood and community-based economic institutions include such models and innovations as community development corporations, consumer and producer cooperatives, employee-owned firms, municipal enterprises, for-profit subsidiaries of nonprofit organizations, urban land trusts, local currency and barter systems, and community supported agriculture programs. In recent years, these experiments have experienced tremendous growth: 30 years ago, there were a handful of community development corporations; today, there are roughly 3,000 across the country. Fifteen years ago, the first community supported agriculture effort was launched; today, there are some 700 such programs.

While they comprise a small part of the total economy, these innovations in ownership begin to point the way toward new possibilities for organizing our economy and stabilizing our communities.

When workers own their jobs
Twenty years ago, the idea that workers would own productive capital at their workplaces was considered wildly impractical and even quasi-socialist. Today, 11,000 companies have employee stock ownership plans. Nearly as many are enrolled in ESOPs, profit sharing, and broad stock option and investment programs, as are members of all private and public sector unions (15.7 million versus 16.1 million). US workers now own over $664 billion in such ownership schemes. These plans control over 8.3 percent of all corporate equity, a dramatic increase over just a decade ago; about 1,900 companies – some of them among the largest in the nation – are majority worker-owned.

For the workers at medium-sized firms like Krause Publications of Iola, Wisconsin (430 employees), Web Industries of Westborough, Massachusetts (250 employees), and the Reflexite Corporation of Avon, Connecticut (400 employees), employee ownership means that their jobs will be there tomorrow. After all, who among the worker/owners are going to vote to send their jobs abroad?

Consider Joseph Industries, Inc., a 100 percent employee-owned manufacturer of fork-lift parts headquartered in Streetsboro, Ohio. Founded as a very traditional, hierarchical corporation in the late 1960s by the Joseph Brothers, the company had grown into a $4-billion enterprise by the mid-1980s. When the brothers began thinking about retiring and selling the business over a decade ago, employees realized that the sale could have dramatic and most likely negative consequences for their jobs. The company's managers sought out an employee-owned firm, Fastener, to buy Joseph Industries and help them make the transition to worker ownership.

By 1987, Joseph Industries had been converted into an ESOP, and the company's culture shift was underway. Suddenly, a company with absolutely no history of non-management employees making decisions adopted a structure that encouraged employee input on governance issues and a management team that stressed open communications. Quarterly discussions about the budget are held in which employees go through company financial statements line by line and discuss successes and shortcomings. Any worker/owner of the company can run for the Board of Directors with a petition signed by 10 other employees.
Charles L. Carr, who began working at Joseph on the parts line shortly after returning home from Vietnam in 1972, now runs the company's warehouse. The change in culture has been dramatic, he says. "We started with one guy making all the decisions. If he failed, he failed. Now, if we fail, we all fail." Since converting to an ESOP, sales per employee have increased 36 percent. Higher revenues have translated into more wealth for the company's employee/owners. Says Carr, "We have people here running machines who are now millionaires. I'll be here until I retire, and I hope to retire early – as soon as I get $1 million in my own account."

"... on behalf of 10,000 cities"
While many municipalities in recent years have privatized some city services, many others have established city-owned and operated profit-making ventures in order to generate additional revenues, create jobs, and increase responsiveness to community needs and interests.

Municipal programs to turn organic waste into marketable fertilizer and soil supplements are thriving in cities like San Francisco and Austin, and in rural communities like Mecklenburg County, North Carolina. In the Washington, DC, suburbs, Montgomery County's composting facility sold nearly $500,000 worth of its Leafgro soil supplement to nurseries, retailers, and area residents.

A big area for potential growth of city-owned enterprise is in telecommunications services. As access to state-of-the-art technologies becomes ever more essential, community-owned telecom companies have sprung up across the US to provide service when corporate interest has been inadequate or nonexistent.

In Glasgow, Kentucky, population 14,000, city leaders became concerned over the high prices being charged by the local cable provider. Bills were running $40 per month – a price equal to that of the average person's electric bill. The electric utility was already owned by the town, so it wasn't a big leap for Glasgow leaders to set out to build a telecommunications venture that could integrate cost savings for cable and electric customers by enhancing efficiency and competition.

Thanks to their efforts, Glasgow residents today enjoy benefits of cutting-edge technologies most people in the US don't even dream about. Their telecommunications utility provides Internet access 100 times faster than a telephone modem can provide, and residents pay only $11.95 a month for unlimited use. In addition, Glasgow's city-wide "Intranet" links the resources of local government, businesses, libraries, schools, and neighbors.

Glasgow residents also have a choice of cable TV providers; its community-owned service offers 53 cable TV channels for under $15.00 a month. Glasgow has even become the only US city that offers its residents an alternative to the local commercial phone service provider.

This linked infrastructure of electricity and telecommunications has enabled Glasgow residents to overhaul the way they purchase energy, with revolutionary potential. Most Americans receive electric bills indicating the total kilowatt hours consumed in a month. The Glasgow Electric Plant Board (GEPB) – in conjunction with the Tennessee Valley Authority, from whom Glasgow purchases its energy – has installed hardware and software capable of measuring household energy use in more detail. GEPB can post usage information to a household's private homepage, informing residents about the hourly energy consumption of their water heaters, air conditioners, and other appliances.

