What makes Berkeley a hotbed of worker co-ops?

In 1968, Michael McGee was a 20-something with an engineering degree, disillusioned with corporate culture and the Vietnam War. Like many of his generation, he headed to Berkeley in search of like-minded peers. 

In Berkeley, he discovered an employer in sync with his values: the Cheese Board, a collective since 1971 that sold cheese and baked goods on Vine Street, next door to Peet’s Coffee and Tea. After joining the collective in 1975, McGee, a carpenter, helped build out the original store on Shattuck Avenue that has since grown into surrounding storefronts. 

“We wanted to get away from the boss-employee idea,” he said. “The philosophy was that everybody does all of the jobs in an attempt to break down any status that might come from somebody being a baker or a bookkeeper. Everybody needed to do the dirty work, too: sweep the floors and organize the shelves. All skills are important and no skill is more important than another.”

Today, the Cheese Board has become the poster child for what a successful cooperative looks like in Berkeley, a hotbed of worker co-ops with one of the largest concentrations of worker-owned companies per capita in the nation. Because Berkeley has been an incubator for such businesses, often with the support of the city and a like-minded community, new models that were developed here may soon be reproduced at the state level, giving more employees access to shared ownership. 

According to Project Equity, a nonprofit that’s been working with the City of Berkeley for the past four years to help companies transition to worker ownership, the city had 12 worker co-ops in 2016 and now has 14. By comparison, Oakland — a city more than three times larger than Berkeley — had 28 worker cooperatives in 2021 and San Francisco — a city over seven times larger — had 22. There are only 100 worker co-ops in total across the state, with 80% in the Bay Area. 

Worker cooperatives are defined as businesses that are owned and democratically governed by their employees. They are usually organized under state law as cooperative corporations or limited liability companies. Such companies are seen by boosters as an antidote to top-down capitalism that places more emphasis on leaders than the people doing the work, resulting in greater income inequality. Critics say that co-ops have problems accessing capital and top talent and are not scalable. 

“In worker cooperatives there’s a famous refrain: When you’ve seen one cooperative you’ve seen one cooperative,” said J. Noven, admin coordinator for the Network of Bay Area Worker Cooperatives (NoBAWC), a trade group representing 35 active worker-owned member companies. “There’s very little that holds true across the whole worker co-op ecosystem.”

Indeed, co-ops in Berkeley run the gamut and include a maker of scientific glass (Adams & Chittenden), a woodworking shop (Heartwood Cooperative), a bike shop (Missing Link Bicycle Cooperative) and a communications and cybersecurity company (Cooperative Digital). (Worker co-ops are not to be confused with consumer cooperatives — like REI or the legendary Berkeley Consumers Cooperative of Berkeley (1939-1988) — which are co-ops not of workers but of shoppers, or with producer co-ops — like the Arts and Crafts Cooperative (ACCI) Gallery, a co-op since 1959 — which are alliances of artisans producing the products sold.)  

In worker cooperatives there’s a famous refrain: When you’ve seen one cooperative you’ve seen one cooperative.”

J. Noven, admin coordinator for the Network of Bay Area Worker Cooperatives

Often co-ops are formed as a response to an injustice or an inequity. 

The city’s oldest co-op, the Berkeley Free Clinic was founded in 1969 as a street medic collective to care for protesters injured by law enforcement during the People’s Park Riot. (Because it is a volunteer organization, the co-op is not counted as a worker co-op in studies and lists.) Wild Swans Publishing Cooperative formed in 2019 as a response to the publishing industry’s growing disinterest in children’s picture books. Food co-ops like Cheese Board and San Francisco’s Rainbow Grocery (circa 1975) sprang from the 1970s healthy foods movement, a backlash to the industrialization of the food industry. 

Food businesses, in particular, are drawn to the cooperative model because they “generally have a surplus of labor and a deficit of capital,” said Noven of NoBAWC (cheekily pronounced “no boss”). “The lowest capital-intensive industries are in service. That’s why we see a lot of cooperative cafes, small sauna, healthcare and wellness, homecare workers turn into worker co-ops.”

Why Berkeley?

One reason for the popularity of worker co-ops in Berkeley has to do with the city’s historically progressive leanings.  

