Steward-ownership: the key to sustainable success

Real success goes beyond mere short-term gains or planning for an exit. Steward-ownership is the ownership model that fosters long term value creation, making it ideal for those who want to create a lasting impact. Steward-ownership promotes governance by those other than the equity providers and profits driven by a mission, resonating with those who value sustainability and meaningful business operations.

By Sjoerd Buijn

Expertise: Corporate Law


Real success goes beyond mere short-term gains or planning for an exit. Steward-ownership is the
ownership model that fosters long term value creation, making it ideal for those who want to create a lasting impact. Steward-ownership promotes governance by those other than the equity providers and profits driven by a mission, resonating with those who value sustainability and meaningful business operations.

The Netherlands is the place to be for this ownership model, with its well-established and tested systems of shares without voting rights, shares without dividend rights and shares placed in trust with a ‘STAK’.

Marieke Pols and Sjoerd Buijn explore the legal landscape in their latest article for Tijdschrift Ondernemingsrecht. Additionally, they have prepared this guide to provide practical assistance.

What is steward-ownership?
Research shows that companies with a focus on long term value tend to outshine those chasing quick profits, particularly in terms of durability, lasting profits and job creation. Pursuing immediate financial returns, a practice known as 'short-termism', can lead to missed opportunities for investment in innovation. This not only makes a company less competitive but can also overlook the broader impacts on society and the environment. Businesses that reinvest their profits are more likely to innovate, grow, and withstand economic challenges. Interestingly, steward-owned companies are found to be six times more likely to survive beyond four decades compared to traditional businesses.

Steward-ownership addresses the drawbacks of short-termism by redefining success beyond shareholder gains, instead focusing on long-term sustainability and mission fulfillment. It operates on two core principles: self-governance and the notion that profits should support the mission.

Historically, the concept isn’t new. Giants like Bosch, Zeiss and Carlsberg adopted mission-centered approaches in the mid-20th century. In the Netherlands, TBI Holdings embraced steward-ownership in the 1980s. More contemporary examples include Patagonia, OpenAI, and Triodos Bank, showcasing the model's relevance and adaptability to modern businesses seeking to blend profitability with purpose.

Different steward-ownership structures
The concept of steward-ownership is versatile, allowing its core principles to be woven into various ownership frameworks. Here’s a closer look at some of the most adopted structures worldwide.

The company with different classes of shares, including a 'golden share'
This approach involves creating a company that issues different types of shares to support steward-ownership:
Foundation as sole shareholder
In this model, a foundation acts as the sole shareholder, aligning its purpose with the company's mission. The foundation can either be managed by stewards, or have independent directors monitored by stewards. Internationally, a distinction is sometimes made between the 'corporate council', the directors or supervisors responsible for exercising the voting rights on the shares held by the foundation, and the 'charitable board', responsible for allocating dividends received by the foundation.

The foundation can simultaneously serve as a “STAK”, a Dutch style ‘trust office’, that allots depositary receipts for shares to equity investors. This is an effective method of equity funding of the underlying company, without giving the equity investors control over the company, with the associated short term profit drivers.

If the underlying company makes a distribution to the foundation, the funds are allocated towards the foundation's purpose and – if depositary receipts have been allotted – as a return towards the holders of these depositary receipts.

Combination approach
A blend of the two methods mentioned can also be effective. The company issues non-profit voting shares to one entity and profit shares without voting rights to another, such as a mission-aligned foundation. Due to the strict separation between profit and voting rights, the profit arm cannot exert (legal) influence on the business to distribute more profit to it.

The Netherlands is the place to be for stewards-owned companies
The flexible Dutch private limited liability company (B.V.) offers great versatility for steward-owned models.

Traditionally, a private limited company is seen as having capital divided into shares, held by investors with an expectation of profits. However, this profit expectation is more a convention than a legal mandate. Legally, the essential requirement is the existence of shares, which can be structured in steward-owned companies to focus on long-term goals rather than immediate profit sharing.

