The Power of Steward-Owned Holding Companies.
The software running our economy has buggy code. There is a major issue with corporate structures being incentivised to "maximize shareholder value" above all else. Although economic outcome is important, we need to balance it with other vital considerations of human life and society. We need to introduce new code that will result in a more mature + balanced consideration of our needs and priorities as a human race.
Steward-Ownership: The New Code
What if companies, at their core, existed for more than just shareholder returns? What if the most fundamental legal structures that define a company could be coded with a practical mission to serve the needs of society, communities and everyday people? What if we didn't have to depend on governments and nonprofits to clean up the damage caused by irresponsible businesses? What if business could provide long-term value to society and make positive contributions through their daily operations, and take care of the people who create that value?
An emerging trend called Steward-Ownership solves these questions by re-writing legal code at the very core of corporate governance.
Steward-owned companies create benefits for their purpose, rather than private shareholders, and this is structured through either a trust or a nonprofit that owns the operating company. This purpose can be crafted to focus on solving hunger in a specific city, or empowering employees with leadership training and economic opportunity. Bosch, the large German industrial company that makes power tools and car parts, is 94% owned by a charity that distributes profits to important causes.
Bringing together small businesses under one roof
A Holding Company is an umbrella that owns multiple businesses. We have seen ownership consolidation across our economy where the big fish gobble up the small. A more thoughtful form of consolidation preserves the benefit of small business while bolstering them with the support of a larger organization. An example of this is a group in Montana that bought up seven hardware stores that were in danger of going out of business. By merging them together on the back end, but maintaining the local feel, a holding company was formed to steward these valuable local institutions. A single management team runs all the companies as a group, sharing costs and investing the time, effort and money to upgrade systems and run a tight ship.
Steward-owned small business holding companies
We see the potential to make use of the benefits of the private equity playbook in service of maintaining the genuine nature of small businesses, and also reconsider ownership to drive more value to society. In this way, a Steward Holdco creates more economic and operational stability, shoring up the financial sustainability of small businesses, and then it uses that economic strength toward a practical purpose aimed at social benefit.
As a hypothetical example, imagine a group of restaurant owners are tired of slogging it out on their own, and they decided to merge their individual small businesses together into a restaurant group- a holding company. This company can share functions and staff, do bulk purchasing, and can more easily qualify for bank financing for equipment purchases. To merge together, each owner actually sells their business to the new holding company, which is in turn owned by a trust. They get a fair market value for the business through an earn-out, and can still be involved as a manager, helping to run operations. As a group, they might decide that their purpose statement includes pro-social fiduciary duties such as upholding the wellbeing of their staff, and offering employment onramps for people experiencing homelessness.
This means owners get to sell their business, employees get more support and better pay, and a broader social mission is at play. This work is funded by the economic improvements garnered by consolidating ownership and professionalizing operations.
Let’s do it!
After spending nearly a year researching promising collaborative business strategies, it has become clear that the Steward HoldCo is one of the most actionable and obvious concepts that is ripe for action. We are keen to talk to business owners, investors and entrepreneurs about forwarding efforts to create Steward HoldCo’s and are actively pursuing opportunities to this end!