BY Roxanne Patel Shepelavy
Nov. 12, 2024
Would you like to work at a place where you don’t get exploited, and if your boss sucks you can fire them?
To James Rasza, co-founder of Boston’s Democracy Brewing, the answer to that question is clear: Yes, of course — even if that boss happens to be him.
Rasza launched Democracy Brewing on Independence Day in 2018, with a mission that fits the name: to democratize the world of business, as a way to bolster democracy writ large. He did that by making Democracy Brewing a worker cooperative, a type of business owned by the employees, who share the profits, the decision-making and the responsibility for operating the restaurant bar in downtown Boston. Currently, Democracy Brewing has eight worker-owners including Rasza and the head brewer, restaurant manager and chefs.
“With a co-op, we’re not creating a consolidated group of people in power who control all the wealth,” says Rasza. “The only way you are able to break that stranglehold of power is democratizing the workforce. I think this is half the battle for invigorating democracy.”
Rasza, who grew up in rural Maine, is a former community and labor organizer who eventually burned out on fighting — and losing — worker problems that seemed never to get solved. He took a job at Equal Exchange, a worker cooperative coffee importer, with about 140 worker-owners and $70 million in revenue. That experience led him to realize two things: The co-op satisfied many of his economic and political principles. And, he didn’t love coffee, so didn’t want to work in that industry. Instead, he decided to start a brewery.
In total, Democracy Brewing has about 40 employees, not all of whom will stick around long enough or decide to become owners. Other types of worker-owned businesses, including Employee Stock Ownership Plans (ESOPS), are formed when founders retire and sell their companies to their workers. That is a way to keep businesses in the community; give employees a financial stake that can sometimes create wealth; improve working conditions; and raise revenues.
This could be particularly valuable in Philadelphia, where wages — including the state’s $7.25 minimum wage — remain so low that even our lower-cost housing is out of reach for many, and where 23 percent of residents, including many who have jobs, live in poverty. As owners, workers can choose to raise wages or provide childcare for themselves; they can start on a path to the middle class; and they can securely maintain their employment throughout their careers.
“ESOPs are a way to build wealth for individuals, from management levels to someone who might work for a company but might not ever expect they’ll stay there and have full retirement available,” says Pittsburgh City Councilmember Erika Strassberger, who leads her city’s Citywide Task Force on Employee Ownership. “They are more successful, stable, loyal, and could work their way up the ladder. That is good for the company, and the community.”
Normally, when a business owner is ready to retire, they think they have two options, assuming they have no family members to take over:
1. They can sell to a competitor, or someone else who wants to run the business.
2. They can close down altogether.
The first option can mean a windfall for the owner, but doesn’t guarantee a future for the workers. The second option benefits no one — not the owner, the customers or the employees.
According to the nonprofit Exit Planning Institute, some four million businesses in the U.S. will transition from their original owners over the next seven years. A third of those will go out of business; some of the rest will be purchased by private equity, stripped for parts and shut down later. “That worries us,” says Kevin McPhillips of the Pennsylvania Center for Employee Ownership (PCEO), a volunteer collective of CEOs, universities and foundations and experts in the industry. “Businesses closing is unhealthy for the economy and the workers.”
Worker co-ops like Democracy Brewing — where employees own and share all profits of the company — are one of the three most common types of worker-owned companies in the U.S. Co-ops are more about “social change” than building wealth, McPhillips says.
An Employee Ownership Trust is based on a simple legal device, the Purpose Trust, often used by wealthy individuals to protect their assets. Essentially, the owner and workers decide on a fair sale price; the shares go into a trust and the profits are then shared by employees. McPhillips, who says EOTs are far more common in the U.K., recalls a small Western Pennsylvania hair salon that didn’t want to bail on its employees. After working out a price, the workers got a bank loan to pay the owner and paid it off through shared profits.
The most widespread type of worker-ownership dates back to 1974: Employee Stock Ownership Plans, which allow business owners to “sell” all or some of their business to their workers. With an ESOP, employees pay nothing; the business takes a loan from the bank to pay the owner. The portion employees own in an ESOP is not taxed; that savings is then used to pay off the loan. On average, McPhillips says, ESOPS are about 12 percent more profitable year over year than traditional businesses.
Philly witnessed a spectacular result of an ESOP last year when worker-owners of insurance agency Graham Co. sold the company for about $375 million, six years after they bought it from the owner. As an Inquirer story explained, that payout resulted in at least $1 million each into the retirement accounts of its 215 employees. (Depositing profits into the retirement savings meant they didn’t have to pay taxes.) “For some,” Mike Mitchell, the company’s vice chairman told the Inquirer when the sale was announced, “it will be life-changing.”
Most workers who own their companies won’t end up millionaires. But various studies have found the benefits to include a better bottom line, happier workers, and higher wages — in particular for women and people of color. From a 2020 article in American Progress:
A 2017 study from the National Center for Employee Ownership using data from a sample of more than 5,500 respondents found that workers of color who participate in an ESOP — compared with those who do not — earn 30 percent more in wages; hold nearly 80 percent more in net household wealth; and have a median tenure at their current job that is 36 percent longer.
