Going Beyond Fair Trade: Equal Exchange’s Democratic Business Structure Ensures Mission-Driven Growth
By Kat Schuett
In a utopian world, what would a business look like? Certainly, it would follow organic and fair trade practices, making sure that farmers were treated as equals, rewarded for their work and not exposed to harmful pesticides. But what happens once it leaves the farm? How do you create a truly “fair business?”
Creating a business that was fair from farm to store (and everything in between) was the inspiration for Equal Exchange, the first company to sell fair trade food or beverages in the United States. In 1986 the founders not only developed a system for fair trading with small farmers, but also sought to build a business infrastructure that was as democratic as possible. The result was a worker-owned cooperative where each employee owns an equal share in the company and all major decisions are made via employee-shareholder vote. The company’s by-laws reflect its mission as well. These include an egalitarian pay scale that is not exceed a 4:1 ratio between the highest and lowest paid full-time employees, and a “no exit strategy” policy stating that if the employee-owners ever decided to sell the business then any net proceeds must be donated to another fair trade organization, and not simply pocketed. And, due to its unconventional capital model, in over 25 years of growth Equal Exchange has never had to compromise its mission to satisfy profit-seeking investors.
Although its approach almost seems too utopian to work in real life—Equal Exchange has proven that you can be fair and fare well. Today, the company has grown to over $36 million in sales and is the largest fair trade, organic chocolate company in the United States. Its chocolate has won accolades at the New York Chocolate Show and Equal Exchange has been featured in Time magazine as well as in Fast Company, which honored the company with its Social Capitalist Award in 2008. Equal Exchange’s innovative democratic business structure has even captured the attention of Harvard, M.I.T. and other business schools, who have asked the cooperative to present on its model. WorldBlu has also named Equal Exchange one of the “World’s Most Democratic Workplaces” four years in a row and the company was the recipient of the Financial Times/ JustMeans Social Innovation Award and numerous other honors.
In addition, Equal Exchange has helped pioneer the domestic fair trade movement, led fair trade advocacy and spread the word about fair trade through partnerships with faith-based organizations and school fundraising programs. All together, Equal Exchange has proven that challenging the “business as usual” model can result in great successes for everyone from the farmer to the community.
Building a Fair Foundation
The three founders of Equal Exchange—Rink Dickinson, Jonathan Rosenthal and Michael Rozyne—were no strangers to the cooperative model. In fact, they met while working as managers at a New England co-op. Seeing local farmers negotiate with the co-op made them wonder about the farmers who created the imported goods they sold. What kinds of rights did these farmers have? The three started researching the issue and after a few years a plan was developed that would not only give farmer cooperatives in developing countries a voice, but also would create a domestic working environment that upheld the same cooperative ideals. Equal Exchange was born.
“We saw our business structure as half non-profit, half for-profit,” says Dickinson, the cooperative’s president. “Like a non-profit, we wanted to truly hold ourselves to the mission of the company. We didn’t, however, want to be reliant on grants, but rather on our own ability to be innovative and create a demand for our product in the market.”
Pioneering the U.S. Fair Trade Movement
In the mid-80s, there were no fair trade certifiers and no standardized rules to follow so the founders developed their own system, a simple yet effective approach—come to the table and talk with farmers as equals. Their first venture is a perfect indicator of the activist spirit that would define the company. At the time, the Reagan Administration had just imposed an embargo on all products from Nicaragua. Importing coffee beans from Nicaragua would support the fledgling people’s movement and would challenge U.S. trade policies. To do this, the founders of Equal Exchange found a loophole and had the beans roasted by a Dutch company, technically making the beans a “product of Holland.”
The company moved on to partner with other marginalized farmer co-ops and by year four was selling enough coffee to break even. By 1991, they had hit the million dollar mark. At that time they also joined the European fair trade network, now known as FLO, and when the U.S. launched its own fair trade certification in 1999, Equal Exchange was one of the first to certify to the standard. Equal Exchange was also the first to introduce fair trade sugar as a stand alone retail item and to use fair trade sugar as an ingredient. Today, the company partners with 43 small farmer co-ops in 23 countries to produce over 130 fair trade certified SKUs, ranging from a wide variety of coffees to chocolate, tea and bananas.
