The Power of Cooperatives: Nathan Schneider & Jason Wiener at The Harvard Law Forum

ok everyone hello so glad to have you here I am Pete Davis the chair of the Harvard Law Forum this is my 20th Harvard Law Firm event and we can't have thank you so much it's been exciting and we can't have a better event to celebrate with two experts on one of the most innovative economic models out there and before I bring them on I just want to introduce a few people in the audience we have bill Wendell here of our a 20/20 he's a real estate innovator very interested in housing co-ops talk to him if you want to talk about housing co-ops in the Boston area then we have Greg prod Sookie where's Greg right over here who's working on building a Boston accelerator for coops national accelerator for coops amazing and of other notes after the event today today when I post the video I will post information on a follow-up webinar to ask more questions after the event today we're getting kicked out of the room at 1:00 but Nathan and Jason will be outside to answer more questions and I have a few copies of our Bicentennial crisis a call to action for Harvard Law School's Public Interest mission all of our forum events are about increasing the devotion to the public interest mission of Harvard Law School if you're interested in that we got copies here so let's bring on our speakers the philosopher Roberto Unger says that when we debate the politics of the economy we are unnecessarily constrained by what he calls the false hydraulic model of the economy we either have more market and less state or more state and less market and that's the whole debate where do we set our marginal tax rates and how much do we regulate however as Professor Unger points out this is an entirely wrong model of debating the politics of the economy the questions we should be debating are what types of markets and what types of firms and what types of states and what types of relationships between the markets and the state when you think about it this way you find that Margaret Thatcher was completely wrong there are in fact many alternatives one such alternative is the cooperative jointly owned enterprises engaging in production just like a normal corporation but instead opera instead of being operated for a small groups benefit it's operated for every members mutual benefit to use a startup pitch cliche it's like uber but for economic justice today we have two of the leading experts on this revolutionary economic alternative this disruptive innovation Nathan Schneider is America's leading writer on the revolutionary potential of worker-owned web platforms platform cooperatives he's a columnist for my favorite national catholic weekly america mag has appeared on the greatest podcast there is on your phone on being with Krista Tippett and is the author of two books God in proof the story of a search from the ancients to the Internet and Thank You Anne our key notes from the Occupy apocalypse Jason whiner is America's leading worker cooperative lawyer he is the founder of Jason whiner PC a law practice helping to chart a new and grander course for the potential of democratized economic structures to recalibrate the hazardous course set by quote business as usual he has written and spoken widely on human rights renewable energy social enterprise non extractive finance distributed solar and the future of work gar alperovitz has this famous question if you don't like state communism and you don't like corporate capitalism what do you like it has stumped many a young lefty to provide one answer a real alternative we welcome to the Harvard Law Forum Jason whiner and Nathan Schneider let's hear for them one of my great heroes is the lawyer and theologian and Harvard Law School graduate William Stringfellow who posed the challenge and in recognizing that his ability to find a vocation as a lawyer among other things began with his ability to die to career to experience death to career ISM and it's a formidable challenge that public interest law asks of us I'm gonna start with a story of this woman her name is Breanna wet Laura she in her early 20s was an executive at iStockphoto a major stock photo platform and and and you can see why if you meet her she's an incredible entrepreneur powerful energy totally no-nonsense type of person and she started realizing in the course of her work that she's sitting around the table in the boardroom that there is a kind of disconnect there's the needs of the investors who own the company and there is and there the photographers who are creating the value on the other side and she starts seeing that there's a conflict between these the investors who ultimately call the shots are putting pressure on her to reduce the standards for photographers to squeeze the people who are creating value she herself was a photographer but she also saw that this was harming the company's ability to be effective in the market they were losing their best people and so she and a group of other executives at this company with deep market knowledge actually broke off and started a company of their own and they did it in a way that was structured very differently they set it up so that it would be owned by the photographers as well as by the employees and what they've done is create a new kind of market player that operates by really different rules in a highly competitive space that has been very successful claiming a lot of the biggest clients because they're able to get the best photographers the best work by paying the best rates and and putting the photographers in charge in some ways on the other side of this emerging economy is a case like green taxi this is a group of taxi drivers who was Jason's health were created a company of their own they were being squeezed on both sides by uber and lyft on the one getting lots of perks also from the state of Colorado and then the taxi companies the local taxi companies they were working for that started responding to the new market pressure by pushing down on drivers they realized they could cut out the 1% on both sides by creating a cooperative of their own this means shorter hours higher pay putting the industry under under their own terms what we're talking about here is a platform economy a shift