Giving Back Is Good Business

Most chief executives spend the majority of their time hoarding cash, cutting costs and appeasing their boards. Not Randy Papadellis, CEO of the 85-year-old Massachusetts-based cranberry giant Ocean Spray. His days are spent not on calls with Wall Street analysts but talking to the company’s 700 growers–many of whom are small family farmers–who produce two-thirds of the world’s cranberry harvest. “I often say my title should be chief alignment officer, because most of my job is to make sure the interests of the growers are aligned with those of our suppliers, customers and consumers,” says Papadellis.

That’s another big difference between his job and that of the typical Fortune 500 firm leader: since the people who grow the cranberries are also the owners of the company, when Papadellis talks to them, he is talking to management. Ocean Spray isn’t a public company or even a typical private one, but rather a worker-owned cooperative, one of over 30,000 in the U.S. that collectively generate revenues of $650 billion. And at a time when wealth inequality is as high as it has been since the Gilded Age, their success offers an approach that could help close the gap.

The word cooperative may conjure images of hippies and kibbutzim, but it’s a business model that’s been widely used since the mid–19th century in Europe and is widespread in the U.S. agricultural industry–big brand names like Welch’s, Land O’Lakes and Sunkist are all collectively owned by individual farmers. There are high-profile examples in other industries too–REI, the outdoor-gear firm, is the country’s largest consumer cooperative.

The collective model is likely to get more popular as the U.S. economy becomes increasingly Uberized, with more workers operating as independent contractors rather than traditional full-time employees. Indeed, a range of new co-ops is showing the potential for restoring the balance of power between companies and labor. The Bronx-based Home Care Associates employs 2,000 workers in jobs with higher-than-average wages and better scheduling standards and benefits. Swift, a new Uber-like taxi app, is run and owned by drivers. And the concept has found favor among politicians and policymakers, who see a way to bolster local economies while patching up the social safety net. New York City recently launched a $2 million fund to help develop co-ops for neighborhood businesses like print shops and cafés.

Ask U.S. economists the key to a more robust financial recovery and chances are they’ll say higher wages. That’s because labor’s slice of the pie has not been this small since the 1950s. From the fight for a $15 minimum wage to the calls for a universal basic income, there’s a growing recognition that you can’t have a real, sustainable rebound in an economy that’s made up of 70% consumer spending when most Americans haven’t gotten a raise in real terms since the 1980s.

As Starbucks’ CEO, Howard Schultz, has put it, in a nation of latte makers and latte drinkers, you need more of the latter or else the math doesn’t add up. That’s one reason many firms, including the insurance giant Aetna and the clothing brand Eileen Fisher, have opted to raise wages and give workers a bigger stake in the company.

Yet these moves come at the pleasure of the CEO, and giving employees shares in a business offers limited economic benefit and little potential for longer-term control over decisionmaking and strategy. That’s why many labor advocates see the cooperative model as an idea that chimes with the current economic winds.

At Ocean Spray, Papadellis says, farmers can get three times the average price per barrel of cranberries paid on the open market, because workers, rather than Wall Street, get to make strategic decisions. He says he has been similarly liberated as CEO, able to make investment decisions for the long haul rather than the quarter, allowing Ocean Spray to create economies of scale and grab market share from large competitors that were under more pressure to keep share prices and margins high.

In an era in which returns on corporate investments vastly outpace income gains by employees (partly because of pressure from Wall Street to keep profit margins and stock prices up), few large public companies can focus on workers’ long-term success. “Since the 1980s, business success has been measured by a firm’s ability to extract value and store it in its share price,” says Douglas Rushkoff, author of Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity. As a result, “firms have become holding companies for capital. They are much better at extracting it than releasing it.”

The co-op model lets workers become owners of capital rather than being dependent on a set wage. Or as Rushkoff puts it, “workers, suppliers and customers become rich enough to sustain the marketplace” rather than having individual firms (and the people who run them) take such a disproportionate share of wealth.

Some economists see the potential in co-ops like Ocean Spray to help decrease the nation’s gnawing inequality. “To the extent that cooperatives can help move us from a large employer/employee model to a more entrepreneurial system that empowers labor,” we could see more robust economic growth, says New York University professor Arun Sundararajan, author of The Sharing Economy.

Cooperatives have downsides, of course. It can be challenging to raise capital and difficult to scale up to Fortune 500 size given legal and regulatory hurdles. Still, expect America’s co-op push to continue, particularly as technology makes it easier for workers to unite across geography and industry. The result may be a whole new kind of labor movement.