[INTRODUCTION]

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"JVB: So, I would say the systemic shift that's needed is for all of us to ask ourselves the question, "What's the role of money in my life? What do I want my money to do on my behalf? And also, how much is enough?" 

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[0:00:19] JS: That's Jasper van Brakel, CEO of RSF Social Finance. And this is the Denizen podcast. I'm your host and curator, Jenny Stefanotti. In this episode, we're talking about stakeholder capitalism. I am so excited to bring this conversation to the Denizen audience. It is so overdue. This is one of the first topics we covered when we first started the Denizen inquiry. It should have been one of the four episodes that we launched the podcast with. But the original recording was not in the interview format that we do now. And so, I was elated when I got a request to be on the podcast from Jasper who is the perfect guest to help us interrogate this topic. 

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Stakeholder capitalism is one of the single most important topics for us because it's really at the center of the focal point for our inquiry, which is how we reform capitalism and how we reform the economy to have incentives that align with life on earth. 

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We talk about the history of new classical economics and the rise of shareholder value optimization, Milton Friedman, and neoliberalism over the past several decades. And the trends away from that in the more recent years from the objective of the firm being to optimize return for shareholders towards one of meeting the interests of many stakeholders. 

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We talk about the distinction between stakeholder capitalism and stakeholder economics. Why so much of the efforts around conscious capitalism, and social enterprise and impact investing are insufficient to yield an economy that truly works for life on this planet over the long haul?

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We interrogate what ownership means and why we might redefine ownership to meet our objectives. We go through the various ways one can reform governance of companies to be more stakeholder-driven from those that are more weak and have misaligned incentives in place to those that are very robust and very clearly instantiate profits in service of purpose. 

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And then we talk about some of the constraints. There is a lot of interest in adopting the most progressive forms of corporate governance that we talk about. But there's a constraint around finance, and that's actually what Jasper is working on at RSF Social Finance. We just briefly touch on that at the end of it, because it's actually its own conversation that I'm excited to do as a follow-up to this one. 

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As always, you can find the transcript and show notes on our website, www.becomingdenizen.com. We also have a post in our learn section on stakeholder capitalism where I outline all of our research and link to additional resources to understand this essential topic. 

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On our website, you can also sign up for our newsletter where I bring our latest content to your inbox alongside announcement from our partners and other events happening within the Denizen community. We'll be launching regular online sessions for the community and audience to come together and talk about the episodes and further our learnings together as a community. I'm excited to instantiate that soon.

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This is a longer episode because there was so much to cover. I'm so thrilled to have a conversation about this most central, critical, essential topic on the podcast. I hope you enjoy listening to it as much as I enjoyed recording it. 

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[INTERVIEW]

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[0:03:05] JS: Okay, stakeholder capitalism. One of, if not, my favorite topics and arguably one of the most important topics. If there's one single seed for this entire inquiry, I think it's this conversation. Jasper, thank you so much for joining me to talk about this. I'm so excited to finally get this out.

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[0:03:22] JVB: Jenny, it's so good to be with you. And thank you for hosting this conversation. And I agree, it's one of the key topics if we want to move from not only reimagining what a new economy could look like, but actually reforming it and actually having the rubber meet the road.

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[0:03:38] JS: Let's just start with the basics. Just getting on the same page about what we mean when we say stakeholder capitalism and idea. Somewhat ambiguous term. Tell me what it means to you.

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[0:03:49] JVB: Let me unpack that a little bit. There are two words there, right? Stakeholder and capitalism. And the stakeholder word in this context really relates to the purpose of a company is to engage all of its stakeholders in creating value and so that a company not only serves their shareholders, but a broader group of stakeholders, which include shareholders, but is not exclusively their shareholders. 

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And the other word obviously is capitalism. And I think it's important to unpack that as well. Because capitalism in and of itself, the root of it clearly is capital. Meaning it's all about putting capital first. Stakeholder capitalism in a way is almost contradictory, which is why I would prefer to talk about stakeholder economics. 

