[This text was originally published in AREA Chicago #8 in May 2009]
Back in August 2008 when the Rude Mechanical Orchestra rolled through town playing a show at the Co-Prosperity Sphere, I chatted with Elanor Leskiw of Mucca Pazza while hanging outside on the street. It was during our exchange, after hearing about their creative corporate structure where they issue socks as shares to band members, I thought how perfect it would be to interview the members of Mucca Pazza who helped shape this here thing for AREA’s Everybody’s Got Money Issues. Tinkering with a point system, standard deviations, ballotbin, c-corp, socks, nerdom, and task forces, Mucca Pazza may be re-hashing what an Employee Stock Ownership Plan (ESOP) would look like for a large group of radical music makers destined to sustain their art-making for the long haul. I sat down with Mark Messing (MM), Elanor Leskiw (LS), and Meghan Strell (MS) of Mucca Pazza to learn the ins and outs of how this model came to be and what lies ahead for the troupe.
How did it start? What were the initiating questions in finding the right structure for Mucca Pazza?
MM It’s a chance to get together with thirty people and to experiment with structure that involves money and intellectual property. Independence is really important for this group. And you don’t necessarily have that with a non-profit board. And I think people wanted to control the profits that came in. Almost like we wanted to be our own foundation and give the money to one another or others as we saw fit.
EL We were leaning non-profit. We knew we needed a solution for a tax ID number cause we had income that needed to be credited to some body or something.
MS And a lot of bands tend to go towards LLC [limited liability company], and a lot of theaters tend to go non-profit and so we looked at both structures.
What was it like to decide what structure to take?
EL We had a task force to study what the different forms were about, the difference between non-profit, commercial and LLC, basically. And we also talked about our history a lot so that we could have a definition of this group in mind when we were deciding which form to take. Whatever form we took legally we wanted it to match what we were already doing, as the structure was working really well.
MS It’s nice that some of the structure’s there, so we don’t have to reinvent everything, but we’re definitely changing, shaping the structure to fit our needs and who we want to be, so to influence the business structure and not vice versa. We are interested in reinventing a way of working together.
MS It turned out c-corp (commercial corporation) was the one that was going to let us be who we were already.
EL And we thought we were a non-profit cause it feels like charity cause no one makes any money.
MM Yes. We are starting to pay ourselves very small artist fees, quarterly, but it is such a large group.
MM They are based on people’s participation, so we measure people’s time and interest. And the reason we do that is because the most valuable thing with our structure is flexibility. No one is required to spend a minimum amount of time, but the amount of time you spend determines how much influence you have on the project.
EL We take a percentage of the income and we say, “ok X percent of all income is going to towards artist fees.” So then we have this pool of money that instead of getting divided evenly among owners or whatever, it’s divided according to the point system. And that’s paid out every three months.
MS So points become cash and stocks become long-term investment.
So the socks represent the shares of stock?
EL (Elanor pulls out mucca pazza shareholder socks.) Year one sock [a mini x-mas stocking]. Here’s year two sock [a baby footie].
MS But it was really about not taking ourselves too seriously and yet you still needed a physical representation of a stock, but it could be anything, so why not a sock!
How would the shares change by the year?
EL Well we started with 29 initial shareholders. 29 owners. Every year if you’ve been an active member—there is a formula that sort of evaluates participation based on attendance and volunteer hours. If you pass that threshold of “active member,” you are issued another sock. And you have to be an active member for three full fiscal quarters (of the year). Measuring all that gets a little more in detail, but that’s how you earn a sock. And so every year you earn another sock if you’re an active participant.
MS At this point most people would have 2 socks.
MM So theoretically, someone may not be very active for a couple of years and get behind on socks. But we want to make sure there is no stigma about not being active.
MS We needed to have flexibility so that the people who did have time and energy to invest in the project could invest, you know, and have something to show for it.
What is an actual dividend, I mean artist fee?
EL Probably around $50-$60 for three months.
What kind of services have you been advised on that have been helpful?
