Worker Owned: Some Southern Beginnings

By Woody Connette

Vol. 4, No. 6, 1982, pp. 11-15

In September 1979, a small group of Windsor, North Carolina residents transformed a vacant automobile showroom into a garment cut and sew operation. They chose a name that desribes exactly what they are: The Workers’ Owned Sewing Company. There were no Chamber of Commerce ribbon cuttings, no features or accolades in the local papers and no beaming bankers congratulating themselves on this new business in the community.

Three years later, though, WOSCO is thriving, and praise for its quiet achievement is beginning to trickle in. I was surprised when I visited WOSCO in September 1982 because the company looks like any other cut-and-sew operation. A small, front bookkeeping office is dwarfed by the large sewing room where workers hem pieces of fabric into clothing. The industrial buzz is nothing like the comforting hum of a home sewing machine. Thread whips from large cones through the machine and into the fabric. Over to one side, other workers cut panels of fabric from large bolts of cloth with electric knives. At the far end of the room, workers inspect finished clothing before bagging, tagging and boxing items for shipment.

Unlike other cut-and-sew operations, however, all who come to work at WOSCO come with the understanding that they will become shareholders in the corporation. After three years of continuous operation, forty workers have bought into the company by purchasing one share of stock at a cost of one hundred dollars. These workers have elected a board of directors which in turn has selected Tim Bazemore to manage the business. Bazemore, a Bertie County native, had years of experience with another cut-and-sew business and was one of the leaders in establishing WOSCO. According to him, one of the principal differences between the worker owned business and any other business is that “there is a family-like atmosphere here. There is a feeling for other workers.”

All of the workers meet periodically to discuss the progress of their business, production and contract problems, and other matters. Cut-and-sew is a highly competitive industry. When I visited WOSCO, I was struck by the workers’ zeal. Yet there was no sense of apprehension in their speed and efficiency. They were not working to please a boss; they were working for themselves. Company profits mean profits to them personally, and profit is directly tied to their own productivity.

WOSCO started on a financial shoestring. At times, Tim Bazemore had to sell corn, soybeans or hogs from his farm to cover the payroll. No banks or other commercial lenders were interested. Twin Streams Educational Center, a Chapel Hill based organization that provides assistance to worker owned businesses, loaned WOSCO fifteen thousand dollars.

In the beginning, each pay day was viewed as a milestone. In recent months, the business has been showing a profit after meeting the payroll and other expenses, so that only $2,700 remains to be paid on their original Twin Streams loan. Suprisingly, WOSCO’s immediate problems come from being too successful. WOSCO makes blue jeans which are sold to a company which in turn sells them to K-Mart. The middleman with which it contracts has apparently heard of WOSCO’s earnings and is attempting to reduce the contract price. So far, the workers have refused to buckle under to pressure to renegotiate and may face layoffs. Bazemore and WOSCO Vice-President Lila Dudly regard this as typical of the problems faced by any cut-and-sew operation. They remain confident that WOSCO will continue to show profit and to grow. According to Dudly, “We’re going to have to prove workers’ owned to everyone in this area, because we’re the first. When we succeed, there will be more worker owned businesses here than anything else.”

The individuals who started WOSCO needed work,

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and took matters into their own hands. But WOSCO workers are not unique. Around the country, others are coming to realize that to save or preserve their jobs they too will have to take charge of their futures. Increasingly, employees are cooperatively taking ownership of plants that are threatened with closure. In a September 6, 1982 New York Times article, the Episcopal Urban Bishops’ Coalition said, “We suggest that the disarray now spreading through economic arrangements in America today may have its roots in the longstanding practice of workplace inequality and the lack of dignity through shared ownership.” Further, “We note that where cooperatively owned enterprises have existed in this country, and elsewhere in the world, productivity has been high.”

In Weirtown, West Virginia, workers are negotiating the purchase of a steel mill from their employer, National Steel Corproation, in the face of National’s plan to close the operation. At stake are the jobs of approximately 8,800 workers and the economic future of the community.

