A Worker Buyout (WBO) is when the workers collectively purchase a business from its previous owner, often creating a worker cooperative. Worker buyouts usually occur to try and save a business facing closure due to insolvency or the former owner retiring.
The next decade may yet hold huge opportunities for worker takeovers of from retiring bosses According to a report commissioned by Zurich Insurance and written by the Economist Intelligence Unit, Nearly two-thirds of small business owners in the UK were found to be over 50, more than one in five are aged 61-70 with just 11 per cent being aged 40 or younger. These small businesses are ripe for worker takeover, especially as over 60% of owners have no clear succession plan.
The co-operative movement, therefore, must mobilise so that employee takeovers are accessible to workforces, otherwise, we might miss a golden opportunity for expanding the sector.
Historically, economic and natural crises have acted as a catalyst for WBOs, the post-2008 financial crisis period, for instance, saw a growth in new worker cooperatives and other forms of labour-managed firms. For example, in Italy, post-recession, the rate of emergent WBOs has grown considerably, in line with unemployment rates during the crisis. As a result, employment in the cooperative sector grew 8 per cent between 2007 and 2011, while employment figures fell country-wide.
Similarly, the last crisis caused by the COVID-19 pandemic came with firm closures and, therefore, a shortfall in employment and working hours because of the forced quarantines. The pandemic and the restrictive measures implemented by governments are predicted to push hundreds of businesses into liquidity problems and cause the loss of thousands of jobs.
The resultant downturn has spiked interest in the cooperative business model and worker takeovers which isn’t surprising, after all, WBOs are a tested solution that has saved failing businesses during a crisis in past downturns, establishing more resilient businesses in their place, In Italy, 87% of businesses that have been taken over by the workers survive their first 3 years, compared to 48% of all Italian businesses.
With Covid’s impacts still being felt and a decade of business sales about to erupt it is key that we learn how to make WBOs as easy as possible for prospective worker-owners.
Italy has long been held as the poster child of worker buyouts thanks to an ecosystem of support for potential worker-owned firms and legislation that makes the process more widely available and straightforward.
The Marcora Act was introduced in the mid-80s and has had particular importance in promoting WBOs and, therefore, cooperatives in Italy. The act was introduced by Giovanni Marcora, the Italian Minister of Trade and Industry, and was passed to protect jobs and facilitate the recovery of companies in crises. The act aimed to safeguard workers’ jobs whose workplaces were in contemplation of bankruptcy, moving out of the country or selling, by the owner by giving workers the legal right to convert their workplaces into cooperatives.
The European Research Institute on Cooperative and Social Enterprises stated: “The Marcora Law in Italy was instrumental in facilitating employee buyouts, primarily by providing a framework that enables collaboration among all of the various stakeholders involved in the process, and also by making available financial support schemes.”
While there were upwards of 1,000 worker-recuperated firms in Italy in the 1970s and 1980s, owning from the economic turmoil of the decade, by the end of 1990, there were at least 114 active WBOs in existence, and by 1997 a total of 5,569 jobs had been saved or created by WBOs.
Other pieces of legislation have helped boost the sector and facilitate worker takeovers. The Basevi Law of 1947, a general law on cooperatives, enhanced this constitutional recognition, providing special tax facilities to encourage cooperatives’ self-capitalization. “Indivisible reserves” were a tool to accomplish this aim, which allowed the profits of cooperatives to be exempted from tax as long as they were re-invested into a cooperative.
In this case, if a cooperative was dissolved or sold, then its reserves went to another cooperative, or a cooperative federation, rather than distributing them among the members. Thus, these reserves have been contributed to the development of the cooperative movement, not only for current members but also for future members. These reserves, alongside surplus from existing co-operatives, helped fuel the ecosystem required to finance new co-operatives and WBOs.
All Italian cooperatives pay 3% of their surplus to co-op development funds managed by the different co-operative federations in Italy. Contributions to the solidarity fund are tax-exempt and pooled together to offer below-market loans to support cooperative start-ups, cooperative conversions, and cooperative expansion. Co-operatives have been pooling their resources before being mandated to with the largest fund, Cooperazione Finanza Imprese (CFI), formed by the initiative of Italy’s three major cooperative federations, Legacoop, Confcooperative, and AGCI in 1986. In the UK, this has inspired Members for Co-operation to campaign for some large consumer co-operatives to set up funds that would be used to help new co-operatives.
Italy has a composite of legislation and cooperation that has been built up to help facilitate WBOs. Other countries should take note if they are to grasp the upcoming opportunity. Considering firm closures in today’s pandemic conditions and the upcoming wave of retiring owners, it is perhaps necessary to put WBOs on the table again and discuss cooperatives as a real alternative to traditional firms in Europe and the world.
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