PROFILE OF A PARTIAL TRUST CONVERSION: RIVERFORD ORGANIC FARMERS
Since Riverford Organic Farmers founding in 1987, this family-owned business has been delivering fresh organic produce from farmers directly to customers.
Founder-owner Guy Singh-Watson has always been a quiet rebel, embracing organic farming early on and fueling growth on his own terms. He was never interested in taking on outside investors, but as time went on, he realized he needed a succession plan for the business. Given that none of his children were interested in taking over the family business, he dove into a decade-long exploration of “what’s next.”
On June 8th, 2018, Riverford Organic Farmers became steward owned. 74% of the company is now held by an Employee Ownership Trust (EOT), benefitting all 741 Riverford employees equally. Currently, Guy retains 26% of the non-voting preferred shares and remains active in the business. Guy opted for a trust ownership model – where shares are held in a trust for all staff equally – rather than a direct ownership model because, he explained, “To me, it just felt fairer. Everyone contributes to success, everyone benefits.”
An Employee Ownership Trust was an obvious choice and a clear fit with Guy’s ethos, because he has always viewed his employees as the “best custodians of the business.” His employees are passionately committed to the company values and from his perspective, are the best prepared to steward their commercial success and mission into the future. “Most people are better, kinder, less greedy and have more to give than our institutions allow them to demonstrate. We will help Riverford staff build the confidence to be the best possible versions of ourselves.”
The EOT model that Riverford adopted also locks in the values that the company was founded on and has pursued for over 30 years:
Giving a fair deal to staff, suppliers, customers, and the planet
A commitment to organic and to their farming roots
Long-term relationships of trust with their growers
Locking in their purpose was a key driver in Guy’s decision to pursue trust ownership. While employees are the beneficiary of the trust and will receive profit sharing, Guy saw this financial reward as “icing on the cake.”
Guy was also attracted to trust ownership because it makes it virtually impossible for the business to be sold. Guy is no fan of the way companies are bought and sold repeatedly in the US and UK, as he believes this leads to a loss of principles and brand value as companies push towards short-term, unsustainable growth. He’s always believed in slow, steady, organic growth, and the company’s permanent independence will help it continue on this path for the long term.
Recapitalization
The move to trust ownership was financed through a loan that Riverford secured from Triodos Bank. It will be used to pay out Guy over a number of years. While an independent valuation of the company assessed the value at £22M, Guy sold the company for £6M, which he felt was more than enough to sustain him through his eventual retirement.
Governance
Guy looked to John Lewis Partnership as a good model of how employee ownership can be integrated into a conventional management structure. With the implementation of the Trust, Riverford established a Co-Owner’s Council, with members elected by the staff to act as the “eyes and ears” of the business.
Governance comes from a Trustee Board, which will include Guy as well as two recently appointed non-executive Directors to act as “wise elders.” They will be joined by two members of the Co-Owners Council.
In addition to overseeing the management team, the Trustee Board will be the ultimate guardians of the company’s purpose, independence, and values, as codified in a binding “Founder’s Wishes” statement that Guy developed with his staff:
Our purpose is to be useful. More specifically...
To grow and supply the best organic food
as part of an independent, challenging and commercially successful business
which balances the needs of customers, suppliers, the environment, and wider society
and provides fair and rewarding employment to our staff.
Lessons and Considerations
Riverford’s story offers a few lessons and considerations for founders and owners who are considering a purpose-centric succession plan:
When business owners think of “employee ownership” they often think of ESOPs, but EOTs are becoming an increasingly popular alternative. For more, see our post: EOT vs ESOP.
EOTs offer a way to “sell” the business to your employees in a sense, without requiring them to actually outlay cash.
While Riverford is a UK company, EOTs are also legal and with precedent in the US.
It is possible for a founder/owner to maintain stock in their company alongside a Trust. In Riverford’s case, Guy continues to own 26% of the non-voting preferred stock, which entitles him to annual dividends based on company performance.
Guy chose to sell the company for less than the fair market value (FMV). While there is nothing technically wrong with this, in the US there is a total lifetime gift tax exemption, so business owners who are considering selling their company well below FMV will want to consult with their CPA and/or lawyer about this issue.
Guy financed his exit through a loan from a third-party lender. For companies that don’t want to go this route and/or who don’t qualify for outside lending, there are many alternatives to structure a buyout including a seller’s note paid down by company cash flow, or raising equity from mission-aligned investors.
