Mark Maynard | 2014 | June

Paul Saginaw sets the record straight on employee ownership and participation within an evolving Zingerman’s, contemplates the future without him

By Mark | June 24, 2014

As I suspect most of you know, a few days ago the Business Insider posted an article stating that, in the near future, Zingerman’s would be transitioning to a “worker-owned cooperative”. As you may not know, however, the folks at Zingerman’s quickly came out to say this wasn’t the case. While they were indeed planning to increase the voice of their employees in corporate decision making, and intended to put a system in place to increase employee ownership, Zingerman’s would not, according to the company’s release, become an employee-owned cooperative. Not satisfied to leave it at that, I reached out to Zingerman’s co-founder Paul Saginaw this weekend to ask why they wouldn’t be pursuing a cooperative model, and what, specifically, they intend to do instead. Following, with his permission, is our conversation, which gets into quite a bit of detail not only about these current initiatives, but also the long range plans concerning the future of the Zingerman’s Community of Businesses once he and co-founder Ari Weinzweig have passed on. It’s fascinating stuff.

MARK: A few days ago, the Business Insider posted a story about Zingerman’s transitioning to “worker-owned cooperative.” Given what I’ve heard from you since, that’s not quite the case, though…

PAUL: Here’s the thing… Michigan makes no provision for a worker-owned cooperative. You can set that corporate structure up in other states. But, for some reason, in Michigan you can’t have that business structure. So that’s not a way we can go. The other thing is, we have a unique case in that all the businesses are separate legal entities. And we don’t want to roll them up into one business entity. We feel that who we are is informed quite a bit by the fact that they’re separate, and that there’s a commitment to behave as one, although there’s nothing legally binding. And so we don’t want to screw around with that. So doing an ESOP (Employee Stock Ownership Plan), for example, wouldn’t be possible, because, in order to do that, we’d have to roll everything up into one company. So what we’re trying to do is just add one more piece to the puzzle. It’s just the next step in this evolutionary journey that we’ve been on.

We already have a high level of engagement. We already have a high level of participation when it comes to employees contributing toward the running of the businesses. As for the financial side of things, everybody has a salary, and then there can be a bonus structure on top of that, and then there’s gainsharing. What we’re talking about now is community-wide gainsharing, across all of the Zingerman’s businesses collectively… Currently the businesses aren’t financially connected.

MARK: Just so I’m clear, right now there’s gainsharing within each of the individual companies in the Zingerman’s Community of Businesses, but not across all of the businesses collectively, and what you’re proposing now is another level of gainsharing that would accomplish that…

PAUL: Yeah, each company has gainsharing. So every company has an annual plan, and we have agreed upon numbers that we have to hit. And, then, if we go over those numbers, the gain, or what we make over the plan, is shared among the staff of that individual business. And it’s different for each business. And they all have their own individual gainsharing plan. But there’s nothing currently that connects all of the businesses together. So we’ve been working on a way to financially connect everything, so that if the whole Community of Businesses performed well collectively, we could share that with everybody. It’s just another additional piece.

MARK: So it doesn’t take away the individual company gainsharing that someone at, say, the Zingerman’s Creamery, may already have? It’s just another level above that…

PAUL: Correct. It’s a layer above that… So, we have these nine separate businesses, and we have a shared service group that supports them. And Ari and I have a company called Dancing Sandwich Enterprises, Inc. And that’s a C-corp. And that holds all of our interests, Ari’s and mine, in all the various businesses. And that ownership can be anywhere from 20% to 82%, depending on the business. Dancing Sandwich also owns the intellectual property – the Zingerman’s brand. We license that to the individual businesses. That’s how Ari and I get paid… We don’t take a salary from any of the businesses… So, we’re going to set up a new LLC, and we’re going to contribute the intellectual property, along with its licensing revenue stream, to this new company. It’ll be called ZCOB, LLC. And that’s what everybody in the company will be able to buy a share in.

MARK: What can you tell us about these shares?

