The South Mountain Story

When people in the New England area think of Martha’s Vineyard, they think of the island’s beauty. But given that 80% of the peak summer population disappears by fall, very few associate “stability” with the Vineyard. The employee-owned South Mountain Company has brought both beauty and stability to the island since its move to the Vineyard in 1975. The integrated design, development, and construction company has a staff of 30 including 17 worker-owners.

South Mountain’s cooperative structure has attracted long term commitment from staff in an industry typified by high rates of turnover. In order to become cooperative members, South Mountain Company worker-owners must commit to environmental responsibility and concern for others. The company’s concern for others is manifested in part, by the leadership role it has taken in affordable housing initiatives to help year-round residents remain on the island. The cooperative’s concern for environmental sustainability is reflected in its focus on maximizing energy efficiency and the use of renewable energy in the structures it designs and builds.

Company History

South Mountain started as a three person partnership in 1973 in New York and subsequently moved to Martha’s Vineyard. In 1986, two of the company’s ten employees approached John Abrams, a South Mountain cofounder who had since become the sole proprietor, about acquiring a greater stake in the company. John recognized that South Mountain needed a long-term solution to employee retention that could benefit not only these individuals but also other employees, future staff, and himself by offering workers more participation in decision-making, greater responsibility, and opportunities to share profits. It was important that this new structure be sustainable and ultimately benefit and protect the business and cooperative culture he had helped to start. Research led South Mountain to evaluate a worker cooperative structure and engage The ICA Group. With ICA’s technical guidance and support, South Mountain became a worker cooperative in 1987.

[pullquote]“Cooperatives work worldwide in all industries and at all scales… at South Mountain we have different skills, people with and without professional credentials, there is room for all.”[/pullquote]

Ownership Structure

Like other coops, South Mountain limits membership to employees who complete a trial period and invest a membership fee, is governed democratically by its members, and allocates a portion of annual earnings to members based on their patronage (measured by hours worked). South Mountain’s membership fee is about $13,000, which may be paid over 36 months. Each owner has an internal capital account, which consists of his or her membership fee plus patronage allocations. Generally 50% of the company’s net earnings each year are distributed to owners. Once owners leave they may draw down on these accounts, which are backed by a reserve fund. They have the option to draw down the full amount over 8 years, or a discounted amount over shorter periods.

South Mountain differs from other coops by requiring a five-year trial period for membership, significantly longer than the more typical one year period. The 5-year waiting period was designed to address concern that the company “would get inundated with new owners and South Mountain wouldn’t have the necessary time to fully evaluate them and know how they would perform as owners. It has turned out to be a wonderful thing in most ways,” according to John Abrams.

Once a worker becomes a member they, along with all South Mountain coop members, serve on the board of directors. South Mountain’s Board has created committees for subsets of the worker-owners to focus on specific issues. Says John Abrams, “Early on we recognized that when the Board grows it can be difficult and limiting for so many people to process all the information… we created a Management Committee and Personnel Committee which is where much of the work actually happens. The Board acts as the final sounding board and decision-maker.” While some coop boards include a mix of worker-owners and outsiders, South Mountain board membership is limited to worker-owners. This governance design works well for South Mountain and reinforces the tight-knit culture of the company.

Over time, South Mountain has evolved a great deal, adding employees and refocusing much of its work, including creating a division dedicated to renewable energy and energy efficiency. Meanwhile, with the help of flexible democratic decision-making, South Mountain has sustained its structure, according to John. “There have been very few changes in the bylaws during more than two decades of cooperative ownership. The bylaws that ICA helped draft at the start have stood the test of time.”

 Challenges

The successful creation and maintenance of South Mountain’s cooperative structure has not been without challenges. Even with a preexisting collaborative culture, there was some confusion regarding what decisions should be decided collaboratively by the entire Board versus delegated to management. “The biggest challenge is making certain that all voices are heard and at the same time, recognizing and honoring the separation of policymaking from management… it took many years to understand that,” says John, “At a Board meeting something would come up and someone would say, ‘Why weren’t we consulted about this?’ We would discuss, and decide whether it was appropriately a management decision or a Board decision. Through this process we were able to gradually codify the difference.”