increasingly away from business models that are primarily about producing distributing and marketing goods or services toward a model of connection value created through connection these are companies that are not only operating within markets but are aiming to create markets and control markets you know classical opportunities for really massive market power and exploitation and we find that that temptation for exploitation has become incredibly rampant both with with workers where we're seeing a rollback of the rights and protections that workers have fought for for decades under terms of companies like uber and Amazon that control whole market segments and then also for user data and and the kind of incredibly valuable private information that people are pouring into their platforms which is also a kind of work a kind of labor that people are putting into these companies that are in that are inflating the valuation of these companies and that is going uncompensated and that has consequences we haven't even begun to explore what does it look like 30 years down the line when Facebook knows what you did every day in 2018 so in the midst of this conflict there has been a subset of people in the digital economy increasingly who have gotten fed up with the language of the sharing economy that has been promoted from Silicon Valley and have turned to a pre-existing real sharing and this is the the cooperative business model a model in which the enterprise is owned and governed by the people who participate in it where participation is the coin of the realm this is a model that dates back at least a couple of centuries in the modern world it actually for instance in British law the statutes enabling these kinds of businesses preceded the the modern investor own corporation it's a model that was in a sense the original crowdfunding the way that communities could come together and build businesses on their own and and keep them under community control this is also a model that enables such businesses around us as as Northwestern Mutual or or Visa was initially built as a cooperative in addition to for instance organic valley which enabled the rise of organic organic food market that was just has just reached its apotheosis and the purchase of Whole Foods by Amazon in many many markets we see that this kind of model has enabled a kind of business that that others can't match so in the last few years we've seen a new discourse emerge around this language of platform co-operativism a term that comes from my colleague at the new school trevor schultz who's i believe working on a collaboration with some law students here right now we put on this conference in 2015 in new york we were blown away more than a thousand people came and showed an incredible interest and and desire for this kind of strategy but one way of thinking about what we're talking about is really just ownership design what is how can we expand the range of possibilities for the kinds of businesses that we're building how can we create ownership designs that align better with the needs and the communities that we're serving and and that align better with the kinds of businesses we want to see i've had a lot of conversations with even successful tech founders who are frustrated with the options that they were presented with including by the law they worked with early on when they were just getting started who just fed them into the hands of a certain kind of investment model that ended up binding what the company could be you end up with results like Etsy now disregarding dropping it's it's it's a B Corp status in order to pursue other ends losing certain core mission elements for the sake of certain investor to find goals so I'm going to take you through a little bit of a few examples of what we've been seeing emerge some of the signs and and opportunities that people in the space are starting to take up and you can find more at i/o internet of ownership which is a map and directory of this emerging ecosystem so in work we're seeing a reversal where workers rather than being permanently contingent become core to the business and and owners of the value that they create lokah nam exciting platform kind of like TaskRabbit but it owned by its workers being developed in the Bay Area right now in Europe this is a really powerful model where tens of thousands of freelance workers are part of a cooperative that gives them some of the benefits that that they would normally miss out on that only full salaried workers would have access to and they're building a toolset that is enabling freelancers to support each other and even investor back companies are seeing the value of this kind of model as we're seeing some of them start to cut their workers into the deal recognizing that if you're gonna create a viable business with with trust and you know and and workers who have a deep sense of participation how better to do that than to share real ownership with data we're flipping the equation to putting the data creators in control of what happens with their data recognizing that there's power in that this is a new startup that's working with patients putting them in control of how they share insights with with medical researchers and with and with startups with the idea that there's trust in that relationship if if patients are in charge there they're gonna provide better data we see farmers doing the same thing trying to build on the long tradition in the u.s. of agricultural cooperatives of the bedrock of small farming in this country and helping farmers retain control of the data their machines are creating now this kind of these kind of models require a new kind of finance that's also kind of an old kind of finance you know just down the road from me and Colorado there's a hundred twenty eight billion dollar agricultural cooperative bank called Kovic and so in sectors where coops have developed and scaled they've had to build their own financial mechanisms it's very possible we just need to do it and already projects are starting to do that that are focused on the tech space like purpose capital it's know called purpose capital or purpose Ventures they're really in some ways we're replicating that cooperative bank model for a tech venture fund now it's important