“Berkeley cares very much about the character of its community,” said Melissa Hoover, executive director of the San Francisco-based Democracy at Work Institute, the nonprofit training, research and education nonprofit connected to the U.S. Federation of Worker Cooperatives, a membership organization. “It doesn’t surprise me that there’s both political and community support for doing business with a set of values that stretches across the generations. You don’t have to be a countercultural idealist to shop at a co-op. People also want to do business according to their values.” 

Berkeley Mayor Jesse Arreguín has sought to promote cooperatives since he took office in 2016. A bill he introduced that became the Worker Cooperative Ordinance gives worker co-ops a preference in the city’s Buy Local contracting preference, creates business tax and land use incentives for such companies, and develops cooperative-specific educational materials to supplement the city’s business support services.

The city’s partnership with Project Equity symbolizes even more of a commitment to co-ops. So far, Project Equity has helped four Berkeley companies (Alternative Technologies, Westbrae Nursery, Local Butcher Shop, Adams & Chittenden) transition to cooperative ownership and continues to work with them, providing post-transition support. Project Equity also worked with Oceanview Diner, which has since decided not to become a co-op, but is still worker-owned. 

Because cooperatives tend to be small (typically under 10 people) and their legal designations fall under state jurisdiction, up until recently, the federal government has historically taken little interest in cooperatives, except for agricultural ones that work directly with the USDA, though that is changing. In 2018, Congress passed the Main Street Employee Ownership Act, which seeks to have the Small Business Administration’s lending practices better serve employee-owned businesses. 

The long legacy of co-ops

Worker cooperatives have a long history around the globe, but most trace their history to the 19th century, the result of industrialization. In the U.S., cooperatives were seen as a way to solve economic and social problems, beginning with a “mutual” organization founded by Ben Franklin in 1752 to provide fire insurance. 

In San Francisco, some of the earliest worker cooperatives were formed during the latter part of the 19th century by Transcontinental Railroad workers at risk of losing their jobs when the railroad was completed. The Great Depression led to another wave of worker co-ops, which Upton Sinclair integrated into his 1934 campaign for governor.

Between 2019 and 2021, worker cooperatives grew by more than 30% nationwide.

Waves of cooperatives followed during the 1970s, often food-based and part of the healthy foods movement. Co-ops in the 1990s grew among immigrant workers seeking better working conditions, according to “California Cooperatives,” a 2021 study by Project Equity, the California Center for Cooperative Development and the Sustainable Economies Law Center. 

Between 2019 and 2021, worker cooperatives grew by more than 30% nationwide, according to a 2021 “State of the Sector” report co-produced by two nonprofits dedicated to building out the worker co-op movement in the U.S. Hilary Abell, co-founder of Project Equity, says the growth of worker-owned companies has roots in the Great Recession of 2008-9 and is an organic reaction to income and wealth inequality and racial injustice.

Nationwide, there are now approximately 1,000 worker cooperatives bringing in $283 million in gross revenues and representing 5,966 workers.

Co-op benefits — and drawbacks

Worker ownership continues to be a movement led by women and home to many workers of color, according to the “State of the Sector” report. Women make up 52% of worker-owners, with Latinx workers (who make up 18% of the U.S. workforce) at 25% and Black workers at the same 13% as in the overall workforce. 

For advocacy organizations, co-ops are seen as a salve for many of society’s ills, from employment to housing and childcare, all of which Project Equity addressed in its study. 

Co-ops have been shown to increase both wages and wealth. According to a 2017 study by the University of Wisconsin and the DAWI, workers earned an average of $2 more per hour in a worker co-op. In the California co-op study, 65% of workers saw their incomes increase after joining a cooperative, due to better wages or profit sharing. 

Employee ownership often rewards those who have spent their careers — and most of their lives — working at a company, sometimes side-by-side with its owner. Such was the case at Alternative Technologies, where founder Jerry Skomer had worked with employees who had been with him for more than 20 years. 

In one California co-op study, 65% of workers saw their incomes increase after joining a cooperative, due to better wages or profit sharing. 

McGee said that in an attempt to deal with the graying of its membership and “to let a new generation take over,” longtime members at the Cheese Board, can now segue into an “emeritus” category that allows them to continue to work on occasion, though they no longer receive benefits or voting privileges. McGee, now 77, is among 12 members to receive that designation.   

Because co-ops tend to be small, they sometimes have the problems other small businesses have when it comes to attracting top talent in a highly competitive marketplace. What often draws people to co-ops is their “values-driven purpose,” which may narrow the hiring pool, acknowledges DAWI’s Hoover. 

