ECONOMY
WITH
PURPOSE

MAIKE
KAUFFMANN
& CHRISTOPH
BIETZ

Companies in steward-ownership are mastering a major step: they are realigning the structures, incentives and ambitions of business.

 

 

Business can be done differently. What would happen if shareholder value were no longer in the foreground, but responsibility and a sense of purpose? If companies looked not at short-term profits, but much further into the future? If employees knew that they are working for a purpose–and not for shareholders? The Hamburg-based Purpose Foundation supports companies that want to move in this direction–by rethinking how companies are organised on the ownership level. We spoke with Maike Kauffmann, Research + Think Tank, and Christoph Bietz, Communications, of the Purpose Foundation, about different forms of entrepreneurship and how steward-ownership can be an alternative business form for purpose-driven companies. What’s behind this idea? And what challenges do these companies face?

The Purpose Foundation helps companies with a profound, structural change: the conversion to steward-ownership. What exactly is this about?

 

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Steward-ownership is a corporate ownership structure based on anchoring two principles in the legal structure of a business—in its DNA, so to speak. The first is the principle of self-determination; those who hold the voting shares in the company, and thus exercise control, are always people who are connected to the company. The second principle sees profit as a means to an end, not as an end in itself. This implies that the value of the company, the company assets and the profits made cannot be extracted by the shareholders for their private needs. They remain in the company, are reinvested, set aside or donated, but not distributed to shareholders.

 

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That means that instead of focusing on shareholder value, as common business forms often do, ­steward-ownership is all about creating value for all stakeholders involved with the company. Profits serve the company and its purpose, and this concerns not only the owners, but also the employees and customers. In this context, it is crucial that the very ­mission of the company is brought back into the centre. The company’s purpose is the goal—not only an increase in assets. Every company wants to solve some societal problem; every company’s mission is embedded in a larger social and ecological context. Steward-ownership is about the meaning and purpose for which a company ­exists.

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In many companies, management changes every few years, often jumping from one industry sector to the next. Is this what is to be avoided?

 

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K

Traditionally, we often see company structures with absentee owners, people who are holding and exercising control over the company, but are very far away and actually only regard the company as an investment. And the managers on the other side need to answer to these owners and have to make sure that the figures are right in order not to be dismissed. But nobody looks at where the company is heading in the long term, nobody really feels responsible for what is going on in the company. There is a ‘vacuum of responsibility’.

 

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At this point it is important not to create false expectations: Steward-ownership does not mean asceticism. Of course, the company must operate, act and think in an entrepreneurial way. Investors can invest their money in steward-owned compa­nies—and gain fair returns. But they will not get any voting shares, as this would contradict the principle of self-determination. Also, foun­ders, owners and employees can and should receive good salaries. Of course, a ­steward-owned company still has an interest in increasing profits, not for personal purposes, but for the purpose of the company. Surplus profits will not be distributed among the owners. Instead they can, say, go to charitable purposes. At Berlin-based search engine Ecosia, for example, 80 per cent of profits are invested in planting trees worldwide. That is the main purpose and focus of the company.

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What does this change for the employees?

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A lot, I would say. Working in a steward-owned company provides you with a legally binding promise that you’ll always be working for a purpose, not for the personal benefit of the owners. This can also lead to greater self-efficacy: to realise that I contribute to something as an employee which creates value and fulfils a purpose. Also, steward-ownership is often accompanied by considerations of co-determination and a fair salary structure. At Einhorn, for instance, a company that offers sustainable hygiene products, the lowest salary may not be less than one-third of the highest salary.

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Generally, research shows that salaries are higher in companies with steward-­ownership. Of course, this always depends on the company and its situation; but we ­often see higher trans­parency and co-determination in conversations about salaries in steward-owned companies. However, the change in motivation and identification is much more striking in my view. Employees at companies like Ecosia or Waschbär work for the idea, for the purpose of their company. They know that if they bring an idea to the table, it can be turned ­into something that benefits everyone instead of creating value merely for shareholders. This allows them to identify with the company in a completely different way.

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The concept of steward-ownership is not only interesting for young startups, but also for long-established family businesses. What do they expect from it?

 

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Steward-ownership enables economic sustainability. That is of huge importance to family businesses because they are oriented towards the long term. On the current legal basis, they are passed on by inheritance; there is no alternative except selling the company. So blood and money lead the way. But if you do not want that and there is also no family member who wants to take over, you have a problem. For instance, if a director wants to pass the business on to a well-deserving employee, that employee would have to buy it and get into heavy debt. And that, of course, puts a strain on the company. With steward-ownership, the assets are tied to the company, so you can pass on your shares: to employees or others who are connected to the company.

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Succession planning thus involves not only family members, but also people from the outside to find the person best suited for the job. This also secures the existence of the company.

 

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Absolutely, more and more family businesses are struggling with succession problems. There is not always a capable successor to be found in the family. Or the children may want to take a different path instead of taking over the business. Family businesses nevertheless want to be able to carry on the values they have lived over generations. In this case, steward-ownership presents a real alternative. It is possible to hand over a business to a person in the family, or, for instance, to appoint one or several employees as owners of the business. There is an enormous amount of interest and support for the topic in the business community.