Development of Cooperatives and Employee Ownership, Quebec Style
Luc Labelle

Editor's note: In the last issue, Owners at Work looked at the Mondragon cooperatives in the Basque region of Spain, generally viewed as the largest and most outstanding group of worker-owned companies in the world. In this issue we look closer to home: at the Canadian province of Quebec where the cooperative movement has become a major source of job creation because of a conscious strategy of developing technical assistance: "Regional Development Cooperatives" have become the catalyst for the growth of cooperative employee ownership and new cooperative companies throughout the province. Quebec's system of cooperative support may be the best in the world. Read on!

In Canada, the province of Quebec is notable for the number and diversity of its cooperatives. This is a result of a supportive provincial government and a well-developed strategy of cooperative development undertaken by a unified cooperative movement. Quebec, with a population of about 7.4 million, boasts over 3500 cooperatives, compared to about 5000 cooperatives in all the rest of Canada, population 28 million. The Quebec cooperatives have 5.4 million members and 70,000 employees, do $12.2 billion Canadian in sales and have $78 billion in assets. (The Canadian dollar, which is used throughout this article, is worth about 65 cents US.) Although it continues to struggle with an unemployment rate of 8.4% in 1999, in that same year, Quebec topped the other Canadian provinces in economic growth.

Cooperatives in Quebec have deep roots. This is particularly true of the caisses populaires credit union system, founded a century ago by visionary Alphonse Desjardins to provide credit and savings for those excluded from the banking system. In fact, Desjardins is credited with inspiring the development of financial cooperatives and credit unions throughout Canada and the U.S. Today, almost five and a half million citizens of Quebec are members of the Mouvement Desjardins. About 13,000 persons serve as volunteers within the Desjardins movement in Quebec. With roughly 1200 member caisses, the Desjardins system is Quebec's largest financial institution with more than $70 billion in assets. It is also the largest private employer in Quebec, with more than 40,000 employees. Besides providing consumer financial services, the caisses have become a significant source of commercial lending for small and medium-sized businesses. They seem poised to play an increasingly important role in the future under their new president Alban D'Amour.

In addition to the credit union system, agricultural cooperatives, consumer cooperatives, forestry cooperatives, housing cooperatives, funeral cooperatives, cooperatives in schools (which demonstrate the principles of cooperative enterprises to students through cooperative bookstores and other activities), as well as other types of cooperatives, have long played an important role in the economic and social life of Quebec. The non-financial cooperatives together have 1.4 million members, 28,000 employees, and more than $8 billion in assets. In recent years they have been joined by a rapidly growing worker cooperative sector. (For more extensive 1998 statistics, see Table 1. But keep in mind that the table reports filings by only three-quarters of the non-financial cooperatives.)

Successful examples of new co-ops include the J.M. Asbestos miners' cooperative, the Wolfe forest management cooperative, the Saint-Cesaire School labor cooperative, the Charlevoix forestry cooperative, the Pin Rouge Ski Center cooperative and the Peribonka sawmill employees' cooperative.

What accounts for the number and vigor of cooperatives in Quebec?

The answer: strong organizational support from established cooperatives and the federations they have created, along with the support and partnership of the Quebec government.

The development of workers' cooperatives
Recent changes in law and the emergence of a variety of support organizations have improved the climate for the creation of new cooperatives and the growth of older ones. One major innovation in the 1980s was the "Cooperative of Employee Shareholders." This new cooperative form resembles the American ESOP in that it permits partial or total employee ownership of firms, but it continues the one person-one vote structure in the governance of the employee cooperative. At the suggestion of the Cooperative Council of Quebec, the 1997 revisions of the Quebec provincial Law on Cooperatives added another new form of cooperative: the "cooperative of solidarity." This hybrid form, linking consumers and workers in a cooperative, allows customers, employees and interested local organizations to all be members.

Labor cooperatives, owned by their workers, have grown to more than 400 enterprises in Quebec. They employ more than 10,000, with about half of the employment being in the forestry sector. Forestry worker co-ops have originated other worker co-ops in Quebec and have long been strong. In recent years, worker cooperatives have expanded into various and new economic sectors, such as ambulance services, ski centers, metal industries, and a few high tech firms.