Fit is an especially important consideration, especially in co-ops, which tend to be smaller, requiring employees to work together closely and collaboratively in a non-hierarchical environment. Most co-ops, therefore, have a transition period that allows employees to test the waters before becoming members. 

“We try to get them to work with as many members as possible,” said Steve Manning, a Cheese Board spokesperson. “If your tendency is to boss people around and make more money than everyone else, the Cheese Board is not a good fit for you.” 

The critique that worker-coops are not scalable is often rebutted by the example of Mondragon, a behemoth Spanish cooperative made up of 95 autonomous cooperatives. E. Kim Koontz, the CCCD’s executive director, also noted that scalability doesn’t just mean size — it’s also replicability, the ability to take a model and repeat it elsewhere. No one goes to a small business down the street, like a shoe repair shop, she said, and asks if it is scalable.

Another classic argument against coops is that they don’t last — the workers become the bosses given time, according to John Pencavel, a retired Stanford economics professor who studied plywood co-ops in the Pacific Northwest for a 2001 book. One co-op he studied degenerated from an all-worker, all-member organization to a minority of worker-members by the 1950s as owners hired workers at lower pay and took home most of the net returns, Pencavel said, which goes against the basic principles of cooperatives. (Mondragon’s increasing reliance on external contractors has drawn similar criticism.) 

“It’s hard to borrow money. Banks like to put somebody on the line — somebody’s house, somebody’s land.”

Julia Elliott, co-owner of Nabolom Bakery-Pizzeria

Access to capital still presents a major hurdle, despite the federal government’s new guidelines from the SBA. Noven of NoBAWC hears from members all the time about banks not being able or willing to be guarantors for a loan to multiple people. Banks often don’t look favorably on the idea of shared fiscal responsibility. 

In fact, that’s why Julia Elliott and Sabra Stepak decided not to keep the 40-year-old Nabolom Bakery-Pizzeria as a cooperative when they bought the business in 2016, even though Elliott, who had worked at the Cheese Board, believed in them. 

“It’s hard to borrow money,” Elliott said. “Banks like to put somebody on the line — somebody’s house, somebody’s land.” 

Not having the same access to capital traditional businesses do is one of the problems State Bill 1407, the California Expanding Employee Ownership Act, seeks to address. Just signed into law on Sept. 29, the act makes state-sponsored capital programs available to worker co-ops. Advocates are calling it a big win and another gesture of support from the state for co-operative ownership.

In a traditional business, growth is considered a plus, but it can present challenges to co-ops in particular. More employees means more opinions, and “more of a diversity of opinions,” said McGee, which can make it more difficult to reach a consensus. 

At Cheese Board, more employees has also resulted in more specialization, a value its original members tried to avoid. New members are no longer required to bake, for example, and it now has specialists who do the books. But “the dirty jobs” McGee referred to are still shared.

Even when offered the chance to go co-op, not all employees may be on board. A case in point is the Oceanview Diner (formerly Bette’s Oceanview Diner), whose employees considered becoming a co-op in February when owner Manfred Kroening was ready to retire and close the restaurant after struggling during the pandemic.

Since a co-op would have required a board of directors and management by the staff, “not enough of the employees were willing to make the time commitment necessary to run the co-op,” said William Bishop, now one of six employees who owns the diner with the help of a loan from the landlord, Denny Abrams. As a limited liability company, the restaurant’s operating agreement designates that all of the employees are shareholders in the company. 

Despite its challenges, co-ops are seen as a sustainable model for future economic growth.

“Worker co-ops are vital,” said Koontz. “They’re not going to solve every problem, but the more we can have them as an option, the better we can be as a state and a community.”

What’s in it for the seller

Some businesses, like the Wild Swans Publishing Cooperative, were founded as worker-owned companies. Others became worker-owned when owners needed to back out — for various reasons. Monica and Aaron Rocchino, for example, sold The Local Butcher Shop to their employees in 2021 after having a baby. 

But most owners in Berkeley who sold to their employees were preparing to retire. A 2019 study commissioned by Project Equity and the city’s Office of Economic Development revealed that, like the rest of the country, Berkeley is in the midst of a so-called “silver tsunami,” as baby boomers retire, often without succession plans. Ordinarily, when such owners retire, their businesses either shut down or are sold to buyers and competitors that might close or relocate, taking the jobs with them. 

In Berkeley, more than 1,200 businesses will be in need of succession planning services by 2034, the study found. Such companies account for $1.6 billion, or 60%, of Berkeley’s small business revenue — providing around one in three local jobs. 