to recognize that governance is a is going to is going to take many forms here throw away your preconceptions of a kind of image of a bunch of people sitting in a circle making decisions by consensus every little menu decision like you might have done in your housing co-op that's not necessarily how this works my credit union which is the largest mortgage lender in the region doesn't call me up every time they're trying to decide who to lend to but we do have some models to build on for instance an open source software where we've seen communities of geeks around the world organizing in democratic fashion to build really complex tools this is the Constitution that governs the operating system and computer runs off roof and we've seen some new projects emerging like loomio which is a worker co-op in new zealand has created a really nice set of decision-making tools that a lot of a lot of the new coops are starting to adopt but the range of options is really why there's no one's one-size-fits-all model here we've seen a lot of interest from policy makers and this has been really exciting because they're sick of just having to say no to Hoover or or or a kind of blanket yes they want other options they want opportunities for local control and local governance over local value creation one interesting example was for about a year or so Austin City Council managed to essentially drive out Oberon lyft and in its place a bunch of really interesting local alternatives developed and unfortunately by the time the state overruled their decision and Hoover and lyft came back these alternatives had developed to the point where they have been able to retain their their market share but they demonstrated that that alternative models are definitely possible but it often requires a policy support just as investor and businesses often depend heavily on on subsidized subsidies and support from local business local governments this is a way for those governments to not only support business development but to make sure the value remains local also on a national scale the British Labour Party has really wholeheartedly embraced platform cooperativism explicitly in their digital strategy so they're taking this approach national a lot of governments in Europe have been very excited about this kind of model of a city council in Barcelona governments throughout Italy and so and that kind of partnership is key we know this from our history in the US where the Department of Agriculture has played a critical role in supporting agricultural cooperatives you know where the rural electrification Act enabled 75% of the land mass of the United States to get its electricity from cooperatives when investor owned companies wouldn't go there where the credit union act before that enabled the formation of credit unions across the country putting financial tools in the hands of people who otherwise wouldn't have had them so that is key finally I just want to leave us with the recognition that we can't just go about replicating other models being the uber for whatever you know we're we're that the real opportunity here is in designing different kinds of models that that the investor ownership strategies can even touch and can even see what communities are missing from the venture capital schemes right now who has not involved what value can be unlocked in communities that right now is is you know remaining untouched you know one important question is how do we do artificial intelligence differently how do we make sure that as automation proceeds its the value is being shared appropriately another question is how we can develop a model so that startups don't just have to think of their their future and their trajectory as an exit to further investor ownership how is it that a founder with a great idea and an awesome team can actually aim to sell their company and make a nice return to the people who care about it most the users the workers whatever that constituency is this is a a great challenge and imagine what a liberating opportunity that is for for for a successful founder to then hand the company over to the people who love it why do I think this can be done why do I have the confidence to spend every day on the phone with founders of these kinds of companies that are facing so many challenges with a limited financing spectrum and and limited mentors it's because it's been done before you know one thing I've learned in the last couple of years is my grandfather was a director of purchasing co-op I never understood that that's what it was I only knew that he didn't make that somehow he ran a national company without being fabulously wealthy but but nevertheless it's a reminder that this has been done before this kind of model has shaped the world we live in today and it can continue to shape our future but we do need to educate ourselves on these kind of dynamics that these kinds of models offer the kinds of needs that they have in terms of financing and legal mechanisms and policy mechanisms as well this has been really understudied and under todd I did an article for The Chronicle of Higher Education where I called up the top 20 law school or business schools in the country and asked what kind of resources do you have for education on cooperatives and other shared ownership models and the answer was essentially what are you talking about and this is not an accident in before World War two these kinds of models were present in league and business and economic textbooks after World War two in the in the context of the Cold War that disappeared these models were alive and functioning in our world but we didn't talk about them we didn't teach about them and so that's why events like this are so important for bringing this kind of opportunity back into an educational context making sure that it's part of our toolkit for the future that we're building thanks very much he's up these big ideas and generally hands them off to me to help execute and implement that's a tall order big ideas big challenges and if we're successful we hopefully make a dent in extractive exploitative capitalism my name is Jason and it's a real honor to be with you I went to law school across the river it's nice to be back here I don't think I heard the word cooperative