A group of partners is launching a non-profit at a major natural foods trade fair Wednesday, trying to help mission-driven companies transition ownership to future generations without selling out their values to win venture capital or corporate ownership.
The Foundation for Steward Ownership was formed by representatives of RSF Social Finance, Northwest produce distributor Organically Grown Inc. and Purpose Foundation, a European non-profit active in the arena. Other companies, such as dairy cooperative Organic Valley, have lent their support.
“This initiative to find a new relationship with ownership builds on the spirit and values of the entire cooperative movement, where profits are a means to serving a mission — a mission Organic Valley has been committed to since day one,” George Siemon, chief executive of Organic Valley, said in an email interview.
“We’re fully supportive of creating resources and solutions for other types of community-minded businesses where cooperatives may not be the right fit for their business model,” he added.
Organically Grown confronted this transition issue last year, facing the challenge of buying out founding owners, many of whom were farmers and employees, in a market where venture capital was driving up the valuations of food companies and putting the company at risk of an acquisition. The worry was that the financial pressure would take precedence over its mission, which focuses on farmers, community, and environmental goals.
So in July it sold to a “purpose trust,” which was designed to maximize the company’s overall mission rather than solely maximizing shareholder returns. The company took on debt from RSF Social Finance and also sold non-voting preferred stock, getting the capital it needed to buy out employees and other shareholders. Purpose Evergreen Capital, part of the Purpose network, co-led the equity investment. Now the company is run by a trust appointed by its stakeholders that ensures it meets its larger mission.
Other companies — many in Europe — have pursued similar equity structures that maximize mission rather than venture-backed investor returns. (A conference on the theme of steward ownership convened last year in Berlin). Companies that go down this path value self- governance, keeping control with “stewards” who are actively engaged in the business and its mission. Profits from such ventures are largely reinvested for the future of the company, used to repay founders and investors, shared with stakeholders, or can be donated to charity, according to Camille Canon, a partner in Purpose. But the movement goes against the entire ethos of American corporate history in which shareholder return is paramount.
“This notion of maximizing shareholder value as the ultimate goal of a corporation has laid the groundwork for the immense growth of wealth over the past 150 years, but it comes at a steep cost,” wrote Jasper van Brakel of RSF Social Finance in the Stanford Social Innovation Review. “Today we find ourselves in an extractive global economy — one that is leading to ever-increasing inequality, rapid depletion of natural resources, potentially irreversible climate change, and enormous social challenges.”
Maximizing purpose, or mission, is a way to move beyond the extractive track. It’s especially pertinent in transitioning to the next generation of owners among independent organic food companies, where mission-driven founders are aging. Some want an alternative to taking on private equity or selling out to corporate food companies, as others have done, sometimes to their regret.
“The organic movement has seen many pioneering brands who have lost their mission once they’ve been sold,” Siemon said. “The organic community has always been a leader in the advancement of sustainable entrepreneurship. This development of alternative ownership structure is a natural next step.”
Natalie Reitman-White, vice president of organizational vitality and trade advocacy at Organically Grown, who is helping spearhead the new initiative, said that her company’s sale generated a lot of interest among others facing similar dilemmas. “Many of these social enterprises are working individually but it’s difficult to do this alone,” she said.
That spurred her and others to set up the Foundation for Steward Ownership. Purpose, the European non-profit which works in alliance with others in the field, provided a grant to help launch the venture. “We’re feeding the launch of this model in the U.S.,” Reitman-White said.
At the announcement Wednesday at ExpoWest, she expects many food companies to attend but sees the movement as far broader, benefiting employee-owned companies, co-ops, family-owned companies and other enterprises outside of the food world.
A presentation by the group also makes clear that financing vehicles are available, since investors looking for a social impact could direct their funds into such ventures. For these investors, return isn’t measured by the highest-possible price on exit, but rather by a wider range of metrics that could include environmental, community, labor, agricultural or social equity concerns.
As Organic Valley’s Siemon said: “We partner with all kinds of different business structures and we’ve seen that those that don’t have to serve a corporate stock price or parent company are better able to walk the walk on values.”
This story was updated March 7, 2019 with more detail on steward ownership.