The Shared Stewardship Economy and Why It Matters
Forays into resilient economies, with Jay Standish.
In order to build resilience to crisis, we need social-economic infrastructures to transition from a system of mutual destruction to one of mutual assured flourishing. I decided to have a talk with Jay Standish about ways of doing business that forgo the traditional business model in favor of more cooperative processes. Today, the default legal and financial infrastructure are oriented around competition outside the organization and incentive-alignment inside the organization. What does the alternative look like?
Jay Standish is an entrepreneur and creative with a background in community and real estate. The last company he founded, OpenDoor Coliving, ran for 10 years and operated over 400 units of community housing across three states with over $70M in AUM. He recently co-authored a forthcoming book on owner-stewardship business models. In our conversation, we discuss how to restructure business ownership and operations to promote economic democracy, address wealth inequality, and address the core drivers of metacrisis. We discuss structural collaboration models that network multiple organizations, steward ownership that distributes ownership to stakeholders and encodes a purpose beyond profit maximization, and conscious consolidation through holding companies that merge small businesses under a stewardship model. At the heart of this conversation is the need for new social-economic institutions that are democratic, entrepreneurial, and regenerative. You can find the transcript below the video.
Felix de Rosen
You dedicated a whole chunk of your life to researching and writing this book. I'd love to hear like what's, you know, now that you've gone through this process what what are some of the simple insights.
Jay Standish
Yeah, sure. Yeah I mean one of the biggest things in terms of solutions that we explored in the book is around ways of networking multiple organizations or companies together into sort of a collaborative constellation of entities and projects and companies and efforts. So, I'm calling it structural collaboration where like the actual structure of the organizations are somehow hooked together and sort of almost like getting married as an organization. And there are a number of different ways that that can look. Actually, there's an infinite number of ways that that can look. But some examples are this group in North Carolina called Industrial Commons, and the core entity is a non -profit that has taken on some pretty solid amount of grant funding, and then they incubate cooperatively owned enterprises that are all focused in the textile industry.
So the whole project is based on promoting the local economy in North Carolina focused specifically on the textile industry, and so they're getting very hands -on and actually starting businesses that are cooperatively owned by their employees and doing things like using the non -profit's balance sheet to buy very expensive equipment and then lease it at a reasonable price to these small cooperatives that essentially that's what they need to be able to get going is like the weaving equipment, things like that.
So they're also getting really involved in local politics and like sitting on the Rotary Club board. And so it's sort of an example of like a multifaceted effort with multiple entities that are all sort of tied together in mutual support. So that's one of the basic concepts that we cover in the book. And then another one is just around steward ownership in general. And specifically what we mean by that, we say shared and steward ownership because there's a lot of different flavors of that as well.
But there are really two aspects of steward ownership that I think are important. One is sort of distributing the actual financial and legal ownership of an entity of a company to a broader base of stakeholders and to include more of the people that are impacted by that company and involved in that company. And usually that's the employees or like the people that are the most involved and get ownership in a sort of a steward ownership structure, but can also be like local community members, customers of that company and other like relevant people or entities.
And so I was having this conversation last night with my mom, my stepdad, and I was like, we, if you imagine, we made Wave the Magic Wand and all companies on the whole planet were suddenly, you know, ownership was split. between all humans on the planet, like the most extreme version of sharing, you know, ownership in the productive assets of our economy and world more equally, that still wouldn't like save the world. It wouldn't solve the climate crisis specifically because we need to change the operations of these companies. Like you could still be like an evil corporation that's just distributing its profit more equally, but it's still destroying the planet, right? So we need to change practices as well. So part of steward ownership is there's a mission and a purpose that is encoded in the legal structure of the entity itself. So the managers of the business have a fiduciary responsibility to fulfill the purpose of the organization.
Whereas in current sort of status quo, corporate legal structure. the managers have a fiduciary responsibility to maximize shareholder profit because essentially the core most purpose of that organization is to maximize shareholder profit. So that's I think an important distinction that there's a real world purpose that is embedded in the structure of the organization.
Felix de Rosen
How is that different from, say, B Corps?
Jay Standish
Well, B Corps, there's sort of two flavors of B Corp. There's an actual benefit corporation or they're called different things in different states, but it's a legal entity type. So, you know, it's rather than a C Corp, it's a B Corp. So you can get that entity pretty easily. Like my last company, we were a Delaware public benefit corporation, PBC. The main thing that that does is it protects the managers if they make a decision that is based on ethics and doesn't maximize shareholder value.