uttered in law school either from the professors or the students who were keeping arms-length in in preparing for exams and it's events like these as Nathan said that are so important because you as consumers of the product that the school provides it's incumbent on you to ask for the curricular content of programming to prepare you for for the challenges that lay ahead and the solutions that we have at our fingertips I believe cooperatives require no significant policy intervention to achieve a middle ground in the in the dualistic economic political structures that Pete introduced us by describing and I believe that the moment is now I believe that the 21st century will be defined by how we design and implement ownership structures at every level of enterprise and at every level of governance so I'm going to take us through the practical logistical elements of a platform cooperative what does it mean to be put into practice I'll parse that out with some legal elements the various disciplines of the law that are that are raised in informing or operating a cooperative I'll touch on some trends challenges and hopefully leave you with just a bit of hope so with any entity and a lot of these considerations generally go without saying as Nathan said the default when a startup comes into existence is to talk to an advisor an attorney or an accelerator that has them for reasons that we often don't question adopt a standard Delaware corporate structure and it's that it's the absence of choice at that stage that often leads us down the path that we so often questioned in retrospect well how did I end up with the golden handcuffs how did I end up working for the investors it was my idea how did I end up selling the company that I founded in want to run and it's because of the choices made at the outset that we have those I often say that for every window that's left open it's a source of extrinsic pressure that can be exerted on me the founder and it's my belief that the co-operative structure by asking founders to have this conversation ask these questions early on we can close windows that need not be opened or left open for that pressure to impose its will on us capital pressure or otherwise so entity choice naturally financing questions of tax economics finance and governance and we're gonna see that this is really the reconstruction of a model that we're all very familiar with the co-operative is in many ways a reconstructed corporation or reconstructed limited liability company the model has been implemented successfully for hundreds of years in many ways this was the dominant form of Organization for First Nations and communities that existed before the West occupied the land we stand on so with entity choice in the co-operative sector we have some of the traditional models that we're all familiar with and we have models that many of us have never heard of or talked about so we have the co-operative Corporation this is again kind of a reconstructed corporate form many states have a tradition to have a court have a cooperative statute Massachusetts has under 157 a a worker cooperative corporation law as well a marketing cooperation law not cooperative law it turns out there are probably around 150 various cooperative laws on the books around the country and they've been developed largely to reflect the industries that cooperatives in that space I was on the phone with a founder of a platform that had organized his cooperative in Hawaii under an agriculture and fish cooperative act and was attempting to develop a plateau enabled platform for auto parts auto parts store owners so a fish and marketing co-op is really unsuited to the demands of his of his application and so a lot of these statutes have really just kind of fallen out of currency and we see we see a lot of that on the coast we see a lot of that where co-op law kind of emerged and developed in the 60s 70s 80s sometimes sooner we also see it in California and elsewhere there are some really interesting and exciting new developments that I'm always happy to talk about and that's the limited Cooperative Association Act it's a model that was designed in around 2009 after five years of development it was adopted in six states Colorado it happens to be one of them and it's essentially reconstructed LLC that put in place the safeguards to protect cooperative principles and it protects those in statute but it's an enabling statute that allows for a great deal of flexibility and allows for investor investor members to come in that have limited right and it has all of the flexibility one would would expect of a limited liability form with any entity choice analysis there's always the question of foreign entity registration tech platforms don't just exist on a server in one state they're doing business across state lines and this is an area of some interest since there's such variety of cooperative statutes across state lines New York for instance has no way to recognize a limited cooperative Association formed in Colorado doing business in New York you can call every lawyer in the law department there and they will have no idea what which of three different filings to to to drop with them and which FITA which being a charged ownership design what does this mean in practice it includes consideration of the marketplace exchange value exchangers who are the parties in the marketplace that you're designing for very often we're looking at worker centricity or a way to protect the value bestowed by workers in the platform very often founders come to the table with the idea and are looking for some specific special rights associated with kind of giving away their intellectual property in an environment where they know they're not going to receive the same economic upside they're not looking to kind of build a platform and sell it to the highest bidder in five to seven years and so in a platform economy the founders are making certain concessionary assignments and so we generally design around that allocation of value and the special privileges and responsibilities that iñárritu founders we are trying to design an ecosystem that creates low friction low high fluidity between the platform participants the parties to the transaction so you might have the engineers