Building a Worker-Owned Business
To the founders, creating a democratic workplace for their domestic employees was just as important as ensuring the farmers they worked with abroad were treated fairly. Today, the company is 100 percent worker-owned with 91 employee-owners including everyone from roasters and packers, to customer service reps and senior managers. Employees have to work for the company for a year before becoming an owner, but after that they each have one equal share in the company and one vote—without regard to rank or seniority. Even the president has one share/one vote. The company also follows open book management, where financial information is shared with all employees to ensure transparency. A key element to ensuring that the owners are never tempted to “sell out” is Equal Exchange’s “no exit strategy,” which states that if the company is sold, the net proceeds would not go to the worker-owners, but would be donated to another fair trade organization.
“We took the cake off the table, so we wouldn’t be temped,” says Rodney North, the company’s spokesperson. “Unlike most companies that are dependent on one person’s character and determination, we built the protection of our mission into our business structure.”
But that doesn’t mean the worker-owners don’t get to enjoy the sweet rewards of the company’s success. Each year, 7 percent of the net profit is donated to non-profit organizations, 3 percent is invested to assist start-up cooperative businesses and, of the remaining 90 percent, 40 percent is equally divided among all the worker-owners and 60 percent is invested back into the co-op. Because owners need to continually invest in their company, part of each employee’s profit check is kept in a company account which they can only redeem if they leave the cooperative. This system not only has built a successful company but has led to happy employees, says North, who has been with the company for over 14 years. The company’s turnover is less than 10 percent a year.
“In our mission statement, we don’t want to just trade fairly and support organic farming, we want to demonstrate the viability of this entire business model. We may never be one of the really big guys, but we can be profitable, have a high impact and still stay independent,” says North.
One of the major reasons why Equal Exchange was able to remain independent all these years is because they approached capital from a very different position than most. Instead of growing too fast and going down the venture capital route where so many burgeoning entrepreneurial business lose control, the founders of Equal Exchange looked for like-minded investors who were willing to accept limited returns because they believed in the fair trade model the company was developing. This type of progressive investor really does exist. In fact, even with a modest 5 percent return on investment and no liquidity or voting rights, Equal Exchange has been able to raise over $6 million in capital from around 480 investors.
“Making a huge return is not the main goal. These investors know they are helping build an organization and business model that is really committed to the mission of fair trade and they see the importance of that,” says Dickinson.
This capital is combined with innovative investment products, including the first company-specific Certificate of Deposit (CD) where the funds are dedicated to the use of one company. This offers a way for a social enterprise to raise capital and maintain independence and provides a socially responsible financial product that connects retail depositors with small farmers.
Equal Exchange also works with other cooperatives in the National Cooperative Business Association to promote new models for capitalizing cooperatives and is a founding investor in the Co-op Capital Fund, an innovative fund which provides capital that acts like equity without requiring co-ops to give up control over their own management and mission—often the sad result of many venture capital endeavors.
Having the capital to grow according to your mission is only one part of a successful socially conscious enterprise. All the capital in the world is not going to help you unless you get your product out in the market in a way that connects with the public. One way Equal Exchange is increasing its market share while also developing awareness of fair trade and environmental sustainability is through partnering with organizations that share the desire to create a better world. In 1996, Equal Exchange joined with Lutheran World Relief to launch the “Interfaith Program,” which offers wholesale prices on coffee, tea and cocoa to serve after worship and at community events. Other church groups heard about this and by 2002 more than 10,000 congregations across the country were serving Equal Exchange products. Today, this Interfaith Program represents 20 percent of the cooperative’s annual sales.
In addition to faith-based organizations, Equal Exchange also shares its fair trade message with schools and non-profit organizations via a comprehensive educational fundraising program. Started in 2005, the program has already worked with over 1000 groups and helped raise over $450,000—not counting this year which is expected to be the biggest yet, surpassing over $200,000. Adding to the cooperative’s own variety of fair trade products, this year Equal Exchange launched a partnership with another fair trade pioneer, Ten Thousand Villages, to offer handmade, fair trade home and garden decor, jewelry, personal accessories and gift items. Ten Thousand Villages works with more than 130 artisan groups in 38 countries and was a key role model that helped inspire the founders of Equal Exchange in the 1980s.
In contrast to most fundraising programs, the main focus of this program is not just raising money, but also raising consciousness. Along with the sales kits, Equal Exchange provides a free online curriculum for teachers. The 16 lessons in Win Win Solutions: An Introduction to Fair Trade and Cooperative Economics cover everything from how fair trade negotiations work via engaging the children in farmer/buyer role-playing, to how cocoa is grown and processed. The cocoa lesson, entitled “Hard Work,” includes a section on child labor, which is still used throughout much of the Ivory Coast where 50 percent of the chocolate Americans consume is sourced.
