Rethinking Ownership: Putting Purpose at the Center
Biohabitats Inc. * Credit: © Larry Canner
When Yvon Chouinard, founder of Patagonia, transitioned the company to a purpose trust in 2022, it made headlines around the world and brought attention to an emerging form of corporate ownership. Patagonia, long hailed as a model for how to operate a company to the benefit of society and the planet, now exemplifies how to align a company’s ownership with its purpose.
Patagonia’s conversion is part of a broader movement to rethink the fundamentals of corporate ownership. A few years prior, Organically Grown Company, a large wholesale produce distributor out of Oregon, had done the same thing. In 2023, Clegg Auto, a retail service chain in Utah, did too. These very different companies faced the same problem: How could founders retire while perpetuating the intent of what they’ve built? How could they ensure the people who are creating the value, including workers and communities in which they operate, also share in the benefits? How could they grow without “selling out,” and enshrine their values for the long-term?
The United States faces formidable challenges: wealth inequality, still-deferred racial equity, the availability of quality jobs, and the effects of climate change. Increasingly, nonprofits, philanthropists and impact investors have come to believe that operating through traditional ownership structures may exacerbate those inequities, and that innovative ownership and governance structures can address them. Luckily, there are many private business owners who care deeply about the impact of how they operate and the value they deliver to their communities, and a growing group of them are starting to rethink ownership.
There is evidence that adopting alternative ownership models yields real benefits for workers and communities. According to numerous academic studies, companies with broad-based employee ownership are more productive and less likely to go out of business, have higher wages and better benefits, and are less likely to do layoffs during economic downturns. In addition, alternative ownership structures can directly benefit other stakeholders such as the environment. Patagonia, for example, has donated more than $71 million to conservation groups and pro-climate politics since establishing its new purpose trust ownership structure.
Reimagining Company Ownership
This movement toward alternative ownership includes a number of actors using long-term purpose trusts to lock in their mission and protect their employees. Perpetual purpose trusts (PPTs) legally empower a company to organize around its purpose, rather than just profit. Employee ownership trusts (EOTs) leverage purpose trusts to create a new and scalable form of employee ownership that has the potential to provide workers with a stake in the companies they serve, empowering individuals to actively participate in shaping their economic destinies. Together, these structures promise to incorporate into corporate decision-making those affected by a company’s decisions, including people and the planet.
More inclusive ownership forms such as employee stock ownership plans (ESOPs) and cooperatives, of course, have a long history in the United States. But alternative and shared ownership is emerging as a larger movement. This is in part an outgrowth of the socially responsible business and impact investment movement of the last 30 years.
It is also in part a response to the large-scale transition of legacy privately held businesses, which some advocates call the “silver tsunami.” Over half of small businesses owners in the United States are over 55, and many are looking for ways to transition, to retire, or start a second career. Traditional ownership structures make that difficult for most.
Advancing Purpose Trust Ownership
A small, committed group of creative lawyers, consultants, business owners, and investors have put purpose trust ownership on the map in the United States as a flexible, practical, legal alternative ownership vehicle for business. In the last 5 years we’ve seen the number of purpose trust owned businesses grow from just a couple to close to 50, with more conversions on the way. The purposes vary. Some are focused on employee governance and benefit, others on community benefit (e.g. affordable housing trusts, trusts to preserve the independence of legacy business), planetary or multi-stakeholder benefit (e.g. including customers, supply chain). Some purpose trust owned companies raise capital by including investors alongside a trust. Many of them share the features of what European groups call steward ownership, including mission lock, self-governance, and the majority of profits serving a purpose.
Interest in the use and potential of purpose trusts is growing, but a significant knowledge gap exists. There is little publicly available information on how to design and finance purpose trust ownership for businesses and their advisors. Additionally, there is a need to share tools and best practices to ensure integrity and viability of these ownership forms for service providers working on these trusts. Only a few publicly available case studies exist, and research and evaluation on their effectiveness are just beginning. Conversations and work revolving around stakeholder ownership, purpose ownership and their intersection with the impact sector are siloed. Most of the discussions on trusts occur on the periphery of employee ownership gatherings, which predominantly focus on ESOPs and worker cooperatives. Notably absent is the convening of stakeholders working on purpose-lead trust structures in ways that historically led to the creation of other industry bodies, as seen in the case of social entrepreneurship and impact investing in the 2000s and 2010s.