building the platform who have a stake looks a lot like employee options or our or worker equity but then we have founder members we're also trying to create some cohere cohesion with the people using the system and so we're very often talking about a degree of user ownership we're also trying to build a balanced ecosystem where capital can enable the scaling of these enterprises this is not a this this is a pluralistic model that allows for investors to come in the LCA model limited Cooperative Association model allows for investor members to have certain voting rights provided the members for whom the coop exists have the primary power of voting control we're also sometimes looking to design around anchors or strategic partners that have an interest you'll very often see you know and say a university or some other anchor institution that has an interest in developing the co-operative but isn't necessarily the key stakeholder around which we're designing the product or designing the economics so we have a way to reflect their value contribution without giving them necessarily dominant governance rights but we're thinking about ownership design in terms of these considerations distributions of value whether that's profit based or whether that's apana liquidity or dissolution event we're thinking about governance how do how does voting take place and at what level we're not talking about building skilled co-ops that have thousands of people virtually sitting around in a circle making decisions so we have to think about elegant and functional governance systems but we're thinking about how we leverage marketplace energy within a complex environment cooperatives enjoy a good deal of flexibility under existing tax law there's an oft underappreciated provision in the tax code dealing specifically with cooperatives under subchapter t it was designed in the era of the agriculture co-op in the 20s and 30s it's largely the domain of the US Department of Agriculture and it provides a huge deal of flexibility for cooperative to operate anywhere between double taxation C Corp double taxation and pass through single taxation co-op also has the flexibility of electing partnership tax in certain situations under certain statutes particularly LC a statute C Corp taxation is you know fairly well understood default and certain types of coops are treated as exempt at either or both the co-op level and the member level housing coops for instance in New York enjoy tax exemption provided they meet certain conditions there's a special section of subchapter T dealing with housing coops you receive an rei dividend your food a dividend from your food co-op totally non-taxable because it's a rebate on personal consumption and so there's a good deal of advantage under the tax code for for cooperatives the recent tax reform opened up some interesting loopholes under section 199 a it's the subject of lots of cpa and tax lawyer debate and it's not very well understood but it might provide certain unforeseen advantages to cooperatives in certain in certain industries S corp taxation is very often not appropriate primarily because for designing a multi constituency entity we're very often talking about multiple classes of stock multiple classes of equity and or such number of shares outstanding that we would bust the S corp limit but coops enjoy a default pass-through tax status which is a huge advantage less so today than it was a year ago but still big governance we're talking about the system of institutionalized decision making we're not talking about collective decision making in all circumstances we have to be thinking along various axes one of those is time founders in a startup are making fluid decisions amongst themselves very often on a consensus basis sometimes on a representative or empowered basis but as the entity grows it has to be deliberate intentional and foresee the next evolution of governance at the member level the board level and the management level and there needs to be clear lines of accountability authority and and there has to be proper empowerment we've all probably witnessed or heard of an entity that's failed because of an overactive Board meddling in the business of management very many food co-ops have fallen by the wayside because of dysfunctional board governance under antiquated governance theory we're talking about the modern day cooperative that takes the best from the corporate world and is learning from the agile and self-management schools of thought so the most modern-day theory about human management to human interaction is what we're talking about coops are really no different in that respect other than a few key safeguards which are one member one vote we're talking about people voting not dollars and we're talking about clear and intentional lines of accountability economics and finance there is a gap a glaring hole in the startup funding capital market for coops hopefully this is something that Greg's project is able to address but platform coops generally involve the same nature of risk associated with a tech startup but we also have the ancillary and important features of democratic control we have the democratic control plus early-stage risk and we very often don't have the same promise of a return we're not talking about a liquidity based exit for investors in many cases we're talking about building sustainable companies that provide primarily for their members so we have to look at new tools we're looking to build use value instead of transactional value or liquidity value so that means we have to start looking really more seriously at revenue based financing and in the last six months alone we've done four or five completely different revenue based financing deals that show great promise in unlocking traditional venture capital traditional angel capital for democratically controlled coops I'm really encouraged and we're also looking at unlocking the 98% of us who are unable to invest or before 2015 unable to invest in private companies the JOBS Act really brought us back to the original crowdfunding and coops can take advantage of both rag CF and private offerings indirect public offerings as well as member capital campaigns I should note that in most states all capital raised by a