The study also found that single women participating in an ESOP earned wages that were 24 percent higher than the wages of those with no ownership benefits and held 51 percent more in net household wealth.
In addition, workers in these companies are more likely to have paid child care, parental leave, tuition benefits, flexible schedules, subsidized child care, and higher retirement savings.
Unfortunately, most business owners don’t know that worker ownership is an option. That’s why PCEO partnered with Pittsburgh City Councilwoman Strassburger several years ago to launch the Citywide Task Force, with Council hearings and a website that is a one-stop shop for everything an owner would need to consider transferring the business to workers, including tabs that explain what co-ops and employee-owned trusts are; links to local lawyers, lenders and consultants that offer technical assistance; and information about where to get funding for transitioning a business to an employee-owned venture. The Task Force members include three City Councilmembers, a deputy mayor, several Allegheny County reps, business leaders and PCEO staff.
In the five years since Pittsburgh launched the Task Force, McPhillips says 16 new worker-owned businesses have been established in the city, amounting to 12,500 new employee-owners.
Last fall, the Task Force launched a $120,000 marketing campaign that included radio and TV ads, and letters sent to 30,000 business owners — signed by Strassburger, Allegheny County Executive Sarah Innamarato and Deputy Mayor Jake Pawlak, among others — telling them about its website and inviting them to upcoming information sessions. About 1,100 businesses sought more info from the city, and a handful (so far) are in the process of transitioning to worker ownership. Innamarato is now planning to launch a similar program throughout Allegheny County and the region.
“The real test will be to see how many companies do this over the next several years,” Strassberger notes.
New York City and Boston, among others, also have launched city programs to increase the number of worker-owned businesses in their cities — including, in Boston, a program that offered consulting services to Democracy Brewing when Rasza was first setting up. Philly, though, has no such program yet.
McPhillips, a Philly native who now lives in Havertown, says he originally tried to engage Philadelphia policymakers on partnering with PCEO — but made no traction after several meetings with business groups, chambers of commerce, and City Councilmembers. Former Councilmember Derek Green invited him to participate in hearings on the subject, which also went nowhere. McPhillips now hopes that new councilmembers will pick up where Green left off when he resigned to run for mayor.
Democracy Brewing has three levels of what Rasza calls democracy:
1. Worker-owners can run to be one of the six workers who serve on the board of directors, along with three outsiders. In that role, they supervise Rasza and the CEO; make an annual plan; and discuss issues, like “Why aren’t we selling more growlers?”
2. Managers handle the day to day operations, as any other bar manager might, without needing the approval of the board. Employees are also encouraged to help make decisions about their own jobs.
3. All the owners have a say in company-changing decisions, like the brewery’s expansion to an East Boston location, and one in Maine.
Before becoming an owner, workers have to be employed by Democracy for a year; be part of a book club that studies the history of and how co-ops operate; undergo training on how the business works financially, how to read a balance sheet, and each person’s impact on the bottom line. Once they’ve completed all these tasks, they must be unanimously voted in by all the other owners. Then, Democracy throws them a party, and “knights” them as new owners with a ceremony on top of the bar.
By then workers know what Rasza is quick to point out: Running a business as a worker co-op, at least in the restaurant industry, is not so much about building wealth. Democracy employees start at $20.50 / hour, but each makes a different salary, with the general manager being the highest paid. And the business has the same struggles as others in the industry: high turnover, especially during Covid; high ingredient costs coupled with a ceiling on how much diners are willing to pay; small margins that make it impossible to offer healthcare or other benefits Rasza would love to have and offer employees. And eight owners means each gets one-eighth of the brewery’s small profit.
“That’s maybe enough to put money down on a used car,” he notes. “But we can’t ever buy homes in Boston.”
Instead, the business model encourages Rasza and his co-owners to think holistically about not just their business, but how they can help each other live better, satisfying needs and wants. For example, Democracy is talking to another worker co-op that specializes in energy-efficient homes about designing and building a modular apartment building in Boston that would offer affordable rents to employees. And at their new location opening in East Boston, Democracy is looking to recruit a tattoo artist to open a parlor on the second floor, offering discounts to team members — a way to also recruit and retain employees — and helping both businesses get customers.
“Maybe we can’t build wealth,” Rasza says, “but how can we support each other and have rich and full lives? That’s a question we think about all the time.”
Every Voice, Every Vote funds Philadelphia media and community organizations to expand access to civic news and information. The coalition is led by The Lenfest Institute for Journalism. Lead support for Every Voice, Every Vote in 2024 and 2025 is provided by the William Penn Foundation with additional funding from The Lenfest Institute for Journalism, Comcast NBC Universal, The John S. and James L. Knight Foundation, Henry L. Kimelman Family Foundation, Judy and Peter Leone, Arctos Foundation, Wyncote Foundation, 25th Century Foundation, and Dolfinger-McMahon Foundation.
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