They are, it sort of protects the managers from being sued by the shareholders. That's like the core thing that it does, but also sort of signals, hey, we're thinking about values. And then there's the B Corp certification, which is actually stronger and sort of says like, you need to meet certain criteria and conduct yourself in certain ethical ways to be able to get the stamp of approval of the B Corp certification. And so, steward ownership, I would say, is sort of taking both of those things and merging them together to make them stronger and saying, you're going to abide by certain ethical practices that we're going to define in the legal structure of the company itself.
And more than just the managers being protected from getting sued by the shareholders for not maximizing shareholder value, actually now the managers are beholden to the purpose of the organization. They have to actually meet the purpose of the organization. Otherwise, they're out of performance. They're out of compliance. They're out of integrity with the legally defensible purpose. So they're required to do the right thing.
Felix de Rosen
I'm unfamiliar with the whole world of just legal status of different businesses. And I'm sure many people are too. How radical or innovative is what you're proposing? Does it not really exist out there?
Jay Standish
It has different names. It does exist. Yeah, everything that we wrote about in the book is based on real world case studies of things that already exist in full form right now. So, you know, steward ownership is very much a real thing. Patagonia just converted to steward ownership. So the all of the shares of Patagonia are owned by perpetual purpose trust. And so it is that specific legal structure that you can encode with any purpose of saying, hey, the purpose of this organization is to, you know, paint all doors in the city of Milwaukee red. And like we're going to own like a painting company. We're going to own, you know, an art studio and the profits from those enterprises must go toward painting all doors in Milwaukee red and like lobbying for legislation that like all doors must be red.
You know, it's kind of a silly example, but it actually has a directive of some sort of real world purpose. And so, yeah, there are definitely a growing number of companies that are using either perpetual purpose trust or employee ownership trusts, which are really just the same thing, but focus the purposes for the employees to benefit financially from the profits of the company. And a lot of small businesses are starting to use these trusts steward owned trusts to to convert to employee ownership in a more flexible and lightweight way than some of the older legal structures that are out there.
Felix de Rosen
All right. So. I think you started touching on it earlier. I'm interested in why this matters. So maybe can you tell me about the genesis of this project and try and link it to these big meta problems that we're facing globally?
Jay Standish
Yeah, I'll just start with the big meta problems and why it matters. Particularly the last 30 or 40 years, there's incredibly massive wealth concentration in our society and that is causing major problems on a variety of different fronts. Probably one of the most poignant ones is this idea of economic democracy. It's like you can't really have a strong democracy. If you imagine one person owns 99% of all assets and the other 99% of the human beings own 1% of all assets, that person is going to have a lot more power than the other people.
So, to have a better democracy, we need more wealth equality. And so, steward -owned companies are a way that small businesses can convert to employee ownership, and they're not giving away value. What happens is the group of employees get a loan and you can get an SBA loan that's backed by the government to buy a small business and purchase the company for fair market value from the previous owners and pay it off over time, pay the loan off over time.
And so, it's like regular capitalism. Owners get millions of dollars for their company that they would be able to sell to any other person. And a lot of steward -owned companies are also choosing to take the right to sell the company completely off the table. So, the employees will never sell the company to like a private equity firm or a larger buyer or something like that. So, it sort of takes the company off the market so that it will always be benefiting, you know, Joe the plumber on the ground. So, it's a means by which assets can be converted into a broader group of people's hands. So, that's a big piece of it. also, I think, looking at, particularly with climate change, you know, there's, there are vested interests who have actively fought against reform for climate change and created misinformation campaigns.
And like, I'm not a, I try to be pretty neutral and like not out people, but like, that's really true. And it's a major existential problem on the planet. And so, like, I'm not, I'm comfortable saying, you know, that, that we really don't need that kind of headwind to being able to survive as a species. So, you know, when their corporations are actively working against the survival of humans on the planet, like, you know, we need organizations that are encoded to create a positive impact rather than encoded to just maximize their benefit in the short term.
And so, dealing with the core structural legal and financial mechanisms and incentives of capitalism itself. It's like, what we're doing is it's like, we're not anti business. And in some regards, we're not even anti capitalism. We're just trying to update and modify the type of capitalism that we're engaging in. So that it benefits real human beings. And it is serving a greater purpose than just like, giving more money to people who are getting no benefit from having additional money.
