Steward-ownership for impact

How can investors and social entrepreneurs optimise governance for impact? Steward-ownership holds a compelling answer, and Marc Rasmussen, Impact Investment Principal at DOEN Participaties, shared his expertise to dive deeper into the value and nuances of this governance model. Marc will join an expert panel to discuss steward-ownership at the upcoming Impact Week in Brussels. 

Steward-ownership for impact
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What inspired you to make social impact such a significant part of your career? 

I used to work for companies that focused on the financial bottom line. I was essentially just working to make the owners wealthier and didn’t feel like I was working for something that is valuable to resolving an actual problem. And since work is where you spend most of your time each day, you've got to make it count. Working for a purpose beyond earnings makes it much more fulfilling. 

I'm now in my fifth year with DOEN Participaties, which is the investment team of the DOEN Foundation (Stichting DOEN). We're based in Amsterdam, and work-wise I'm focusing on early-stage investments in circular business models and sustainable food systems. DOEN was founded by the Dutch charity lotteries, which is still its sole funder, and that is interesting to mention because the Postcode Lottery Group (the parent of the charity lotteries) is itself is a steward-owned company. 

Marc Rasmussen

DOEN believes that steward-ownership suits itself particularly well to companies that want to bring about positive change in the world – social enterprises, for example. That is why we support initiatives that help further this concept. And for entrepreneurs that are open to take up the conversation, we help them connect to the right partners to implement it.  

At Impact Week, you’ll be presenting a perspective on steward-ownership and the mission-led company. Can you further define these concepts?  

Almost every company has a mission or mission statement. But being mission-led, or rather purpose-led, means that the profit as such is not a goal in itself, but a means to a purpose. So, it's putting a mission at the core of what you do. And tied to that is steward-ownership: a governance model that suits itself very well to preserve and to protect the mission or the purpose of a company, by splitting profit rights from voting or controlling rights. This type of ownership is guided by two principles. The first is self-determination, which means you cannot hand over the steering wheel of the company to someone else. It’s not simply sellable. The control of the company stays with people that are most closely connected to the company and its purpose. The second principle is purpose-orientation, which means that profits serve the purpose and will be reinvested in the company (or donated to a means that is related to the company's purpose, such as research).   

What are the risks of more traditional ownership models? How does steward-ownership mitigate these risks?    

In the conventional model, the company has become an asset to shareholders, to create value for the owners of those shares. Ownership can become dispersed and often lands in the hands of absentee owners. And that is an issue for a company, because if you are very disconnected from the company, how can you take the right decisions for its employees and for its other stakeholders, such as the customers or suppliers? We have seen that dispersed ownership brings about a lot of externalities: companies acting or owners acting extrusive by putting too much pressure on the profitability of the company, by cutting costs, pushing excessive growth, and thereby putting too much strain on the ecosystem, leading to pollution, climate change, etc., but also putting a lot of pressure on the human side of things, such as the working conditions and hours. That is the risk of commoditising something: you become detached from it, and the decisions you take become purely based on numbers, whereas there are many other parameters that you need to take into account to really take a holistic, right decision for a company.   

A company is, in essence, a social organism, right? It's where people come together to work to create value and to gather around a certain purpose. And that is really what steward-ownership works to preserve. It really changes the motivation behind the decisions that you take by legally separating the controlling and the economic rights of the company. So now you don't only create wealth for the for the owners of the company itself, but you take into account all stakeholders in decision making; everything has to be aligned with your purpose.  

Are steward-owned companies attractive to investors?   

Yes, steward-owned companies are attractive: according to research done on foundation-owned (=steward-owned) companies in Denmark, steward-owned companies have a 6x higher survival probability after 40 years, compared to their conventionally-owned peers. If you look at the stats of steward-owned companies, they're more resilient, more innovative and score better on employee pay and retention, while being equally profitable. 

Of course, your interest also depends on what type of investor you are. If you're a closed-end VC fund that really is expecting unicorn-like returns, that limits your ability to invest in a company that has a steward-owned model. When choosing for steward-ownership, you will have to have a clear talk about how much return to expect. The model suits itself well for impact investors and angel investors that want to work closely with a company that’s focused on ecosystem value and wants to solve a problem and still expect a healthy return — which, of course, is possible. There can be a clear path to liquidity due to the structured exit once the company is profitable.  

What kinds of companies stand to benefit most from steward-ownership?  

I'd say the model is sector-agnostic but it's quite often used in impact start-ups and social enterprises. We see the model in use for digital platforms where data protection is a priority – Signal and Ecosia are steward-owned, for instance. Any industry characterised by strong trust-based relationships to its customers and/or suppliers, such as food and health, would be a great fit:  quite a few organic food and health companies have implemented steward-ownership. If you look at Denmark, it's probably one of the countries with most steward-owned companies: ~60% of the market cap of the Danish stock index constitutes steward owned companies like Novo Nordisk, Carlsberg and AP Moller-Maersk. In Germany, BOSCH and Zeiss are well-known examples. 

When do companies typically implement steward-ownership?  

Steward-ownership is easiest to implement from the onset, when you start a company because you merely need to convince your co-founder(s) But you could also implement steward-ownership just before a Series A funding round; really, when you when you have a shareholder group that you can easily align in terms of the purpose of this restructuring and where you can have this discussion and don't have obstructive minority protection rights in place. Then the third situation that’s well-suited to implement steward-ownership is a succession situation; for instance, a family company where the family members don't want to or cannot run the company.  

Succession – that was the case with Patagonia in the US (transferring Patagonia’s ownership to a climate-focused purpose trust). Was this an instance of a steward-ownership transition?   

Without going into detail on the structure, what Patagonia did is indeed a transition into steward-ownership. Patagonia made a very strong statement, saying, Okay, any profit that comes out of company goes into a foundation that further supports initiatives within climate change. The transition makes a very strong case for what role you can play as a company in countering our time’s biggest challenges and how to do that with your profits. 

Who should come to your Impact Week session and why?    

People with open minds and interest in bringing about positive change in the world, not only by the type of investment that they make, but also through the governance structures that they implement. We really hope that people get enthused around the subject and gain a better understanding – another little snowball that can start rolling (Patagonia was a massive snowball).   

I'm looking forward to a great conference and I hope a lot of actionable points and valuable connections come out of it, because while we've already come a long way, there's also very little time left to really do what is needed. I'm very curious to hear how investors look at this.    

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