Understanding Perpetual Purpose Trust Model
Updated: Jun 12
If you're a business owner, you're probably becoming more aware of the purpose of conscious capitalism. For most, this means providing quality products and services with the focus on long-term sustainability.
The mission of these businesses is dialed into good environmental practices and social justice. However, we need to remember, sometimes an outsider drives the direction of the company. So what happens if your capital model is vulnerable to intervention by shareholders who aren’t necessarily involved in the business? What if someone else takes control and drives the established, mission driven companies business in a different direction?
Natalie Reitman-White joins us in Episode 138 of the Her CEO Journey™ podcast to discuss how you can support companies protect your business’s mission while staying independent. She generously shares valuable information on steward ownership, particularly the perpetual purpose trust model.
Using Organically Grown Company as an example, we learn how the perpetual purpose trusts divide economic and governance rights to its stakeholders and shareholders. Natalie breaks down how the company transitioned to perpetual purpose trusts, from the types of investors to the strategies to find and lock them in. Finally, we learn about the capital structures needed in a perpetual purpose trust model.
Make sure to tune in to Steward Ownership: The Perpetual Trust Model - The Journey of Natalie Reitman-White to learn more.
Here are Three Reasons Why You Should Continue Reading:
Understand how the perpetual purpose trust model works and why it can boost business growth and innovation.
Discover how a trust model differs from traditional business models.
Learn how to make the transition to a trust model for your business.
Visit Christina Sjahli’s website! Learn more about alternative ownership through her Weekly Blog:
Chat with Christina and set up a time here!
Download the Financial Modelling Guide so you can show investors how your company is going to look in the future!
Connect with Natalie: LinkedIn
Natalie’s Business Journey
Natalie grew up in Hawaii, where she saw a lot of environmental degradation and poverty.
Natalie got curious about how we can create a healthy economy and society that lives together with nature.
Even though she already had a master’s in sociology, Natalie interned for Organically Grown Company.
Organically Grown Company’s Growth
Natalie was part of the company’s journey to becoming one of the first responsible companies in the US to be owned by a perpetual purpose trust.
When achieving sustainability, it’s not just about business practices, products, and services. It’s also about how the company is run.
Conventional ownership models can easily shift the direction of the business away from its intended mission.
“Conventional ownership models oftentimes are misaligned with all of that mission that you want to embed throughout your business.”
Rewarding your stakeholders can create more business growth and innovation over time.
The Perpetual Purpose Trust Model
Traditional business ownership is held by individuals. This means that a stockholder has the right to the company’s value and governance.
As people come and go over time, this can become a challenge for companies. New stockholders might not keep the business mission intact.
A perpetual trust model transfers the stock ownership into a trust. This trust runs with a well-defined mission. It will never die and never need liquidity.
“What a perpetual purpose trust does is it takes it away from individuals. And you actually transfer the stock ownership into a trust.”
The trust is not managed by a person and does not need any income. So profit can be reinvested back into the business or shared with stakeholders.
How the Model Works
In most trusts that are traditional, individuals are the beneficiaries. Meanwhile, in the purpose trust model, the company’s purpose is the beneficiary. The perpetual trusts foundation or stewardship group ensures that the goal is being achieved by the business.
“The trust, the beneficiary is literally the goal. So no individual has rights to claim the assets under the trust as their personal property and to influence the assets to be used for their personal gain.”
The people in this group are chosen based on their commitment to the business mission. They are only compensated for their time.
Natalie shares that the company’s stakeholders elect the trust stewardship and purpose foundation committee. The stakeholder inclusion comprises of employees, customers, vendors, the communities, and investors.
Balancing representation is important so that no one group will benefit at the cost of the other. Learn more in the full episode!
Balanced Stakeholder Representation
In New Zealand and Europe, there are more calls to elect various stakeholders as part of the board of directors.
Having a balanced representation with more flexibility in the trust committee will maximize the fiduciary duty towards achieving the business purpose.
How a Business Owner and Shareholders Come In
Money can be raised at the company level. For example, there are non-voting preferred shareholders. They have an economic stake but aren’t entitled to control.
Since the business owner is the trust, no one can ever sell it.
Those who bring value to the business can get a share of the value. This is a big motivation for shareholders.
Investors in the Perpetual Trust Model
When Organically Grown Company set out to fundraise, they raised $11 and a half million of financing in around 18 months.
Investors are not only concerned with returns from future sale, but also the business model and purpose. Companies that employ the trust model are also attractive because there’s risk protection. If everyone does well, everyone gets a share of the profits and returns.
“I think a lot of investors are attracted to putting their money where their mouth is to say, ‘Hey, if I do well, others also do well in this system.’ And so, being attracted to that holistic approach. And also, I think some of them see it as risk protection.”
How Conventional Business Models Work
There is an antagonistic relationship between labour and a business owner in a conventional model.
When shareholders demand a certain return, management then needs to squeeze employees or vendors to make short-term profits.
Prioritizing short-term gains can sometimes be detrimental to long-term success.
Other Stewardship Models
Organically Grown Company has tested several types of alternative ownership models over time.
