DAOFest – Jason Wiener, ColoradoCooperative Developers

now we have Jason Weiner hey good morning everyone my name is Jason I don't come from the world of doubt I come from the world of cooperatives shared and distributed ownership from a corporate and legal context I'm a trained lawyer and I run a boutique law firm in Colorado and around the country focused on the incorporation of cooperatives and we do a range of work on designing incorporating financing and advising cooperatively owned entities in my work with technology there's still this kind of closing chasm of the world of unincorporated distributed platforms and incorporated platforms that are known as cooperatives how many of you are members in a cooperative understand or have delved into what a cooperative is we're involves alright a handful of folks Great cooperatives unlike unincorporated entities are creatures of the law and come with certain formalities and certain relationships that are defined by law between shareholders or members and the legal entity the co-operative is a separate legal entity from its members it has its own rights and responsibilities its own legal status under the law for better for worse cooperatives like corporations have First Amendment rights don't necessarily have anyway won't take the analogy terribly much further cooperation is at the root of the business model and in many respects cooperatives are the original form of a distributed autonomous platform they've been around for centuries they were used in just about every era of extreme economic disruption and transformation to reorganize the means of production and the arrangement of value creation and were first used in native traditions and have made their way through Western European traditions into a more mainstream morning into mainstream view here in North America they're rooted in their practice in autonomous and distributed decision-making unlike the linear extractive process of corporate governance where investors contribute capital their shares or their dollars vote to elect a board the board then hires the people with power who make 300 times what the average worker earns CEO reports back to that board and ultimately at the end of the day the output of the corporate forum is to generate profit for shareholders and it's an extractive loop that has developed a system of accounting that treats workers as as losses on a P&L it treats the loss of talent as a liability on a on a balance sheet the co-operative on the other hand has created and is codify as a virtuous cycle of contribution rather than shareholders capitalizing a corporation to extract profit you have value creators generally workers but could be tenants in a house or in a home or producers in a marketplace or consumers in a marketplace and they pool their contributed potential either their consumption or their production and Gent and create a platform for creation and marketing that then regenerates wealth and value back to the people who created the value in the first place it's designed to at all times be regenerative and to be distributed and every co-op that follows the law has a board that is either elected by its members or is beholden and serves its membership there's this inherent feedback loop of accountability and responsiveness and that's what makes it that's what allows cooperatives to operate on an autonomous basis you might be surprised to know that cooperatives are generally treated by the law as autonomous organizations in many respects they're exempt from overbearing regulation securities regulation in some cases tax in other cases other matters of corporate governance anything that has come out of economic recessions that force new regulation on traditional corporations largely cooperatives are exempt the credit union apparatus the credit union system is also exempt from traditional banking regulation much to the chagrin of banks and it's largely because these are legally circular accountable organizations I focused on worker producers because I think that we need to have a serious conversation and are in our society around the human value creator not just as a worker not just as a peer-to-peer producer but as the holders of the means of production in our economy and the need to have a conversation around reorganizing the corporate form to put the worker producers into into the center into focus cooperatives again nest the control and decision-making in the producer when that's a worker that's a really powerful thing I was a worker owner for a technology hardware technology a solar company for five and a half years and it was powerful to see what it feels like and what it means to give responsible responsibility and information to to workers and it's no surprise then that cooperatives benefit from greater buy-in greater level of engagement and you see that in data that shows much greater profitability rates longevity rates lower turnover rates they really are truly the People Power business model that's been around forever yes co-ops can be formed with stock or with membership the statutes here Colorado allow both it can look like a membership interest in an LLC it's a little bit of a hybrid on the membership side it's less structured and formal it doesn't require a share to be issued a membership is a fairly loose term that just correlates to or is kind of a proxy for a set of rights and obligations and responsibilities it can look a little bit like an LLC membership interest or a non-profit membership interest and those are usually defined in the bylaws of the cooperative but they're enshrined and they're legally protected and legally enforceable on the other side particularly when cooperatives are raising money we tend to use stock structures because investors still appreciate capital stock and like to see quantitative representation of ownership for better or worse but we can we can do both in the co-operative structure not to raise money from outside investors cooperatives generally with some disclaimers and caveats can are exempted from raising capital from their from their members so if a worker cooperative let's say it's a small tech agency and their workers each contribute five or ten thousand dollars to capitalize the co-operative that's their membership buy-in that contribution of capital is generally exempt meaning there's very little documentation that's required there's very little legal oversight and there's no filing necessary with a securities regulator which is - is a pretty serious advantage for either a start-up or a relatively small entity when you raise capital from outsiders you still are following traditional securities regulations cooperatives are both in my view the original people-powered business model the original social enterprise structure they're also in many ways the I call them be the kind of Apple product of business models because they're intuitively centered on people and they've been drafted into the law based on these principles and the principles of cooperation are in almost every jurisdiction embedded in statute it there's very few other places in the law where you see normative statements of of human values written into the law that govern an autonomous legal entity no LLC statute I've ever read says this shall be operated in an ethical way we have regulation for that or we rely on people to engage in good faith with one another or corporations we rely on them not to defraud their investors we have regulations to enforce that we have contracts to enforce that these principles are embedded in the cooperative model they're embedded and they're almost always incorporated into the legal structure and these have been interpreted over decades these have been revisited there's now an active conversation to reengage a discussion around diversity equity inclusion in the co-operative sector there are now more than 400 worker owned cooperative in the United States with several thousand worker owners and this is a bright spot that can be leading the way and is leading the way in level izing and reversing the dangerous trends of wealth and income inequality not just at a superficial level but rooted in legal ownership so we in Colorado are part of a very small Club of states that have a new fangled law called the limited Cooperative Association it's a flexible form of a cooperative that does that requires even less of the corporate formality and it allows for free association