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Washington Businesses See Benefits of Worker Ownership

There are approximately three dozen worker-owned businesses across the state and in nearly every sector of the economy. Experts predict that a new employee-ownership law will only increase that number.

Amy Leitman has been a marine surveyor long enough to know a problem when she sees one.

On a cool summer morning in Anacortes, Wash., she realizes that the marina her team is working on is active with boat traffic — meaning that the planned underwater survey dive would be much more dangerous than expected. The question is whether to call the dive and reschedule the assignment or proceed as planned.

Leitman founded Marine Survey and Assessments nearly 25 years ago, and she's used to making these decisions. The last time the team canceled a planned dive was five years ago — and for similar reasons.

But this time, it's not her decision alone to make.

"Bryan will know better than I do," she said, adding jokingly: "I'm just a lackey."

Bryan DeCaterina has only been with MSA for six years — and unlike Leitman, he's not a marine biologist by training. But he is the team's safety officer and lead scientific diver, responsible for setting up the morning's assignment.

DeCaterina is also an owner of the business — one of several owners including Leitman — meaning he has just as much responsibility as she does.

The two consider their options, shuffling through documents and diagrams as the minutes tick by and the fog rolls in. Finally, they decide to call off the dive.

DeCaterina has two things that every business owner needs, Leitman says: He has the skill, and he has "a good business head." That's become especially important since she stepped down from being "the boss" and handed her employees the keys to her company.

Since 2020, MSA has been run as a worker cooperative, which sets it apart from other businesses in the small town of Port Townsend — and from most businesses across the country. In other words, DeCaterina is one of five full-time employees, including Leitman, who now have an equal say in running the show.

Leitman sold her business to the other "member-owners" in 2020, after initially considering other methods of stepping away from the business.

Ultimately, she realized that transitioning to a co-op model would let her still have a hand in the business, while keeping its ownership in familiar hands and preserving its ties to the local community. Though she's kept an ownership stake, she plans to fully retire in the next few years.

"You have to be willing to let go of your old ways," she said. "You have to be willing to have other ideas [supersede] the ideas that you had on how to run the business. So if you're a control freak, it's not going to work."

The Cooperative State of Washington

The case of MSA may be uncommon, but it is not unique. There are around three dozen worker-owned businesses in Washington, active in just about every sector of the economy — from retail to consulting services to senior living. And with a new Washington employee-ownership law, which became effective Sunday, experts expect that number to increase.

"For the first time, we're actually going to get annual data on the value of worker ownership in our economy," said John McNamara, co-director of the Northwest Cooperative Development Center. "I think people are going to be surprised. ... It's going to be bigger than people realize."

The law, sponsored by Sen. Mike Padden, R- Spokane, establishes an office in the Washington Department of Commerce dedicated to assisting businesses seeking to transition to worker ownership. The office will work with private organizations like trade associations and nonprofits to support business through the transition, by providing resources and technical assistance.

The legislation also creates a revolving loan program for businesses undergoing ownership transitions and provides state tax credits intended to help encourage such a transition.

Padden said the bill, which passed unanimously in both chambers of the state Legislature, is poised to make Washington a national leader in the workers ownership movement.

Certain federal provisions exist for small businesses transitioning to employee ownership, including a Department of Labor initiative announced earlier this month. However, state-level provisions are more sparse. Only Colorado, California and Massachusetts have formal offices to help develop employee ownership; a few others, like Iowa and Nebraska, provide limited tax benefits for businesses that make the transition.

Padden said that employee ownership, while an unorthodox business model, should be considered by business owners seeking to reduce their role or retire. It is better than the potential alternatives, he said, which often involve a venture capital takeover, downsizing or moving the business altogether.

"You can stay local and do well that way," he said. "And people are happier working there."

In part because of the lack of state-level data, it can be difficult to pinpoint the economic impact of worker-owned businesses. There are also various models of worker ownership, which range from true cooperatives, like MSA, to Employee Stock Ownership Plans, where employees own shares in the company through a trust. Padden's bill includes provisions for both models.

The economic impact of these businesses, McNamara said, is smaller than that of companies like REI, which describes itself as a "retail cooperative," owned by consumers rather than by workers. But it's far from negligible.

"There are values that don't really show up in the macroeconomic picture," McNamara said. "The value of keeping a local bookstore in some places is really important for the identity of the neighborhood and in preserving that community."

