THE POWER OF OWNERSHIP PART 2 - FOUR COMPANIES WE’D LOVE TO SEE CONVERT TO STEWARD OWNERSHIP
In our previous post, we described a phenomenon that we called “The Ben and Jerry’s Trap.”
In 2000, despite Ben Cohen and Jerry Greenfield’s desire to remain independent, their Board of Directors felt obliged to sell the company to multinational conglomerate Unilever. The company, despite its best intentions, was effectively “trapped” by the expectation that it would maximize financial value on behalf of its shareholders.
Ben and Jerry’s story is not unique. Across the country, there are countless businesses that are committed to their missions. These businesses are run by founders and leaders who understand that profit is not the end goal, but simply a tool they can leverage to help them fulfill their purpose.
But these purpose-driven businesses are at risk of falling into The Ben and Jerry’s Trap if they don’t take proactive steps to mitigate this risk.
Some of these businesses need capital to grow, but they don’t know how to source capital without giving up control to shareholders who may not share their goals.
Other businesses have aging or exiting founders and are unsure how to design a succession plan that will preserve the founder’s vision and purpose while bringing in new owners.
Others still have experienced substantial growth, fueled by outside capital, but they have been turned off by the reality of venture financing or private equity and would like a way to bring the company back to its roots.
These companies need a plan.
Ben and Jerry didn’t know about steward ownership when they were considering their succession plan. But what if they had?
As we said in Part 1, the primary obstacle to greater adoption of steward ownership is not technical nor legal (the tools and frameworks exist), but awareness. Most founders and business owners simply are not aware that alternatives even exist.
That lack of awareness must change, which is why we are writing this post. Here at Alternative Ownership Advisors, we believe that capitalism has the potential to be transformed through greater adoption of steward ownership, and so we feel some urgency to spread the good word.
To that end, we are highlighting four companies that we think would be great candidates for a steward ownership conversion.
Each of the businesses on our wish list is special. They all have powerful brand recognition, loyal customers, and a clear focus on their purpose and mission. They each, in their own way, represent a set of ideals and aspirations to make our world a better place.
Below, we briefly describe why we believe each company would benefit from steward ownership, and then we recommend a hypothetical ownership structure that we think could work for them.
Let’s dive in.
#1 – PATAGONIA
Recommended Steward Ownership Form: Perpetual Purpose Trust
Patagonia’s mission statement could not be more clear: “We’re in business to save our home planet.” The company, which does over $1B in annual sales, is the poster child of socially responsible businesses.
Patagonia donates 1% of sales to environmental causes, with over $100M donated since 1985. They repair your old clothes for free. They have a venture fund that invests in start-ups that work on environmental issues. They launched a food business (Patagonia Provisions) because the company decided that investing in regenerative agriculture would be a high-leverage way for the company to mitigate climate change. They sued the Trump administration in an effort to protect the Bear Ears National Monument. These are just a few of the examples of how Patagonia aggressively and unapologetically pursues its mission.
Further, Patagonia has been able to do all of this without raising a single objection from shareholders. How? Because the company’s sole shareholders are founders Yvon and Malinda Chouinard.
That the company has never raised outside money and is wholly owned by its founders is perhaps its greatest strength and the reason it has been able to chart such a unique path as the self-declared, “Activist Company”.
However, this may also be its greatest liability. As the founders enter their 9th decade on earth, one cannot help but wonder, what will happen to Patagonia when they are no longer around?
While it is possible that they could do an ESOP (Employee Stock Option Plan) buyout or leave the business to their children, without serious advance planning the most likely answer is that the company will be sold. As a registered Benefit Corporation, the intentions behind such a sale may be good, and undoubtedly there would be an effort to find like-minded investors who would help preserve the company’s activist spirit. But the specifics are ill-defined and murky, and the risk of a slow erosion of purpose by extractive forces seem unacceptably high.
In order to ensure that Patagonia remains a force for good for generations to come, we recommend the company consider transitioning 100% of their voting stock into a Perpetual Purpose Trust.
Perpetual Purpose Trust ownership would ensure that the sole owner of the company - the Perpetual Trust - is as committed to the company’s purpose as the Chouinard’s.
The Trust Agreement, which acts as “the constitution” of the Trust, could spell out the company’s purpose and it could also designate specific stakeholders that the company is designed to benefit, including, for example, the natural environment, or employees. Further, this would not preclude the company from raising money if it ever needed to, it would simply preclude the incoming investors from having control.
Finally, the Trust will never die and will never be interested in an exit. This means the company’s operators could focus on company building and purpose-filling into perpetuity, without ever having to worry about activist shareholders or a hostile takeover.
Yvon, Malinda - what do you think?
#2 – THE NEW YORK TIMES
Recommended Steward Ownership Form: Foundation/Nonprofit Ownership
The New York Times, in their own words, is on a mission to “seek the truth and help people understand the world.” With 150M monthly readers across the globe, the company is undoubtedly among the most powerful and consequential news companies in the world.
When the company decided to go public in 1969, the company’s then-chairman and CEO, Arthur Ochs Sulzberger, was concerned about protecting the company’s independence. In a novel move (especially for the time), he helped craft a solution in which the company would sell “Class A shares” to the public with limited voting rights, while the Sulzberger family, through a family trust, would continue to own and control non-tradable “Class B Shares,” with unrestricted voting rights, and control over the Board of Directors.
