From Profit-Driven to Purpose-Driven: How steward ownership is transforming businesses
In the business world, there has been a lot of talk about the purpose of corporations and how we can move beyond shareholder primacy. Meaningful change however, requires more than just purpose statements. It requires us to rethink the goals and incentives that guide decision-making in companies. As a form of governance, steward ownership can offer a solution to this.
Steward ownership is a game-changing legal structure that instills two core principles, which allows businesses to still make profits, but ensures that an organization has a long-term focus and makes the bottom line less leading:
- Profits that serve a purpose
In conventional businesses, shareholders hold the power as owners of the business. But there is a new ownership paradigm that has emerged in Europe and the United States – steward ownership. Industrial giants such as Novo Nordisk, BOSCH, and Zeiss, as well as Mozilla, OpenAI, and Newman’s Own, are proving steward ownership as a viable, successful way of ownership. But what exactly is it about?
The essence of steward ownership is to ensure that the decision making power rests in the hands of those with a vested interest in the company’s mission, rather than outside shareholders or investors. This means that voting rights are not a commodity to be sold, and profits are not the only driving force behind decision-making. For stewards, ownership is no longer a source of profit-extraction/wealth generation. Instead, profits are seen as a means to pursue the company’s purpose, with the majority of them being reinvested back into the business after paying back capital providers and sharing the economic upside with stakeholders.
Steward ownership can be accomplished through a variety of legal forms, all of which ensure that control cannot be bought or inherited. This structure empowers leaders to take a long-term perspective on strategy without pressure from quarterly earnings reports or public stock valuations.
There are numerous benefits associated with the new ownership model, with a growing body of evidence pointing out that steward owned companies are more likely to have a positive impact on local communities, environment, customers, shareholders and employees alike. Research conducted by Professor Steen Thomsen, chairman of the Center for Corporate Governance at Copenhagen Business School, shows that companies with ownership structures like this are trusted more by their customers, offer their employees better pay, and have better employee retention. He also found out that since steward owners prioritize the company’s purpose over financial performance, these companies are more long-term oriented, showing a 6x higher survival probability after 40 years.
All in all, steward ownership is a viable alternative to conventional corporate ownership. It’s time to rethink ownership and move towards more purpose-driven business models.