Alexander Kühl | Director at Purpose Evergreen Capital Interview given to Ms. Maria Louisa Vafiadaki
-Can you please talk to us about your background. How did you decide to become one of the co-founders of Purpose Evergreen Capital and what motivated you the most?
My background is in Economics, I studied at Oxford University and I also did my MSc in Economics at UCL. I worked in economic consulting as a competition economist and a regulatory economist. This is a space where the state heavily regulates profit-driven companies with market power because it thinks that if they are not regulated, they will cause harm to society. This process is very inefficient and it brought me to question the motivation of companies. What would a company look like, that does not need to be regulated because there is no incentive to maximise profits at the expense of society? One of the key drivers of a company’s corporate behaviour is its ownership structure.
That’s how I became interested in company ownership and what could be changed or innovated in this area. When I met my co-founder Armin Steuernagel, he had the same questions, wondering how a company could be purpose-drive in the long term. That’s how we started working on steward ownership.
Purpose Evergreen Capital has been heavily involved in campaigning for a new type of leal entity to be created in Germany.. The purpose (or steward-owned) business!
-Please talk to us about the main objectives of PEC. What are the biggest achievements up to date?
Our biggest objective is to help small and medium-sized businesses transition into steward ownership. To do that, they sometimes need capital to buy out non-aligned investors or provide an exit route for the founders or long-term owners who want to have an “ethical exit” while receiving enough funds for their retirement. Some of that financing can be done by banks but sometimes, it requires equity financing and we offer alternative equity financing.
The main differences to conventional equity financing are that we don’t take any voting rights from the companies and that we cap our returns. We do receive dividends, because we also have investors expecting a return. However, we don’t control the company or try to change the operations of the business. We see this as the task of the entrepreneur. Entrepreneurs may ask for advice, but it is often not helpful when investors use their power to force the founders to do something that they don’t want to do.
Our biggest achievement is building a strong portfolio of companies that we work with, helping them to transition to a stewardship structure or in some cases maintaining their ownership structure. We couldn’t have done that without our community of aligned investors who provide patient capital to spearhead this new type of investing in steward owned companies.
Founded in 1978, Organically Grown Company (OGC) has been a pioneer in sustainable, organic agriculture for over 40 years. From its roots as a farmer-run non- profit, OGC has grown into one of the largest independent organic produce distributors in the United States. In 2017, with the help of PEC, the company transitioned to steward-ownership to protect its mission and remain independent into the future.
-How does PEC contribute towards building a more just and sustainable system?
That’s a good question. We don’t measure the direct impact of our business on society or the environment, but rather we regard ourselves as providing systems change impact. It is very clear how we contribute to a more equitable and just society, because steward ownership focuses on the stewardship of assets and capital, rather than private accumulation of wealth. The more steward-owned companies exist, the more capital there is in the hands of stewards who cannot privatize that wealth. This capital stays within the company and gets passed on to other stewards; it doesn’t get accumulated by profit-driven investors.
In addition, we create a space where individuals can enjoy a lot of self-determination in the workplace, where they spend most of their time and I believe that this contributes to a better society.
The 30-year old German organic food company ARCHE produces excellent products and has been transformed into a steward-owned company thanks to PEC. ARCHE’s Teriyaki sauce will make you enter foody realms you didn’t know exist! Check out their online shop and find out for yourselves!
-What is the steward-ownership model, what are its main principles and why is it so important?
There are two principles that steward-owned companies commit to. The first one ensures that profits serve the purpose of the company and not the other way around. This principle requires that the value generated by the company cannot be privatized. Profits primarily serve the mission of the company and are either reinvested in line with that mission or donated. Investors and founders are fairly compensated with capped dividends.
The second main principle is self-determination, it requires that the majority of the voting rights of the company are always held by people who are active in the company itself, and not by people who are outside or far away from it. We don’t want companies to be managed by people who are just managers and who don’t feel like owners. So, the emphasis is on the responsibility aspect of ownership rather than the wealth aspect of ownership.
Italian organic food company EcorNaturaSi is another portfolio of PEC. May the smiling faces of the workers also have to do with the fact that they work for a purpose-owned company?