co-op from its members is exempt from state level securities registration Colorado has one of the broadest exemptions the coop could raise tens of millions of dollars from its members at scale and not have to file a notice pay a fee or comply with any disclosure requirements with the state there's a huge advantage in the law primarily because these are self governed and self controlling entities so some of the trends again I'm seeing increasing adoption and more rapid adoption of the limited Cooperative Association form I was on the phone last week with the Yale community economic development clinic that's actually writing a statute in line with the limited Cooperative Association Act because simply in a similar fashion to Massachusetts the worker co-op Act in Connecticut is too restrictive so we're seeing hopefully a resurgence or Renaissance of that of that form we're seeing greater adoption we're hoping that the limited comp Association in states like Colorado that becomes the Delaware of cooperative law we're seeing creative entity structures that that parse out and strategically place IP assets in relation to investable holding companies we're seeing some new thought and research into alternative steward ownership structures golden shares and purpose trusts that hold assets on behalf of public interest without having the proclivity toward a profitable exit in fact the golden share structure is designed to prevent a pecuniary exit we're seeing the increasing popularity of B Corp certification and the public benefit corporation form itself we're seeing converging trends and that's really promising we're also seeing a narrative play out and nathan talked about talked about this we're seeing more grassroots efforts around the solution to the divestment challenge we're seeing investment clubs pop up we're seeing non-accredited investors out finding at the same time that we're seeing a silver tsunami the largest wealth transfer in human history and there's an opportunity to democratize some of those businesses and to get fresh non-accredited investors capital into those into those entities we have more financing and securities vehicles than ever before or at least more more than in the last eighty five years and I think the co-operative is going to offer some some is going to break the logjam with some of the stagnation in the Reg CF market and we're seeing funds use the revenue based financing model and put out some really interesting term sheets and move serious capital into democratized ownership structures where this may be of interest to you again we have potentially 150 different co-op laws on the books the USDA has been working with lawyers around the country to do a survey of all 50 states co-op laws they produce a spreadsheet that's going to update a book that hasn't been updated since 1985 and there's now a repository of information about co-op law in 50 states modernized or updated with today's best information there's an effort of coop lawyers around the country to develop a uniform co-op law something similar to the uniform business corporation law that's been passed in most states we're seeing although there's still a dearth of professional services in the coop and alternative finance space that number is increasing and hopefully some of you consider joining the ranks and I believe there's no need for additional policy interventions to scale the model and to increase adoption our challenges there aren't enough cooperative leaders there aren't there has not yet been a sufficient intersection of self-management and self and as all theory in the cooperative space we need more leaders we need more people with the co-operative experience we need more people with an appreciation of cooperative membership so to understand the power of the model and to understand that it really is simpler than we've made it out be deal flow continues to be a challenge although that's slowly I think improving again there's no uniform co-op law so this still remains the domain of a patchwork and that stifles adoption there's no standard co-op structure I get calls probably at this point three times a week four give me a standard plug-and-play structure and we've got the LegalZoom legal I oh we've got a variety of technology enabled platforms that are doing this for the corporate for the corporate investor owned model but again with an implied purpose we don't have a similar technology enabled or even intelligence enabled system for cooperative formation the structures themselves are still very complex and still very dynamic and it's still too new afield in the in the tech space to see any emergent standards we're hoping to get there soon we also will be challenged as we raise awareness as we see increase a doctor will be challenged to preserve the coop principles in in practice the statute provides guardrails but as any wise lawyer knows a static document is only as good as the foresight of the drafter but it never contemplates the full range of possibility and no statute and no set of charter documents can ever prevent against the worst ills or temptations of an inauthentic founding team or capital providers there's always a way around the statute itself so we really are going to be challenged to preserve coop principles and then this is really kind of a generalized issue we still don't have any clarity whatsoever on how interstate business entities navigate foreign registrations or tax Nexus issues the lodge's has not caught up to recognize virtual virtual interstate business this is a challenge that many of you can can hope can help fully address we need more trained and devoted professionals and we need public awareness we need to tell this story over and over again and we need to convince people that the model that exists is readily adoptable and is I call it the the the iPhone of business models it should be as intuitive and and self-explanatory as possible but we have to deprogram so much conventional wisdom and conventional learning I didn't learn this in law school and it took a decade or more of practice and deprogramming to to understand its potential but they're everywhere everywhere the co-operative model exists in sectors and in brands that you've that you buy regularly that we just don't associate with