PAUL: Well, the value of the shares won’t necessarily go up and down. Whatever you buy in at, is what you’ll get back when you leave your employment. Let’s say you buy your share in ZCOB for $1,000, which is what we think it’s going to be. Having that share will allow you to participate in the distribution that will take place annually when the Zingerman’s Community of Business as a whole performs well. So a percentage of profits, or a percentage of sales, whichever is greater, is what each business will contribute each year, and that’s what will be distributed to Zingerman’s employee shareholders evenly.

MARK: Just to those Zingerman’s employees who have chosen to invest, right? Not all employees?

PAUL: Right… We’re thinking that, to buy in, you have to have worked for the company for at least a year. And you have to buy in for $1,000… But the company, as we’re envisioning it, will finance that for you. Your distributions will just go toward paying off the purchase price until it’s all paid down.

MARK: OK, so you don’t have to put down the $1,000 yourself, so there’s really no reason that a Zingerman’s employee would opt out…

PAUL: Correct.

MARK: And would someone have to be a full-time employee to participate?

PAUL: No, you can be part-time. It’s just that you have to be an employee in good standing for one year in order to participate.

MARK: And I imagine you’re limited to one share?

PAUL: Yeah, everybody will get one share…. And then there’s a separate class of shares that would be like $1 each, and those you’d have to buy at a minimum of 5,000 or 10,0000. They wouldn’t have anything to do with the distributions we’ve been discussing. They’ll be more for longer term investing. The value of those shares would go up and down with the valuation of the company as a whole.

MARK: Like a stock exchange…

PAUL: Yeah.

MARK: And I imagine that you’d also have to relinquish those upon termination of employment as well….

PAUL: We haven’t come to any conclusion on that. That’s still a work in progress…

MARK: And, at the same time that you’re increasing equity, as I understand it, you’re also looking to increase the participation of those employees who aren’t already partners within the current Zingerman’s structure.

PAUL: Yeah, that’s the big piece of this. The partners group, which collectively makes all of the decisions on how we operate as a community of businesses, will now have three or four non-partner members. And those people will come from the general staff. And they will be part of the decision-making body. And they will be elected by their peers, in a process that’s being developed now. So not only will they have more ownership, but they’ll also have more control. They’re going to have a voice within this decision-making group at the highest level. They’ll be there to bring the perspective of the front-line staff.

Just like the partners aren’t there to represent the interests of their individual businesses… When they come to these meetings, they’re there to make decisions based on what’s best for the whole organization… And so these employee members won’t be there representing the interests of the staff. They’ll be there representing the perspective of the staff. Because, by definition, it’s impossible for one of the managing partners to have that perspective.

MARK: It’ll be difficult, I would imagine, to elect a diverse group of employees, as some of the companies under the Zingerman’s umbrella are relatively small, while some, like the Roadhouse and the Deli, are quite large. How will you ensure that these employee members will be representative of the entire company, and not just those entities with the largest number of voting employees?

PAUL: Right. We’re going to make sure there’s diversity. And we’re working on ways to ensure that… And, because we don’t vote on anything, the voices of those employees will be equal to that of the owner of the Roadhouse, or the owner of the Deli. They have to follow all of the protocol, but they can’t be outvoted, because there is no voting.

MARK: There is no voting?

PAUL: No, we don’t vote. We don’t vote on anything. We come to a consensus. We’ve never voted on anything. We’ve always been able to work around things to come to a consensus… Consensus is defined like this: You are 80% fine with the proposal as it’s written, and you can support it 100%. And, if you can’t, you have to come back to the group with a counter-proposal, and get people to come to a consensus on it.

MARK: So, was all of this coming out in the press a good thing or a bad thing for you? Do you wish you’d had more time to work out the details before word got out, or are you kind of happy that it came out, as it’s forcing you to move more quickly down this path?

PAUL: You know, we work on our own timeline. I think it’s fine. It’s just that whoever wrote that first story got it completely wrong. We’re not going to be a worker-owned cooperative. We can’t. We’re in Michigan.

MARK: Well, I imagine that you also can’t be a worker-owned cooperative because each of these businesses already has managing partners, and you need to honor the agreements that are already in place with them. So you can’t just take their equity and say, “We’re now a corker-owned cooperative.”

PAUL: Right. But the individual businesses could, in addition to everything we’ve been talking about, go in that direction, if there was a provision for it in Michigan. Some have expressed an interest already.