By charging lower rates for cable, telephone, and data communication, Glasgow's municipal enterprise has helped keep more money in its own retail economy. Says William J. Ray, General Manager of the Glasgow Electric Plan Board, "lower cable rates have saved residents at least $10 million over 10 years, and its ability to more efficiently manage electrical power has saved residents more than $1.75 million over that same period. This is money that stays in the community and is circulated time and again, helping local businesses and the families they support."

In addition, Glasgow has prospered economically as businesses have expanded or relocated to the area in order to access the potential of the broadband network.

Not surprisingly, national telecommunication corporations have had a hostile response to this community entrepreneurship, using tactics ranging from law- suits to legislation in an attempt to keep Glasgow from posing a competitive threat. "It's a war we are fighting on behalf of 10,000 cities," says Ray.

Community-owned enterprises
The New Community Corporation of Newark, New Jersey, is an acknowledged leader in building and anchoring capital. In the late 1960s, race relations in the city of Newark were stuck in a sump of hatred and hostility. As in many other cities around the nation, people who could afford to leave the inner city – predominately Whites – fled in droves to the suburbs. Riots in 1967 left Newark's Central Ward in shambles. Shops and service providers abandoned the area, leaving the Central Ward with no decent housing, no jobs, no health center, and no major grocery store.

Then, in 1968, the young, audacious, rabble-rousing Father William Linder (now the gray-haired, audacious, rabble-rousing Monsignor Linder) organized a group of committed parishioners and formed the New Community Corporation, one of the first community development corporations in the country. Thirty years later, NCC employs 1,200 people and has provided low-cost housing for over 7,000. Through its efforts, the Central Ward now has a new 55,000 square-foot Pathmark store, open 24 hours a day, 364 days a year. NCC wooed Pathmark to the area by accepting the bulk of the financial risk, and it has paid off. Within two years of opening, the Central Ward's Pathmark has become the chain's most profitable store. The union shop employs 150 full-time workers and 100 part-time workers, almost all from Newark, and the store's annual profits exceed $1 million. Where does the money go? Most of it to the New Community Corporation: NCC owns 2/3 of the store's shares and reinvests its portion of profits back into the community. With ownership comes three out of five seats on the supermarket's board, allowing NCC to influence store hours, pricing, and programs with an eye on the community, not just the financial bottom line.

Asian Neighborhood Design (AND), a community development corporation based in the San Francisco Bay area, is another success story. AND earns more than 60 percent of its $7.2 million budget from its for-profit architectural services, casework, and furniture manufacturing business. With a staff of over 100, many of them southeast Asian immigrants, AND has trained more than 600 construction workers, about 80 percent of whom are now in jobs, returning to school, or moving on to more advanced training.

Community development corporations aren't the only nonprofits learning how to succeed in business. Seattle's Pioneer Human Services (PHS), a nonprofit that works with former drug addicts, began operating with grant money. PHS has since become entirely self-supporting thanks to its for-profit enterprises: the 150-seat Mezza Cafe; the Food Buying Service, which distributes over 7 million pounds of food to nonprofit organizations in 20 states; the 132-room St. Regis Hotel; Pioneer Industries, a light metal fabricator; and others.

Pioneer Industries offers all full-time employees training and a competitive, livable wage. With a budget of $18 million last year, PHS employed 860 people and served over 5,000 clients.

By operating successful business ventures, says acting president David Guth, "We have an ability to be self-sustaining and in doing so have an ability to set our own future."

Economic democracy
What are we to make of these innovations in ownership? Judged by size and revenue, the Phelps County Banks, the Joseph Industries, the New Community Corporations, and the Pioneer Human Services of the country are relatively small-scale enterprises. And, CDCs, cooperatives, municipal enterprises, and worker-owned companies are not perfect. As with more traditional businesses, some fail. Some employee-owned firms are more democratic than others; some CDCs more accountable to the community than others.

But these enterprises do focus attention on essential issues for the future of democracy: How do we revitalize and sustain community? How do we place wealth and assets into the hands of more people? How do we give average working people more control over their jobs and economic livelihood? After all, the primary rationale of Employee Stock Ownership Plans is that the ownership of capital matters, indeed, it is absolutely central. By holding that issue up for consideration, the very existence of an economic alternative like worker-owned firms shows that it is feasible to organize the economy along new lines.

One thing is certain: the trajectory of growth for ownership innovations of many types is on the rise in the United States. In the end, each points toward new possibilities for America in the new century.

Ted Howard is executive director of the National Center for Economic and Security Alternatives, 2000 P St., NW, Suite 330, Washington, DC, 20036. The Center's report "Innovations in Ownership," to be published this spring, is a survey of the full range of efforts that democratize capital, broaden ownership of productive assets, and help stabilize communities by anchoring capital locally. This article is based on research conducted by: Amanda Beatty, Michael Jones, Amy Kedron, Stephanie Lessans, Jeff Pope, and Kristin Rusch.
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