How Mondragon stops workers from selling out

I am reading Making Mondragon right now, trying to answer some questions I have about how a cooperative business can succeed. Earlier I posted about the way Mondragon handles the owner part of the worker-owner mix, which answered my question regarding how you can manage the problems caused by incoming and departing employees. Here I write about how Mondragon keeps workers from selling out, by which I mean transforming or selling their cooperatives to make them non-cooperatives.

One of the basic problems with cooperatives is that if they become too successful, owning them becomes very valuable. When owning them becomes valuable, selling them to other firms or internally transforming them into non-cooperatives becomes a very lucrative thing to do. A number of co-ops have met this fate. The worker-owners either sell off their ownership equity to some outside buyers; or, they hire on new employees as workers only, not as worker-owners, thereby consolidating equity in the hands of the incumbent worker-owners who become richer for doing so.

Mondragon has avoided this fate for two reasons. First, as I wrote about in my prior post, there is no stock and no equity owners. Workers do not own shares in the company that they can sell off. The owner part of their compensation comes through their capital accounts, which are non-transferable. So it is simply not possible to sell out to some other firm.

Second, all of the cooperatives contract with the banking cooperative, known as the Caja Laboral Popular. Through this contract, the firms get an assortment of essential business services including credit on friendly terms, consulting, data analysis, restructuring help if the firm starts failing, and so on. In this contract, there are provisions that mandate how the cooperative must be structured. This Caja standard contract is what makes all of the cooperatives function very similarly, and keeps the Mondragon complex fairly uniform and tight-knit.

One of the provisions of the contract dictates that at least 90% of the workers of the cooperative must also be owners. Cooperatives do not want to be cut off from Caja, and so this contract effectively keeps incumbent worker-owners from hiring on new employees as merely workers instead of worker-owners.

If you want to keep workers from selling out using the Mondragon approach, you need to set up a system where 1) workers do not have stock ownership or any other ability to sell off equity to a third-party, and 2) there is a very strong check to keep workers from denying ownership to new workers, e.g. a threat to cut off essential banking services.