In northeastern South Dakota, the 180 members of Dakota Handcrafts, Inc. sew earthtone quilts and home furnishings sold in retail stores throughout the country.

In Oregon and Washington, several worker owner plywood companies, ranging in size from eighty to 450 workers, have been in business for as long as forty years.

Loaves and Zippers

Shortly after midnight, six nights a week, Percy White turns on the lights at the New Bern Bakery and begins mixing, kneading, rolling and cutting dough for the goodies that will fill the display counters in the morning. Around 2 a.m., his wife, Elnora, and other worker, Ernestine Patrick, arrive. The three of them work steadily, and by 5 a.m. open their doors to the public.

Fresh doughnuts, twists, long-johns and poorboys are ready when the customers come in. Cakes are baked to customers’ specifications in a dozen-odd flavors ranging from German chocolate to tutti-frutti. The Whites and Ms. Patrick remain behind the counter all day. If the work is slow, they may take turns dozing or minding the bakery while the others go out for fresh air. At 7 p.m. the bakery closes and its workers go home for a few hours of rest before starting the routine again.

Elnora and Percy White and Ernestine Patrick have been working at the New Bern Bakery since it opened in December 1981. Why do they work so hard? As with WOSCO, the bakery belongs to them. They started it from scratch with little more than hope. Its success will be their success.

It may never have occurred to the Whites’ and Ms. Patrick to open their own business had they not been among the five hundred employees who were abruptly thrown out of work by the Texfi plant in New Bern in July 1980. None of the Texfi employees received any advance notice of the plant’s closing. Elnora White had worked there for eight years. “Ernestine called and told me that Texfi was going to close,” Ms. White recalls, “I said, ‘It can’t be true. We just left there this morning.’ then the telephone just started ringing. Everyone was calling each other.”

For the Whites and Ms. Patrick, finding work in New Bern proved impossible. Local unemployment was already high, and they were competing with the other 497 Texfi ex-employees for the few available jobs. All three are middle-aged and black, and they watched as jobs went to younger and white workers. They realized that they must take matters into their own hands.

First, the Whites and Ms. Patrick met with several other former employees to consider reopening the plant themselves. They had heard of similar efforts in other parts of the country. A bit of study quickly showed them that the cost of retooling the plant was too great. Texfi had anticipated the closing and had done nothing to modernize production equipment.

Then, the idea of starting the bakery arose. Percy White had been a baker in New Jersey and the two women had years of experience cooking at home. With the assistance of the Center For Community Self-Help, a Durham, North Carolina nonprofit organization that offers technical and financial assistance to emerging worker owned businesses, the Whites’ and Ms. Patrick began a feasibility study. According to Ms. White, “We went door to door talking to people and businesses.” They finished their study convinced that a bakery would work.

Next came the long and difficult task of preparing a business plan and finding the money to lease a budding and purchase equipment and supplies. Banks and other commercial lenders in New Bern quickly turned down their loan applications. Again, the Center for Community Self-Help and Twin Streams Educational Center in Chapel Hill came to their assistance in arranging for loans. With this borrowed money and cash earned through yard sales, the Whites’ and Ms. Patrick opened their baked in December 1981.

So far, the bakery is breaking even, but to show a real profit it will need additional equipment and employees. The City of New Bern has applied for twenty thousand dollars from the North Carolina Small Cities Community Development Block Grant Progrm to enable the bakery to expand. If the state grants the money, the bakery will be able to begin a marketing campaign to raise customer demand to the bakery’s full potential. When that day comes, perhaps the Whites’ and Ms. Patrick will be able to cut back on their fourteen to nineteen hour days. For the present, however, none of the three workers compalins too much about the long hours. “You work for someone else all your life,” explains Ernestine Patrick, “Now you are working for yourself. This is a foundation.”

“We’ve got to work together to accomplish anything,” Ms. White adds. And to those who would follow their example, she warns, “Don’t go into it if you are not going to work together.”

