The rabble rousers at Equal Exchange

By Malaika Maphalala

Many of you are familiar with Equal Exchange, the Fair Trade company marketing chocolate, coffee, and teas.  Over the past year, I’ve enjoyed several conversations with Equal Exchange’s Capital Managers, Alistair Williamson and Daniel Fireside, to learn about their business practices. I’ve been deeply impressed by their downright revolutionary business model and philosophy. They are, in fact, economic activists who take pride in their role as visionary rebels. Equal Exchange’s deep commitment to social justice permeates every level of its business: the internal structure, relationships with trade partners, and business financing models.

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Internally, Equal Exchange is a for-profit business structured as a democratically-run worker owned co-operative, where every employee has a say in the direction of the business along with a financial stake in its success or failure.  After one year at Equal Exchange,

employees become worker-owners by purchasing a single share of Class A Common Stock and earning the power to vote under the democratic philosophy of one vote per person (not per share). Management is “open book” so everyone has access to information and can vote knowledgably on major company issues. Worker-owners nominate and elect the company’s nine member board of directors, and have the right to run for one of six seats reserved for employees.  Further, the pay structure has a top to bottom pay ratio of no more than 4 to 1, meaning top paid employees never earn more than 4 times the lowest paid employees.  In comparison, the average ratio of American CEO pay to average worker pay was 263-to-1 in 2009. Equal Exchange is part of a much larger historical movement of worker-owned co-ops, and they’ve grown to become one of the largest, and most financially successful in the country.  With over $36M in sales this year, the company’s widely recognized brand really brings the alternative business model of the worker-owned cooperative into the public eye. Virtually all Equal Exchange suppliers are small-scale farmer organizations in Asia, Latin America, Africa, and the US that are also structured as democratically run co-operatives with a commitment to sustainable farming practices.  By working directly with farmer co-ops, Equal Exchange eliminates middlemen, allowing more money to flow directly to producers. In partnerships with socially responsible financers like Root Capital and Shared Interest, Equal Exchange provides pre-harvest financing to their farmer partners and pays a fair price based on real living wages rather than the fluctuating speculative prices of regular commodities markets, where small farmers typically receive the short end of the stick or are cut out entirely by industrial agriculture.  Equal Exchange works earnestly to foster a real connection to the people and families with whom they work.  To that end, every Equal Exchange employee is required to spend a week with one of their suppliers within the first two years at the company.  I’m sure that contributes greatly towards keeping everyone rooted to the real meaning and impact of their work.

Finally, the approach Equal Exchange uses to raise capital and distribute profits also reflects their strong values.  From time to time, Equal Exchange issues preferred stock offerings of Class B shares to outside investors at a fixed price of $27.50. That fixed price eliminates incentive for speculative investing because there will never be any capital gains on Equal Exchange stock. Instead, investors receive an annual dividend targeted at 5%. Although the rate varies, the company hasn’t missed a dividend in 21 years.  Their investors commit to holding shares for at least five years, benefitting from both the financial and social returns their investment generates. When it comes to distributing the cooperative’s net profits, 7% is donated to non-profit organizations, and 3% is invested to assist progressive, start-up, cooperative businesses. Of the remaining net profit, at least 60% is re-invested in Equal Exchange, and up to 40% divided equally amongst employee-owners.  If the company is ever sold, their structuring agreements state that net proceeds after repaying investors and creditors be distributed to other alternative trade organizations. This removes temptation to sell out to a food conglomerate – the common fate of most small successful food companies.

As their former Capital Manager Alistair Williamson told me, Equal Exchange’s business model is designed to go places that are generally difficult to go, and to get there effectively.  It’s an innovative vehicle especially suited to traverse the road less travelled in business – that challenging terrain of fairness and equality in international trade.  Because of this, Equal Exchange is an inspiration and model for others.

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Malaika Maphalala

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