MARK: So some of the nine Zingerman’s businesses have indicated that they would transition to worker-owned if it were possible to do so under Michigan law?

PAUL: Yes… Individual businesses might do ESOPs… The general feeling is that we’re going to move closer and closer to having ownership distributed as widely as we possibly can… But understand that the bigger, more radical change that you’re going to have is that there will be non-partner members of the partners group included in decision making at the highest level. That’s really the big thing.

MARK: In terms of the equity piece, as I understand it, nothing will really change relative to your managing partners. You’re not, in other words, asking them to give anything up. It’s just that you and Ari are giving up your slice, right?

PAUL: Correct… And then, at the same time, we’re also allowing all of the partners to buy up to 90% of their individual businesses. And we’ll retain that 10% in the center. And, then, as far as succession, we don’t know what will happen with that when both of us die… You know, what remains in the center, what holds everything together, when the two founding partners pass away? That’s another thing that we’re dealing with. We know how we’re going to deal with the positions. We know that there will still be two co-CEOs. And we know how they’ll get elected to those positions. But we don’t know what happens to the stock that’s retained by Dancing Sandwich Enterprises? We haven’t worked that out yet.

MARK: So, at the same time all of this is happening with the employees, you’re also giving your managing partners the opportunity to buy more of their individual companies, thinking about succession, etc.

PAUL: Correct.

MARK: And I guess you guys have been thinking about this for a long time.

PAUL: In January, it’ll be three years that our Governance Committee has been working on this… There aren’t really models for us to follow. Nothing quite fits. The ESOP doesn’t fit. The member cooperative doesn’t fit. The worker cooperative doesn’t fit…. I had hoped that the new crowdfunding legislation that passed would help us, but the SEC (Securities and Exchange Commission) has begun to put so many restrictions on it that it doesn’t help much either… Yeah, there’s not a great roadmap for us. There are several businesses of our generation that are struggling with this issue, and there are people writing about it. There’s a former BALLE (Business Alliance for Living Local Economices) staff member writing a white paper about it. Her name is Alissa Barron-Menza. And we’ve got this idea for a symposium on this, inviting a lot of the businesses working on this to come together and share what they’re thinking and doing in this evolution toward worker-owned.

Posted in Ann Arbor, entrepreneurism, Food, Local Business, Locally Owned Business | Tagged Alissa Barron-Menza, Ari Weinzweig, BALLE, brand identity, Business Alliance for Local Living Economies, business models, consensus, cooperatives, corporate structure, Dancing Sandwich Enterprises, employee ownership, equity, ESOPs, intellectual property, Paul Saginaw, SEC, Securities and Exchange Commission, succession planning, sucessation, Zingerman's, Zingerman's Community of Businesses | 28 Comments

Welcome to Michigan, where we invest in anti-abortion pseudo-science bullying instead of things that actually work, like comprehensive sex education

By Mark | June 23, 2014

Last year, Republicans in Michigan’s legislature passed a budget which included a $700,000 “abortion alternatives program” to be managed by the faith-based organization Real Alternatives. While the Pennsylvania non-profit claims to have brought the abortion rate in their home state down by 7-percent, though, it would appear that, after eight months of work in Michigan, they’ve yet to assist a single person. No, it would appear that they’ve yet to find a single organization that wants to work with them to establish “life-affirming” pregnancy centers. (In Pennsylvania, they work through 95 health centers under an annual $5.5 million contract with the Pennsylvania Health Department.) In spite of this fact, however, Michigan Republicans added a line item in this year’s budget to raise the annual amount allotted for the work of Real Alternatives from $700,000 to $800,000… The following clip comes from an op-ed in today’s Detroit News.

The Michigan Legislature won’t fix the roads. It hasn’t shown much interest in the state’s shockingly high rate of unplanned pregnancy, and infant and maternal death, especially in Detroit.

Yet this month, it approved an $800,000 contract in the 2014-15 budget “to promote childbirth,” alternatives to abortion and abstinence education at crisis pregnancy centers.

The no-bid contract goes solely to Real Alternatives Inc., a Pennsylvania nonprofit that helps anti-abortion, mostly faith-based centers comply with separation of church and state regulations and receive government funding.