MS In addition to getting incorporated and getting that paperwork in, we looked at a lot of by-laws for other marching bands and read them and sort of took them apart and put them together again to make it look like us and what we’re already doing. And then we had a business advisor, Brad Farris, to go to and say, “Do we need this part? What does this mean?” A lot of what we were already doing was fine and he helped us change the language, really. More than changing what we were doing, we were figuring out to say it in businessesse.
Anything else that you have had people’s guidance around?
ML That business consultant had a lot to say, right? Specific warnings about corporations and precedents. [in nasal voice] “You should put in your by-laws that you aren’t allowed to sue each other.” (laugh)
MS Processes for coming and going. And if band members die. You know, stuff that you’re not really wanting to talk about or think about when you’re starting. But you know, if you’re going to have shares, what happens to a share if someone leaves the band? The idea with the by-laws is that they are a guide for worst-case scenarios. So that you know everything should get worked out through conversation, but you have the by-laws to turn to if you have an awkward situation. Everybody’s read and signed on to them.
MM It was a revelation too that the laws are kinda set up to where things are fair among owners. It’s just among owners and employees that it’s not very fair. So If everyone’s an owner there’s a lot of precedence there to protect people. And of course if you have a company with 40,000 people and everyone were owners you’d still want different responsibility because people have different levels of interest and time. That was really interesting to find out.
MS In an LLC, there would only be 30 stocks. We made 1,000 and we can give out more every year so we can build equity in the company. But if we were a LLC, every owner would have an equal share and then if somebody left the band, then you’d have to recalculate everything. If you brought someone in, everybody’s share would shift. So, it was a lot less flexible.
MM We decided to have everyone be an owner but then control their influence according to their participation. And that’s where the by-laws came in. So we wanted to have a way of people gaining their investment over time if they stayed with the group for ten years. We thought they would deserve a larger reward than someone who came for a year or two and experimented and took off.
Is the formula really complicated?
MS We decided we would do points and so we figured out what our activities are: doing gigs, rehearsals. Load in and load out for gigs was really important cause a few people got stuck with doing that all the time and we wanted to acknowledge that. So we just started tracking points in kind of a minutia sort of way.
MM Meghan and Tom Howe came up with this algorithm to evaluate the points, to decide where the threshold was for active status.
MS It was a standard deviation from the mean of the participation of active ?shareholders.
What did that equal to constitute ‘active’?
MS It was about 18, on average 11 – 18 per quarter. So let’s say if you had earned 15 points, you’re active that quarter. If you earn less than that, then you’re just marked inactive and you can be inactive for a quarter and still get a sock, but if you’re inactive for two quarters then you know, you put in maybe 30 points and somebody else is putting in 60, 80 or 90 and at some point, you gotta make a call as to who is making the bigger long-term investment.
Is it working?
MM It’s working beautifully so far as long as we are honest about what it is and this is reminding me that while we do have owners, we also have two employees. And we have contractors, a sound person or a merch person who comes in on occasion. Employees are people who are doing things that a lot of us don’t have time to do because the money we get is not enough to sustain us as a living wage, or even a part time wage. So the proceeds we get from gigs and CD sales are mostly invested back into the structure and that includes a couple of employees that are part of the infrastructure.
And in terms of paying our expenses for what we have to do, it’s working. The next trick is keeping our energy up over the years. If we pass a threshold to where the intellectual property that we’re putting out there or the number of people that we reach in the areas that we travel starts to change, or balance a little to where we are making a part-time wage, then that would make it sustainable for some people.
Would you say your philosophy, the way you approach the corporation, is collective, the way you work together. Do you ever call yourself a collective?
EL We call ourselves mucca pazza. We call ourselves cows. We call ourselves nerds really, more than anything.
MM It’s a funny contradiction of where we are, even though we’re ideal in some ways, we want to make [Mucca Pazza] a socially-conscious corporation. But it’s still at stage one. If someone gets hurt, we’re not at a point where we can take care of them. We can’t offer health insurance. Right now what you get financially is based on your ability to perform. And that’s a survivalist, darwinian model. So we hope that eventually we’ll have enough beyond our sustainability that we can do things like that. And the first step, that’s really important to us, is to have a minimum number of benefits per year. So we feel like we’re giving back into the larger system that allows us to exist. ◊