Organically Grown Company’s Journey to Trust Ownership – and Beyond

December 19th 2019

By Sarah Joannides, Alternative Ownership Advisors

Founded in 1978, Organically Grown Company has been a pioneer in sustainable, organic agriculture for over 40 years. From its roots as a nonprofit started by activists, OGC has grown into one of the largest independent organic produce distributors in the US. Along the way, they have evolved and iterated their ownership structure to continually deepen their mission and multi-stakeholder approach, a journey which took them from nonprofit to farmers’ cooperative, and later to an S-Corp with an employee stock ownership plan.

But a few years ago, the company was faced with a common business challenge: how does a mission-based company scale and create liquidity for its founders and employee-owners without selling or going public? OGC was looking for an ownership structure that would allow it to (1) put purpose ahead of profits, (2) be accountable to multiple stakeholder groups (workers, growers and other allies) and (3) be perpetual in nature so as to remove any pressure to exit.

Pioneering a New Business Structure to Preserve Mission

Imagine a company where the largest stockholder never wants to sell its stock or take a profit. And where leadership is directed to focus 100 percent of its energies on its founding purpose: to deliver a positive impact on people and planet through its products and services. Could such a thing be possible?

With a Perpetual Purpose Trust, the answer is yes.

In the case of OGC, the trust (known as the Sustainable Food and Agriculture Perpetual Purpose Trust, or SFAPPT) owns 100% of the common stock of the company. It’s analogous to putting land into a community land trust, which takes the asset (in this case, a business) off the market for speculative investors and dedicates it to some higher purpose (in this case, the transformation of the food system).

The trust structure enables OGC to remain permanently independent and to continue to deliver on its positive environmental, social, and economic goals, without the pressure to demonstrate short-term quarterly profits or to produce exit-value for shareholders. Furthermore, it creates a framework for the stewards of the organization, who represent a broad range of stakeholders (farmers, employees, customers, investors, and the wider community) to participate in the governance and share in the economic rewards of the business in real-time.

 

 

 

 

 

Perpetual Purpose Trusts are part of a broader movement of alternative ownership models known as Steward Ownership, an antidote to the dominant paradigm of shareholder primacy. Blindly pursuing shareholder returns without consideration of the toll on people and planet has led to many societal ills (environmental damage, climate change, wealth inequality, and more). Steward Ownership is a response to the need to distribute both power and financial rewards more equitably among all stakeholders.

The first paradigm shift comes from the idea of shared governance. In the case of OGC, the Trust is the sole owner of Organically Grown and its role is to ensure that the company sticks first and foremost to its mission of promoting sustainable agricultural practices, while adequately balancing the interests of the various stakeholder groups. At the same time, qualified stakeholders have a voice in governance, through the election of a Trust Protector Committee, or TPC. It is the TPC that appoints the operating company’s Board of Governors.

The second paradigm shift has to do with ensuring a shared upside for all stakeholders. When the company generates profits (as it has reliably done for the past 40 years), those profits are shared among all stakeholder groups. No one is capturing an outsized portion of the pie, and no one is benefiting at the expense of others.

Inspiring Hope and Supporting Change

When the transition to the Trust was announced in the summer of 2018, something unexpected happened: the phone started ringing off the hook. Callers (founders/owners of other mission-driven companies, impact investors, academics, and others) were asking, “how did you do that?” “How does it work?” And “could we do that?”

And with this, a seed was planted.

OGC has always been a trailblazer and pioneer. Becoming one of the first US companies to transition to a Perpetual Purpose Trust was just another step in that tradition. The company was born out of the passion of activists and entrepreneurs committed to fixing our food system. Was it such a crazy idea to think that perhaps they could also lead the way in fighting a broken finance system?

The first place they saw an opportunity to help was in dedicating resources in support of the grassroots movement towards alternative business models rooted in stakeholder governance vs. shareholder control. Natalie Reitman-White, vice president of organizational vitality and trade advocacy at OGC, now dedicates 50% of her time in collaboration with the nonprofit Purpose US and RSF Social Finance. She contributes to research and open-source tools that support the awareness and adoption of Steward Ownership models.

At the same time, they realized that the years of work they did to prepare their company for the transition – gaining expertise and building a valuable network of legal/financial professionals and impact investors – meant they were uniquely suited to help others.

So they decided to go a step further, establishing a new subsidiary company call Alternative Ownership Advisors to provide customized, end-to-end consulting services to owners/founders looking for liquidity with legacy.

Most of the calls they’ve been receiving over the past year have been from other organic companies and social entrepreneurs seeking advice about how to maintain their independence. It’s challenging for these enterprises to obtain the capital and investment they need to grow without losing ownership control or the ability to make their mission a priority. “Now that we’ve done the leg work to develop the model,” said Natalie, “we’re excited to help other founders looking for innovative methods for scaling, growth, and succession that maintain independence and focus on the company purpose.”

 

Read about the State of Alternative Ownership in the US, a learning journey report by Purpose Foundation and RSF Social Finance.

Sarah Joannides head shotAlternative Ownership Advisors helps leaders of mission-driven companies design and implement ownership structures and business transition strategies that ensure mission maximization and lasting independence. With our network of partners, we provide the framework and support services necessary to intentionally plan for the future of your company, to ensure the legacy you build will be preserved now and into the future. For more information, contact Sarah Joannides at [email protected].

This article is part of  the “Voices of Independent Integrity” initiative from the Provender Alliance community. Our goal is to showcase the proactive projects of Provender members that exemplify substantial efforts towards regenerative organic agriculture and a just food system for our planet and its inhabitants.