The firm seeks out Michigan pregnancy centers that oppose abortion and the use of birth control pills and that counsel women to choose adoption or birth in unplanned pregnancies. Theoretically, state dollars will pass through Real Alternatives to reimburse the Michigan centers for diapers, baby furniture and counseling services.

That didn’t happen last year, however. Real Alternatives failed to see a single client or sign up one Michigan provider during the first eight months of the $700,000 contract, according to the Michigan Department of Community Health. Although Real Alternatives says it recently signed three providers, MDCH is unaware of them. The state has so far paid Real Alternatives less than $40,000 for expenses out of the $700,000 contract ending September 30…

Kevin Bagatta, Real Alternatives’ executive director since 1994, did not return calls for comment. A staffer said he was on vacation and could not be reached…

The News then went on to quote our friend Representative Jeff Irwin. “We all want to reduce unplanned pregnancy and abortion, but my conservative colleagues don’t want to talk about contraception, about what works,” he said. “They want to talk about using state resources to advance their religious ideologies.”

Curious to know more of the backstory, I just reached out to Jeff, and here’s what he had to say.

…It’s an interesting little line item that the religious right tucked in there. They put it in there for $700,000 last cycle but only $35K or so was spent. That’s because Real Alternatives was the only group that applied for and won approval to seek clients. They served exactly zero clients and spent the 35K on admin.

…The only additional backstory is that we (House Dems, the Progressive Women’s Caucus and myself personally) have been trying to get the Republicans to work with us on programs that are proven the reduce unwanted pregnancies and therefore abortions. We have a whole prevention-based package of bills that we can’t seem to even get a hearing on. My bill, which would require sex education to be comprehensive, medically accurate and age appropriate can’t get past the ‘abstinence only’ advocates. As a result, programs that might work like school-based health clinics or better sex education go without funding while crisis pregnancy centers get their own line item.

Putting aside for the moment how crazy it is that we live in a state where we’d rather invest in programs to convince young women to keep unwanted babies than in comprehensive programs with a proven track record of reducing unwanted pregnancy, is anyone else curious what Real Alternatives might have done to earn their $35,000 or $40,000 this year, seeing as how they didn’t consult with a single person in Michigan?

It seems extravagant, but I suppose, when your CEO makes around $200,000 a year, you’ve got a lot of overhead to cover.

I know how much Real Alternatives’ CEO Kevin Bagatta makes, by the way, because it was noted in an article in the Philadelphia City Paper about the dubious tactics of Real Alternatives… Here’s a clip.

…Someone on the other end refers me to a social-service agency in Philadelphia — which is one of dozens across Pennsylvania, all of which are part of a network that receives state funding.

On a recent, asphalt-bubbling hot day, I go. I tell a receptionist at the agency that I’m expecting — even though, in truth, I’m not.

The receptionist says a “counselor” will speak with me over the phone, and leads me into a private room. I tell the woman on the other end that I’m considering an abortion, mostly because I’m young and not yet financially secure. She is tender but stern. She says that if I have an abortion, “Psychologically, you’re never going to forget. You’re taking a life.”

She tells me that abortion often leads to depression — a claim that has been refuted by the American Psychological Association, which concluded in 2008 that a single abortion is “not a threat to women’s mental health,” and in fact, poses no greater a risk than delivering a baby.

She also informs me that “proven facts” show that abortion can “interfere with having other children,” another theory rejected by medical science. The Guttmacher Institute reported in 2007 that the “overwhelming scientific consensus” is that an early abortion “poses virtually no long-term risk of infertility.”

Before we part ways, she reminds me again, “Whatever decision you make is going to be with you for the rest of your life.”

“Counseling” like this (some call it advocacy) is administered across Pennsylvania, all by one organization: Real Alternatives, a staunch and vocally anti-abortion nonprofit whose stated mission is to show women that “childbirth is a viable alternative to having to submit to an abortion that they really do not want in the first place.”