“The lesson on child labor is something that really connects with the kids. These are kids their own age who are forced to work for practically nothing,” says Virginia Berman, director of the program. To help groups understand the mission behind the products they are selling, Equal Exchange will come visit any organization within close proximity of its 4 regional offices.
Taking the educational experience to an even deeper level, Equal Exchange has also created the Pen Pal Project to foster personal relationships between students in the U.S. and the children and grandchildren of cacao farmers in the Dominican Republic.
Advocacy and Activism—and the Future of Fair Trade
While many companies have joined the fair trade movement, Equal Exchange has continued to lead on many fronts—fighting for small farmers and taking a strong stance to protect the original guiding principles of fair trade.
In 2008, the USDA proposed to ban group organic certification, which allows co-ops to be certified versus each individual farmer having to pay the costs, thus making organic certification accessible to poor farmers in the developing world. Equal Exchange knew that this change would lead many farmers to go back to conventional chemical agriculture. To prevent this, they launched a grassroots campaign and in less than a week more than 3,150 individuals and 450 organizations signed on to a letter to the USDA in support of group certification.
Equal Exchange has also been very involved with the Cocoa Advocacy Coalition, a group of fair trade chocolate companies, social justice organizations, consumer and faith-based groups who have banded together to fight child labor in the cocoa industry. One of the major projects of this coalition has been the Reverse Trick-or-Treating campaign, which promotes the use of fair trade chocolate for Halloween and year-round. Coalition members provide kits which include a piece of organic, fair trade chocolate and informational cards that trick-or-treaters can pass out door to door.
Altogether, last year Equal Exchange alone was able to reach over 200,000 households.
Protecting the integrity of fair trade has also been an issue that is very close to the heart of the company, and as fair trade has grown, Dickinson has seen some changes that concern him. One is the inclusion of large-scale plantations in the fair trade system, which he believes dilutes the original fair trade ideals and undermines small-scale farmer co-ops. “Small farmers are happy with the success of fair trade so far, but are concerned about where the model is going. They believe they are losing control over the model that they helped create because so many large- scale short-term commercial interests have taken control over setting standards and making key decisions to the detriment of the small farmer organizations that started the fair trade movement,” says Dickinson.
“The plantation model has been very controversial because it’s very top-down and doesn’t allow small farmers to have much of a voice. We believe this is a much weaker model than the original focus on small farmers. We would argue that the small farmer model is the one that consumers want to support when they buy fair trade.”
Pioneering New Avenues of Fair Trade
For Dickinson, the goal of Equal Exchange is to continually innovate to provide more fair trade market opportunities for farmers. Most recently this has led to a major investment in a fair trade, organic banana company, Oke, which is marketed under the Equal Exchange brand. Throughout the world bananas are controlled primarily by four large corporations which have historically underpaid and overworked employees. Then a few years ago one co-op of small banana farmers decided to break free from the middleman and take power back into their own hands. Seeing that this was in line with their mission, Equal Exchange’s worker-owners voted to take the risk to purchase a 45 percent share of Oke and now work with independent grocery stores to offer fair trade, organic bananas to the public.
Equal Exchange has also helped “bring fair trade home” by creating a domestic model for fair trade that would benefit U.S. family farmers and farm workers. So far the cooperative has brought three domestic fair trade products to market: almonds, pecans and dried cranberries. Rozyne, one of the founders of Equal Exchange, ended up taking this on as his full-time passion and created Red Tomato, an NGO focused on sourcing local produce at a fair price from family farmers.
Holistic Business Growth
Over the past 25 years, Equal Exchange has proven that its unconventional business model works and that fair business encompasses so much more than just paying farmers a higher price. The key to the cooperative’s success, North says, is its holistically fair approach. “The reason we have been able to remain independent and create the kinds of market and capital partnerships that we have is because we approach business holistically,” says North. “From investors to churches and schools, to our co-op model and fair trade, organic products—these types of partnerships would not be possible if we didn’t have the whole package. You’ll find that one piece helps the other and creates credibility. It comes down to being true to your mission in everything you do.”
The worker-owners have a vision to push this mission forward in the next 20 years, creating a vibrant cooperative community of two million committed participants who are trading fairly one billion dollars a year between farmers, the cooperative, new branches and brands and conscious consumers. The key to this is to empower activists to act as movement ambassadors, challenging the status quo, teaching new economic models, taking action and building something new while challenging the old. While some may think that Equal Exchange’s vision is too good to be possible, others believe that the good that would come from this type of utopian vision brought to life is too impactful to continue doing business as usual.
Kat Schuett is the editorial director of Organic Processing. You can reach her at firstname.lastname@example.org.