Steward-ownership: Choosing Purpose Over Profit

What’s so unique about steward-ownership?

A growing number of people agree that creating shareholder value should not be the primary purpose of a company. Even a lot of shareholders have come to that conclusion. However, most tools that put the purpose of a company center stage don't change the dominant position of shareholders. Companies that have, for instance, received a B Corp certification and strive to be 'a force for good', can be a force for good only as long as shareholders agree. That's exactly the power of steward-ownership: it turns shareholders into stakeholders and puts the purpose center stage - in perpetuity. If you think that's how it should be, steward-ownership is your tool. Steward-ownership combines very well with a B Corp certification, as proven by companies like Patagonia and others.

But wait, shareholders aren’t the bosses - the CEO is, right?

Well, yes and no. The CEO may be the employee with the most power, but in shareholder-owned companies, the CEO is held accountable by shareholders. Shareholders have the authority to hire and fire the CEO and approve their salary. For this reason, economic scholars commonly refer to the company board as "the agents" and the shareholders as "the principal." In steward-owned companies, shareholders no longer have that power. The authority and responsibility now lie with stewards, whose task is to serve the continuity and mission of the company.

So, how does steward-ownership work at the level of the shareholders?

All companies can adopt the principles of steward-ownership and transform into steward-owned companies. There are different ways to make a company steward-owned. 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.

But doesn't this approach discourage investors?

While it may not work for some investors, investors who want to put the purpose of a company center stage might be very interested in joining. Just as there is a growing group of entrepreneurs driven to make a positive impact with their company, there is also a growing group of impact investors who want to use their money to do the same. Several companies listed on the Copenhagen Stock Exchange are steward-owned, like Carlsberg, Novo Nordisk, and Maersk. Many institutional investors have experience investing in these companies. So, while steward-ownership might seem new and alien at first glance and might not work for all investors, it's actually a proven model that generates returns and a positive impact at the same time.

So, can steward-owned companies be profitable and competitive?

Absolutely! Academics from the Copenhagen Business School have extensively researched the performance of steward-owned companies. Here are some of their insights: Steward-owned companies don't underperform their shareholder-owned counterparts while having a strong focus on their mission and long-term goals. As a result, they invest much more in innovation and are also more resilient. The chances of a steward-owned company still existing after 40 years are six times higher!

And that's not all: Employees of steward-owned companies are more motivated, and customers are more loyal. Is it already time to conclude that we've found an alternative to shareholder-ownership that simply works better? You tell me ;-) If you want to delve into the research, here it is.

For what type of companies is steward-ownership interesting?

Steward-owned companies exist around the world, and there is a lot of diversity amongst them. Some were founded recently, like booking platform Moonback, while others have been steward-owned for over a century, like the optics company Zeiss. Some were steward-owned from the start, like the pharmaceutical company Novo Nordisk, while others transitioned later on, like Patagonia. Some are still small and serve a niche, like the search engine Ecosia, while others are market leaders on national or global scales, like the shipping company Maersk. A deep bow to the founders and investors who make us open our eyes to a totally different take on capitalism.