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A few miles from the WOSCO plant in Windsor, North Carolina, a Talon zipper factory, located in Woodland, North Carolina, closed in February 1982, throwing over two hundred skilled workers into the depressed job market of Northhampton County. Eight of these former employees are now trying to start a worker owned factory called United Zipper Company. At first, they approached Talon to discuss buying the closed plant or its equipment. Talon, fearing further competition, refused to talk. Rather than sell, company agents destroyed the zipper machinery and let it go for scrap.

According to one worker, Beulah Sharpe, the cost of building a plant and purchasing equipment will amount to $700,000. The city of Murfreesboro has applied for $325,000 from the North Carolina Small Cities Community Development Block Grant Program to be used for this purpose. The balance will come from other lending sources. When the business begins, by late fall of 1982, there will be ten worker owners. Their plans project eventual growth to a work force of thirty-seven.

“At Talon,” says Ms. Sharp, “we were never involved in making decisions. Now we have to learn how to make decisions for ourselves. We’ve made mistakes along the way, but we have learned from them.”

Another worker, Doris Davis, adds that the learning will be important for them all in the future. “Instead of having high paid experts standing around telling us how to do things, we need to know how to do them ourselves. The more worker owned businesses there are in the state, the more business there will be to stay. They will not be as likely to jump and move somewhere else. We would like to set an example that would give other people courage to try the same thing.”

ESOP’s Fable and Workplace Democracy

“Worker ownership” means many things to different people. Many so-called worker owned businesses are in fact only partially owned by the employees under the provisions of an employee stock ownership plan (ESOP), which in most cases is designed by company management to take advantage of tax benefits. In a typical ESOP, employees who participate buy company stock through payroll deductions. Depending on the size of the company, the employees may come to own anything from a tiny outstanding stock to complete equitable ownership of the company.

Workers participating in an ESOP may or may not participate democratically in the management of the company, depending upon the particular provisions of the ESOP. Rarely do all workers own an equal share of the business under ESOP provisions. Employers like ESOPs because they have significant tax advantages. They have learned that employees are more productive when they own a piece of the action. The Washington-based National Center for Employee Ownership is the leading organization promoting worker ownership through ESOPs.

Every fable contains a bittersweet lesson, and ESOP is no exception. While ESOPs may be applauded for allowing employees the opportunity to purchase equitable ownership in the companies that employ them, much of the gain is illusory. One problem is that many companies tie employee ownership with a vesting scheme based on employee tenure. Thus, the employee who stays with the company the longest ends up with the largest share of the ownership. In a low paying, unskilled company with high employee turnover, the company management stays with the company the longest and ends up owning the stock.

Another problem with ESOPs is the emphasis they place on property ownership of company stock, with no real concern for democratic management of the business. Under an ESOP, stock is held in a trust, and through various schemes upper management can retain control over the voting rights that go along with the stock. For many worker owners, management is vastly more important than ownership. Thus, many worker owners and experts in the field question ESOPs as an option for worker ownership.

Among those who question the value of ESOPs are individuals like Steve Dawson, executive director of the Industrial Cooperative Association in Cambridge, Massachusetts, who asserts that effective employee ownership must involve more than having employees’ names on the rolls of stockholders. For these individuals, workplace democracy–the individual worker’s right to manage the workplace and share in the benefits of management–is paramount. For them, workplace democracy has little to do with property rights. Since democratic management rather than ownership is the key, the business becomes something of a vessel for the workers’ collective labor. Wages and job quality are the principal rewards. While the business itself may be a valuable asset, it is regarded as a legacy to be held intact for themselves and for future generations of workers.

In the best definition that I can offer, a worker owned business is one in which all workers own some share in the business, with each worker owner having one vote in the basic management of the business affairs and workplace.

Why worker ownership? Worker owned businesses can save existing jobs that are jeopardized by plant closings and relocations and can also create new jobs. This was one of the driving forces behind all three worker owned business ventures in eastern North Carolina. None

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of the eight individuals involved in United Zipper, for instance, has found a job in the seven months since Talon closed its doors.