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[0:04:39] JS: I appreciate that. It's funny too, because in my conversation with John Fullerton on regenerative economics, the original white paper was regenerative capitalism. And it's like, "Okay, let's get on the same page about what we mean by capitalism." Because I would agree with you that stakeholder capitalism is a contradiction in terms. Because my definition for capitalism is very much a market economy that optimizes for return on capital. 

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And so, and people often conflate capitalism with the market economy. I mean, you say capitalism is fundamentally flawed, then what are we going to do? Throw that out and go to socialism or communism? Those things didn't work, right? 

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Distinguishing between capitalism is a particular variant of a market economy I think is really key. I would wholeheartedly agree with you. We can also reorient and say stakeholder economics. But I do think it is useful. Because in this conversation, we're going to talk about some of the things that are happening in this space, which I would actually call stakeholder capitalism, which I think is not what we actually want at the end of the day. Let's use those dual definitions in this conversation to make I think what's ultimately an incredibly important distinction between where a lot of energy is going today, which is actually not what we ultimately want to see in terms of a market economy that yields the outcomes that we want for life on this planet. 

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[0:06:01] JVB: I wholeheartedly agree. And there's a lot of talk actually since about 40 years around stakeholder capitalism. Most famously at the World Economic Forum in Davos, Klaus Schwab, who developed this Devos Manifesto. I believe it was in the 1970s. And then, relatively, recently updated that. 

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But there's a lot of talk about stakeholder capitalism in that context. Same with several other writers, authors. And then, in 2020, obviously, with the Business Roundtable, Larry Fink. A lot of talk about this topic of stakeholder capitalism. And in that context, I think it's very intentional that stakeholder concepts are applied to capitalism.

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[0:06:47] JS: I think it's worth actually let's go back a little bit in history. I don't know if you're familiar with Hyman Minsky's work, but he talks about capitalism as this dynamic. It's not the static equilibrium. It's a complex dynamic system of the economy, and the political economy and culture that's constantly changing. And I think he made this comment, there are as many flavors of capitalism as they are behind this ketchup, or 57, whatever that was, right? 

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And so, we can look at the particular variation of capitalism that we see practice in the United States. You can see that there are different variations of that practice in other countries, like Germany with co-determination, which we'll talk about in this conversation as an example of that. You see a much more regulated market economy in Northern Europe in particular. It is interesting to hold this idea of variations of capitalism. 

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But there's an emergence of this particularly pernicious short-term-oriented version of capitalism with neoliberalism and Milton Friedman. And, interestingly, also a significant influx of capital into the US economy around that time from pension funds, from foreign governments and from university endowments, which suddenly brought forth the rise of money managers. Used to be the asset owners manage their money. 

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And so, suddenly, you had a whole class of actors that were compensated based on return on investment. And that actually contracted the time horizon that companies were optimizing for on profit and led to this particularly pernicious version that we see today. 

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Interestingly, I don't know if you know this, but Ralph Nader was advocating to put an environmental representative on the board of GM back in the 70s. This is almost hinting at what we're talking about now, but back then. Because he believed that there should be accountability for the environment and the decision-making of the firm. 

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And the very famous Friedman Doctrine that was published in 1972, I think, in the New York Times' Sunday paper, was Friedman's response to Nader. And I'm sure you're familiar with it. It made a very interesting case for why – I thought interesting. Some people find horrifying. But why firms should optimize for profit. And why doing anything other than that was anti-democratic? 

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There's interesting origins of the version of the economy where we're talking about reforming at a moment where there was a lot of interest in something that looked more like what we're moving to today.

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[0:09:03] JVB: Yeah. So interesting that you mentioned that. And, of course, going back to Milton Friedman, this whole idea of the social responsibility of a firm is to maximize profits for its shareholders and everything will follow from there. 

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I think, in many ways, that was a starting point of an assumption that it was okay. Greed is good not only because it maximizes self-interest, but we also really don't have to worry about any externalities as long as we maximize for shareholder profits. 

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And, ultimately, the way I look at it and the way we look at it at RSF Social Finance is that, ultimately, the question is are we in this to maximize our own self-interest or are we in this to optimize the interest of everybody who's participating in this system? And that includes planet Earth. It does include the beneficiaries and everybody, all the communities that are somehow touched by what a company does. 