John believes that established roles from when the company was a sole proprietorship actually helped smooth the cooperative transition in the 1980’s. A company starting as a coop on day one of its incorporation may have more difficulty determining whether decisions should be made by management or the Board, John explains. “When you transition from a sole proprietorship to a coop, there is already a culture of expertise which helps you understand the limitations of democracies, in terms of what the group should decide and what should be decided by those with the appropriate expertise.” It is important to define the role of management, as South Mountain does in its policy manual, to limit inefficiency and confusion over determining decision-making responsibility.

South Mountain has also dealt with external challenges, including the recent recession. To cope with the challenge of decreased demand for its services, the company democratically created a set of 6 steps to mitigate the downturn and keep the company intact, including voluntary furloughs and graduated pay cuts. The fact that the worker-owners helped formulate this strategy made it much easier to endure. There was a strong feeling of “all being in it together.” South Mountain managed to keep a steady flow of work and generate reasonable earnings during the downturn. John says of this time, “As we have made the necessary changes we have once again been witnessing the strength of a system in which the people who make the decisions bear the consequences and share the rewards.”

John believes that the cooperative structure has positively influenced the market’s perception of the company and thereby been financially beneficial. “People think of South Mountain as very forward-looking… I think it certainly has helped.”

 Company-Wide Benefits of Coop Structure

The structure at South Mountain has benefitted John, as well as workers turned worker-owners and non-owner employees. John explains, “The great benefit for me is not having to be right all the time, having the shared burden of responsibility.” Phil Forest, a Solar Designer/Technician and owner adds, “Part-ownership of this company has given me a greater sense of community… I feel empowered by the chance to help guide the company. I have increased my commitment, discovered more opportunities, assumed more responsibility and acquired more influence… I belong here.”

The coop structure truly impacts the culture at South Mountain. John’s philosophy is, “We spend a third of our lives at work. It should be a place where we love to be, and ownership is a contributing factor.” The sense of ownership even radiates to non-owners, as the potential to become an owner creates a culture where all employees have a voice. Derrill Bazzy, a Designer and owner says, “Even before ownership I felt I was part of the decision-making process… everyone can be involved to whatever degree they choose.”

External Benefits of Coop Structure

John Abrams believes that the coop structure has external economic benefits, “In addition to the benefit of coops helping to protect employment, the profits are shared by all, including non-owners, and the great disparity between the highest earners and lowest earners is diminished, which makes for a better, more equitable version of capitalism.”

South Mountain’s focus on local issues, such as its environmental and affordable housing initiatives, have also benefitted Martha’s Vineyard. According to John, “Being a coop makes it easier to address issues important to all of us… here a larger group of people have the opportunity to express their desire to invest in the community.”

Lessons for Creating a Successful Coop

John believes that the coop structure can be successful for workers with any skill set, in any industry, or at a company of any size, “Cooperatives work worldwide in all industries and at all scales… at South Mountain we have different skills, people with and without professional credentials, there is room for all.”

John’s advice to those considering forming a cooperative is to “first and foremost, be rigorously honest and forthright about everyone’s fears and needs. Second, get the best professional advice you can. Third, learn from mistakes, successes and stories of those who have come before.” It is also important to train workers about participating in a coop. According to John, “We try to make education about ownership a part of the daily experience of working here.”

 The Future of South Mountain

As the culture and leadership at South Mountain evolve, the stability remains. John expects the cooperative to add 3 to 5 members over the next two years. “All of them are young people who we hired several years ago to be essential parts of the next generation. They are perhaps more open-minded than some of us, and less constrained by tradition. The balance, and the diversity, seem particularly healthy and give added strength to the underpinnings of the company.”

John is optimistic that the company will continue to have a positive impact on the lives of its worker-owners and their community. “It makes sense for our company to invest in the community in which we have invested our lives, it’s a feedback loop that truly works.”