Groups like Real Alternatives exist throughout the country, mostly funded by anti-abortion organizations like Heartbeat International and individual donations. Real Alternatives, though, is funded almost entirely by the state of Pennsylvania — financed, that is, by you, the taxpayer, and it has received tens of millions of dollars since 1997…

That money, City Paper has found, goes to pay for part of the $199,000 salary (including benefits) of the CEO of Real Alternatives, who has no medical experience. It also funds an army of hundreds of “counselors,” non-medically-qualified personnel whose job it is to dispense the organization’s (sometimes outright inaccurate) information — and who, despite lacking the credentials of nurse practitioners or psychologists, cost the state much more per hour for their services than either.

“These aren’t counselors,” says Democratic state Rep. Dan Frankel. “They are single-issue, anti-abortion activists. They are no different than those folks who carry placards outside of Magee hospital in my district to try to intimidate abortion clinics”…

And, thanks to Michigan Republicans, and your hard-earned tax dollars, they’re here now too.

Oh, and it’s probably worth noting that, according to Bagatta’s LinkedIn page, the work Real Alternatives is presently doing in Michigan is just a “pilot” program, and it could lead to a more comprehensive engagement. Presently, as he describes it, his company just has, “a contract with the Michigan Department of Community Health to replicate the Pennsylvania program and administer the new Michigan Pregnancy and Parenting Support Services Program for the southern region of Michigan.”

Also worth noting, Governor Snyder has yet to sign this budget into law, so I suppose there’s a chance that, if there’s enough outrage over this, we might see something done about it… I doubt very seriously that he’d stand up to the hardliners in his party, but you never know. Today could be one of those rare “tough nerd” days we’ve heard so much about.

Posted in Church and State, Michigan, Uncategorized | Tagged abortion, abstinence only, anti-abortion, anti-choice, anti-science, contraception, Jeff Irwin, Kevin Bagatta, Michigan Department of Community Health, Michigan House of Representatives, Michigan Pregnancy and Parenting Support Services Program, Pennsylvania, pregnancy, pro-life, Progressive Women's Caucus, pseudo-science, Pure Michigan, Real Alternatives, women's health, women's rights | 12 Comments

Saluting the hard-working, soda-drinking little children of the mining district

By Mark | June 23, 2014

If you follow this website, you know that, on occasion, I like to remind our Libertarian friends that there was a time in America’s not too distant past when we had children working, and often dying, in coal mines. It’s an ugly little part of our nation’s not so distant history, and, when confronted by people who adamantly believe that we should limit the ability of our government to oversee the activities of our voracious CEO class, I like to remind them that we’ve seen what unfettered Capitalism gives us, and it isn’t the pretty. And, with that in mind, I’m always on the lookout for instances in which American popular culture takes up the cause and, whether overtly, or in some less immediately perceivable way, brings our attention back to child labor. Well, in looking over the marketing materials created in support of the next installment of The Hunger Games series, I came across the following propaganda poster and wanted to share it with you… I think it’s brilliant.

At least she has a respirator, right?

Speaking of the danger that our most vulnerable face at the hands of industry, I also happened across something else today that I thought you might find of interest. It comes from the newspaper Beijing Today.

When last year’s earthquake shook apart Sichuan schools, the tobacco companies were there to fund new buildings for primary education.

But the China National Tobacco Corporation may have entered like a wolf in sheep’s clothing. One school built with its tobacco money is now branded the “Sichuan Tobacco Project Hope Primary School” and its walls adorned with pro-nicotine messages like “Work hard for society; Tobacco can help you become an achiever!”

Experts worry the constant exposure to pro-tobacco propaganda may influence the children to become future smoking addicts. Some question the legality of such sponsorship…

To be fair, this doesn’t just happen in China. Here in the United States, an estimated 80% of public schools have contracts with either Coke or Pepsi. “Starting in the early ’90s,” Mother Jones reported in 2012, “cash-strapped public schools began selling exclusive ‘pouring rights’ to one or another Big Soda company, which would then supply all the beverages sold in on-site snack bars, stores, and soda machines as well as at sports events. Along with sugary drinks, of course, the companies also stuffed the schools with plant of advertisements.” And, as you might expect, the results have been disastrous for American kids… But shareholders are happy, which I suppose is all that really matters.