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[0:10:02] JS: I think there's something really important while we're on this note. It's funny, it's just off this morning, regenerative economics with John Fullerton talking about all the fundamental flaws of new classical economics. But let's remember that John Stuart Mill was one of the main intellectuals with the rise of classical economics, which if we are rigorize economics, if we wanted economics to be reducible to equations like physics was, and the assumption was that the equation for the individual was maximizing for utility. 

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And utility is a broad kind of bucket. That's the things that make us happy. And then, somehow, that morphed into an assumption that it was economic return or utility for the consumption of a good. Whereas utility can mean utility associated with consumption for a good and all of the things that are implied for the planet by virtue of consumption of the good. 

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And so, I actually wrote a Medium post which reconciled Milton Friedman and his doctrine with a variant where companies are optimizing for social good. And it is aligned with the objective function, utility functions of all of the relevant actors in the space. He just made this erroneous assumption that the utility function was about self-interest. Maximizing return on capital. Maximizing utility from the consumption of a good that was acquired at minimum financial cost, right? But if you actually have a wider lens of what the thinking was with those kind of models behind economics, it actually does accommodate for social considerations.

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[0:11:30] JVB: Absolutely. The definition of utility was very different for those early economists. And Adam Smith is also often being misquoted for saying the market will resolve everything. That's just not the case. I think we can actually go back to those early economists and find a lot of inspiration for what we're trying to do here around shifting the system back to a large extent was originally intended. 

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[0:12:00] JS: And, well, to be fair, they didn't think the market would solve for everything. They were aware that the market had failures and externalities. They assume that government would appropriately regulate and price those back in to the objective functions of the actors via taxation and subsidies. That just doesn't happen.

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[ 0:12:14] JVB: Exactly. Exactly. 

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 [0:12:16] JS: Yeah. 

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[0:12:17] JVB: Yeah. And also, the whole theory of moral sentiments that Adam Smith wrote about, of course, is a huge move away from the market will solve everything. And it also brought it back to the human relationship and to morality, to ethics. Whereas the Milton Friedman Chicago school type of economic thinking that I think, to a large extent, got us into this mess that we're in is basically absolving us from any ethical or moral considerations as long as things are legal – 

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[0:12:48] JS: Well, let me read his words. I know we're detouring. But I think this is really important. I'm just going to read a couple passages from it. He says, "What does it mean to say that the corporate executive has a social responsibility in his capacity as a businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is in the interest of his employers. The corporate executive would be spending someone else's money for a general social interest, right? Because he's not optimizing for return. So, now he's effectively taxing the employees, or the owners, the shareholders, right?" 

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"Insofar as his actions in accord with his social responsibility reduce returns to stockholders, he's spending their money. Insofar as his actions raise the price to consumers, he is spending consumers money. Insofar as his actions lower than wages of some employees, he's spending their money. The stockholders, or the consumers, the employees could separately spend their own money on the particular action if they wish to do so. He is in effect imposing taxes on one hand and deciding how the tax proceeds should be spent on the other. He becomes in effect a public employee, a civil servant even though he remains in a name and employee of a private enterprise."

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"On the grounds of political principle, it is intolerable that such civil servants insofar as their actions in the name of social responsibility are real and not just window dressing should be selected as they are now. If they are to be civil servants, then they must be selected through a political process. And if they are to impose taxes and make expenditures to foster social objectives, then political machinery must be set up to guide the assessment of taxes and determine through a political process the objectives to be served." 

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This is really interesting. He has a point. 

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[0:14:22] JVB: Yes, he does. And at the same time, I think if a fundamental tenet that's worth discussing and just thinking through that he brings up is the business person is an agent of the principal. And the principle is the investor, right? It's the money. It's the capital. And that's a fundamental choice, I would say. That's not necessarily the only way to look at it. Because one could also say if the business person is spending money on social causes, they're acting as an agent for the principal planet Earth or as an agent for the principal community that are as invested in this business as an investor is with their capital. 

