Worker cooperatives come to veterinary medicine

Ownership model emerges as counter to consolidation trend

Published: October 24, 2023
Photo courtesy of Dr. John Dally
Cooperative Veterinary Care owners gathered last week for a board meeting in a private room at Grandma Mary's Cafe in Arena, Wisconsin. Many more joined virtually. Nearly all employees at the worker-cooperative-owned veterinary hospitals are owners and board members.

When Dr. John Dally began seriously thinking about retiring and selling the general practice he co-founded in southern Wisconsin 20 years ago, he saw only two options: sell to a corporate consolidator, if he could. Or shut down.

He'd witnessed both scenarios close at hand. The emergency and specialty hospital he referred patients to in nearby Madison was bought by a large corporation a few years ago. Around the same time, a one-doctor practice down the road nearly closed because the retiring owner couldn't find a purchaser. In 2019, Dally and his other two co-owners Dr. Ann Vetter and Dr. Mark Baenen agreed to buy that practice and keep the doors open.

The move enlarged their existing operation and made it a potentially attractive acquisition target. But the idea of selling to a corporation that would just "suck off the profit from people doing the work" didn't sit right, he said.

A self-described "political lefty," Dally pondered the notion of converting the two-practice business to a worker cooperative — selling it to the employees, who would own and run it following democratic principles. He knew of no other veterinary practice that had done it.

With assistance from the University of Wisconsin Center for Cooperatives and other consultants, and after a year of frequent all-staff meetings (including, for a time, weekly 7 a.m. confabs), on Jan. 1, the majority of employees and the three former owners took equal and joint ownership of what is now called Cooperative Veterinary Care.

The move comes as some in the profession seek new models of independent ownership as a bulwark against consolidation.

"It's an emerging thing," said Kristin Forde, a cooperative developer at UW. "[Veterinarian owners] are saying it's this pivotal moment in the industry where it could be totally corporatized within a certain number of years if we don't find alternative models."

In brief

About 25% of all companion animal practices in the U.S. are owned by corporate consolidators, John Volk, an analyst at Chicago-based animal-health firm Brakke Consulting told the VIN News Service in December 2021. That accounted for at least 40%, and perhaps closer to 50%, of all client visits, Volk said, because corporations tend to own larger practices than independents.

Selling to the rank-and-file employees might also serve as a lifeline for small practices overlooked by corporations.

Generally, in a worker cooperative, employee-owners purchase a share in a business for a modest sum. Each employee gets an equal-sized share, from managers to entry-level positions. They receive a share of profits annually apportioned by hours worked, and either have direct representation or vote on a one-vote-per-owner basis for representation on a board of directors that governs the practice.

Proponents say the model increases engagement and productivity among staff and stems low morale and high turnover — conditions that plague many veterinary clinics.

They warn, however, that converting a conventional business to a worker co-op is not easy. It requires a few essential ingredients: the business must be healthy; harbor highly motivated employees willing to give the time and energy to acquire new skills to help run the business; and have an owner-operator willing to finance at least some of the sale and share control with former staff.

Another barrier is rules in some states that veterinary companies can only be owned by a veterinarian.

What is a worker co-op?

Worker cooperatives are just one of several types of co-ops. Consumer co-ops owned by customers, like credit unions, utility providers and the outdoor retailer REI, are probably most familiar. Another type is a producer co-op, owned by people producing similar types of goods and services, such as the Dairy Farmers of America and Ocean Spray's cranberry growers. There are also purchasing co-ops, in which similar businesses come together to share their purchasing power. The Veterinary Cooperative, a group purchasing organization, is an example. Finally, there are hybrid co-ops that bring together consumers, producers, workers and/or other stakeholders.

Worker co-ops are organized around a group of shared values, emphasizing democratic principles and equity, according to the U.S. Federation of Worker Cooperatives, a national advocacy organization. Based on research by the Federation and its sister organization, Democracy at Work, there are more than 900 worker cooperatives in the country, and 12 percent began as conventional enterprises.

Advocates of co-ops predict conversions from conventional to employee ownership could constitute a larger share of cooperatives in the coming decade as the huge cohort of baby boomers, who own the largest percentage of businesses in the country, transfer, sell or close those businesses.

Worker co-ops are at once similar to and different from employee stock ownership plans known as ESOPs, which lately have gained attention in veterinary circles.

Both are forms of "employee ownership" that give workers a direct stake in helping the business succeed. An ESOP, however, involves setting up a federally regulated trust, which buys all or part of the veterinary business from the seller. Employees are allocated shares in the trust, typically based on the duration of their employment. They receive their benefits when they leave for any reason. In an ESOP, employee-owners do not have direct governance in the business.

‘A new way of doing things'

In the tight-knit worker cooperative world, there is a saying: "If you've seen one worker co-op, you've seen one worker co-op." In other words, each is unique under the umbrella of shared values. That's because every co-op creates its own rules about everything, including whether all employees are required to buy in, the cost of buying in, how decisions are made, how the company is managed, how profits, known as "patronage," are calculated and more.

In the case of Cooperative Veterinary Care, employees can choose whether to buy in, and nearly all have. Each employee pays $1,000 to be an owner, and the buy-in can be paid over time. New employees are eligible to buy in after 12 months. Patronage will be paid at the end of the year. The patronage formula is still being worked out but likely will be based on hours worked in the previous fiscal year and cumulative hours during an employee's tenure, with hours worked in the previous year heavily weighted. The formula does not factor in a worker's role.

