An Equal Exchange Story: When a founding member gets pushed out

Equal Exchange_0Paper posted on March 6, 2011 was prepared for the Babson-Equal Exchange Cooperative Curriculum titled ‘The Worker Cooperative Life Cycle’ by John R. Whitman Ph.D. This is an academic- style paper that explored whether the Cook and Burress’ theory (2009) of the five phases of a co-operative fit the life cycle of Equal Exchange. The paper can be found at:

As a non-academic I was more interested in the story of founding a worker co-operative, how democratic the worker co-operative is, and how a founding member can be forced out of a worker co-operative. John R. Whitman interviewed the founders of Equal Exchange in the paper. The following are excerpts from the paper in regards to this.

Equal Exchange was founded from its founders compelling motivation to use their existing food warehouse co-operative skills to advocate on behalf of the interests of developing country farmers. The challenge faced by founders Jonathan Rosenthal and Michael Rozyne was that as members of a distribution co-operative owned by retail food co-operatives, they were buying produce from poor farmers in developing countries to sell in turn to grocery stores and other outlets in ‘well-to-do’ towns. The warehouse attempted to drive down the prices offered to farmers in order to ensure an appealing margin for its member stores. Jonathan and Michael had a problem with this. The founders had a strong sense of social justice and solidarity with the farmers whose products were passing through at a profit to the members of their co-operative, to comparably wealthy consumers. When Jonathan and Michael approached the food warehouse co-operative to rectify this and create a better balance between the interests of the farmers and the consumers, the board of directors of the co-operative of which they were members were not interested.

After three years of planning, Equal Exchange was incorporated on May 1, 1986 along with member Rink Dickinson. Equal Exchange was a fair trade organization in Stoughton, Massachusetts created to help developing country farmers get fair prices on the goods they were selling.

Until the early 1990s Equal Exchange was an organization that was completely founder dominated. Jonathan said that in the 1990s, “I was the CEO-Executive Director, he (Rink) was chair of the board, Michael was still on the board. It was a family run company, essentially. And I would say as a worker co-operative it was pretty meaningless; it was a family run company. And yes, the workers got to make some decisions, and elect the board, and organize elections when there was more than one person running for a seat, but it was founder-led, family-led, whatever you want to say, amongst the three of us.”

Jonathan further goes on to say that, “As part of my frustration as an executive director and as an entrepreneur was that I felt like the board of directors was very conservative and had very little professional capacity, and so they were more of a weight than a support. I don’t even think they had the skills to hold me accountable. So I felt it was the worst of all worlds.”

In 1999, Jonathan received a phone call from a board member asking for his resignation. According to Jonathan, this was very painful. “I go off with my family to take a vacation trip to California to visit friends in the Bay Area. And on my trip, the last night of my trip, 10 o’clock at night, so it’s one o’clock in the morning in Boston, I get a call from [a board member]: Jonathan, I wanted you to know before you come back, I wanted to be the one to tell you we had an emergency board meeting and we’re asking you to resign. I said, well based on what? I had a review just before I went on sabbatical and basically it was a glowing review …. He said there are some management issues, you’re not managing people that well. I would say it was a B, a B-, but from everybody else I got a glowing review. … Why would I step down? So he said, well, people don’t know when you’re going to come back, people are not happy internally, things are really stuck, and we need to move forward. And it doesn’t seem like you can provide that leadership. So I said, it would have been nice if, like how can you do that in secret? I thought everything was transparent, and how could you meet without me, and you didn’t tell me, and I’m coming home tomorrow, you had to call me on my vacation at 10 o’clock at night while I’m sitting in a studio apartment with my family?”

Jonathan goes on to say, “So, anyway I was pretty pissed off to say the least, and I said no, no way, let’s meet in person and talk about this. So then we had a meeting with the board and it was very unpleasant and they said we’ll get back to you on Monday, they didn’t get back to me on Monday, and I had keep calling. Anyway, it was really ugly, I was treated very poorly, there was no transparency, they weren’t telling me what was going on. So I felt like I dropped the ball in leadership and probably should have resigned and left. It was my baby and then I hadn’t figured out how I could walk away.”

Jonathan says, “Yes. One thing is that Michael, Rink, and I and maybe all the early people, the way you set it up so that you get a profit that year is so short-sighted. I feel like right now, Equal Exchange and its worker-owners are benefiting from my work and I feel like I didn’t get properly compensated. And I set that up. Overall, I’m happy. We did this incredible work and helped start this movement and all. So on that level I’m happy, but I feel like we set up in the culture a thing of we’re not honouring or rewarding risk and innovation. We just accepted innovation as a normal and natural thing. Equal Exchange is more short-sighted than Wall Street in a way. There is no willingness to invest in the future.” “Number two, on an ownership level, I think certainly founders and early people should at least have some profit-sharing decades into the future. And I think for the three founders the price should be in perpetuity.” By 2009 sales grew to $35.7 million, with profits of $1.37 million.

Question: Is this just sour grapes or does Jonathan have a point? How can fledgling worker co-operatives dominated by founding members be more democratic? How could Equal Exchange have handled the firing of Jonathan in a more transparent and respectful way (assuming his side of the story is accurate)? Should founding members receive profit-sharing in perpetuity? We would like to hear from you.