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The whole notion of stakeholder capitalism or stakeholder economics is that there are different groups, actors that are contributing and participating in the value creation that a business does and are contributing to its purpose. And what I would argue is its sole purpose isn't to make money. 

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[0:15:28] JS: 100%. 

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[0:15:30] JVB: But is to provide some positive contribution to communities, to the planet, to people, et cetera, et cetera. Making money is a necessity. Don't get me wrong. I would say there's nothing morally wrong with making money. It's a necessity and it's totally fine. It's just not the end goal. 

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I think that's where we need to start. What's the ultimate purpose? What's the ultimate goal of any business? And if the purpose of a business is bigger than just making money, which is something that the conscious capitalism movement has really helped us understand, then you can't go back to the business person, or a business is basically an agent of the principal actor, which is the investor. 

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[0:16:12] JS: Well, I think – I mean, I think the principal agent framing is valuable, right? But I think Friedman is making an erroneous assumption that you're making employment, and investment and consumption decisions based on a very narrow objective function rather than this notion of utility that could be broader. 

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And so, what we see when we're talking about trends, we're here like, "Now Millennials are buying because they care about more than just how cheap and how cool is this t-shirt." But who's the company and the values? That just means their objective function is more robust, right? 

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And if I'm voting, and this is essential to the Denizen thesis, that we are voting every day with our dollars, with our consumption dollars, with our employment decisions, with our investment. We are effectively voting for what these companies stand for, right? 

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And so, if we become more aware of that and we realize that we can de-resource the broken economy by changing those behaviors, it's very interesting to think about companies taking on more social responsibility and having more fluidity in society around various institutions, and actors and organizations, including business aligning with the society we want to manifest. 

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And what's so interesting here too is that there's a heterogeneity of preferences around which issues we care about. As culture changes, some people are going to vote for the companies that are more environmentally-oriented because that's their issue. Whereas some people are going to be more social-justice-oriented. 

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And so, it allows for more granularity of voting around preferences for social objectives. And this seems so superior to the representative democracy for your election cycle, which is always going to own a separate part of what we value and the outcomes that we care about in the world. But it's very interesting to think about business evolving to this, which is what we're talking about today. Okay, that was a big sidebar, but I think a worthy and important one.

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[0:17:55] JVB: I enjoy it. Yeah.

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[0:17:56] JS: It's just an important back context to understand. How did we actually get to where we are today? And it didn't actually used to be this pernicious and short-term-oriented.

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[0:18:05] JVB: Exactly.

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[0:18:06] JS: The first conversation I did with this was back in 2020. It was one of the very first Denizen conversations before we were even on Clubhouse. And when I did the research, one of the things that I noted – and I felt like 2019 was a real watershed moment f or stakeholder capitalism. You the Business Roundtable, the largest association of big companies in the US reinstate the purposes of businesses to be around stakeholders versus shareholders and optimizing for return. You had World Economic Forum doing the same thing. You had Larry Fink at BlackRock making statements that they were going to divest from companies that weren't considering stakeholders in their decision-making. And these are not sort of fringe, more granola-type of entities. These are the bastions of capitalism globally. 

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And so, I felt like that was this watershed moment. And then as you saw that I wrote about in my Medium post, like, "Okay. But that's rhetoric. What does it actually look like to instantiate it?" And that's what bulk of our conversation will be about. 

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But that was three years ago. You're much closer to this. I'm just curious what are you seeing in terms of trends since then in terms of real reform happening or rhetoric. What are you actually seeing out there in the field? 

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[0:19:12] JVB: Yeah. After 2019, 2020, as you mentioned World Economic Forum coming out with a reformulated manifesto. And Business Roundtable 2020 coming out with their statement, Larry Fink. There was a hope. And, of course, this was at the beginning of the pandemic. Then George Floyd's murder. Around that same time, right? First half of 2020. 

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And what I think the hope was is that, "Okay, big corporate America and the financial industry is finally realizing that business can be a force of good and can really help us shift the dynamics towards an economic system that can provide healing, and can provide justice, can provide social benefits, can help us resolve the climate issues that we have.