In a 2021 report she compiled for the Ford Foundation Mission Investments Fund, Adria Scharf, the director of education and collaborations at Rutgers University’s Institute for the Study of Employee Ownership and Profit Sharing, makes the case that investment funds, business owners, service providers and policy makers who seek to strengthen job quality should make the transitioning of private businesses to their employees a priority. 

“Increasing transitions of family-owned and other privately held businesses to employees will tangibly increase financial wealth and improve wages and job quality for working people in the private sector,” she wrote, “particularly when shares are paired with other ‘good jobs’ practices,” she wrote. 

Motives for such decisions tend to be more altruistic than profit-driven, with owners expressing an interest in having their company remain part of the local business community and concern for their employees and customers. 

At Mal Warwick Donordigital, which does fundraising, advocacy and marketing for nonprofits, founder Mal Warwick (who pens book reviews published on Berkeleyside) started the company with a belief in equity and fairness, said Mwosi Swenson, president and CEO. The company Employee Stock Ownership Plan, a type of worker-ownership, was started in 2001. “He believes that owners who build a business should share the wealth with the company’s employees,” Swenson said, “because the company wouldn’t have grown without them.” Though he is no longer CEO, Warwick remains involved in the company as the chairman of the board. 

Motives for turning companies over to workers tend to be more altruistic than profit-driven.

For sellers, there is the possibility of a larger and quicker payoff if they sell elsewhere. 

Jerry Skomer estimates that he could have gotten 20% to 50% more for his company, Alternative Technologies, which became worker-owned in March, if he did not sell to his employees. If he hadn’t planned for his retirement and gotten the initial payout, “I could be screwed. But I had to believe in what was happening,” he said. “I was happy to take that risk for the benefit of staff.”

Transitioning to employee ownership can take longer than a traditional sale. In a best-case scenario, transitioning with the help of Project Equity can take less than a year. The process starts with a third-party valuation, followed by a feasibility study, which takes a few months, and then a six- to 12-month transition process. More complicated transitions can take up to two years, said Abell.

The pandemic’s effects

As with other types of businesses, the pandemic set back many worker-owned companies. 

While traditional companies may have been forced to lay off workers, co-ops have the ability to share the pain of belt-tightening. According to DAWI’s State of the Sector report, 80% of worker co-ops remained open during the pandemic and half of them worked to avoid layoffs by reducing hours. 

The Cheese Board, where membership had soared to almost 70 members prior to the shutdown, now has 37 (plus six employees on track to be members) and had to reduce its store hours to three days a week, reducing everyone’s pay. Three Stone Hearth, a maker and seller of organic and locally sourced foods, laid off almost its entire staff during the pandemic, leaving only five to hold things together, according to its website. The co-op’s membership is now up to nine.

The pandemic also set back companies on the verge of transitioning to worker ownership. Urban Ore, a recycler of salvaged goods, has been working with Project Equity since at least 2017.

“We are still rebuilding various departments of the company post COVID: rehiring and stabilizing, and some key players, including myself, just don’t have the bandwidth right now,” said Max Wechsler, Urban Ore’s operations manager. He suspects that in two to three years, the recycler will be better positioned to make the transition. 

Beyond the co-op

While cooperatives tend to get all the attention, they are not the only type of “broad-based employee ownership,” which includes other types of companies that share wealth with employees. 

Within that category, Employee Stock Ownership Plans, a type of retirement plan that also functions as an ownership vehicle, are the most prevalent in the U.S. There are approximately 6,482 ESOPs in the U.S., holding total assets of more than $1.6 trillion, according to the National Center for Employee Ownership in Walnut, California, a nonprofit that provides resources for its member companies. ESOPs are overseen by the Department of Labor.

Berkeley has at least four ESOPs, including solar installer Sun Light & Power, a co-op-ESOP hybrid known as an ESOP-erative in employee ownership circles. SL&P’s ESOP owns 100% of the company and its workers can choose to be part of the co-op, which practices democratic governance. 

Another category is an Employee Ownership Trust (EOT), in which a trust is set up in whole or in part on behalf of workers. Relatively new in the U.S., EOTs are the main type of worker-ownership model in the United Kingdom, according to NCEO. 

Most ESOPs and EOTs, due to size, typically don’t opt for democratic decision-making.