Dally explained: "I might work 10 hours a week as an owner who has been doing this as a veterinarian for 30 years," whereas, a 20-year-old who's relatively new at the practice and paid at the lowest end of the wage spectrum but working 40 hours "could get nearly four times the amount of the profit that I would get."

The idea is to introduce equity into the workplace when possible, said UW's Kristin Forde.

She explained that there will always be a large salary gap between veterinarians — with their expertise and investment in education — and entry level support staff. Distributing profits based on hours worked "really does create a feeling of equality even when there is this other gap," Forde said.

Rather than electing a representative board, all 17 Cooperative Veterinary Care owner-employees serve on a governing board, and each has an equal vote.

"That was a new way of doing things and kind of scary," Dally said. "[But] it was important to us to do because we needed everyone to learn about how this worked and understand business and everything." Recently, the board was looking at health benefit options, a process employees generally know little about, Dally said. Now everyone is learning about the costs and benefits of providing health insurance, and they'll vote as a group on the best strategy.

The threshold for what percentage of the board is needed to approve everything from a new health care plan to removing a fellow owner varies and is laid out in co-op bylaws created by the owners. One threshold is set deliberately high: At least 90% of owners need to OK a sale of the company.

"We didn't want [employees] to buy this and say, ‘Wow, this is really worth a lot of money,' turn around and sell it to a corporation," Dally said. "So, we made sure it was written into the bylaws to make that pretty hard to do."

The measure highlights another difference between worker cooperatives and ESOPs. In the case of an ESOP, the trustee can decide to sell the company if they believe it is in the best interest of the employee-owners' retirement plan, regardless of whether the employees support a sale.

One hurdle in converting to a worker co-op is figuring out how to compensate the original owners who are selling the business. In ESOPs, the trust typically funds the purchase of the veterinary business with a loan, paid off over time using the business' profits.

The owners at the Wisconsin hospitals self-funded the sale to the employees, who would have been hard-pressed to qualify for financing as group. Dally said they got a fair market price to be paid out from profits over 10 years.

Forde said it can be difficult for worker co-ops to obtain financing for a purchase from a conventional bank or even a credit union because most small business loans require a personal guarantee. That's not feasible in the case of a worker co-op, which allows members to come and go with relative ease. Also, putting up personal assets as a guarantee will likely be easier for some than others on the team, which introduces inequity that goes against worker co-op values.

Owners interested in converting to a cooperative should expect the process to take roughly 18 months and cost about $25,000 in consultant, attorney and accountant fees, according to Forde.

Seattle hospitals next up

VIN News Service photo
Urban Animal founder Dr. Cheri Trusheim, shown in an exam room at the Downtown Seattle location, said she hopes that converting her company to a worker co-op will make a positive difference for the profession.

From the day that Dr. Cheri Trusheim opened her first practice in Seattle, she knew she wanted to build something that would last. "I knew then that I would never want to sell to corporate America," she said.

"And that was 2012; Mars hadn't even bought VCA," she added, alluding to a watershed moment in veterinary practice ownership when the international conglomerate Mars Inc., already the largest owner of veterinary hospitals in the world at the time, bought in 2017 VCA's nearly 800 clinics, almost doubling its size.

Today, Trusheim owns Urban Animal, with three general practice locations and 110 employees. The model is mostly walk-in with an emphasis on affordability.

She remains unwavering about not selling out. But she isn't against selling — in fact, Trusheim is in the early stages of selling Urban Animal to her employees as a worker cooperative.

Not only does she believe this will protect her legacy, she sees it as a way to address some of the systematic problems in the profession.

"We're not going to eliminate corporatization of veterinary care," she said. "But what I really think we can do is build a shelter. We can build a space where it can be different, and workers can have a voice."

The scale of her vision differs from Dally's. Trusheim wants Urban Animal to grow to 10 times its current size as a worker cooperative, and that expansion ethic is being codified in the cooperative bylaws.

At more than 100 employees, the company is already larger than a typical worker co-op, according to UW's Forde. She said 50 employees is on the high end of what's typical for a worker cooperative. The median size of a worker cooperative in the U.S. is six people, according to Democracy at Work. That doesn't mean larger can't be done.

Forde pointed to Arizmendi Bakery in California, a co-op that, when it grows to a certain size incubates a new cooperative and spawns a new autonomous cooperative under the same name.

The world's largest worker co-op is the Mondragon Corporation, a conglomerate encompassing 95 autonomous cooperatives in Northern Spain, according to a 2022 New Yorker story.

In early October, a 17-member committee of "early adopters" at Urban Animal participated in a training with The Cooperative Way, a cooperative development organization based in Washington D.C. Among them was Mollyrose Dumm, a veterinary technician who serves as Urban Animal's client liaison.

Dumm knows a thing or two about advocating for workers. She helped lead a successful vote to unionize a Blue Pearl specialist referral and emergency hospital in North Seattle in 2018. During negotiations, the company shut down the ER and eliminated Dumm's job. She said she was not invited to apply for another role or to work at another location. Eventually, Blue Pearl closed the hospital entirely.

She's excited by the plans for a worker cooperative at Urban Animal.

"It's nice to be at the forefront of change without constantly having my blood pressure up because I essentially have to go into a fight every couple of weeks," she said.

If she has any concerns about how things might shake out, it comes from a downside in labor organizing.

"People are very gung-ho. They love the idea. And then they're like, ‘Wait, I have to participate?' " she said. "That's going to be my concern moving forward with this cooperative. Mommy is not going to come and clean up the dishes for us."

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