Worker cooperatives have traditionally been 100% employee owned, with each member having a single vote. However, more than 100 of the 400 worker co-ops are the new form, a Cooperative of Employee Shareholders (CES), which purchases shares and exercises stock voting rights according to its share of ownership. The company strengthens its capitalization and typically enjoys a rise in productivity superior to gains from other types of participative management. The employee cooperative gains a share of profits and access to participation in the direction of the firm.

The CES form is currently experiencing exponential growth. Firms are attracted to it mainly because they have benefited from broadening employee participation and they want to go further in worker participation. It is also used when companies are seeking capital for expansion, restructuring the enterprise, striving to retain personnel, and consolidating enterprises in response to economic difficulties.

Here's how the CES works. In this example, the Cooperative of Employee Shareholders of Company X owns 35% of the company stock and other shareholders – in this case XYZ, Inc. owns

65%. Cooperative members vote their shares of the cooperative on a one member, one vote basis. But cooperatives are born one by one, and the presence of support organizations facilitates their growth.

Quebec's Model of Cooperative Development
In a global economy where individualism appears triumphant and in a North American context where cooperatives are not part of the privileged economic model, spreading the cooperative model takes work. Quebec's new model for cooperative development represents a partnership between the existing cooperatives organized at the provincial and regional levels and the government of Quebec. This partnership has significantly increased the rate of co-op formation and growth.

Conseil de la Coopération du Québec – CCQ (Cooperative Council of Quebec)
The cooperative organizations of Quebec are brought together at the sectoral level in federations and alliances and at the regional level in the Regional Development Cooperatives. The whole cooperative sector is gathered together by the 60-year old CCQ. It is the nucleus of cooperation among all the cooperative organizations, and serves as an umbrella organization for 40 cooperative federations and alliances, including the federation of 11 Regional Development Cooperatives.

The CCQ concerns itself with creating the context and conditions that favor the emergence and development of cooperatives. In this role, it works closely with the provincial government, especially the Department of Industry and Commerce which oversees cooperative legislation, as well as with its member cooperatives.

Regional Development Cooperatives
Quebec's Regional Development Cooperatives (RDC) are second-order cooperatives -- they are associations of cooperatives. The first RDCs were set up in 1985 to provide assistance for startup cooperatives. Today there are eleven Regional Development Cooperatives with about 75 professional staff throughout Quebec's seventeen regions.

The RDCs' mission is to promote cooperative enterprises and provide an association for existing cooperatives. Their purpose can be summarized in five mandates. (1) Plan and carry out activities like Cooperation Week to promote the formation of more cooperatives. (2) Supply technical assistance to cooperative entrepreneurs for the start up or expansion of a cooperative enterprise. (3) Promote familiarity with successful cooperatives in various social and economic organizational settings and among the general public. (4) Organize mini-conferences, seminars and training adapted to the needs of particular cooperatives. (5) Get involved beyond the cooperative world in other regional economic development projects with both governmental and private partners.

In providing technical assistance, the RDCs generally work with start-ups, but they also do some ownership transition work in assisting employees to form Cooperatives of Employee Shareholders, which may include buying from retiring owners. For funding these startups and buyouts, they turn to the Desjardins credit unions for loans and to the cooperative development funds of Investment Quebec for loan guarantees.

The RDCs bring together cooperative organizations to form a cooperative network in each region, and they encourage coordinated action at a regional level. On specific projects, they can include employers, governments, labor unions and educational institutions as partners. Each institution can share a role in concrete projects of economic development.

The RDC's mission is to promote cooperative enterprises and help existing cooperatives to form organizations. In 1999, the RDCs created more than 175 new cooperative enterprises, representing more than 1500 jobs created or retained in Quebec, compared to 15 per year a decade ago.

The Regional Development Cooperatives are supported by cooperatives in the region and receive government funds for job creation -- if they create jobs through startups. In recent years, the provincial government has reimbursed the RDCs $2000 per job created in new cooperatives, up to a cap that was regularly hit. In practice, the CCQ has a contract with the government for job creation, with mirror contracts with each RDC. The CCQ facilitates and co-administers the program with the government.

