Unique Governance Structures Designed to Protect Employee Ownership
by Sarah Stranahan
Kevin and Nicole Koch, founders of Technicians for Sustainability (TFS), a solar design–build firm based in Tucson, Arizona, built their company from scratch. After more than a decade of running the business, the couple made an unconventional decision, converting TFS to a worker cooperative in January 2017 in order to protect the company’s environmental and social mission. As part of our employee ownership and sustainability series, Fifty by Fifty spoke with Nicole Koch to learn more about TFS, this important decision, and some of the creative governance designs the business used to help manage the transition and ensure the company will always remain employee owned.
“When Kevin finished grad school with a degree in neuroscience in 1998, he knew he wanted to do something that would help the world; he just didn’t know what,” said. Nicole Koch. After learning about grid-tied solar, he installed about a dozen solar energy systems and, with another electrician, launched the company Technicians for Sustainability. A few years later, when his partner left, Nicole joined the business. Today TFS operates out of a 6,000 square foot warehouse and has revenues of $8 to $10 million a year. Nicole Koch added, “We still service those first solar systems Kevin installed in the late ‘90s.”
Preserving Social and Environmental Mission
In 2011, TFS was one of six companies at the inaugural meeting for Amicus Solar, a purchasing cooperative. Among the Amicus members are several worker-owned cooperatives, including Namaste Solar, South Mountain Company and PV Squared. “We started learning about the co-op model and saw that it might really work for us,” said Koch. “We were looking forward ten years and wanted to find a way to keep our environmental and social mission ‘baked into’ our ownership and governance structures, and to spread the prosperity throughout the company. Most importantly, we felt that the employee ownership model was the best way to extend our mission beyond renewable energy and improve the social structure of our community.”
“We were looking forward ten years and wanted to find a way to keep our environmental and social mission ‘baked into’ our ownership and governance structures, and to spread the prosperity throughout the company.”
Koch explained that from the beginning, TFS was “absolutely” founded with an environmental and social mission in its DNA. “Our goal was to make solar energy accessible.” TFS is also “committed to practicing what we preach.” For TFS, that means solar-powered offices, a supply chain that prioritizes local and responsible businesses, a company grey-water system, 100 percent recycled paper and recyclable packaging, a growing electric fleet, an environmental education partnership with local schools, and a solar grant program that has built seven solar systems for Tucson nonprofits. TFS has been rated “Best for the World” by B Corp in the environment category four years in a row.
Measuring What Matters
“We decided to become a B Corp in 2015 because we wanted to support the B Corp movement,” said Koch. Even with clear social and environmental mission, she added, “we discovered that we weren’t measuring all of our ESG [environmental, social, and governance] practices. We had no way to monitor progress on activities we weren’t measuring. Now we are strong believers in B Corp’s ‘Measure What Matters’ slogan. We’ve learned that culture and values are essential, but structure and formal policies matter, too.”
Unique Design Features
TFS has added unique features to its cooperative design. For one, TFS wanted to sell the company to employees while keeping sufficient working capital for efficient operations. Some TFS employees also didn’t have money to invest. The solution came from incentivizing employees to re-invest their profit share in the company. TFS already had a profit-sharing plan distributing 20 percent each year, in ratios based on job responsibility and salary. Koch said the new plan doubles the profit-share allocation if employees reinvest that allocation in the company for five years. “This allows employees to build sub-accounts within the retained earnings, and it also keeps those earnings available to the company as working capital,” Koch explained.
TFS adopted a “poison pill” that says in the event of a sale, after all employee owners have been paid book value for their equity, remaining profits will be distributed to another worker co-op or to a nonprofit that supports employee ownership.
To protect mission over the long term, the Kochs drew on South Mountain Company’s bylaws, which require a 75 percent super-majority of employee owners to approve any sale or change in mission. But since market valuations could result in large payouts for employees if the company was sold, they wanted extra insurance to protect the mission. TFS adopted a “poison pill” that says in the event of a sale, after all employee owners have been paid book value for their equity, remaining profits will be distributed to another worker co-op or to a nonprofit that supports employee ownership. This eliminates any incentive to cash out the company for short-term profit, instead incentivizing building long-term wealth in the company.
The Kochs sold the operating assets of TFS to the co-op for book value in 2017. “We capitalized the new worker co-op with a combination of founder’s capital in non-voting shares, and common stock for the 14 employee owners at $10,000 each. In addition, through the profit-share program employees own over $200,000 in non-voting shares.”
Book value is a low price for a fast-growing, profitable company. “If we wanted to maximize our financial gain, this is not the way we would have done it,” said Koch, “but we wanted to protect TFS’s mission and values, share the company’s success with the workers, and keep it growing stronger.” She added that she and Kevin are still owners.
Koch says that TFS is still taking “baby steps” to realize the full potential of its new worker-owned B Corp structure. They have a democratically elected board of directors but are still building an ownership culture. “We’ve learned so much from South Mountain, Namaste, and PV Squared about becoming a worker co-op. They all say it takes time to develop an ownership culture of shared responsibility.”
Do employee owners ever hesitate about spending money on improving TFS’s environmental footprint if it means sacrificing short-term profits? Koch laughed. “Now we have employee owners who want us to do even more to mitigate our carbon footprint. They are asking, ‘How can we do better? How can we do even more?’”
Read more about Technicians for Sustainability in GreenBiz.
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