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And to a very large extent, that hope I think was based on two basic ideas. One, that was voiced for instance by Larry Fink, namely businesses should also include stakeholder interests, not only the shareholder interests. Really broadening that scope. That was one. 

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The other one around ESG, environmental, social and governance, which is primarily taken off in the investing world, the whole idea that, as investors, we shouldn't only be looking at the financial return but also at environmental and social outcomes and at governance. And both of those hopes, I think, at least from my perspective, they really haven't delivered. 

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And so, what I'm seeing in terms of trends is that ESG investing, impact investing has really become an on-trend topic even though there's some political talk about whether or not you're allowed to take factors into account other than financial return, but on a global scale. And really looking at the major firms on Wall Street and the big banks, everybody is doing impact investing. Everybody is looking at ESG. 

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And that is to a large extent I think because of two reasons. Number one, this is what employees want. This is what the talent wants. If you want to attract the talent of the future, you've got to be talking about this even if you don't mean it. Second, it's what the consumer wants. It's what customers want to see. It's what clients want to see from the brands that they trust. Even if, in the end, they might really value a financial return above a social and environmental return, they want to feel good about the stories that they read and hear of the brands that they vote their dollars with to make sure that they – yeah, that those are responsible actors in this economy.

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[0:22:04] JS: I love that. When I did some more pre-Denizen, the mapping out the landscape of levers to instantiate a better economy to change business practices, these are some of the most compelling. If employees demand it, if consumers demand it, if clients demand it, if you don't advertise with companies that don't align around it, for example, it just fundamentally changes the incentives of business. You don't need a well-intentioned CEO to do the right thing and have it be at the expense of return. You don't get return unless you care about these things. 

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[0:22:34] JVB: Yes, exactly. 

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[0:22:35] JS: This also exactly and this also speaks to the whole pillar of the Denizen conversation around cultural change and the interaction of cultural change with the economic reform that we care about. There's some interesting questions about how might we accelerate this trend around consumption being aligned. How might we make it brand disadvantageous for celebrities to endorse certain types of products, for example? That would really accelerate cultural change. I think that there's a whole host of interventions around that part. It's really interesting that this key trend that's leading to the shift that you're pointing to is really critical around. 

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You also mentioned in one of the articles that I read just some factors that you're seeing driving this. One is just a demand from clients, employees, consumers. You also mentioned generational wealth transfer. And also, that the first wave of social entrepreneurs are reaching retirement and looking for succession plans. Can you speak a little bit more to those and add any others that we might be missing?

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[0:23:30] JVB: Certainly. Wealth transfer. I mean, trillions of dollars literally are going to change hands and shift to the next generation in the next 10 years. And that's happening now. And what we're seeing and hearing is that a lot of next-generation wealth holders have a different connection to the capital, a different emotional relationship with money and with wealth. 

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And also, a very different in the sense of higher sense of urgency around putting money to work so that it can help resolve the world's biggest problems. And in that sense, and I'll paraphrase Paul Hawkin here, justice, social, racial justice on the one hand and environmental problems, climate, are two sides of the same coin. 

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What we're seeing that a lot of next-generation wealth holders focusing on is saying, "What am I going to do with all that money if we don't have a planet to live on? What am I going to do with all this money when I'm aware, and I can see and I feel the Injustice that's there and the inequality that's there?" That's a big shift. 

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[0:24:44] JS: Can I double-click on that one? Oh, go ahead. Are you going to go to the next one? Or can I double-click on that one? 

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[0:24:49] JVB: No. No. No. No. Go ahead. Because this is something that I also talk about, which I think is one of the most important and exciting trend, is this wealth transfer, right? And philanthropy is something I thought deeply about. It's crazy, right? You put a bunch of money into a container that's a foundation and you can do whatever you want with how you invest that money, but you have to give 5% percent of it away a year. 

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And you have two sides of the house. And the side of the house that takes 95% of that money and they're optimizing for return, it's spewing out externalities and totally endorsing everything that's wrong in the world. And then there's this tiny little 5% drop in the bucket that's doing good. And the whole thing is tax-advantaged. And we can talk about how that's anti-democratic. 