Gouvernement du Québec (The Government of Quebec)
Working with the cooperative sector, Direction des Coopératives (Office of Cooperatives), within the Quebec Ministry of Industry and Commerce, encourages new cooperatives and the growth of existing cooperative enterprises in the province. It issues regulations, compiles statistics, and offers programs to sustain the development of cooperation. This includes the System Cooperative Investment Tax Incentive (Régime d'investissement Coopératif), explained below. It sometimes assists in providing experts from different cooperative sectors and offering legal interpretation. It may provide or support training, and it publishes practical guides for cooperative leaders. The government's services and partnership are really helpful to develop the cooperative movement.

Investissement Québec (Investment Quebec)
This governmental corporation has the mission of encouraging the growth of investment in Quebec. Generally it focuses on financing smaller and medium-sized businesses. Investment Quebec has developed a number of different funds, including a $140 million fund specifically for the cooperative sector. Interestingly, the cooperative fund is the most successful of these sectoral funds in having the lowest losses. Further, Investment Quebec has a vice-president for Development of Cooperatives and the Social Economy. The Vice-President and staff are dedicated to the financing of cooperatives and similar enterprises.

Investment Quebec primarily provides loan guarantees and loans. The Coop Guarantee is a universal financial product that provides a guarantee to repay a financial institution a percentage of any net loss resulting from a financial commitment to a cooperative. This flexible product makes loans to cooperatives more attractive to financial institutions by reducing their risk. (Editor's Note: Curiously, the labor-sponsored Quebec Solidarity Fund [see Owners at Work, Summer 1995, pp.14-15], which now has about $4 billion in assets, does not participate in financing the cooperative sector. On the other hand, the newer labor-sponsored Fondaction, with about $200 million in assets, which is sponsored by the Catholic unions, helps to finance cooperative development.)

Investment Quebec's co-op lending is increasingly active. During 1999-2000, more than 128 new loans and loan guarantees were authorized, an increase of 36% over the year before. These represented $36 million of financing. As of March 31, 2000, the co-op portfolio totaled $140 million in financing. The loan loss rate on co-op loans compares favorably to that of non-cooperative private enterprises. One explanation lies in a recent study conducted by the Ministry of Industry and Commerce and presented by the Minister, Mr. Guy Julien, in August 1999 at the congress of the International Cooperative Alliance in Quebec. The study demonstrated that cooperatives have a higher survival rate than comparable, non-cooperative enterprises. Co-op startups are twice as likely to celebrate their 10th birthday as conventionally owned private businesses.

Still, co-ops do get into financial difficulties. When its investee cooperatives get into trouble, Investment Quebec can take board seats and appoint experts to advise the enterprise.

The Cooperative Investment Tax Incentives
The purpose of the System Cooperative Investment Tax Incentive (SCI) (Régime d'investissement Coopératif) is to encourage the capitalization of cooperative enterprises through investment by members and workers. Cooperative worker/members can deduct from taxable income up to 150% of any investment in cooperatives. This provincial tax incentive was put in place in 1985; from 1985-1999, members have invested more than $170 million in producer and worker cooperatives. In 1997, the SCI had its best performance ever, with record investment of $25.5 million for the year, an increase of 33% over 1996. Of deposits from 10,301 members/workers of eligible cooperatives, averaging $2,480, sixty-three percent of the investments were made in worker cooperatives. The 160 participating cooperatives had total deposits averaging $160,000. Deposits from the forestry cooperatives, which were having an especially good year, more than doubled from 1996 to 1997.

A Quebec Style of Development
The new Quebec model for cooperative development has developed over the past fifteen years. It has been driven by the cooperative movement itself in partnership with the provincial government. The CCQ has been responsible not just for strategic planning but also for implementation through its coordination of efforts and encouragement of the establishment of Regional Development Cooperatives. The RDCs do the work of cooperative development in the field, with about 55% of their costs covered by provincial job creation contracts. The provincial government also supports through tax incentives and its loan and loan guarantee programs. Together this partnership has created thousands of permanent jobs and dramatically increased the number of cooperatives. It is recognized as the cheapest job creation model in Quebec.

Luc Labelle wrote this article in French at the beginning of 1999 while serving at Investment Quebec as vice-president for the Development of Cooperatives and the Social Economy. He is now President and General Manager of the Conseil de la Coopération du Québec (Cooperative Council of Quebec), the umbrella confederation of Quebec cooperatives. He was President of the Federation of Regional Development Cooperatives for five years (until 1999). He also taught courses in entrepreneurship at the prestigious School of Advanced Business Studies in Montreal (École des Hautes Études Commerciales).