It started small. It started some time ago. And it started with a focus on profit and people. It’s cooperative business. 

Jose Maria Arizmendiarrieta, a young Catholic priest, arrived in Mondragón in 1941, a town with a population of 7,000 that had not yet recovered from the poverty, hunger, exile, and tension of the Spanish Civil War. One year later he set up a technical college that became a training ground for local companies. Arizmendiarrieta included in the curriculum teaching on solidarity, participation and the value and agency of human beings, individually and collectively.

In 1955, he selected five young people to set up the first company of the co-operative now known as the Mondragon Corporation. Today the Mondragon Corporation is the tenth-largest Spanish company in terms of turnover and the leading business group in the Basque Country. It employs over 74,000 people in 257 companies and organisations in four areas of activity: finance, industry, retail and knowledge.

Every member of staff is an owner of the company.

Their labour does not provide capital for distant and external shareholders.

It is no accident that the Mondragon Corporation website starts with Mondragon People!

This ‘employee owned business’ has four corporate values: co-operation between staff as owners and protagonists; participation, which takes shape as a commitment to management; social responsibility by means of the distribution of wealth based on solidarity; and, innovation, focusing on constant renewal in all areas.

Let’s now shift to Scotland, where the founders of a company called Novograf were considering selling the business after a combined sixty years of personal investment. From small beginnings in 1986 Novograf had developed their original signage business into a major brand realisation company with some of the UK’s biggest companies as their customers.

An American company offered to buy them out for a significant sum. Just prior to signing off on the deal, a conversation with the potential buyers revealed that Novograf would more than likely be swallowed up into a new entity and moved out of Glasgow. That would end the employment of over sixty people who the founders had worked with for many years.

Then out of the blue a postcard from Scottish Enterprise dropped into their mailbox and drew their attention to an alternative – employee owned businesses. They discovered there was a different option to selling their company to anyone with a big enough chequebook: to sell the company to their employees. Of course the employees could not come up with the cash to collectively purchase the company and no major bank was interested in funding this ‘radical’ scheme. So the founders turned themselves into a bank, handing over the company shares while allowing employees to pay them back over several years with one condition – a limitation that excluded the relocation of the business.

At the end of is first year as an employee owned business Novograf’s sales increased by 20% and the company employed an extra 22 staff.

It sounds almost commonsense when you consider the benefits of employee owned businesses. The benefits have been proven through the experience of over 300 employee owned businesses from Arup to John Lewis. They include a competitive price and guaranteed exit for the owner to safeguard the future of the business, ownership and leadership transfer at low risk, enhanced employee engagement, increased productivity and innovation and attracting and retaining high-quality talent.

However as Aditya Chakrabortty makes clear, the model of employee owned businesses sits at odds with current market economics in the West to such a degree that little can be found to promote the concept and precious few can be found to provide advice on how to move a company into this space (Coops UK is one good example). When it comes to selling a company the overwhelming doctrine surrounding options is the almost fanatical adherence to the concept of the free and open market where the staff, suppliers and the public count for little.

Social enterprise has been promoted for many years as the new way to both trade as a business and ‘do good’. But perilously few adopt any alternative business model to that of the standard owner-employee hierarchy that has been developed to reflect the Lord and serf, labour and capital, rich and poor reality of the current dominate form of neoliberal capitalism across the West. It may be no coincidence that by the mid 1990’s western governments – especially in the UK – were promoting social enterprises and demoting cooperatives.

Employee owned businesses challenge the very heart of the open market’s reason for being – the generation of profit for external shareholders who benefit from the labour of others.

Employee owned businesses generate profit for the owners of the business – the employees.

As we suggested in our last blog, profit is not evil in and of itself – it is how it is made and how it is distributed that matters above all else.

Employee owned businesses are a tangible example of how profit and people can be combined in a manner that benefits those whose labour generates the profit.