Posted in Art and Culture, Civil Liberties, Corporate Crime, Marketing, Uncategorized | Tagged advertising, Big Soda, Capitalism, child labor, China, China National Tobacco Corporation, coal mines, Coke, Hunger Games, Libertarianism, Mockingjay, Pepsi, pouring rights, public health, Sichuan, smoking | 10 Comments

Is it possible that the economic impact of Ypsi’s Color Run is really $1.8 million?

By Mark | June 20, 2014

I’m going to try something new this year and forgo my annual rant about the Color Run, which is scheduled to take place in Ypsilanti again this Saturday morning. It still bothers me that they pitch it as a somewhat philanthropic event, while only giving a percent or two of what’s raised to charity, but I’m not going to keep harping on it. From what I can tell, people seem to enjoy themselves while running around town, having people throw colored corn starch in their faces, and, if some percentage of them actually stay downtown and buy breakfast once they’re done running, that’s good for our local businesses, especially as these aren’t people who would likely come to Ypsi otherwise. Speaking of the economic impact of this annual event, though, I’m curious as to what it actually is. According to an article in today’s Ann Arbor News, someone is speculating that, last year, it was on the order of $1.8 million, and I can’t image it’s anywhere near that high… Here’s a clip.

Last year, there were approximately 15,000 runners. So, for the economic impact to be $1.8 million, they would have had to have had spent an average of $120 each in the City. (This assumes, of course, that the Color Run doesn’t draw a great number of spectators, which, from my observation, is a legitimate assumption.) Granted, some of them might have come in the night before, and gotten hotel rooms at the Marriott, which is in the Township, but, even if you count that as being spent in the City, I don’t know how you’d get even remotely close to $1.8 million… unless, of course, you’re counting the registration fees paid by runners, approximately 98% of which leave the City with the organizers. But maybe I’m missing something. Maybe people, while they’re here, covered in neon tinted corn starch, are shopping for antiques at Materials Unlimited, and buying new cars at the downtown Honda dealership.

Again, I’m not suggesting that the Color Run isn’t good for Ypsi. I’ve found myself waiting in line at Beezy’s before, just after a Color Run, and I know that a good number of the people who come for the run spend their money here. I just doubt that it’s anywhere near $120 each. Furthermore, I don’t like it when numbers are thrown around without citation, and I’d love to know how they came to arrive at this number. (The Ann Arbor News doesn’t even share where they got the number from.)

Did a few of the 15,000 people who came through town likely spend $120 each in the City? I’m sure they did. I can’t imagine, however, that every person who ran spent that much last year, or intends to this year.

Posted in Observations, Uncategorized, Ypsilanti | Tagged Color Run, economic impact, no citation | 28 Comments

The native plants of the Water Street prairie need your help

By Mark | June 19, 2014

The flowers that we planted last May are beginning to open up on the Water Street Prairie. They aren’t quite as plentiful as we’d hoped, which we attribute to the poor quality of the soil, and the continued presence of invasive species like Spotted Knapweed, but the native plants that we reintroduced to the site are trying to fight their way back, and we’re trying, to the best of our ability, to help them get a foothold. (The Black-eyed Susans seem to be doing particularly well.)

As I mentioned a week or so ago, a small crew of us have been busting our asses on Knapweed eradication, but we’re having a difficult time staying ahead of it, which is why I’m writing to you today.

As you may recall from our earlier conversations, not only does Knapweed spread incredibly easily, but, as it tastes terrible, few herbivores want to eat it. Even worse, it has an unusually long tap root, which aggressively sucks water from its neighboring plants, destining them for failure. And, as if that weren’t enough, it’s also thought to be allelopathic, meaning that it releases a toxin from its roots that slows the growth of nearby plants competing for resources.

With all of this in mind, I’d like to ask you to join us in our quest to stay ahead of the Knapweed. Here, with details on how to identify and remove Spotted Knapweed, is little video I shot a few days ago with my friend Jeff Clark. Hopefully, once you see it, you’ll be compelled to grab a shovel, walk down the street, and put in an hour or so for a good cause… Believe me when I tell you that you’ll feel awesome while you’re out there. Not only is it a magical kind of place, but it just feels good to be doing something positive for your community.