Unemployment is especially high among minorities, the very young, and the older individuals. By September 1982, seven months after J.P. Stevens closed its Rock Hill, South Carolina plant, a Charlotte Observer survey showed that only thirty-seven percent of the former employees had found full time jobs. Only twenty -seven percent of the women employees had found jobs. The average age of those who found work was forty-one, and none contacted in the survey was below the age of twenty-six. The average age of those without jobs was forty-five.

Worker owned businesses can also operate more profitably than traditional corporations since a small portion of the gross revenue of a worker owned business is subject to taxation on the corporate level. Further, studies have shown that worker owners are generally far more productive than their counterparts in other businesses. Engineers who have timed WOSCO workers found that they work at greater speed than employees in other cut-and-sew operations.

A worker owned business is often willing to settle for a lower profit margin. Large corporations or conglomerates frequently cast off plants that are not as profitable as their other operations. They show little regard for the livelihood of those who may have served in the local plant for their etire working careers. To explain such a plant closing, a GAP Corporation vice-president once said, “We are a big company and this is a small division that we acquired twelve years ago in a merger.”

For the local employees of such a plant, operating the business as worker owners may be profitable enough to preserve their jobs and pay their wages. If they own the business themselves, there is no need to worry about earning excess profits to distribute to shareholders living outside the community with no real interest in the business. If they are able to show a profit it goes into their own pockets as salary dividends or stock equity appreciation.

Local business leaders and politicians have generally been skeptical or even hostile at the first suggestion of the creation of a worker owned business in their communities. Upon reflection, however, they have generally realized the positive effect that the business with its jobs will have in their communities. In the case of all three worker owned ventures I have described, local business and civic officials, in recent days, have been quick to offer suport and assistance. By and large, however, commercial lenders remain reluctant to extend credit because of their lack of experience in lending to anything but traditional businesses.

Among the greatest advantages of worker owned business are those which cannot be measured on a balance sheet. Worker owners must learn how to work together, how the entire business operates, how their individual responsibilities fit into the total business and how their business fits into the total economy. The worker is at once a student and a teacher. Taking charge of their work lives also better equips workers to take control of their personal lives and to participate in their communities. All of the worker owners I interviewed were proud of their struggles to make the businesses work and of how much they have learned in the process.

From AP to 00

Despite the attractions, all is not rosy in the world of worker ownership. Problems abound. The success stories can be countered with stories of failures. In Lincolnton, North Carolina, 210 textile workers lost their jobs and three weeks pay when their former employer quietly filed for bankruptcy and closed the plant in February 1981. I lived less than a block from that plant at that time and watched with anguish as the employees struggled through seven months of exhausting work trying to reopen the plant as a worker owned business. Obtaining financing, developing a business plan, negotiating with purchasers and suppliers and planning for democratic plant management was simply more than the core group of ten workers could endure. Today, the plant stands idle, and many of the former employees remain jobless.

One of the major problems facing worker owned business ventures is financing. Traditional lending sources have been extremely reluctant to extend credit. In partial recognition of this problem, Congress created the National Consumer Cooperative Bank (NCCB) to offer loans and loan guarantees to worker owned businesses and other cooperatives. To date, however, most of the credit extended by the NCCB has gone to well established consumer and producer coops rather than to emerging worker owned businesses. In addition, the turnaround time on processing loan applications, together with personal guarantees and collateral requirements, have frustrated worker owners. NCCB has proved virtually useless in the worker ownership’ movement.

In North Carolina, a handful of organizations have consciously developed a technical assistance system to support worker owned businesses. Twin Streams Educational Center assists worker owners in learning to make cooperative management decisions. Twin Streams director Wes Hare says, “We are committed to offering close, active educational support to workers as they learn to fill new business roles. We work with them to learn decision making, board of director functions, officer responsibilities, and other questions of policy–where decisions are made and by whom. We also conduct residential workshops of workers and technicians. We are constantly supporting education based on the ideas at hand, built on a foundation of political and community action, with concern for worker empowerment.”