of members with all the traditional guardrails of cooperative ownership but with much greater flexibility about how the co-operative is assembled with different classes of ownership that allow for investors even to have minority voting rights by minority I mean less than a controlling interest which is powerful when a co-op needs to raise capital to scale and a decade ago lawyers and academics saw the limits of the traditional corporate cooperative form and thought well the cooperatives never really gonna get into the mainstream unless it can access traditional capital and so this statute was drafted and was initially adopted by about eight states in 2010 and 11 Colorado was one of the first and it's now seeing a resurgence with two or three states adopting the form in the last two years alone it's in our view as a firm the co-operative model for the next century and it's a platform for many of the startup cooperatives that are organizing around the country to form in a state with that statute many folks use traditional LLC's when they form a start-up because it's easy it's based in contract and it's fairly flexible and will protect the agreement and arrangement they entered into by members the LCA is very similar it all but says you're free to do what you want as long as you agree to it in your operate in your bylaws or operating agreement except that the LCA says but you've got to abide by these core cooperative models and structural guardrails to prevent the co-option of a cooperative by investors or the dilution of member control by investors and those are built into the statute they're immutable they can't be evaded by contract so it's really powerful anchor with a whole lot of flexibility again it's human centered it embeds flexible financing and we think it offers the potential of significant scale and flexibility there's also a topic for another day but there's some really favorable tax treatment for cooperatives using this model or other cooperative models under the tax code a little bit about history again I said this is more than a 400 year old tradition it's based on tradition it's based on principles of human organizing not just legal incorporation as you may know the traditional corporate form is the creature of capital it was formed to protect the investors in trading companies that were doing business in far-off lands and allowed for joint capitalization of a common enterprise with limited liability but it was never designed to protect and put people forward it was men to protect shares and the way that dollars would vote and control separate legal existence this tradition was born out of economic distress and economic exploitation at every step of the way from Weaver's to industrial workers to disenfranchised and and marginalized workers in northeastern Spain the co-operative model the tradition was born to empower people who had the capacity to produce for themselves and for the greater the greater economy we're seeing that next transformation today with data with technology we're seeing the next era of economic disruption and we'd be we'd be remiss not to consider the tradition of cooperation and and people centered organization in this next in this next iteration of our economy so cooperatives organize themselves in all different sectors these are just a few of our favorites collab cooperatives the independent technology agency that works with nonprofits not NGOs cooperatives across the globe and they have a really interesting and inspiring values based engagement process with their clients they're clients of ours democracy brewing is a in a highly corporatized rapidly consolidating craft beer sector democracy brewing formed about three and a half four years ago actually by now it's been five or six as a worker owned craft brewery in downtown Boston where rents are growing as fast as they are here in Denver and they have a prime location for worker owned craft beer and their reigniting a tradition of democracy and civic engagement using their cooperative as the platform they've raised money from their community in a direct public offering it was a cooperative that's been able to access non-traditional investment from ordinary people in their community and they've raised enough money to start and to grow and they're successful and inspiring savvy cooperative is interesting they've created and are creating a brand new marketplace where it doesn't currently exist it's a patient experience and data cooperative big pharmaceutical companies will engage in clinical trials and focus groups on either new marketing campaigns or new drugs or to gain insights for their innovation and they do it in an extractive way and in a highly individualized fragmented market there's currently no economic transaction for most people who participate in those so Savi came together to say we collectively as patients and people with medical insights about our conditions have tremendous power that's currently being on that's not currently being protected or tapped so they formed a cooperative to say let's aggregate our the power of our collective insights and our collective experiences to negotiate volume contracts with big pharmaceutical companies that will actually pay significant money for us to organize a platform to deliver insights to you and so they're generating on a bootstrap basis hundreds of thousands of dollars in contracts with pharmaceutical companies all over the world to deliver insights in a people Center met in a patient-centered way and they founded it as a cooperative they will be a cooperative and their founder has done tons of press and videos it's really inspiring to see but the business model of cooperation is core to what they're doing because there's no mechanism there's no potential for extraction the coop can't monetize their data without that being made a whip mate being made known to their members it's a fundamentally member centric model it says we will create a marketplace for of and by ourselves and we'll monetize it for our benefit that economic relationship can't be verted to subvert the patient to subvert the member cooperatives are rooted in self-help they're rooted in empowerment and investment community that's born from the principles I discussed at a community level they bring capital together from their members that's the way cooperatives generally start there's a form from a premise of common need and common contribution that doesn't have to mean wealth affluent privileged people coming together to solve needs for other people it means people coming together to solve their own needs this is an incredibly empowering business model for people without privilege and without financial means they strengthen historically marginalized communities by rooting power where it otherwise both doesn't exist and has been deprived for centuries when it comes to wealth cooperatives are much better at distributing wealth and distributing income they are vehicles for income distribution there are also vehicles for empowerment through financial training through management training and they're far more resilient in downturns when I was a worker owner we went through a significant disruption in our sector and we had serious discussions around slashing all of our salaries so that we could avoid any layoffs I just can't imagine a traditional environment in which that kind of discussion can take place or be put into practice and the data bears this out the business model is about aligning incentives it's about creating on the one hand we tell in more conservative and financial financially driven circles we talk about cooperatives as being the engine of creating lots of mini capitalists but in circles like this it's really about talking about self empowerment and autonomy by giving people the means of creating value and deriving benefit from the value they create and we have to find new ways of protecting the risk and reward that founders put in when they form cooperatives not all cooperatives are created as highly distributed new entities some of them are created by a couple of people coming together to form a platform that will eventually be populated by lots of founders and that creates some interesting tension around founder dynamics and founder incentives and I believe the business model is currently living up to its potential to address some of those tensions and that's the end of my talk I think I've managed my time