Steward-ownership is capitalism 2.0

Juho Makkonen
May 3, 2018 · 14 min read
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Photo by Alex Shutin on Unsplash

History of steward-ownership

Steward-ownership is relatively new as a term, but the underlying concept is almost as old as limited liability corporations, the structure adopted by most modern companies. The original steward-ownership model was invented by Ernst Abbe, co-owner of the successful German optics manufacturing company ZEISS, founded in 1846. Abbe had worked as a professor at the university of the city of Jena, where he invented the technology behind ZEISS’s success. This likely led him to the insight that the value and the profits created by ZEISS did not belong just to him, but to everyone working at the company and society at large.

  1. Live longer — survival probability is 600% higher after 40 years
  2. Are trusted more by their customers
  3. Offer their employees better pay
  4. Have better employee retention

Principle 1: Profits are a means to an end

Traditionally, a for-profit company exists to maximize returns for its shareholders. In many national legislations, it is stated that unless changed in the bylaws of the company, shareholder profit should be the north star guiding the decisions of its management.

Principle 2: Ownership equals entrepreneurship

The second principle of steward-ownership states that the company should be in control of people who hold active roles in it. Sometimes steward-ownership is also referred to as “self-ownership”: steward-owned companies are ultimately governed by the people working in them. This guarantees that the decisions conducted by the management of the company will be in the best interest of its employees and all other stakeholders.

Reliable returns to investors: Redeemable shares

Like a traditionally structured company, a steward-owned company might also encounter a situation where its business would benefit from an outside investment. This means that it needs to be able to offer attractive return prospects to its investors.

Rewarding founders and early employees: Delayed compensation

Starting a technology company is a risky business. It often involves at least some level of personal financial risk from the founders and early employees. Our situation is not an exception. Sharetribe was founded in October 2011, and during the early years of the company, we worked for a relatively low salary (during some periods even without any salary) to get the fledgling business going. Similarly, the first team members to join typically accepted a salary lower than their market rate. To compensate for this, they received stock options that would entitle them to a financial reward in case of a liquidity event in the form of a company sale or an IPO.

Safeguarding the structure: Foundation and veto shares

When a company transitions into a steward-ownership structure, it’s important that the transition is permanent. This way, it can give a binding promise to all its stakeholders — employees, customers, investors, and society at large — that it won’t change its ways later on and revert back to profit-maximization, even if there’s a change in the company’s management.

Summary: The best of capitalism

Steward-ownership is not only reserved for “impact companies” trying to cure diseases, build technology for renewable energy, or tackling poverty. The model can be applied to any company that is building useful products, like the examples of Bosch, John Lewis and ZEISS show. The purpose of the structure is simply to make sure that our companies are in service of society, not the other way around. If the management of a steward-owned company comes to the conclusion that the company’s net impact is no longer positive due to its negative externalities, the management is incentivized to change the company’s ways.

Better sharing

This is the blog of Sharetribe.

Juho Makkonen

Written by

Democratizing the sharing economy. CEO and co-founder of @sharetribe, a software solution anyone can use to build their own sharing economy platform.

Better sharing

This is the blog of Sharetribe. Our mission is to democratize the sharing economy by making platform technology accessible to everyone. If you’d like to create your own sharing economy platform quickly and with a low budget, visit https://www.sharetribe.com/

Juho Makkonen

Written by

Democratizing the sharing economy. CEO and co-founder of @sharetribe, a software solution anyone can use to build their own sharing economy platform.

Better sharing

This is the blog of Sharetribe. Our mission is to democratize the sharing economy by making platform technology accessible to everyone. If you’d like to create your own sharing economy platform quickly and with a low budget, visit https://www.sharetribe.com/

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