-Do you believe that such a business model is realistic ? Which companies are best-suited for it?
I firmly believe that the stewardship model of governance is a very efficient model and that the market will show that it works well in the long term. There are already good examples of large and successful companies being steward owned like Bosch, John Lewis which owns Waitrose, Zeiss, Mahle and many others. Some of these companies have been steward-owned for decades. Also, academic studies by Prof. Steen Thomsen have shown that steward-owned companies have higher wages, treat their workers better and have a higher long-term survival probability than privately owned or companies listed on the stock exchange.
I would say that in principle, any company can transition to steward ownership and any company can become a better company if it’s steward owned. Perhaps some start-ups with very high capital requirements would struggle, given that they would have to find investors who are willing to stay in for a very long time. Typically the cost of capital is covered through an exit and an exit is not possible in a steward-owned company, because the voting rights are not for sale.
The companies that are best suited for this type of governance are those that require a lot of trust from a community. For instance, for network companies such as Uber and Airbnb, steward ownership would be amazing.
-What would you say is the main problem and why is it so important to address it? What are the biggest challenges in running a project like this?
PEC is a holding company that makes investments. What we need is a steady flow of new companies that want to convert in steward ownerships and need our investment to do so.
It is a big challenge for us that the process of moving from a conventional to a steward-owned company is often very personal and emotional for the owners and founders. They often think about this very hard for years and discuss it with their co-founders and their family because it is such a big step.
We support them in this step, but we certainly cannot push them. It is difficult for us to judge when a company will be ready to make the transition. That makes it hard for us to plan when we can make new investments.
“Unfuck the economy” has become a battle-cry to shift our economy towards a more participatory model, fit for the challenges of the 21st century.
-What is the cost of such a project i.e. altering an enterprise’s governance model.
The cost of just changing the company structure is often relatively low. It depends however on the jurisdiction and the models which are available there. It also depends on whether you are a small start-up or have a large structure, where you will most likely incur high legal fees. Therefore, it is hard to name a specific rate.
The key question is whether there are any investors or co-founders who don’t agree to the stewardship model of governance and want to be bought out before it happens. If you have an investor who does not support it and wants the company to buy back their share, this can be quite expensive. If a significant part of the company can be donated to itself and doesn’t need to be paid for by someone, it requires less investment to make the transition.
If you are the sole owner of the company with full discretion over the company, the transition to steward ownership is straightforward and you only have to cover the administrative/legal costs. However, if there are investors who own 50% or more and want to be bought out at market value, then the process can become very expensive.
-Which are your main sources of funding today?
Our investors are mostly private individuals, entrepreneurs or impact investors who are interested in system change. We also have some institutional investors who are innovators and change-makers.
-What are your goals for the near future and what is the bigger picture of your vision?
In the near future, our goal is to create more lighthouse companies that can serve as an example of steward owned companies.
The bigger picture is we want to establish non-voting equity in steward owned companies as a normal asset class that any institution or non-institutional investors knows and can invest in.
If this was well-established, we wouldn’t need PEC because every company could find the right investor without having to explain what steward-ownership is. If PEC can be copied by other entrepreneurs who can set up a similar structure, that helps us achieve our goal.
-Is there any advice you would like to give to other founders or people who are looking to make a meaningful impact for sustainability and/or social justice causes?
I would advise them to do something where they actually enjoy doing the work itself, rather than only loving the impact that it has. It’s best if they work on something that they enjoy doing, rather than working on it only because they think the world needs it.
-How can readers of the Good Move Initiatives Blog contribute to your work? How can they raise awareness and promote the steward-owned philosophy in their countries?
They can spread the word about this initiative; share the materials on our website. If they know companies or entrepreneurs who are thinking about these issues and need help or would like to get advice on transitioning their business model, they can send them our way. We also focus on building a network of investors, so it would be great to become connected to anyone who is interested in investing in steward-owned companies.
Thank you.
Find out more about Purpose in the following links:
About Purpose: https://purpose-economy.org/en/
About PEC: https://purpose-economy.org/en/pec/
About Steward-Ownership: http://purpose.ag/book