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But one of the things that I think is really fascinating when we talk about the systems change and we talk about the role of philanthropy is that, clearly, philanthropy has a really important role to play in social change. And it's really interesting to talk about where that fits in vis-a-vis other sources of funding and public funding and how it can fit a unique role. 

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But people who have amassed that kind of wealth have to have some sort of a reckoning with the fact that they want in the system that they're trying to change, right? And that the future doesn't afford for this kind of wealth accumulation. And so, it's easy to avoid the economic reform part of the equation because it forces them to confront something that's hard to confront. 

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And I think that with the transfer of wealth from generation to generation, you have the people who inherited the money and have like a different – hold the different set of opinions about the system and don't feel so deeply conflicted because they didn't extract themselves. Does that make sense? 

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[0:26:25] JVB: That’s incredibly well said. It makes absolute sense. Yeah. Yeah. Let's move on. 

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[0:26:28] JS: Okay. Then let's move on. I want to talk about – as we sort of bridge into stakeholder capitalism, I think that there's an immense space that's been around for a really long time around impact investing, and social entrepreneurship and conscious business. And what we're talking about I'm most excited about is real corporate governance reform that places the right set of incentives in decision-makers. I'd love to hear your thoughts on the space in general and the tension between optimizing for profit versus optimizing for purpose and how that tends to get conflated.

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[0:27:00] JVB: Great question. Talking and thinking about ESG, environmental, social and governance outcomes, I think the fundamental change will happen when we address the least romantic of the ones of the three letters, namely the G, the governance. 

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It's kind of the one that's easily being skipped over and usually being referred to as a risk management tool. Making sure that there's proper governance in place. But that's not what I mean when I talk about governance. If we want the corporation to shift its focus from maximizing for shareholder value to optimizing outcomes for a multitude of groups for stakeholders, several stakeholders and ultimately driving the long-term value creation of the business with all of its stakeholders, the key to unlocking that lies in the governance. And that necessitates us to go a little bit deeper into, "Okay, what do we mean by governance? And how is a company governed?" 

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The simplest way I would describe it is who makes the decisions? And against what set of goals are those decisions made? What's ultimately the fiduciary duty of a director and a business? Or what's the purpose of a board when they make decisions on behalf of the company? What's the goal that management has in the company? 

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And as long as that governance piece isn't addressed, then maximizing shareholder return remains the key goal. And oftentimes, impact investing in ESG investing are focused on still maximizing shareholder returns, but by taking some stakeholder interests into account to actually get more shareholder returns. And that may create some unintended or maybe actually intended positive effects, right? But it's not fundamentally different. 

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For me, the differences between maximizing shareholder returns and optimizing for stakeholder interests. And that's not a democratic system. That's maybe another rabbit hole that you may [inaudible 0:29:12]. 

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[0:29:14] JS: This could be a three-hour conversation easily.

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[0:29:17] JVB: Yeah, exactly. Exactly. But, oftentimes, people say, "Well, if you focus on stakeholders and you give everybody a vote, then you get the mess that we have in Washington, D.C. now." Namely, there's so much dissent and so many different interests that, if everybody votes their own self-interest, what you get in the end is either inaction or plain-vanilla, but not good outcomes for a business. This is not about democracy. Yeah.

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[0:29:43] JS: Yeah. Because I think that, again, the vast majority of the rhetoric that you see out there is what's good for the planet is also good for business. We can have our cake and we can eat it too, right? If you are more aligned around these things, you will do better in business. 

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And a book that I feel like really encapsulates this is Rebecca Henderson's Reimagining Capitalism in a World on Fire. She's a Harvard Business School professor and she talks about – the book overview is, "Capitalism is on the verge of destroying the planet and destabilizing society. As wealth rushes to the top, the time for action is running short."
 

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Rebecca's rigorous research as well as her many years of work with companies around the world gives us a path forward. She debunks the world view, the only purpose of business is to make money and shows that we have failed to reimagine capitalism. 