Employee and cooperative ownership did not work. This is because ownership is held by only one stakeholder group.
Focusing on one group can undermine other stakeholders. For example, focusing on the customers can drive down profit maximization for farmers.
The Golden Share Model
The golden share model is more traditional in terms of investing and gaining returns in the future. It’s an effective model for startups.
The golden share has created a purpose steward who ensures that the business is never sold away from the company's mission purpose and trust agreements.
This model also predetermines when shares can be redeemed.
Since Organically Grown Company was already gaining profits, there was no need to make investors wait for a future return.
How Purpose Should Drive the Business
If you're a business owner or founder, you need to be clear about what you want to achieve.
Actions will be different based on the purpose. Is your goal hypergrowth? Or is it delivering products and services that benefit others? Unicorn companies may change their decision-making over time and undermine their original purpose and business model.
“To me, that's part of the danger of the unicorn type situation is it's not that people are bad people, it's that they start changing their decision-making based on trying to achieve the hockey stick. And it can undermine the business model.”
Capital is important to maximize profit and act on the purpose, but maximizing capital should not be the goal.
Capital should be placed in the right relationships and actions.
Transition to the Trust Model
Organically Grown Company grew to a point where more people wanted to acquire the company. They wanted to avoid someone coming in and steering the company away from its mission.
And so, the company bought back shares from their investors and transferred them to the trust.
The company recapitalized the business through a combination of debt and preferred equity. This also made the company independent from market valuations.
Learn more about how recapitalizing works in the full episode!
Changes in the Business's Legal Structure
Organically Grown Company shifted from an S Corporation to a C Corporation. This is because LLCs can have several classes of stock.
For example, in the trust model, the trust has all the control rights. Meanwhile, the preferred stock has economic rights.
Finding Investors to Support the Transition
Lenders are often concerned with a company’s ability to pay back the loan.
Organically Grown Company wanted to find a lending institution that’s aligned to their goals. This came in the form of RSF Social Finance.
They were able to get $10 million from RSF and another $11.5 from offering non-voting preferred stock.
Tune in to the full episode to find out the individuals who participated in the investment!
How to Look for Investors and Lenders
Natalie recommends starting with a solid business model and case.
Make sure that you’re clear with what the business needs and how the capital will achieve returns. You can do this with a multi-year financial model.
Tell your story, mission, and how you produce real results.
Knowing Your Purpose as Business Owner
Structure your employee stock ownership plan so that it aligns with your company’s purpose.
Capital is important to run businesses but it should not be the driver.
Have a strong financial process and foundation.
If you can’t grow, you can’t deliver results for your purpose.
Natalie Reitman-White uses businesses to drive environmental and social impact and change. She served as the VP of Organizational Vitality and Trade Advocacy for 4 years at Organically Grown Company. Then, she transitioned as a Trustee of the Sustainable Food and Agriculture Perpetual Purpose Trust. She has been named as a leading executive that makes the food and supply chain practices, cleaner, greener, and healthier by Fast Company Magazine.
After two decades of experience in organic trade, Natalie shifted to transformative corporate finance and ownership models that ensure multi-stakeholder governance, long-term mission focus, and regenerative returns.
Interested in Natalie’s work? Check out Alternative Ownership Advisors.
You can also reach her on LinkedIn.
“It's this whole supply chain and all the people within the business who are part of building value of the business. And is there a way for them to participate in the value that's being built? Because if you can find ways for them to participate, it actually becomes this circle of reciprocity.”
“I actually think it's a very strategic thing to think about how businesses align all their products and services with their mission, align their people around that. And then reward their people and people in the supply chain for furthering that. I think that it can create more growth and more innovation, and more motivation over time.”
“The goal of those ventures is to change the world through what they're offering. But capital needs to understand that it's a input to drive that purpose. But maximizing the value to capital is not the end goal. It's a means to the end.”
“You're gonna need to take on loans or equity, and so forth, but you need to make sure that it is structured so that the returns to that are part of the overall success towards that purpose. And if you structured in a right relationship, it can be incredibly powerful. Investment is one piece of the puzzle but not the driver.”
“Just because you have a sustainability mission doesn't excuse you from running a good business. You still have to run a good business because without a good business, there is no mission.”
Enjoy this blog for business owners?
If you’re a business owner who wants to ensure that the mission of your business is never lost and that your stakeholders are rewarded for the value they bring, then a perpetual purpose model may be right for you.
Natalie shares how Organically Grown Company was able to transition to the trust model and how it is benefitting the family, employees, vendors, farmers, community, future owners, and investors. If you enjoyed this blog, tune in more at Her CEO Journey™ Podcast, subscribe, and share it!
Write us a review and share it! If you enjoyed tuning into the show, then do not hesitate to leave us a review. You can also share this episode with your network, especially women in business, so they will know the importance of planning for financial leverage.
Have any questions about business finance? You can contact me through LinkedIn or schedule a chat with me at any time. You can also suggest topics you're curious about for future episodes to help your business grow. Thanks for listening!
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