the coop model the coop itself is not the forward identity of most of these enterprises but these are for member-driven enterprises there's no extractive capital provider at the other end of the rainbow looking for a payday or demanding quarterly results the only people demanding results are the members themselves so what I'm gonna leave you with these are credit to Nathan these are the members of green taxis cooperative they are the second largest worker co-op in the country and they're the largest taxi cab cooperative in the country they operate on a one-person one-vote basis and they are a net importer of uber and lyft drivers in the Denver Metro market and they have the largest market share in all of the Denver metro area and they're three years old and they've taken over the consolidated incumbent players and now they're taking over market share from uber lyft in the region and what I love is this is the former Board President and really this is why we do it the fights never about grapes it's not about it's not about technology convenience it's not about the widget or the product of the service it's about the stakeholders behind it and if we can't design business entities to reflect human values then we failed in creating a bridge to a new economic future so with that I thank you and we looks like we've got a few minutes questions my name's Chris Maki and Jason's great to see you in town you're doing fabulous work I do this work next to the Harvard Square post office at the little company called ownership associates that people are interested in though and looking and the I want to sort of use a world war two metaphor partly human like an Eastern Front and a Western Front okay so what you've just presented is a fabulous account of what's going on I will call it the Eastern Front I'll start up companies that are that are motivated by the kind of democratic values and inspirations and undergone cooperatives and so forth and so on the people in the room should know there's also a Western Front of conversions of scaled companies that are primarily using a structure called Aesop's place like laser plants which locally harpoon Brewing Company is a case that people might know about and why you can do conversions of scale using cooperatives and the more the better the bigger companies on the other front are using a different structure and they're people like myself and others who are working to make sure that's as Democratic as it could be on that side so that's just a little advert for Eastern Front and Western Front another but sort of a technical point in terms of what you're what you talked about here actually one one little thing which I'm curious in terms of your list of ownership designs those curses too as to why you didn't put partnerships in the list I mean maybe it was implicit with LLC's but I mean there's there's some kind of a expansion of the of the metaphor and the history of the good old partnership idea obviously that the legal profession knows about that I think there's something to build on and one last thing if you could illustrate the the revenue based financing models a little bit more absolutely the partnership model should be on the table law firms are in many ways kind of the underappreciated cooperatives the professional services the L the the PC to some extent but really the limited liability partnership is for sure there are some other considerations around employment and tax that hedge against it being I think a fully scalable model subchapter T offers some advantages a partnership could elect I suppose subchapter T so that should by the table the very conversation around entity choice should be front and center it's the illustrate revenue based financing it's a category so there's lots in it and it's really a question of species but the ones that I've done generally have a percentage of either revenue or profit or both up to a certain cap or even just a percentage of profit for a certain period of time so it's bookended by a cap associated with a certain metric tied to the financial performance of the firm so you think of this being a hybrid instrument between debt and equity where debt has a fixed rate of return untethered to the financial performance of the firm and equity which is again I'm tied to the performance of the firm other than there being some liquidity event and the revenue based financing operates within the practical constraints and reality of the firm itself and it aligns in some say ideally the interest of the investor with that of the furn so growth you know the equity model favors growth the debt model favors stability this really favors either gonna be respective of the choice of of evolution I would just like that quickly that I think it is important to highlight the ESOP model as part of this conversation and a really important part a way in which scaled shared ownership has really prevailed in this country in significant ways we're looking at something like 14 million members and and and you know one III think there's a lot of ideas behind the ESOP structure this idea of a leveraged employee ownership conversion that I think are really exciting and another proposal for instance suggested by the founder of the usopp model Louis Kelso was an idea of a seesaw that maybe you could do that leverage buyout on behalf of consumers as well mm-hm and this is an area of research that I'm starting to get into and looking for collaborators on so if anybody wants to dive in let me know I'm working on one of those follow-on to the same conversation that what's the possibility of having a worker co-op that manages a public benefit corporation so that that structures more attractive to investors without building the liabilities and where on the worker cooperative site you could have people banking their hours and as you're describing not a debt not equity we could be trading warrants for the tight button and that doesn't make room but then the word of positive has a right to maybe half the profits created by the corporation that they're managing so they'll allow investors yeah to generalize I think that just gets to questions of ownership design and financing and that tells me you know generally I'm looking at a limited cooperative association model for something like