Felix de Rosen
So putting putting assets to work toward the real problems of of life in 2024. Yeah, it's really interesting. Like from an ecological perspective, the issue with late stage capitalism, as it's called, or hyper capitalism, isn't so much capitalism itself as the the, or someone disagree with this, but it's what happens is this concentration of wealth, right. And we do know that concentration of wealth is generally correlated with exploited exploitation of human beings and of nature. Those those are pretty clearly correlated, and I would argue, causally connected.
Jay Standish
Right. And so you can't really like when you're changing ownership strategies, you're also that go beyond just ownership. Right. Yeah. And actually, again, back to this conversation, I was having my stepdad my stepmom or my mom last night. I was like, you need to you can't just ownership, you also have to change the practices of these companies. And my stepdad said, actually, I think you just need to change ownership. Because if we have more economic democracy, and we're able to actually move the ball forward on making real progress on climate change policies and industrial practices, and there's no longer huge wealthy corporations and people blocking progress on humanity being able to survive a climate crisis, then we'll be able to implement all these.
He's basically saying, you need to do the wealth fix first. And then we'll have the economic democracy to be able to make positive sort of climate change policy and updates to corporate practices and stuff like that.
Felix de Rosen
There's an incredible need to transition capital from extractor practices to life affirming regenerative ones. Yep. And there's a lot of great initiatives. And it's oftentimes feels like a drop in the ocean. I'm thinking, for example, of the, you know, the the loss and damages fund that the UN organized at the last COP 28 and they committed about 0 .2% of what was needed by developing countries to address the damages related to climate change, you know, so there's, there's obviously this absolutely enormous need to move to transition capital. And it sounds like the stewardship model is one of the the ways to get there one of the frameworks that that's that's necessary for that to happen.
And part of what we looked at the at the book in the book is what are faster and more scalable means to get there that isn't just how do we convert one company at a time into shared ownership. So that's what we're looking at constellations of organizations, as well as this idea of shared services, which is basically multiple companies might share an HR function or an accounting function or a marketing function or a supply and instead of it being a vendor, a group of companies will co -own a third -party cooperative that they all use to fulfill that function of their business.
And that's almost a way of like, rather than every company needing to be its own balance sheet instead of owners and have its own profit motive, it's essentially like creating break -even functional entities in the economy that are co -owned. And so the ownership is more at a B2B level, like this group of businesses own this sort of break -even business that serves a function for them and the benefit is in the form of like cost savings, but also allows small organizations to have the benefits that large organizations enjoy economies of scale and the ability to have a full -time CFO that's super professional. Like if you're a painting company with five employees, you don't have a CFO and you don't have access to the kind of knowledge and expertise, be like, oh, we should structure this differently because that's more tax advantaged. And all of these things that large corporations have the time and money to do because they have the scale to be able to spend time on setting everything up really well. So that's one of the other big solutions that we kind of pointed to is essentially small companies banding together into groups of cooperative organizations.
Felix de Rosen
Yeah, it's interesting. It's almost like there's a parallel happening in the business and corporate and institutional world around decentralizing the ego, where the company is trying to, it's borders, its sense of self get dissolved a bit and there's more sharing, there's more interconnections. And I feel like that's also an argument for resilience. That's what's going to make these businesses actually able to work through challenges. I'm curious if that was a theme that you explored as a capacity to resist shocks.
Jay Standish
Yeah, and adapt. And I think part of that is the people that are involved. And if we view an individual company less as this life's work of an entrepreneur that's holding out for an exit. like, you know, raise capital from investors and everybody's like looking for the day when they could sell the company and like make their exit and make their millions. And we, let's look at it that way as this sort of like economic wealth building story and more view a company as a project or a utility vehicle. It's like, it serves this purpose, but it's part of a greater whole of constellation of different interrelated organizations and groups of people such that, you know, you might, as a worker at that company, you might identify more with like the broader constellation that that company is a member of. And so you're like collaborating heavily with someone. They happen to work at a different LLC, but like you all are working on the textile industry in North Carolina and like, you're all like, we're all on the same time team trying to do this.
And like maybe this little cooperative that you were working at goes out of business, but everyone's like, oh. Felix is awesome, and knows all this stuff. We know what he knows about, and let's find Felix a job at this other thing, because he's super helpful to us, and we're all collaborators. And you can sort of reroute people and resources and make use of things when more people are aware of what's valuable in the system and how to make best use of it. Yeah, I'm thinking, just thinking about centralization and how, of course, it has benefits, but how much violence it does also to people.
