What are the prominent myths about steward-ownership? What does the model actually imply?
Myth Busting Steward-Ownership
Steward-ownership is a complex topic and different companies and entrepreneurs interpret and implement it differently and use different narratives – which is great and shows the diversity of the community and the model.
At the same time, this leads to many myths, misunderstandings and misinterpretations floating around which are not conducive to a shared understanding of steward-ownership and lead to many entrepreneurs being confused, deterred or disappointed.
Steward-ownership is …
… a way to fix/ perpetuate the purpose of an organization.
… a guarantee for a sustainable purpose. … employee ownership/ community ownership.
Myth: Steward-ownership is a way to fix/ perpetuate the purpose of an organization
Steward-ownership legally enshrines two principles: self-determination and purpose-orientation. However, purpose-orientation doesn’t mean that a specific purpose is set in the long run. What is does is to determine what the purpose of an organization is not anymore: the purpose of the company is not to maximize profits and shareholder value, but rather to work towards a purpose. Profits are means to an end, not a goal to itself. The purpose or mission of the organization is not perpetuated or fixed, it can be changed. If that is something you want to do, you can – using other models and legal tools – and you can also combine it with steward-ownership. But it is not an integral part of steward-ownership.
Myth: Steward-ownership guarantees a sustainable purpose.
Steward-ownership can be implemented by all types of organizations with all types of business models and purposes. It is a legal tool, a legal model that can provide the right legal framework for many companies with different backgrounds. But it doesn’t guarantee that all steward-owned companies have a specifically sustainable purpose or sustainable operations. It does however change the legal basis of decision-making in the organization away from financial shareholder value interests, opening up space for questions around what is the best for the company and its purpose in the long run. For many companies, this can mean including sustainability into the core of their purpose and business models. For others, this can mean the provision of jobs, care for the community, paying taxes and satisfying the demand for a product/ service.
Myth: Steward-ownership is employee ownership/ community ownership
Steward-ownership legally enshrines two principles: self-determination and purpose-orientation. Self-determination means that voting rights can only be held by people closely connected to the operations and values of the company – not by absentee owners. It does not mean that steward-ownership is always automatically employee ownership/ community ownership. Steward-ownership can be implemented so that one or a few people (closely connected to the company) can hold all voting rights, it can be implemented with all employees holding voting rights or with the voting rights being held by a diverse community. So it can, but doesn’t have to be employee or community ownership.
The other way around, employee or community ownership doesn’t necessarily mean steward-ownership. There are many employee-ownership or community-ownership models in which the quality of ownership is not touched at all, meaning that employees or community members hold dividend rights and a right to access the value of the organization (and only in some cases they also hold voting rights). Here, ownership is redistributed mainly, not changed in quality – and it is not steward-ownership, as the principle of purpose-orientation is not in place.
A steward-owned company is owned by …
… all employees.
Myth: The company is owned by nobody
Steward-owned companies are owned by people – but in a specific quality. While not necessarily anyone owns dividend rights (they often lie in the company or with investors (capped) to cover capital costs) or owns access to the value of the company, depending on the legal structure, the voting rights are owned either by individuals (steward-owners) or by a foundation or other legal entity that is again controlled by the steward-owners. Additionally, the capital stock of a steward-owned company is also often owned by individuals. So steward-owned companies are owned by the steward-owners – just in a very specific way.
Myth: The company is owned by all employees
To many, transitioning a company to steward-ownership is amongst other reasons done for the stakeholders of the company, its employees or customers. Steward-owners legally assure their employees that the company doesn’t serve to increase the wealth of its shareholders, but is there for a common purpose. Employees are not a means to generate profit but work for a common purpose. However, this does not mean that the company now belongs to all employees necessarily. As mentioned above (Steward-ownership =/ employee ownership), the voting rights of a steward-owned company can be owned by all employees, but this is no integral part of steward-ownership and depends on the concrete structure used. The company is owned by the steward-owners. And the steward-owner(s) can be one person, a group of people, a foundation or trust steered by a group of people or all employees, users or representatives of the whole community.
Steward-ownership (doesn’t) work for …
… only works for companies with a social purpose.
… doesn’t work for companies that will scale up and become large enough to actually achieve/change something.
… doesn’t work for family businesses.
… doesn’t work for charitable organizations
Myth: Steward-ownership only works for companies with a social purpose.
Steward-ownership can be implemented by all types of companies: companies that define themselves as social enterprises with social or ecological purpose and companies that pursue more conventional business models.
Myth: Steward-ownership doesn’t work for companies that will scale up and become large enough to actually achieve/change something.
Many think that steward-ownership is only a model that can work for companies that remain relatively small and local, don’t need a lot of resources and will never have a big enough impact and traction to actually achieve something or change something in the world.
