Next Generation Enterprise Design: The employee-owned benefit corporation

Employee Ownership’s Relationship to Sustainability Focus of New Research

“Instead of picturing companies as objects owned by shareholders, designed to produce earnings like ball bearings off an assembly line, we need to see companies as living systems, part of the larger living system of the earth, designed to benefit life,” write Marjorie Kelly and Sarah Stranahan in a new report from Fifty by Fifty.

Next Generation Enterprise Design hypothesizes that mission-controlled, employee-owned companies have the design elements necessary to build enterprises for a more sustainable, equitable 21st century economy. These are employee-owned certified B Corporations or benefit corporations incorporated under state law. The founders of these companies have avoided selling to financial interests and instead have chosen to pass ownership to employees as stewards, embedding a commitment to social and environmental benefit in governing documents.

Mission-controlled, employee-owned companies have the design elements necessary to build enterprises for a more sustainable, equitable 21st century economy. These are employee-owned certified B Corporations or benefit corporations incorporated under state law.

Through research funded by Partners for a New Economy, Fifty by Fifty identified 35 certified B Corporations that were employee owned and, in a pilot study, compared these companies to B Corporations without employee ownership. The total B scores of the 35 employee-owned companies were significantly higher than their counterparts; their environmental scores were similar, suggesting that employee-owned benefit companies are good for workers and good for the environment.

The 35 companies included brands such as Eileen Fisher, Inc., King Arthur Flour, New Belgian Brewing, and Namaste Solar. A series of case studies further illuminates the thinking of company founders such as Eileen Fisher, whose $440 million women’s clothing enterprise is at the forefront of sustainable textile production. Fisher has a vision of business as a force for good and was unwilling to sell to either another company or outside investors when she realized their only motive was better profits.

When firms are sold to multinationals or large competitors, mission is often squeezed out. Employee ownership provides an alternative exit, where employees as stewards are more likely to keep mission intact.

The vast majority of B Corporations are owned by founders and their families, enabling them to have a strong mission. The real test comes when founders sell. When firms are sold to multinationals or large competitors, mission is often squeezed out. Employee ownership provides an alternative exit, where employees as stewards are more likely to keep mission intact.

Based on an analysis of B Corporation data and interviews with company leaders, the authors suggest that investor-owned firms laser focused on maximum profits also are less likely to have the same genuine commitment to sustainability that employee-owned companies are capable of. There is too much pressure for short-term financial gain, Kelly and Stranahan explain:

Shareholders in publicly traded companies are large in number, geographically remote, disengaged from companies, and structurally limited in their ability to effectively voice social and ecological responsibility. Creating shareholders with different characteristics — fewer in number, close to the firm, engaged, committed to a common social or environmental mission — could help create companies compatible with an environmentally sustainable economy. In this configuration, owners can become moral agents.

Environmental advocates generally make the “business case” for sustainability, but research by the Massachusetts Institute of Technology found that such steps resulted in commercial benefits for only 37 percent of firms. Moral agency is essential for a true environmental commitment — and critical to getting there is to be more deliberate in thinking about enterprise design. With this in mind, Fifty by Fifty will be releasing a more in-depth research report on mission-controlled employee-owned enterprises later this spring.

— @karenakahn provides communications consulting and editorial support for Fifty by Fifty


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