We commend the New York Times’ commitment to their purpose, and we think that their dual-class share structure is an admirable first step toward perpetual purpose and independence. However, at the end of the day, the fact that the “paper of record” is owned by a few individuals in the same family is an Achilles heel. Times change. Circumstances change. Generational succession does not always go as planned. As billionaires gobble up news outlets (i.e. Jeff Bezos bought The Washington Post, Jack Ma bought The South China Post), one cannot help but wonder whether we are well served by a future of major news outlets controlled by the powerful few.
This is why we believe the New York Times should go one step further and embed their commitment to independence more directly and permanently into their ownership structure via foundation or nonprofit ownership.
Practically, this would mean incorporating a foundation or a nonprofit (or partnering with an existing one) dedicated to, for example, “seeking the truth and helping people understand the world.” (This could happen, for example, via a leveraged buyout, stock donations, or a combination). Done properly, this would ensure the company can never be sold, and that profits will be either reinvested in their mission and staff, or donated to the causes that are aligned with the company’s purpose.
Foundation and nonprofit ownership has worked for companies as diverse as Mozilla, OpenAI, Bosch, and Newman’s Own, and it would be a great way for NYT to cement their legacy as one of the most consequential companies in American history.
#3 – ALLBIRDS
Recommended Steward Ownership Form: Golden Share
One of the companies that got their start on Kickstarter was Allbirds. In 2015, co-founder Tim Brown raised over $100,000 in just five days to support his vision of a woolen running shoe. Just four years later, the direct-to-consumer footwear and apparel company is valued at over $1B with reported 2019 revenues of $190M.
Since the beginning, Allbirds has been dedicated to incorporating sustainability throughout their supply chain and business. Earlier this year, Allbirds announced that they would begin labeling all of their products with its estimated carbon footprint (the average carbon footprint of all of their products is 0.6 kg CO2e which is roughly equivalent to driving 19 miles). In addition to measuring and announcing its carbon emissions, the company offsets 100 percent of the carbon. Ultimately, their goal is to go beyond carbon neutral to carbon negative. On their website, they declare: “Our ambition is to be like a tree, leaving the environment cleaner than we found it.”
So far, the company has taken a fairly conventional startup financing route, raising tens of millions of dollars in venture capital. Given their rapid growth and their unicorn status, the likely end game is probably an IPO or an acquisition by a larger footwear and apparel company (right now, they are collaborating with Adidas to design the “world’s most sustainable shoe”).
Allbirds should take steps now, before their inevitable liquidity event, to create an ownership structure and corporate charter that will protect their commitment to environmental sustainability. To this end, we think the company should consider a Golden Share model.
A golden share is a type of share that has special voting and governance rights, and negligible monetary value. Sometimes called a “veto share,” the special rights afforded to a golden shareholder can include the ability to veto changes to the corporate charter or block the sale of the company. Ziel is a great example of another company in the sustainable activewear space that used the Golden Share model to protect their environmental mission and long term independence.
Golden shares can be held by virtually anyone. Allbirds, for example, could create a lightweight non-profit to hold the golden shares, or they could work with an entity dedicated to the steward ownership movement, such as Purpose Foundation. The organization would have no financial interest in the company, and would only be interested in ensuring the company remains fully committed to sustainability and carbon negativity. Concurrently with the issuance of golden shares, Allbirds could update their corporate charter now to ensure that their core principles are honored into the future, no matter who the investors may be.
#4 – CHOBANI
Recommended Steward Ownership Form: Employee Ownership Trust
In 2005, Turkish immigrant Hamdi Ulukaya saw an ad in the newspaper for a yogurt plant that was shutting down. It was an old Kraft plant, and Mr. Ulukaya, who had a small, struggling cheese business at the time, jumped at the opportunity. With a loan from the SBA, he bought the plant, reopened it, and called his new company Chobani, derived from çoban, the Turkish word for shepherd. In the 15 years since its launch, Chobani has become the #2 seller of yogurt worldwide.
Mr. Ulukaya, who is still CEO, decided early that he wanted to do things differently. He summed up his philosophy in a recent manifesto of sorts that he called the “anti-CEO playbook” and introduced in a 2019 Ted Talk: “CEOs have their employees suffer for them. But yet, the CEO's pay goes up and up and up. And so many people are left behind. I am here to say: no more. It’s not right. It’s never been right. We need a new playbook that sees people again. That sees above and beyond profits.”
The company hires and helps refugees, and works to convince other companies to do so (30% of Chobani's workforce are immigrants or refugees). They pay above-average wages for their industry. And in 2016, Mr. Ulukaya gave away about 10 percent of the company to employees. “Business should take care of their employees first,” he says.
This is why we think Chobani should consider an Employee Ownership Trust (EOT) to secure its commitment and purpose into perpetuity.
Under an EOT structure, Chobani’s shares would be held in a trust, and the company’s employees would be the designated beneficiaries of the Trust. Each year, the trust would pay out any excess profit to programs designed to benefit employees, including, for example, profit sharing, 401k matches, employee education, refugee resettlement costs, etc. And unlike the more common ESOP, an EOT is designed for perpetual independence, never to be sold.
The steward ownership movement is nascent but growing. If just a few large, iconic, beloved companies - like the ones in this article - decided to step up and lead the charge with a steward ownership conversion, it could radically accelerate the movement and inspire a new wave of progressive ownership and investment that would undoubtedly transform our economy, our environment, and our culture. If not now, when?
