How can we align purpose and profit, and achieve a better balance between the interest of employees, customers and society?

By Chiara Lawry

Thinking about the big societal problems: climate change, gender inequality, poverty, can be overwhelming, upsetting and disempowering. There is a shocking imbalance in our systems and in our economy. Wage growth in real terms had its largest decline on record last year and yet we saw record profits recorded in many parts of the economy. The gender pay gap is stubborn and women over 55 are the fastest growing group of people at risk of homeless in Australia.

As a management consulting firm, we work alongside different types of organisations, from big 4 banks to local charities, multinational consumer companies to advocacy bodies. Sometimes, working across such a broad spectrum of organisations there is a polarised and highly disparaging view of how others operate. We oftentimes grumble about ‘getting things done in the public service’ or hear stories of organisations that were either ‘too focused on profit at the expense of all else’ or perhaps ‘deeply committed to purpose but inefficient in how they operate’.

A couple of years ago, Right Lane spent time investigating different ways to organise to better align and drive purpose and profit. This effort was initiated and led by the firm’s founder, Marc Levy, supported by one of our senior colleagues Jo Bradley.

It was COVID, in Melbourne. Between starting a veggie garden and baking sourdough there was lots of time to think, engage experts around the world, and explore options and opportunities.

During that time, a client – a privately owned, national, successful business with a deep purpose that attracts and motivates their team – asked the Right Lane team to help them with a similar question: whether a ‘for purpose’, non-profit structure could deliver better outcomes? They asked for help investigating models that would preserve their entrepreneurial spirit, embed their purpose and set them up for long term success. Models like steward ownership, foundation ownership and social enterprise were fodder for much research, consideration, and engagement.

The most common model in Australia is social enterprises and they operate in all sectors of the economy. To be a social enterprise you must do three things:

Have a defined primary social, cultural or environmental purpose consistent with a public or community benefit, and
Derive a substantial portion of their income from trade, and
Invest efforts and resources into their purpose such that public/community benefit outweighs private benefit.

There are three social enterprise models:

Employment-generating – creates employment and training opportunities for marginalised people.
Community need – delivers accessible products and services to meet community needs that are not met by the market.
Profit redistribution – donates at least 50% of profits or revenue to charity.

There are 100s of terrific social enterprises in Australia. If you are in Naarm, Right Lane Consulting uses Aboriginal catering company Bunji, for delicious catering with native ingredients. A special shout out to Who Gives a Crap. Who doesn’t love environmentally friendly toilet paper delivered to your door and 50% of profits donated to improve access to toilets, clean water, sanitation and hygiene facilities in developing countries.

The other models are less well known in Australia but have long and successful histories in the US and Europe.

Steward ownership is the overarching concept and legal structure in the US and in Europe there is a long history of foundation ownership.

Foundation ownership structures are used by some of the largest and most successful corporate organisations in the world, including Ikea, Zeiss and Bosch. Foundation ownership often places control of a for- profit company in the hands of a foundation board. The for-profit company pays dividends to the Foundation, which generally uses that income stream to fund important social and economic projects. A well-known example is the Scott Trust which owns the Guardian Media Group. The Scott Trust is focused on securing the financial and editorial independence of The Guardian in perpetuity.

In Denmark more than 1300 companies are foundation owned and account for about 20% of GDP. In Sweden and Germany there are about another 1000 foundation owned companies each.

Professor Steen Thomsen is the world’s leading researcher in this area. His research at the Copenhagen Business School and Yale finds that foundation-owned firms have better reputations and are more socially responsible, they are more stable employers, pay their employees better, and keep them for longer. Importantly they have similar long-term financial performance outcomes when compared to for-profit companies.

Last year, Patagonia made headlines becoming a for-purpose trust, which is a steward-owned governance model, similar to foundation ownership. Steward owned companies are committed to two principles:

Self-governance — Control remains inside the company with the people directly connected to stewarding its operation and mission. With the control of the company held in a trust, it can no longer be bought or sold.
Profits serve purpose — Wealth generated by these businesses cannot be privatised. Instead, profits serve the mission of the company, and are either reinvested in the company, stakeholders, or donated.

After many months of correspondence with the ACNC, and our biggest ever legal bill, on 1 July 2022 Right Lane Consulting become the first privately owned company in Australia to become majority foundation owned. The Right Lane Foundation is a not-for-profit charitable purpose Australian public company, with its own board operating independently of Right Lane Consulting.

Right Lane Consulting remains committed to its purpose of contributing to a better society by helping organisations that do good, do better. We were the first management consulting firm to be B Corp certified and we have always had a deep commitment to purpose and so foundation ownership felt like a natural transition and an important way to entrench a commitment to long termism where profit serves purpose and help us ensure an enduring commitment to balancing the interests of our team, our clients and society.

While we are proud to be the first majority foundation owned business in Australia, we certainly hope we are not the last.

Get in touch for more information.

For more information on Right Lane’s transition to foundation ownership visit: MEDIA RELEASE: Right Lane becomes first Australian management consulting firm to become foundation owned and controlled and appoints new CEO | Right Lane Consulting

Sources:

Hutchens, G. (2023) Australians experienced their largest real wage decline on record in 2022. ABCNews. https://www.abc.net.au/news/2023-02-22/wages-growing-at-3-3-per-cent-december-quarter-2022/102007390

Property Council of Australia. (2022). Women over 55: The fastest growing cohort of homeless Australians. https://info.propertycouncil.com.au/property-australia-blog/housing-action-falls-short-0-0-0-0-0-0-0

Social Traders (2021). What is a social enterprise? https://www.socialtraders.com.au/news/what-is-a-social-enterprise

Achleitner, AK., Bazhutov, D., Betzer, A. et al. (2020). Foundation ownership and shareholder value: an event study. Rev Manag Sci 14, 459–484. https://doi.org/10.1007/s11846-018-0296-x

Burke, S. (2017) Viewpoint: The beauty of the Danish Industrial Foundations model. FamilyCapital. https://www.famcap.com/2017/08/2017-8-10-viewpoint-the-beauty-of-the-danish-industrial-foundations-model/

Bottge, D. (2021) The Foundation-owned company model: The path to build tomorrow’s society by unifying long-termism and philanthropic impact. Purposelawyers.

Forgan, L. (2016) The Scott Trust: why the Guardian is unique. The Guardian. https://www.theguardian.com/membership/2016/oct/24/scott-trust-guardian-owner-journalism-newspaper

Børsting, Christa and Thomsen, Steen. Foundation Ownership, Reputation, and Labour (2018). Oxford Review of Economic Policy. https://ssrn.com/abstract=2955572

Purpose. (2022) The Patagonia Structure in the Context of Steward-Ownership. https://medium.com/@purpose_network/the-patagonia-structure-in-the-context-of-steward-ownership-e9db3d260dc6