Another organization, the Center for Community Self-Help in Durham, offers nuts and bolts assistance with feasibility studies, business plans, management, production, and marketing plans. The Center also offers legal assistance with incorporation and other matters. Recently, it has been instrumental in establishing the Corporation for Democratic Business to extend loans to worker owned businesses and in establishing a credit union. According to the Center’s director, Martin Eakes, response to the emerging credit union has been very promising, suggesting that it may well become one of the best available sources of financing for worker owner businesses.

Church organizations have been among the most promising funding sources. WOSCO, for example,

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received a sixty-thousand dollar loan from the United Presbyterian Church at below market interest rates. The Washington based Catholic Campaign for Human Development has also shown interest in financing worker owned businesses and had agreed to extend credit to the Lincolnton venture.

Worker ownership is also suffering an identity crisis. In the public mind, it is frequently associated with union concessions in failing industries. Around the country, savvy business managers are offering illusory ESOPs and other employee stock options in union contract negotiations in exchange for wage and benefit concessions. When labor refuses these offers, management criticizes them for wanting all of the benefits with none of the burdens that come with ownership. Although touted as employee ownership, these schemes are generally a far cry from the type of worker ownership described in this article. In Clark, New Jersey, the employees in a GM plant were given ESOP participation in exchange for a twenty-five percent cut in wages. While the employees acceptes this as part of a package, it is not the “worker owned business” that it has been trumped up to be.

In a similar vein, worker ownership has also been associated with traditional businesses offering ESOPs or other profit-sharing plans and token participation in workplace management. “Worker ownership” has been used to describe a confusing array of stock participation schemes. In a recent article discussing this identity problem, Industrial Cooperative Association Director Steve Dawson speculated that unless worker ownership can be distinguished from other business structures in the public mind, it “will become just another high-risk profit sharing scheme. Just one more shell in corporate America’s productivity game.”

To further complicate this identity problem, worker ownership has frequently been shunned by unions who could offer alternative image of worker ownership to that posed by corporate managers. While twenty percent of America’s union members belong to internationals that have taken affirmative positions on workplace democracy and employee ownership, many of the remaining eighty percent belong to unions that are hostile to the idea of worker-ownership. The United Zipper workers, for example, were all members of a local ILGWU while employed at Talon. When Talon announced its plans to close the plant, the national union officers offered no assistance when they were approached by the workers, all of whom were leaders of the union local, with their proposals to open a new plant.

In the Philadelphia area, the United Food and Commercial Workers Union has been instrumental in establishing worker owned supermarkets in the wake of many supermarket closings in recent years. According to Wendell Young, President of UFCW Local 1357, his union began negotiations with AP management in April 1982 for the lease of five former AP stores to be opened as worker owner supermarkets. On October 13, 1982 the first worker owned retail supermarket in the country opened under his union’s leadership in Philadelphia. The store, known as “OO”–short for Worker Owned and Operated–is completely owned by twenty-four full time worker owners who are also UFCW members. These worker owners have hired a professional manager who has no ownership interest in the business. The union is the bargaining agent between this manager and the worker owners. According to Mr. Young, “Our UFCW local supports the concept of worker ownership. Based on our experience here in Philadelphia and elsewhere, we believe that worker ownership is a way of saving jobs for UFCW members.”

Seeds of Hope

The worker owned businesses that I have seen are all relatively small. In every case, the workers have struggled against desperate odds to get started. In an economy that measures success by size–the size of the labor force, the value of corporate assets, the margin of profit–these businesses may appear insignificant. I live in that economy, and I have become adept at using its yardsticks for measuring success. Yet in these worker owned businesses, I see hope. They are rooted in the community as no other business can be. By not having to satisfy external shareholders or the growth expectations of a parent corporation somewhere else, they can survive wide fluctuations in the economy. They provide decent, stable jobs and give workers the chance to manage their own affairs. Around the country, workers like Elnora and Percy White, and small towns like Woodland and Windsor, are being ravaged by the drastic changes that we are seeing in the industrial production sector of the economy. There are welcome seeds of hope in these worker owned businesses.

Woody Connette is managing attorney at Legal Services of Southern Piedmont, Inc., in Concord, North Carolina.