HOW TO TALK TO YOUR FAMILY ABOUT STEWARD OWNERSHIP
You’re interested in steward ownership for your business. You have been for a while. But... you’re not sure how to tell your family.
You might find yourself asking:
“How will my friends and family react?”
“Will my spouse understand?”
“What if people think I am making a big mistake?”
“Will anyone even understand the words I am saying when I describe this next step?”
First of all, know this: You are not alone.
These are all legitimate questions. It is normal to feel fear, trepidation, and uncertainty when you’re contemplating such a big transition.
Selling your company or bringing on new owners/investors is always a hard decision, and it can feel especially hard when you decide you might be interested in taking an unconventional route.
But the good news is this: There are many tried and true ways to communicate clearly and effectively about steward ownership, and what it might mean for you, your company, and your family.
As you may have gathered, we’re being a little tongue-in-cheek with this topic, but it truly can be disorienting or at the least confusing for others when you choose to take an unconventional ownership route with your business. In this article, we are going to give you the tools, language, and talking points you need to quell the doubters, silence the critics, and enroll your friends and family as allies in your decision.
Below are six of the most common questions that you, as a founder/owner, might get about steward ownership, along with simple, memorable talking points (written from the first person perspective) to help you respond:
1: “What the heck is steward ownership?”
Steward ownership is a type of ownership that will allow our company to:
Stay “self-owned” and maintain its independence
Stay controlled by people actively working in the business
Protect its purpose and mission while I get liquidity and/or bring on new investment
Continue growing in a sustainable way by eliminating the possibility of pressure from profit-maximizing shareholders
Basically, it’s a way for me to make sure the soul of the company stays intact, even after I leave.
2. “Aren’t you going to make a lot less money if you go this route?”
Nope! The price I set is up to me and what the business can afford.
Will I make a little less? Maybe, maybe not. Here’s the deal:
The type of ownership I choose for our succession has nothing to do with the valuation, or value, of our company.
Whether I choose to sell to a big company - say, Amazon - or go with steward ownership, our company valuation represents how much someone is willing to pay for the company.
The amount someone is willing to pay for the company is determined by our annual profits and various intangible things, many of which are valued differently by each prospective buyer.
So, on one hand, a conventional buyer might be able to justify paying a premium price because they believe they can extract more profit from the company or leverage the brand/operations after they take over.
But, on the other hand, a mission-aligned buyer or investor might be able to justify paying a premium price because they put more value on the intangibles, like employee welfare and environmentally-friendly sourcing decisions.
So, at the end of the day, it all kind of balances out. Generally, I think I should be able to walk away with a similar amount of cash in my pocket no matter what route I choose.
That said, the reality is that finding investors/buyers to finance a steward-ownership transition can be slower and less of a “sure bet” than going the conventional path. So while the numbers may be similar, a steward-ownership transition may require more time, patience, and work to execute. So, like with many things I’ve done over the years to prioritize mission and purpose in my business, there are trade-offs.
Finally, if I do find myself in a situation where I need to leave a little money on the table, then I like to think about a “regret minimization framework”: When I am 90 years old, looking back, what will I regret more: leaving money on the table or potentially abandoning this company’s purpose? In my heart, the answer to that question is that I would rather leave a little on the table and see this company continue to serve a great purpose in the world for decades or generations to come.
Bonus talking point when confronting the super skeptics:
There’s even a chance I might make more money. Here’s why:
A conventional buyer may require a lower valuation than a mission-aligned buyer/investor to justify a purchase of the company.
Why? Because the big company’s return-on-investment requirements are higher!
Let’s imagine two different buyers: (1) A conventional buyer who requires a 15% annual return on their purchase (2) A mission-aligned buyer who is happy with a 10% annual return.
If my company is making $1M per year in profit, that means the conventional buyer would need to purchase the company at a valuation of $6.7M to get their 15% annual return, while a mission-aligned buyer would be happy with a $10M valuation.
3. “Is this the same as employee ownership?”
No, not exactly, but there can be many of the same benefits as employee ownership.
In steward ownership, companies are not directly owned by employees but rather by purpose-driven entities like a trust or a foundation.
However, many steward-owned companies choose to include employee welfare as part of their purpose. This often takes the form of profit-sharing, which simulates employee ownership in many ways.
Basically, when the company does well, there are more profits to be shared. If employees are one of the designated beneficiaries, then they will share in those profits and build more wealth over time.
4. “Is this even legal? Don’t companies have to maximize profit by law or they might get sued by shareholders?”
Yes, steward ownership is 100% legal.
Did you know that the idea that companies must maximize profit, while widely believed and practiced, is not actually the law? This notion is based on the outdated 1919 Supreme Court opinion in Dodge v. Ford, which is no longer enforced in court. In practice, courts have granted corporate boards the legal right in many situations to consider a broader set of criteria beyond just profit in their decision making.
That said, in situations involving the sale or breakup of a business, there are other legal precedents, perhaps most notably Revlon, Inc. v. MacAndrews & Forbes Holdings, that may obligate a Board of Directors to maximize the sale price of a company for the benefit of stockholders.
So while owners and corporate boards are sometimes allowed to consider a broader set of criteria beyond profit in their decision making, steward ownership takes this idea of pursuing multiple objectives (of which profit is just one) one step further and enshrines these goals directly into the ownership of the firm so that they can never be stripped away.
This is important because the primary source of concern for companies when pursuing objectives that may not maximize shareholder returns are suits from large activist shareholders (which even, if ungrounded, are a headache). In steward ownership, the largest shareholder is typically a Trust or some other purpose-motivated actor with whom this won’t be a concern.
Currently, a number of US states and countries around the world have laws that specifically allow for steward-owned companies and that number is growing.
5. “If you raise money from investors, aren’t you giving them control? Isn’t that incompatible with everything you’re telling me?”
Typically, the answer is “yes” but there are a number of alternative strategies our company can use to ensure that we raise money without giving up control.
Perhaps the most common of these is to sell non-voting stock instead of voting stock. That way we sell stock in the company that allows investors to participate in our growth and economic success, without giving them any votes or control.
6. “Is anyone else I know steward-owned?”
Yes! There are many great examples of steward-owned companies around the world, including:
Bosch
Organically Grown Company
Newman’s Own
Playmobil
Firebrand Artisan Breads
Metis Construction
Equity Atlas
Arbor Assays
Mozilla
Ecosia
Ziel
Creative Action Network
... And many more!
In a sense, many founder-owned companies are steward-owned because the founder IS the steward – acting in ways to protect the health, mission/purpose and stakeholders of the company long-term rather than just maximizing profit for themselves. Steward ownership simply replaces this type of founder-owner with an aligned entity that will never retire or die (such as a Trust) so that the company can stay true to its original vision into perpetuity.
As you use these talking points to face your friends and family, remember that the first time you have these conversations, they may feel hard or unnatural.
You may stumble over your words or find yourself getting blank stares, confused looks, or patronizing responses.
People may smile politely and then try to change the subject.
Do not be discouraged! With a little more practice, you will soon find yourself explaining things in a more crisp, compelling, and passionate way. Those blank stares will turn into enthusiastic reactions. And rather than getting confused, people will be eager to ask questions and learn more.
Steward ownership is a bold decision, and you should feel proud that you are considering this big step. If you communicate your enthusiasm, it’s only a matter of time before everyone around you will be proud of you as well.