Making the Co-Op Work

Even though owners might be more willing to sell their businesses to employees than to third-party buyers, the process is still complicated.

"A basic conversion involves helping coach and train workers on how to step up and become the business owners," McNamara said. "How to go beyond the day-to-day operations and learn about governance and management."

Co-op developers like NWCDC also work with lawyers to draft bylaws and purchase-and-sale agreements, and with accountants to ensure that the business model is viable.

A major part of the conversion effort is figuring out how to finance the sale in the first place — so workers aren't mortgaging their houses to buy their own company.

Such a challenge can be especially difficult for high-capital operations like technology companies and startups, according to McNamara. But "it's not impossible."

One of the few worker-owned tech companies in Washington is Working Systems, an Olympia-based cooperative that writes code for labor unions. Patrick McGrath, the board's president, helped oversee the company's transition into cooperative ownership in 2018.

"Cooperatives are not necessarily well-understood by traditional financing," McGrath said. "These banks, a lot of them, require personal guarantees in terms of repayment, which can make it challenging."

"It's hard to put 20 small-business owners on the hook for a big loan, and have people be excited about signing on for that," he added.

Instead, Working Systems turned to a less-traditional financier in Shared Capital, a Minnesota-based firm that bills itself as "a lending and investment fund for co-ops of all types and sizes." Shared Capital itself is cooperatively owned, governed by its 300 member co-ops in 35 states.

This sort of nonbank lending is relatively common, according to McNamara.

"Often there's outside lending that we need to find," McNamara said. "Either the [original owner] finances entirely or we find another co-op-friendly lender that will cover the cost. The actual cost of the business is covered through a loan that may be anywhere from five to 10 years. And this means that the workers can put in a [relatively] small amount of capital."

Instead of having to find $250,000, most workers end up paying below $1,000 — a cost that can be achieved through payroll deductions.

"It's not an onerous step for them," he said. "And then, over the course of time, the co-op will effectively pay for itself through operational profits."

With Working Systems, the results of the conversion have been strong.

"The cooperative structure lends itself to transparency with our workers, so we're sharing information on a regular basis," McGrath said. "People are kind of aware of what our finances look like and how different pieces of their work play into that. Overall, that's had a positive effect."

"It was already a good place to work before we became a cooperative," he said. "But with the conversion, it was really in tune with the way that the business was structured already. So it was really good for us."

Rough Seas

Not every worker is a necessarily a member-owner of a cooperative. Darby Flanagan, a scientific diver with MSA, is in a nebulous position. She appreciates the flexibility of working summers with the team, even if she's not in the position of Leitman or DeCaterina.

"Some people would rather just work for a few years and move on," Leitman said. "Some people would rather not have that extra responsibility, because there are tiers of responsibility that come with being a member-owner. Some people would rather just put their time in and work."

The cooperative was not smooth sailing from the get-go. The decision-making process was "cumbersome," Leitman said, and the decisions themselves were "definitely not what I would have made."

Now that the process has become more streamlined, though, the team has learned to trust each other. Leitman does not regret her decision.

"It not only creates a mechanism for increased wealth — shared wealth — it also creates a mechanism for better communication, because you have to work together in making these decisions," she said.

"If you have a way for people to manage a living-wage job, where people are obligated to communicate in a way that will achieve success, then I do think it's a good idea. ... Especially if you're willing to not only share your [workload], but share the profit and the decision-making process."

After the canceled dive at the Anacortes marina, the MSA team packs up and moves on to another assignment in the area. Here, they will assess the biological conditions around a residential shore bulkhead.

Under the new business model, DeCaterina says that MSA has shifted its focus toward more environmental protection and restoration projects. DeCaterina himself is passionate about eelgrass and substrates, but he says the shift has been a group decision — Leitman included, of course.

"The hive makes decisions differently than maybe a single owner would," he says, referring to the six member-owners.

For his part, DeCaterina says he enjoys the responsibility. Overlooking the rocky shoal, he confers with Leitman and Flanagan, as the three break out their equipment and start taking measurements.

Leitman says her experience of transitioning her business is much like her experience of being a mother — it's "not for the weak of heart."

"When you see your kids grow and leave the nest, it feels sort of the same with the business," she said. "Another 2 1/2 years from now, I won't be managing and making decisions at all. So why not let [other] folks make those decisions, and see what happens?"

(c)2023 The Seattle Times. Distributed by Tribune Content Agency, LLC.

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