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But if you actually read the book, it is this story of this is good for business. And at the end of the day, if I'm going to go back to math speak, you have an objective function. What is the thing that you're maximizing? And you have a constraint. What is the thing that constrains how much you maximize? Is the objective function maximizing profit with the constraint being the things that we care about for the planet? Or is the objective function doing the best we can for planet while the constraint is profit, right? And it kind of puts one in service of the other or one at a higher position. You can't simultaneously optimize for two things. 

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And in my interrogation of this, I ultimately came to the conclusion. Because I was holding this question of is capitalism fundamentally flawed? Are all of these things that I see as marginal reform enough? Or are they not? And I concluded that they're not. Because capitalism is fundamentally flawed in so far as it has to grow and it incentivizes extraction and accumulation of wealth. And that's how we define capitalism at the top, is about capital expansion and accumulation. 

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And so, I think that the vast majority of things are just – they're trying to have their cake and eat it too and they don't realize that you have to pick one. And what happens when we pick one? And that's what we're going to talk about in instantiating governance. 

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I mean, you raise an interesting point just now around are you actually instantiating it in governance or not, right? And you talked about governance as who makes the decisions and what are the goals? And I think there's also a key piece of that that I would add, which is just how does one glean information to make decisions in service of the goals? Because there is a really important component of governance around voice, which is that I may not be making decisions, but you take into account my preferences when you make decisions. 

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[0:32:08] JVB: That's exactly it. That's exactly it. And I think there's a fundamental belief in our society, and certainly in economics and in business, that we need one singular end goal an. And what if it was both end, right? That's just a kind of thinking that I would like to invite. And that's not to muddy the waters. 

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But, again, I'm talking about optimization versus maximization. And if you're trying to optimize, you're not going to maximize anybody's singular self-interest. It's about optimizing for the interest of the system, the community, the planet, et cetera, et cetera.

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And in the context of a business, we can come to an agreement about, for this particular business, how we want to handle that. How we want to handle the trade-offs? Because there are trade-offs. 

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And going back to the book that you mentioned about reimagining capitalism, the basic assumption is there are no trade-offs. You can do both, right? You can do well and do good. And there are instances in which that works. Yes, that's possible. But I see them as two circles that have some overlap, right? One is financial returns and the other one is social and environmental returns. Yeah, there is some overlap. But you can't solve all the big issues by focusing on maximizing shareholder value. 

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Anyway, going back to the tenet of stakeholder capitalism or stakeholder economics, and this is something that we've been modeling at RSF Social Finance with our investors and the borrowers who borrow money out of our loan fund for the last 14 years or so. Namely, if you bring stakeholders together and you invite people to think and to talk in interest of the entire system, to not only vote, or act, or talk from the vantage point of maximizing their own self-interest. But really looking at, "Okay, these are my economic needs. And let me put those in the context of the economic needs of everybody else in this microsystem." 

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And then once you have all those data points, that's not subjective, right? It's an objective set of data points once they're on the table. And I like to think of that in the sense of a round table, right? Everybody puts their data points on the table and then you go, "Hmm. Interesting. There's an image emerging here. What could it be?" 

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And that's not an exact science, but it's a process by which rather than have our investor say, "I want to maximize my return." And our borrowers say, "I want to pay as low an interest percentage as possible because that's better for me." And RSF saying, "We want the biggest spread there is because that's better for us." Saying, "Hey, we have three parties here that are trying to find common ground around the price." In our case, that's the interest rate. How do we best do that? And how do we avoid this everybody pulling one end of the rope? And then whoever has the most weight, basically, winning? 

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And that process is something that – to a lot of people that I describe it to who say, "Oh, that's a romantic idea. I wish it would work. How sweet and naive." And then I say, "Well, we've been doing this with a substantial loan fund for well over a decade every quarter. And it works. And it helps us through to major recessions and all kinds of issues in the bigger economy." Because the focus is on how do we make this system work so that it benefits everyone rather than somebody trying to maximize their self-interest?" 

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I keep going back to that. Stakeholder capitalism as a tool to maximize shareholder returns, that's not it, right? That's a farce. That's impact washing. We don't want that. 

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[0:36:07] JS: Yeah. I think that, also, this just speaks to the importance of the constituents that are making decisions having clarity around what the North Star is. What is the mission of the organization? Absent that, you just get a kind of, to your point, who has the most power? And they're going to get their way. And it's not really the alignment around why we're here, if you want to have that common North Star, is really critical. 