that because it provides the minimum guardrail of member control limited investor voting rights but you can bifurcate and kind of segment economics and governance any which way you want provided you kind of fit within those guardrails you know I probably implemented something pretty close to what you're describing but I should also note that again you don't have to necessarily think of creating this multi-headed monster is the only solution there's the potential that you create a worker co-op that has an interest in a synergistic interest in a holding company that's traditionally financed maybe that's a public benefit corporation maybe it's you know something else but you can interweave the interests of the coop with the hold Co anything implemented golden share structure or some other arrangement to preserve mission and we've done that now a few times where we're actually licensing intellectual property from a hold code to a co-op and creating some meaningful teeth to protect the interest of the coop so that this hold co doesn't take the IP and then go off in the cellar to Google why is it easier like why wouldn't make things the exact same thing three decades why our platform but let's where's the hole in boxers history my personal experiences what makes them special why is there I think part of my reason Pro is actually looking beyond looking at the legacy and the track record of the story beyond the worker co-op world you know the worker co-op tradition in the United States has been has experienced limited success Aesop's on the other hand have experienced much more success but a lot of other kinds of cooperatives have experienced way more success credit unions purchasing cooperatives you know here we have multi-billion dollar cooperative sectors that are really radically transforming the nature of the businesses in which they participate and I think building on some of those legacies is probably going to be a more effective strategy especially for starting than beginning with the legacies that for one reason or another in this country have not really been that effective you know in in a country like Italy where there is a stronger worker co-op mix and you know stable of mentors and that sort of thing I think it's probably a different story but here for instance one model I've seen it's really exciting is one of the new startups that a lot of people interested in cops don't talk about is a purchasing co-op in DC that is called the community purchasing alliance that has really brought together a bunch of churches and and and charter schools and stuff to do joint purchasing they transformed the market for say solar panels in the in the region absolutely Amica says you know is an example that came out of a worker coop that jason was involved in a solar panel installation company again it was the purchasing caught the shared purchasing that really enabled the scale to happen and I think it's the synergy among those different kinds of models that community purchasing alliance in DC is now starting to get involved in helping its its vendors convert to worker ownership on the basis of its strength of joint purchasing so I think the the opportunity is when you look at the broader range of co-op models let's start from where we've been most successful and from where we have the most momentum you know rather than what I see a lot of the new generation doing is kind of starting from scratch and building from the hardest side of the spectrum and and you know hoping that this time it will work there's no one dominant school of thought here but there's a model that's come out of Cleveland democracy collaborative is built on this model banker institution construction they took a strategic contract between the universe between Cleveland Clinic and various other large institutional anchors and it was for a segment of their procurement and they designed a cooperative ecosystem around that contract for them it was laundry services so they peeled off say 3% of the Cleveland Clinic's laundry needs at a particular point in time in that contract was under review and exerted some political pressure and they took that sliver and they built a worker cooperative around that laundry service so they had an anchor contract to provide the demand for the cooperative they just designed the co-operative to fit this this thing procurements that's one strategy the other is still emerging but it's a model that I helped put together in another college town in northern Colorado called the puter Valley Community Farm and it's a where it's a farmland preservation co-op where households put small producers and institutions and investors for different ownership classes have come together to buy working farmland and keep it in production and out of gravel mining or suburban development for these small often young producers to enter into long-term contracts turn the soil organic and then provide local produce for farmers markets households and they're using the institutional class to provide some base load demand so the institutional anchors often the kind of the it's either the building block or it's the growth potential of the coop as a scaling strategy and it's largely used for leverage and that can be coupled with an equity investment but very often we'll either build a class around it or they'll have certain covenants but they'll very rarely and they'll know that as a cooperative structure you know their control is very limited and in the puter valley case we've built the model to primarily serve the producers and the households so we're building a marketplace for business to consumer direct purchasing and creating essentially a virtual farmers market and the multi stakeholder ownership structure is itself the platform that's two illustrations ask questions about these structures in your corporations class your securities and Finance class these models have existed and they just haven't yet made it into the mainstream but please come speak to us after class if you're interested in more resources enjoy and consider I think it's the Harvard community Law Clinic Carlos I forget his last name is very interested in probably already working with these models I think clinic experience is fantastic and there's a lot of good work happening [Applause]