Felix de Rosen
I was just listening to a podcast with Samantha Power and Matthew Monahan on bioregional financing facilities, and they were actually discussing about the need to decentralize, but also how there's still this need for coordination at scale, these more centralized entities. So it's just interesting to think about, I don't think we should demonize. Not that you're doing that, but it's important to have nuance and to avoid these black and whites. Yeah, I mean, we also need massive coordinated global effort, right?
Jay Standish
So it's not just about sending all power to the edges and all decision making of the edges. We also need to figure out how to organize ourselves in large scale groups. And the federal governments are failing to a large degree to be able to be authoritative leaders on making the changes that need to happen and have been failing for 30 plus years at addressing like the biggest problems in the world. So what are better structures for actually achieving the action that needs to happen to sort of keep humanity on a good track yet to be seen a little bit but we kind of need to figure it out.
Felix de Rosen
Any other jewels and gems from from this this research process that you went through things that might be obvious to you at this point, but may not be for others?
Jay Standish
Yeah, I mean, one of the things another of the big solutions we discussed is creating holding companies for aggregating multiple small businesses under a stewardship model. So another way of saying hey, well, If you never sell the company and ownership is distributed to a wider group of stakeholders, actually we call it conscious consolidation of companies could actually be a good thing. So like one way to approach the scale is like the shared services model we were talking about. We have independently owned companies that co -own functions together. But in the holding companies, it's all one umbrella and all of those functions sit inside a single balance sheet.
And they say, well, since we never need to sell the company anyway, why don't we all just merge together into one under one umbrella? And then we can benefit from some of the scale that larger companies benefit from and actually become a larger company. But with a lot of the benefits of a smaller company, each company still exists as its own discrete operating unit inside of a larger sort of financial holding company. So like Berkshire Hathaway is a holding company that usually doesn't own a hundred percent of companies.
Sometimes it does, but like it's essentially an investment group that owns parts of lots of companies. So thinking about that at the smaller business scale and a lot of people are doing that without the steward ownership lens. There's a lot of small business acquisition activity happening right now. Where like white collar people who are very well educated and would otherwise be working at private equity firms and like McKinsey are like, wait a second, why don't I do this at a smaller scale and just do it for myself and go and like buy a lawn care business and then like buy another lawn care business and merge them together. So we're sort of taking that movement and adding a steward ownership layer to it. Yeah, so yeah.
Felix de Rosen
It sounds like there's a huge selection bias on who would adopt some of these practices, right? Like there's a real transfer of power away from minority ownership to democratic ownership. How do you sell that to, to industries that are, that have, you know, a stranglehold?
Jay Standish
Well, I think you need to sell it mostly to the small group of entrepreneurs that are capable of pulling off projects like that. And like, you know, I kind of entered this world, partially from that more like search fund, like, how do I go and buy a small business and thinking of it more individualistically. And then as I started working on this book with folks, I was like, wait a second, like, What do I want my legacy to be? And this is actually feels like a bigger vision to be involved in creating this sort of steward -owned, holding company idea.
And I do think it's a spectrum. Like I think you can create a 80% steward -owned company and as like the entrepreneurs behind it, you might get a 20% equity stake. And after 10 years, then you sell that equity stake back to the holding company and you have an opportunity to make a significant amount of money as an entrepreneur.
And so you sort of have to think about like, what's the profile of people that have the skills and background to do this kind of thing? What's their opportunity cost? And one of those is like, how do you make it easier to do these kinds of conversions so that it's less of an entrepreneurial risk? And they're like, well, yeah, I mean, if you're gonna hire me, pay me a salary, and I'm gonna go and do this and then I get an equity stake, that's awesome. So there's a group like this called Oberon Cooperative that is a cooperatively owned holding company.
And they have, I think five or six businesses and they have divisions that are like different industry focuses and they have leaders of those divisions. And those leaders have a significant like performance -based compensation plan that if their portfolio, they're able to buy a bunch of businesses and those businesses do really well, they can get a nice little piece of the pie as long as employees are also getting a piece of the pie. So like once there's actually wealth generated, they can get a meaningful chunk of it that's a little bit closer to market in terms of like what they would be able to earn by doing it in like a purely profit -driven way.