Berkeley has one EOT, Paras and Associates, a provider of video conference interpreter systems for health care providers and hospital systems. Though the business is Berkeley-based, it moved its offices to Pleasant Hill in 2020. 

“The EOT has been a simple, inexpensive, and low-overhead mechanism to sell the company to the employees,” said Melinda Paras, the company founder who chose the EOT model as she approached retirement. “It was the perfect solution for us.”

In worker-owned companies, employees can collectively manage day-to-day operations or have a more traditional management structure led by a CEO or a general manager. But most ESOPs and EOTs, due to size, typically don’t opt for democratic decision-making. 

“There’s not just one way to design a business,” said Rutgers’ Scharf. “We often default to these common approaches, which means the business is owned by outside investors or a small handful of people. However another way is possible. One can design the ownership model that includes employees in the ownership so the employees have a share of the profits and a share of the wealth.”

Creating new co-op models

In California, not every type of business can become worker-owned. But new models using current laws are being re-imagined and will likely make employee ownership more commonplace.

Under state law, professional corporations (medical and law offices generally) are unable to form as cooperative corporations and must form as general corporations. The restriction is intended to protect consumers, said Therese C. Tuttle, an attorney in private practice in San Francisco who often works with the Sustainable Economies Law Center in Oakland, which also partners with the City of Berkeley and Project Equity.

Uxo Architecture, based in Berkeley and L.A., is likely the state’s cooperatively organized, women-owned architectural firm.

“The licensing protection board wants to make sure that licensed professionals are overseeing an unlicensed person or that they are the ones who are providing the services,” Tuttle said. 

When it comes to architects, “there’s a little more flexibility,” said Tuttle, who helped Uxo Architecture, based in Berkeley and Los Angeles and owned by Ashtom Hamm and Alice Strong, become what is likely the state’s sole cooperatively organized architectural firm that is also 100% women-owned. 

The workaround was to use the corporation’s bylaws to create a binding legal agreement that is more democratic in two ways: decision-making is not done on the basis of investment, typical in a corporation, but on the one-member, one-vote basis required in a co-op; and the distribution of profits at the end of the year is based on something other than how much equity an employee has in the firm. 

“You’re using the bylaws to create a new/old thing: a corporation that functions the way cooperative corporations function, rather than the way an investor-owned corporation functions,” Tuttle said. 

Based on her work with Uxo, Tuttle is working with a group to make a change in the state’s Business and Professions Code to allow professionals to organize as co-ops the same way Uxo did.

Adapt or … die?

As McGee’s experience at the Cheese Board illustrates, the values that founded the co-op may not be the values that attract members today. Timothy Leary’s call to “turn on, tune in and drop out” at the Human Be-In at San Francisco’s Golden Gate Park in 1967 urged a generation of young people to resist the traditional trappings of American society. Some of those who took such language to heart in terms of their work “saw co-ops as a way to exit the economy,” said Hoover. 

“Now we’re seeing a very different kind of world in which people who didn’t have privilege and access to other types of jobs are using co-ops to enter the economy,” said DAWI’s Hoover. “That shift has been very real and intentional. It’s not just a choice for politically driven people but a necessity for people who don’t have other options.”

Hence the growth of household cleaning, landscaping and home health care cooperatives that have organized in the Bay Area in recent years, jobs that are typically low-paying and held by immigrants. Other workers who face barriers include those who want to own small businesses and don’t have the means and those who face barriers to employment due to a lack of work or incarceration history, Hoover added. 

“We’re seeing a very different kind of world in which people who didn’t have privilege and access to other types of jobs are using co-ops to enter the economy.”

Melissa Hoover, executive director, Democracy at Work Institute

More support has also come from the state. The Employment Training Panel, a business and labor-supported state agency that funds vocational training, awarded the California Center for Cooperative Development and the Mission Economic Development Agency, which includes Project Equity, $1 million to be used over the next two years to help workers with language and immigration barriers to employment to form worker cooperatives. 

“A million is not very much over two years, but it’s an important step in recognizing the power of co-ops,” said the CCD’s Coontz. 

Pedro Campos, the nursery supervisor at Westbrae Nursery, who moved to the U.S. when he was 5, has spent his whole life working in landscaping. He’s been at Westbrae for at least 25 years and in April went through its recent transition to cooperative ownership. He said the transition has been going well and that he has seen an increase in benefits, like getting dividends. 

“Co-ops are a good way to go,” he said. “It’s working for us.”