From Tradition to Transformation: The Rise of Steward Ownership

Steward ownership is a concept gaining traction as an alternative to traditional corporate ownership structures. It presents an alternative to shareholder value supremacy. It values long-term purposes over short-term profit maximizations.?

Steward ownership refers to a corporate structure where the organization is owned and governed by stewards, people dedicated to the company's mission and values. Unlike traditional ownership, where shares can be bought and sold, steward-owned companies ensure that control remains with those committed to the organization's purpose.

The idea of this model is a fundamental shift in shareholder behavior. Instead of primarily seeking financial returns, shareholders become stewards aligned with the company's mission. Consider a privately owned humanitarian organization: its continued service delivery hinges on the collective decision of its shareholders. This demonstrates the transformative power of steward ownership. By converting shareholders into stakeholders, the model ensures that the company's core purpose remains unwavering and prioritized over short-term financial gains.

When discussing this model one might suggest that CEOs hold the fate of a company and not shareholders. While CEOs are often seen as the decision-makers and shareholders as mere profit recipients, the reality is reversed. Shareholders hold ultimate authority, determining the CEO's fate through hiring, firing, and accountability.

Steward- ownership is dependent on two principles:?

• Self-determination: Ultimate control of a company rests with those actively involved in its operations and purpose: stewards, not distant owners.
• Purpose-orientation: Profit is a tool, not an end. Value generated within a company is reinvested, allocated to operational expenses, or given back to the community.

This ownership model has a proven track record spanning decades, with successful implementation by companies such as Zeiss, Novo Nordisk, Patagonia, Bosch, Signal, BuurtzorgT, and Carlsberg. While rooted in tradition, it offers a revolutionary approach that diverges from conventional ownership structures. Start-ups can leverage this model to legally protect their mission-driven enterprises, while established businesses, including mid-sized firms and industry leaders, can establish enduring frameworks that prioritize sustainability and alignment with long-term goals. Unlike traditional models reliant on family ties or corporate acquisitions, this approach empowers successors to become steward-owners.

How does Steward-Ownership work??

There are different ways to make a company steward-owned. For instances companies like Patagonia and Bosch have split their common shares into steward shares (holding the voting rights) and economic shares (holding the dividend rights):

• Steward shares: Steward shares possess all voting rights and cannot be bought, sold, or inherited. Stewards are chosen based on their capabilities and hold the responsibilities that come with voting rights. They either hold these shares directly or indirectly by being a board member of a foundation holding these shares. Some stewards might be chosen by employees, while others may be selected by a selection committee based on their experience in a certain industry.
• Economic shares: Economic shares hold dividend rights and can be held by investors, founders, employees, a foundation, or a combination of these stakeholders. Economic shares allow stakeholders to share in the company's profits, but never at the company's expense. Some companies choose to never distribute more than 50% of their free cash flow, while others set a "cap" on the amount of profit investors can receive in return for their contribution. For example, after receiving three times their return, investors may be compensated for their contribution, after which their shares lose future dividend rights.

(https://www.corporate-rebels.com/blog/steward-ownership-purpose-profit )

Forms of Implementing Steward-Ownership

For companies thinking of implementing stewardship model these are some of the types of model they can transition to:?

1. Double Foundation Model: A standard model that legally separates money and power: One entity holds the control rights, with its managers functioning as stewards for the company. Another, charitable, organization holds the economic rights and the capital shares of the company. Examples: Bosch (Germany), Patagonia (US), Globus (Germany).
2. Single Foundation Model: Another classic model: All voting and economic rights of a company are held by a self-governing non-profit foundation. It acts as a shareholder and guardian of the steward-ownership structure and principles. Examples: Novo Nordisk (Denmark), Zeiss (Germany), Carlsberg (Denmark), M?rkisches Landbrot (Germany), Elobau (Germany).
3. Veto Share Model: In this model, the guiding principles of steward-ownership are being included into the company’s articles of association. The steward-owners of the company hold 99% of the control rights, but no economic rights. 1% of the control rights, the so-called “veto-share” or “golden-share”, is held by an independent non-profit entity. It has the right to veto any article changes or actions affecting the principles of steward-ownership. Economic rights remain within the company or can be given to investors or founders – but only to a limited extent. Examples: Ecosia (Germany), Sharetribe (Finland), Wildplastic (Germany).
4. Perpetual Purpose Trust: In the US, a Perpetual Purpose Trust (PPT) is a common model for installing steward-ownership. A PPT is set up for the benefit of a purpose rather than a person and can operate indefinitely. It holds the shares of the company. The trustees (i.e. steward-owners) control the PPT, but cannot extract the value or profits of the company. Examples: Organically Grown Company (US), Firebrand Artisan Breads (US).
5. Communicate Transparently: Regularly share updates on the company's performance, governance, and impact with stakeholders.

(https://purpose-economy.org/en/whats-steward-ownership)?

Benefits of Steward-Ownership

1. Mission and Values Presentation: Steward-ownership is a deep-rooted commitment to an organization's mission and values. By shielding decision-making from external pressures, organizations can better align their actions with long-term goals.
2. Good governance and management:By fostering exceptional governance and management, steward-ownership lays a solid foundation for an organization's enduring prosperity
3. Employee productivity and retention: Steward-ownership is a legally binding commitment to employees, guaranteeing that their work benefits the purpose of the company as a whole, and not just its financial owners.
4. Customer loyalty: When employees and managers feel deeply connected to and responsible for the organization's mission, it leads to improved service. This benefits both partners and consumers and fosters long-term customer loyalty.
5. Long-term Orientation: Without short-term pressure from financial markets and greedy investors, steward-owned organisations can focus on what is best for their organisations, employees, customers, investors, and society at large for the long-term.

Challenges of Steward-Ownership

1. Access to Capital: Without traditional shares to sell, raising capital can be more challenging. Companies may need to rely on alternative financing methods, such as impact investors or patient capital.
2. Complex Governance: Establishing and maintaining a steward-ownership structure requires careful planning and governance. It can be complex to set up and requires ongoing commitment from the stewards.
3. Public Perception: As a relatively new concept, steward-ownership may be misunderstood by customers, investors, and other stakeholders. Clear communication is essential to convey the benefits and principles of this model.

In uncertain times such as the one we are facing, breaking from tradition and embracing innovative strategies could be the key to unlocking success. steward-ownership offers a compelling alternative to traditional corporate structures, emphasizing mission-driven governance, long-term sustainability, and positive social impact. While it presents challenges, the benefits of increased employee engagement, community impact, and alignment with ethical values make it a model worth considering for forward-thinking organizations.?