A look at some of the most renowned steward-owned companies shows that this is a myth. Companies like Novo Nordisk, Open AI, Signal, Ecosia and many others implemented steward-ownership from the start or very early on and grew to successful and influential companies. For many companies, steward-ownership can actually be the best fit to grow and have a bigger impact, as it provides them with an aligned ownership model, ensures that there is no mission drift for the benefit of pursuing shareholder value and provides a valuable signal to stakeholders.
Nevertheless, there certainly are situations in which a lot of capital is needed to scale up and achieve the impact needed e.g. to allow for extremely fast growth due to competitive markets or other scenarios where the amount of capital is the game changer. While this is also possible in steward-ownership, the financial landscape is still adapting to non-exit-oriented companies and for very risky endeavors that need a large quantity of capital in steward-ownership the quantity of aligned capital might not suffice at the moment.
Myth: Steward-ownership doesn’t work for family businesses.
Actually, steward-ownership is very close to the traditions and understanding of entrepreneurship lived by many businesses: Ownership as stewardship, the company doesn’t exist to serve the family or shareholders, the company is only borrowed from future generations. So there are many family businesses that implement steward-ownership either when they don’t see an option for succession in their family but want to keep up the family business spirit in the long run; or when they want to set up a legal structure that ensures that the family member taking over control over the company is the company’s steward instead of the company’s asset owner in the long run. This can be particularly relevant when there are many heirs but only one is taking over the voting rights of the business: with steward-ownership, the successor is only taking over voting rights and not access the value of the company, meaning that they don’t take over the whole value of the company. This often makes the compensation and dealing with other family members easier. Of course, certain ways of compensation can be part of the transition process.
Myth: Steward-ownership doesn’t work for charitable organizations.
Steward-ownership can be used by charitable organizations and for many provides extra benefits. While steward-ownership in its nature is distinct from non-profit status, Many non-profit entities want to enshrine the principle of self-determination, which is not included in regulations for non-profits. At the same time, the status of non-profits does not technically ensure that the company remains a non-profit in the long run, potentially making it possible (even though this would lead to high tax payments) to transition a company out of being a non-profit. So the principle of purpose-orientation and the legal security that steward-ownership provides can be helpful for some charitable entities as well.
Steward-ownership prevents …
… the company from taking on investors/ risk capital.
… the founders/ entrepreneurs from being compensated for their risk and early efforts.
Myth: Steward-ownership prevents the company from taking on investors/ risk capital.
The principles of steward-ownership exclude one specific type of venture capital (equity with voting rights), so investments in which investors a) automatically receive controlling rights over the company for the capital provided and b) have an unlimited right to the company value. But this is just one type of venture capital which exists among many other more aligned forms of investments. While it is still the most common form of financing, more and more investors are open to or already providing non-extractive forms of financing with no or limited rights to control the company and with a form of capped returns (absolute, time-based, linked to the success of the company or through the division of voting rights or dividend rights). To conclude: taking on a certain type of venture capital/ private equity investors is a possibility in steward-ownership and this path is pursued by many steward-owned companies. However, the financial market is still adapting and there is still a lack of aligned capital, in particular for companies that are very risky and need a large quantity of capital early on.
Myth: Steward-ownership prevents the founders/ entrepreneurs from being compensated for their risk and early efforts.
In conventional ownership structures, the compensation for founders for the ideas, unpaid hours and energy they spend to build up the company often stems from making an exit. While full access to the value of the organization is not possible in steward-ownership anymore, there are ways to set up compensation models for founders and allow for provision for the future for entrepreneurs so that it feels risk-adequate and subjectively fair for the founders but at the same time doesn’t endanger or bunder the company disproportionately.
Steward-ownership leads to …
If we implement steward-ownership, we are automatically a “good” company.
Steward-ownership resolves my problems with succession.
Steward-ownership resolves my problems with succession.
Myth: If we implement steward-ownership, we are automatically a “good” company.
Steward-ownership provides a legal framework and a specific quality of corporate ownership, but it doesn’t automatically lead to “good” behavior or being a “good” company (whatever that may mean to you). It is still the people in the company that make decisions and influence the company’s operations and impact.
Myth: Steward-ownership resolves my problems with succession.
Steward-ownership does in fact provide a succession model beside selling or inheriting the company and it can be a great option for succession for many. It also filters out some potential successors that would mainly be interested in accessing the profits and value of the company. However, the emotional part around succession processes, from finding the best fitting and most aligned successors to building up the trust to handing over the company and then actually handing it over in a effective process, also exist in steward-ownership.
Myth: Steward-ownership resolves my problems with succession.
Steward-ownership can provide a great legal base for new forms of working together and an organizational culture based on trust and taking on responsibility. It can also lead to employees being more content and they know they work for the company’s purpose. However, this is not an automatism: steward-ownership has to be communicated well to employees and other stakeholders and the organizational culture and working environment has still to be formed and worked on together. This process is not over with the implementation of steward-ownership but only starts here!