Who should have formal power in the company as steward-owner and for what reasons?
Distribution of Voting Rights and Steward-Ownership
When the decision is made to implement steward-ownership, it is also a decision regarding who can hold voting rights: The principle of self-determination stipulates that only people who are closely associated with the company are able to take over the steering wheel of the company, the voting rights, as steward-owners. But, as with any incorporation, the question remains: How should voting rights be distributed? Should voting rights be held by a single person, a few individuals, all members, or will they always remain with certain groups of people?
Steward-owned companies practice a multitude of different approaches to the distribution of voting rights, individually chosen and implemented by each company. The guiding question for the distribution of voting rights is the same for all companies: Which individuals contribute entrepreneurially to the idea, take full responsibility for the company and are suitable in terms of their skills and values to become co-founders and co-owners? As with the design of the legal structure in general, the overview given below is intended to showcase the variety of possibilities and provide inspiration. Ultimately, every company has its unique culture, and so are the ownership designs.
The role of the steward-owners
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In principle, it is important to understand what responsibilities and duties the owners of steward-owned companies have to carry out (see also
In Germany, owners of companies with the legal form of a GmbH/UG typically decide on issues such as the approval of the annual financial statements and the allocation of profits, the appointment and dismissal of the management and amendments to the articles of association. Individuals who hold voting rights in a company should, therefore, be in a position and suitable to make these decisions.
It is also important to note that the decision-making culture at the management and cooperation levels is not directly related to the distribution of voting rights. Nevertheless, the choice of stewards in steward-owned companies should ideally reflect the existing culture in an indirect manner.
Examples in steward-ownership
The appropriate distribution of voting rights must be determined by each company, including the question of who can be a steward in the future. Theoretically, everything is possible, from one or a single steward-owner to a democratic distribution of voting rights among all employees of the company. It is also possible to adjust the distribution of voting rights at any given moment in the future. The decision for the individually appropriate distribution is often based on the prevailing culture in the company and the distribution of decision-making powers before the transformation. Three questions, in particular, need to be clarified: (1) which person (group), i.e., how many people, should hold voting rights; (2) according to which logic should the voting rights be distributed among the defined persons, and (3) with which majority should decisions ultimately be made.
Which person(s) should become steward-owner(s)?
In practice, there are many different variations. Many companies decide that steward-owners are solely the managing directors. Consequently, there are often only a few people who exercise the voting rights of the company. In other companies, the employees also hold voting rights, so that a relatively large number of steward-owners run the company. An example of a company that offers the ownership role to all employees, with some restrictions, is Soulbottles. If three conditions are met, any employee can become a steward-owner at the Berlin-based start-up: 1) the employee must work for the company for a certain amount of time, 2) the person must want to do so (the role is voluntary) and 3) a certain amount of coaching must be done beforehand so that the person joining can fit in well with the group of already experienced steward-owners. The approach of Soulbottles, as well as their conditions, is only one example; these are designed differently by other companies. As with the entire ownership structure, it is important to find the right solution for the respective company and to weigh up the advantages and disadvantages between meritocratic and more democratic approaches based on the company’s values and goals.
Distribution of voting rights among steward-owners and majority requirements?
Not only is it important to identify the individuals who should be steward-owners or have the potential to become one, but also the allocation of voting rights among them holds equal significance. Similarly, companies can define a suitable logic for the distribution of voting rights, regardless of whether they have a steward-ownership structure or not. Approaches here are, for example, a democratic distribution, a distribution according to seniority, responsibility in the company or other roles. There is no compulsory democracy as in the case of a cooperative, for example. The distribution of voting rights within the group is directly linked to the selected majority requirements, which are also defined in the articles of association. Classically, a simple majority or qualified majorities (e.g., a two-thirds majority or a three-quarters majority) are specified for the decision in the shareholders' round/among the steward-owners. The majority requirements can also be adjusted to meet the company's specific needs. In purely legal terms, three-quarter majorities are stipulated in Germany for certain decisions (amendments to the articles of association, conversion/dissolution, etc.). Consequently, a three-quarters majority is required for these decisions in every case. This may vary depending on the country the organization is based in.
In Germany: Social security obligation
Additionally, the allocation of voting rights is also significant in terms of the management's social security obligation. Managing directors may be exempt from social security obligations if they hold a 25% blocking minority as shareholders, and the shareholders' meeting passes resolutions only with a majority of more than ¾. However, as this is an exceptional circumstance, it is advisable to discuss the issue of social security obligations with the lawyers and tax advisors accompanying you.
Positioning in the Quadrant Model
A useful starting point for developing your own voting distribution strategy is to position your company within the four-quadrant model presented below. The model enables you to locate your company within the tension area between meritocracy and democracy, as well as between internal and external distribution of ownership and voting rights. To help you navigate the model, some companies have already been plotted on the diagram. Please note that the classification of these companies is based solely on their distribution of ownership and voting rights and does not necessarily reflect the decision-making culture practiced below the ownership level in the company.
Information about the companies:
- Bosch: The company has 10 steward-owners, half of whom are employees and the other half are long-term external companions of the company.
- Ecosia: The founders and managing directors are the two steward-owners of the company.
- Soulbottles: The company currently has four steward-owners, and it offers the possibility for all employees to become owners if they meet certain criteria.
- Zeiss: The majority of voting rights are controlled by external parties through the foundation board. However, the company has representation on the board, and there is also a board advisory committee that ensures a connection to the company.
- Bio verlag: The majority of voting rights are held by active employees of bio verlag, while a non-profit foundation holds a minority of voting rights.
In the context of one's own positioning, it makes sense to discuss the advantages and disadvantages of the respective extremes. Some risks and opportunities are listed below.
Entrepreneurship Initiative Quick decisions
No checks & balances Self-absorbed
Outside perspective is integrated External fertilization
Administering instead of shaping Entrepreneurship-hostile Paternalistic
Legal ownership leads to widespread emotional ownership
Owners ≠ emotional owners Slowness and mediocrity Entrepreneurship is killed
Entrepreneurial initiative Quick decisions Maintain values Real owners
Detached owners Suppression of emotional ownership among employees
When newly founding a company
The distribution possibilities outlined above also apply to the start-up scenario, particularly to the first generation of steward-owners. Nonetheless, the central question remains unchanged: who among these individuals possesses the entrepreneurial drive and dedication necessary to become co-founders and co-owners?
However, based on experience from many conversations with founders, it can be said that in the founding situation, teams often deal intensively - perhaps sometimes a bit too much - with the question of who should become steward-owners beyond the core team, such as all possible stakeholders, etc. In the past, it has often been proven appropriate that a distribution of voting rights within the core founding team is a good starting point. After all, there is always the possibility of changing / enlarging the distribution of voting rights. However, in the early stages, startups benefit disproportionately from having small, agile teams in charge. This does not mean that other approaches cannot be just as successful or perhaps precisely because of this; ultimately, each company must find its way.