I wrote a comment to Don’s post, but it was too long for Blogger to accept….
I have a close friend who started one of the first VT L3Cs a couple of years ago, and his intent was to signal that they weren’t out to get rich but to do something interesting and useful that a “traditional” investment wouldn’t normally value. I suppose if somehow they become billionaires that will turn out to sully the L3C pool, but it would be good to get some data on how L3Cs are performing, and what the outcomes are, and then tune the law accordingly prior to rejecting the form out of hand because of, well, I’m not sure what the argument against them is. Innovation is good. Why not in corporate forms?
The challenge for cooperatives, speaking from close experience, is that, due to their traditional rejection of “marketing” (granted, slowly changing in some areas) the public associates co-ops with alternative dirty hippie funny-smelling weirdo food shops from the 1970s. Part and parcel of the whole culture-war thing. So it’s true there are huge swaths of the economy organized as cooperatives, but the executives at, say, a large electric cooperative, don’t have incentive to play up that aspect of their organization because it might lead to more oversight of their own leadership or their business decision trade-offs. Plus, and perhaps less cynically, the AP (for example) doesn’t have much incentive to promote it’s internal organization – there’s no easily noticed benefit to the listener/reader. Great long-term benefit, but our collective ability as a species to connect the dots from short-term actions to long-term impacts is now well-known, and a likely failure-mode leading to our future extinction.
Another challenge, more structural, is that cooperatives, by nature, provide the opportunity – and at the same time *require* people – to self-organize. But we live in a convenience culture. It’s all about saving time and money, everywhere you look. Coops typically take more time (to set up, operate, participate in) and cost more money (lack of economy of scale). It’s great if people want to take responsibility for their own destiny. But it goes against the entire cultural thrust of the infantilization of America. We don’t take responsibility for anything we do!
Finally, it is difficult for the cooperative movement to make affirmative statements about the value of coops because of 1) lack of knowledge, skill, or experience in “attention-marketing;” and 2) they’re not cheaper or faster. Thus, we only hear about coops in reaction to something else: L3Cs, single-payer health care, non-meltdown banks, etc. As a general rule it’s tough to make a positive case when it’s framed as a negative reaction to an external event. (I speak from challenging personal experience.)
Cooperatives have a huge value to offer people, but I think the most likely case in the modern culture is they will rise again to respond to some very large societal problem, or take better hold as worker-coops rather than as consumer coops. Workers have far more incentive to self-organize, it’s a smaller group, and the incentives are aligned. A nice smaller-scale alternative to union collective bargaining. And, if we actually pass health reform, people may have the chance to be a bit more entrepreneurial without corporate health insurance as a friction to leaving their jobs.
And this gets to why I think hybrid coop/LLCs are so valuable (and not a bastardization of the coop form). Having personally started three LLCs, and been an early employee in a couple of venture capital funded startups, I can tell you starting a business is hard. Raising money is hard. Running a business profitably is hard. Moral and social trade-offs abound daily. The idea of a worker coop that can sell up to 40% of it’s stock to long-term value investors has the chance to completely change the perceptions of coops noted above. The investor sees a group of committed workers with real skin in the game (not semi-worthless future-vesting stock options), and the employees attract capital – where the capitalists can get an actual return, even if it’s a lower or longer-term one – rather than being limited to what they can scratch together themselves. This form could be the fuel to push cooperatives affirmatively forward, rather than always looking backwards and saying, “If only they’d considered cooperatives….”
Otherwise coops are going to have to get good at the sort of “hard-sell marketing” that captures a reader’s/listener’s attention and directs it to what the speaker is saying and why it benefits them in concrete, right-now terms. I look forward to the day coops are confident, savvy, marketers of their own brand of humane goodness in this harsh overly-capitalistic world.
March 17, 2010
This is really thoughtful, perceptive analysis. In the end, I have no principled basis for opposing the creation of either L3Cs or LCAs (limited cooperative associations) — as you suggest, innovation is a good thing when it comes to entity formation. I worry about allowing LCAs to call themselves co-ops not because they are bad but because their form of organization is so untethered from key cooperative principles. In a sense, I think they pose a risk that the cooperative “brand” will become too diluted.
Apart from that, here are the two things that are really bothering me about all of this.
First, I deem it unconscionable that virtue-capitalists are out there drafting legislation and promoting their ideas without so much as acknowledging a whole sector of the economy — co-ops — that embody much of what they espouse and which currently serve 130 million Americans, more than the number of folks who directly or indirectly own shares of publicly traded corporations. If co-ops and their exponents were part of the conversation, then the kinds of insights you have provided would be at or near the center rather than, at best, on the periphery.
Second, I believe that these discussions, whether focussed on LC3s, LCAs, so-called constituency statutes (designed to let corporate boards take other constituencies than shareholders into account) or other such initiatives, are too likely grounded in a form of self-delusion. In my view, if we want to put our wealth and our ingenuity to work for the greater good, we are going to have to live with less individual enrichment. Lots of people proclaim themselves socially responsible investors, but most if not all are still pursuing maximum return on investment. We need to look each other in the eye and ask if we’re willing to change that, instead of creating new entities that allow us to pretend we really can do as well as we’d like by doing good.