Turnaround of Unprofitable Subsidiary iStock4633733-XSmall-seedling-startup
(Read full case study)

Located in West Branch, Michigan, Franklin Forge was a subsidiary of Capitol Manufacturing, a company in the oil field equipment business. Franklin was one of Capitol's suppliers. During most of the years it was owned by Capitol, Franklin lost money. These losses resulted mainly from Capitol's cost structure and lack of experience in the forging business. Yet because Capitol was quite profitable prior to 1982, Franklin's losses did not become important to Capitol until 1983 and 1984.

In early 1984, Franklin Forge employees sensed that the company's continuing losses threatened their future. The union, International United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) Local 1874, organized a jobs committee to explore how they could save their jobs. After investigating Franklin's financial condition, the employees determined that purchasing the company was the best way to protect themselves.

The employee effort to buy Franklin began in earnest when UAW International Representative Jack Laskowski sought assistance from the Michigan Employee Ownership Center (MEOC). The employees subsequently formed a buyout association, retained Groban Olson and Associates as counsel, and commissioned a feasibility study. As a result of the buyout association's efforts, Franklin Forge became a worker cooperative.

In 1984, when the employees first contemplated a buyout, Franklin employed 20 people and had 82 on a seniority list. At the time of the buyout, management projected that Franklin would employ 38 workers by the end of the first full year of operation. After six months of operation, Franklin already had 38 employees, and by the end of 12 months, it employed 54 people.