Phase

Verständnis schaffen

Content Type

Einzelarbeit - lesen

Activity Time

25-30 Min

°Facette

Verständnis

Guiding question

What are the difference and similarities between other legal forms and concepts (eg. B Corp) with steward-ownership?

B Corp, cooperatives, and non-profit organizations

A differentiation of various approaches

In recent years (and before that), several organizations and movements have emerged that offer alternative business approaches and innovative ways of thinking business, ownership and financing. However, these organizations and movements differ in their motivation and approach and legal implications. This document aims to provide an overview of how steward-ownership differs from cooperatives and other (country specific) legal forms such as Benefit Corporations, as well as from the Economy for the Common Good (ECG) and B Corp Certification approaches, and how these different approaches can be combined.

What constitutes steward-ownership?

Steward-ownership involves a shift in a company's ownership structure, wherein the principles of self-determination and asset-lock are enshrined in law. This change alters the relationship between power and capital within the organization. No longer does the paradigm apply that those who contribute the most capital automatically hold the most control over the company. Instead, power and control over the company are vested in individuals who are connected to the organization and who possess the necessary skills. The value created by the company no longer primarily serves the shareholders, but serves the purpose of the company. This legally binding arrangement is intended to be long-lasting and cannot be easily reversed.

Under steward-ownership, there is no binding to a specific corporate purpose. Instead, the entrepreneurs have the freedom to develop and pursue a corporate purpose that is appropriate for the respective 'stewards.' At the same time, steward-ownership does not inherently dictate whether a company must act in a particularly sustainable or ethical manner. Instead, it addresses the root of decision-making (power and money), beginning with the legal structure of the organization and the underlying motivations that guide corporate decision-making. Like any form of ownership, steward-ownership starts with the company’s framework for action and incentive structures that are built into the organization.

Steward-ownership and the non-profit status fundamentally differ from each other on several accounts.

• The non-profit status does not influence who can become shareholder of the legal entity. This means that the principle of self-determination (the majority of voting rights are always held by people closely connected to the company) implemented in steward-ownership is not automatically upheld.
• There is a form of asset lock and purpose-orientation in a non-profit organization, as the assets and profits of the organization are only to be used for charitable purposes. However, this is only a tax status, not a legal obligation in itself. If the organization does not uphold the regional obligations that secure their tax status as a charitable entity, they lose this classification. This usually results in additional tax payments. With the loss of the charitable status, the asset lock and purpose-orientation is lost. Therefore, there is no legally secured asset lock in the long run. Of course, in some cases the additional tax payments might be prohibitively high, resulting in a factual asset lock.
• Additionally, the non-profit status limits the usability to companies that pursue charitable purposes. This is different from steward-ownership which is open to companies with all different types of purpose, independent of the charitable status.
• Steward-ownership does not give any tax benefits.

Steward-ownership as a structure can be used by and combined with the charitable status. The operational entity could for example be charitable. Additionally, in many foundation and trust models, the owning entity is charitable.

Steward-ownership and B Corporations

B Corporations, also known as B Corps, are companies that strive to have a positive impact on society and the environment through their business model. B Corps undergo a transparent certification process by the non-profit organization B Lab. To become certified, they must demonstrate their impact on employees, customers, the community, and the environment in the B Impact Assessment. The company's corporate structure, stakeholder relationships, value chain, and commitment, among other things, play a role. Companies that have scored well (with a minimum score) in this assessment are certified as B Corps. The information provided in the B Impact Assessment is publicly available, and the certification process is transparent. The governance structure and bylaws are also adapted for certification to include stakeholders and ensure the company's purpose. The certification is valid for three years, after which the assessment and verification must be repeated, otherwise, the B Corps certification is lost.

Compared to steward-ownership, the B Corps model strives to make a direct statement about how socially beneficial the company is, or should be, in terms of corporate structure, purpose, and value chain. This is verified through the B Impact Assessment – but the certification can be dropped if the assessment does not meet the required standards. The B Corps model does not imply changes on the ownership structure of the company, which is a difference compared to steward-ownership. Another difference is that the upholding of a B Corps certification is voluntary, so there is no obligation if the company's strategy changes while steward-ownership is a long-running legal commitment.

The different approaches can be combined without any problems. Any certified B Corp can implement steward-ownership, and any company in steward-ownership can seek B Corps certification. In doing so, steward-ownership can have a positive impact on the scores in the B Impact Assessment. Many steward-owned companies are also B Corp certified.

Steward-ownership and the Economy for the Common Good

The Economy for the Common Good (ECG) and steward-ownership can be combined effectively, but they are fundamentally different approaches. The ECG has developed a catalog of criteria that companies can use to evaluate themselves and their engagement in various areas. The result is a Common Good Balance Sheet that is reviewed by independent auditors and then published for transparency.

The following areas are included in the Common Good Balance Sheet: suppliers, customers, owners, financing, employees, and the social environment. A detailed description of the Common Good Matrix can be found here.

Compared to the ECG, steward-ownership is a binding change in the ownership structure of the company. There are no rules or guidelines for what a company should or should not do, only that the ownership structure ensures the two principles. Like B Corps, the lever for change in the ECG is voluntary certification. This certification is not limited to ownership but it does include it as one of many issues. In doing so, steward-ownership can have a positive impact on the scores in ECG Matrix.

The lever for change lies in measuring output, evaluating how well the company performs in various categories, and its measurement and ranking. In contrast, steward-ownership starts at the ownership level as the base of corporate behavior.

The two approaches, despite their differences, can be combined well or complement each other. Many steward-owned companies are also ECG certified.

Steward-ownership and Benefit Corporations

The Benefit Corporation is a for-profit legal entity in the United States and some other countries that has a legally defined corporate goal of having a positive impact on society, employees, the community, and the environment. While Benefit Corporations may distribute profits to their shareholders, they are also subject to transparency obligations regarding their ESG performance. In some US-states, the status of a Benefit Corporation may be revoked; also, a Benefit Corporation may convert back to another corporate form.

Italy has also introduced its own version of the Benefit Corporation as a legal form, following the U.S. model.

In comparison to steward-ownership, the benefit corporation depends on defining the pursuit of purposes beyond shareholder value, such as public welfare, as a legal corporate purpose. Steward-ownership, on the other hand, takes a different approach by changing the ownership structure at the core of the corporation for other incentives and motivation of decision-making. Shareholder value and profits are not the goal of the company anymore but a means to a purpose.

Steward-ownership is a legally binding commitment for the long term, while it is possible to change out of benefit corporation status.

Cooperatives

Cooperatives are legal entities owned and democratically controlled by its members. They are usually established to serve the economic, social and cultural needs of its members. The following table shows the main differences between cooperatives and steward-owned companies.

Summarized, cooperatives do not automatically legally implement the principles of steward-ownership (self-determination / purpose-orientation). While it depends on the regionally specific attributes of the cooperative legal form, in many jurisdictions, company shares or business decisions held by the cooperative can theoretically be sold by decision of the cooperative members with economic benefit for the cooperative members. Also, dividends can often be distributed to cooperative members. While the principles of steward-ownership could be included in the legal statutes of the cooperative, the statutes could be revised again by the cooperative members at a later point in time. However, if the principles of steward-ownership are written into the cooperative statutes and can only be changed if all members agree, with a large number of cooperative members there is a sort of social security in the long run. Similarly, there are ways to combine veto-share, foundation or trust models with cooperatives.

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