It is common in private limited companies for shares to convey both voting and profit rights, but Dutch law also accommodates shares that grant either right exclusively. This flexibility enables steward-owned companies to place voting shares without profit rights with stewards, and profit shares without voting rights with investors. There is also no legal barrier to forming a private limited company with only non-profit voting shares, as long as there is at least one share that carries voting rights. The one voting share ensures that the company can always issue a profit-entitled share to a designated person (such as a foundation) if needed, ensuring that the company meets all legal requirements while adhering to steward-ownership principles.

Lastly, adopting a steward-owned framework does not strip the entity of its “business identity”. Steward-owned businesses are expected, and perhaps even required, to generate profits to support their mission and secure their future, with the difference being that these profits primarily benefit the mission through its business, its stewards, and/or a philanthropic cause.

Financing of steward-owned companies
Just like traditional businesses, steward-owned companies may also need external funding to meet their goals. The steward-ownership model doesn’t stop a company from taking on debt. The idea that profits should support the company’s mission means that it's acceptable to use part of the company’s income for paying off interest and loans, before making any further investments or allocating funds to the company's mission-oriented purposes.

For companies with a positive cash flow and degree of collateral, securing a loan from a bank is typically a feasible option to get the necessary capital for operations. A bank loan may be preferred over shareholder loans, to avoid financial incentives of shareholders.

In situations with limited or negative cash flow, the company may need to turn to equity financing to raise the required funds.

Steward-owned companies are very capable in compensating investors. There is a wide variety of options available, like applying financial structures with special classes of shares, such as redeemable preference shares. These shares provide an annual return based on a designated reserve within the company. Once this reserve is fully distributed, including a premium, the special rights lapse, and the shares become eligible for repurchase, leaving stewardship and any priority shares intact.

In most scenarios, the distributions to equity investors can be characterized as repayment of invested funds, with a premium. Once the full invested amount has been repaid with a premium, going forward all profits are re-invested in the company, or otherwise spent towards the mission.

Should the company operate under a foundation as its sole shareholder, this foundation can issue investment depository receipts to those providing startup capital. The terms applicable to the depositary receipts, determine whether dividends are applied towards repurchasing these depositary receipts or furthering the foundation's mission. In line with the redeemable preference shares, the repayment to depository receipt holders is subtracted from their total entitlement, including an additional compensation. Once this obligation is settled, no further payouts on these certificates occur, with all subsequent dividends supporting the foundation's aims.

This model introduces a higher risk for investors, who, in turn, anticipate more substantial returns. This expectation presents a challenge due to the disparity between traditional investment returns and the more modest, mission-focused returns of steward-owned companies. However, in steward-ownership, profits are viewed as a tool to advance the company's mission, offering a fair and potentially significant reward for capital investment. The apparent contradiction between steward-ownership and seeking high returns is, in reality, a misconception. Steward-ownership centers on fair compensation for investors, termed "equitable value distribution." While the direct profit share may be restrained, the potential for overall return on investment remains high.
Investment in steward-owned companies is best suited for those with a longer-term outlook. Since only a portion of profits is distributed, achieving the desired return might take longer. Typically, steward-owned entities shun conventional exit strategies like IPOs or sales, prioritizing mission fidelity above all. Nevertheless, flexible divestment options exist, such as leveraged buy-outs of profit shares, non-voting IPOs, or sale to another steward-owned firm. Coupled with the superior performance of companies committed to long-term strategies, steward-owned entities offer an appealing prospect for investors ready to support a meaningful mission over time, with the promise of steady, equitable returns.

The ownership model of the future
Steward-ownership is gaining traction and momentum. Dutch entrepreneurs and politicians are starting to see the benefits, and are embracing the idea. The more widely the concept becomes known, also amongst advisors that can help set-up the structure, the easier it will be to select the type of structure that is most suitable for a specific business, and to implement it.

The lawyers of full-service firm De Roos have the right expertise to help any entrepreneur and change-maker in business and society to navigate the complexities of the legal and financial structuring. Do you want to explore how steward-ownership can support your mission in creating long term value? Marieke Pols and Sjoerd Buijn are ready and eager to advise you on how steward-ownership can transform your business. Their help is just a message away.

Sjoerd Buijn

Notarial Services

Marieke Pols

Corporate Law

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