We believe now is the time to invest in the field-building infrastructure necessary to develop and scale the purpose trust ownership legal form as another important economic lever to meet today’s pressing global challenges. How do we take this idea from the margins to the mainstream? It will involve building and convening a network of support, advocating for supportive state and national policies, publishing academic research and case studies, developing public-facing educational tools, creating funding mechanisms, and coordinating with advocates of other forms of alternative ownership.
The present moment presents a crucial opportunity to convene stakeholders, coordinate efforts, and foster the creation and dissemination of knowledge. In line with this focus, and in collaboration with our partner organization, Project Equity, we are hosting the first convening of organizations dedicated to advancing purpose trusts in the United States in April 2024, immediately following the annual Employee Ownership Ideas Forum. Concurrently, we have created databases of the existing purpose trusts and corresponding service providers operating within the United States, while also initiating academic research on these structures. Partner organizations are actively working on outreach and support to businesses, and there is already an ongoing debate about the need (or lack thereof) for policy interventions. While this progress marks a good start, it will require much more coordination among stakeholders to truly catalyze this movement.
Taking Action
As this field continues to grow, there are many ways to get involved and learn more about employee ownership conversions and perpetual purpose trusts. Stay informed on the latest developments through Employee Ownership + Workplace Democracy (EO+ WD).
If you are a business owner, consider a conversion to a purpose trust as part of your succession plan. Search the database of service providers that can assist you in this conversion or connect with fellow business owners to discuss this alternative path.
If you are a philanthropist, research and support organizations with alternative ownership structures in your area by exploring state-level resources from the Employee Ownership Expansion Network. Additionally, support non-profits like Project Equity and the National Center for Employee Ownership that are helping business owners make the transition to employee ownership.
Lastly, if you are an investor, invest in funds supporting these ownership transitions such as Common Trust, or alongside collaborative investing groups like Unlock Ownership and Social Capital Partners. Alternatively, consideracquiring small businesses and helping them convert to these ownership structures.
The field of alternative ownership is still relatively new but growing quickly. Now is the time to pave the way for a more equitable and sustainable economy. Together, let’s turn purpose into action.
About the Authors:
Jenny Everett is a consultant to a variety of nonprofits and social impact organizations and currently serves as a Senior Advisor to the Research Cluster on Employee Ownership and Workplace Democracy. She is the former Managing Director of the Aspen Network of Development Entrepreneurs (ANDE) where she helped to grow ANDE from a fledgling idea to a robust network of over 300 organizations operating in 150 emerging market countries. She led the launch of Regional Chapters in the Andean region, Brazil, Central America/Mexico, East Africa, East and Southeast Asia, India, South Africa and West Africa and managed ANDE’s international team. Her specialties include network and ecosystem building, non-profit management, and philanthropic advising, with a focus on small and growing businesses and entrepreneurship, international development, impact investing, gender lens investing, workforce development, employee ownership, purpose trust ownership and climate. She is a current board member of FUNDES, ONOW, Villgro USA, and Village Capital and an active member of Social Venture Partners Austin and Impact Austin.
Mark C. Hand is Co-Founder of Liminal Advisors, which helps early-stage companies and investment funds more effectively build and manage high-caliber teams. He has made, managed, and supported investments in over 40 ventures through First Light Ventures, the Oxford Seed Fund, the Skoll Centre for Social Entrepreneurship, and UnLtd USA. He spent his early career in community development, including co-founding Manna Project International's community development site outside of Quito, Ecuador.
Natalie Reitman-White is Founder and Principal at Purpose Owned. She is a sought-after educator and consultant, helping dozens of companies to explore and implement purpose-ownership and regenerative finance solutions. Prior to that she was a leading executive in the food sector, specializing in sustainable business, trade advocacy, governance, organizational development, and human resources. Natalie is nationally recognized for her work on transformative ownership and investment models. In 2018, she pioneered one of the first-in-the-nation Perpetual Purpose Trust ownership transitions with Organically Grown Company, the largest distributor of organic produce in the US. In 2018, she launched Alternative Ownership Advisors, to help founders of mission-driven companies with ownership and capitalization strategies that match with their values. In 2023, she launched Purpose Owned, a consultancy for ownership & leadership succession planning using Purpose Trusts.