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[0:36:26] JVB: Absolutely. 

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[0:36:28] JS: I want to talk about ownership. Because ownership is kind of an ambiguous term. What do we mean by who owns the firm? And what happens as a consequence of being an owner? Because I know deeply interrogating this and rethinking it is a critical part of stakeholder capitalism and the reform that both of us are really excited about. I just love to hear your thoughts on that.

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[0:36:48] JVB: Yeah. Ownership and governance have been married, right, in our capitalist and neo-liberal economics thinking, that whoever is the owner has the say and owns the governance because it's their money, right? That sounds very logical and it's econ 101. 

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And what I would like to invite is let's assume that ownership and governance would get a divorce. What would it look like? And what would it look like if ownership – so, economic ownership of a firm, of a business, which is obviously with the shareholders, doesn't automatically mean that they call all the shots? But that they have a voice and they're one of the stakeholders, a really important stakeholder. Don't get me wrong. But the whole notion that capital as one of the three production factors, right? Labor and land being the other two. Means that if you provide the capital, you own the firm and you have all the control. That is a basic flaw in the design and the underpinning of our economic system and has helped create this extractive economic system that's created all these externalities. 

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[0:38:03] JS: What you're saying is assuming that ownership means that you have economic share. That's what it means to own something. That you benefit from it economically.

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[0:38:11] JVB: Right. 

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[0:38:12] JS: Which I think is something we could push back on a little bit potentially. Because, actually, I didn't go deep on it, but I think it was around the 30s. Somewhere there's a book that I aspired to read that never read on the bookshelf in the next room. 

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There actually was a debate and interrogation around what it means to own a firm. Why should it necessarily be the investors versus the employees? It's not clear. And I think the debate landed on investors. But I don't think it's clear that that should be the case, right? 

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And so, I see ownership as we know it now to be these bundling of economic rights and control rights. They kind of believe, "Okay, you put the money in and the whole principal agent knows you." The employees of the firm are acting on behalf of the investors. That's an assumption about how companies should work that we take is default because we can't imagine it being any different. But we can design it and think about it in new ways. And I think what steward ownership and stakeholder capitalism is doing is it is reinterrogating what ownership means.

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[0:39:06] JVB: Exactly. In a way, it's throwing itself overboard. It's throwing the whole notion of ownership overboard and saying, "That's not really what we should talk about." We should talk about who's included and how are decisions made. And what are the vectors in terms of the goals alongside which we make decisions? 

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But this whole notion of ownership being married to capital, I mean, if you expand that thinking and say, "Well, what about labor? What if we would say whoever works at a firm, they're the owners?" Hmm. Interesting. That would be very different. Or we would say wherever the land is where a business is located. That helps us detach the governance from the ownership.

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[0:39:50] JS: Yeah. And I think confidence is an open question for who makes decisions and what they're optimizing for in those decision-making. But I think ownership – and the way that I think about it is slightly different. That ownership is this sort of bundle of control or governance and academic interests as we know it. 

But I would actually marry ownership with governance and decouple economics rights. And that's why we'll talk about steward ownership. Steward ownership is the people who own the firm are stewards of the mission. And ownership is really more married to the decision-making than the economics. 

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Again, I think it's important to just interrogate and service our assumptions about what ownership means. And I would actually argue that when we talk about stakeholder capitalism or decoupling ownership from economics, and that's what enables us to govern in alignment with social objectives instead of economic objectives. 

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[0:40:43] JVB: Mm-hmm. Mm-hmm. Interesting. Yes. And I think you're absolutely right, in that in the end it's about how are decisions made? And who is making them? And what's the primary goal here? Or what are we trying to do? 

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And maybe moving away from the whole notion of ownership or marrying ownership with a stakeholder approach is the right way to approach this. It's a very interesting debate, I think. 

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And, ultimately, what I think is going to really shift, systemically shift, the economy to being more regenerative, to use John Fullerton's concept, is if investors and boards of companies are held to objectives that are bigger than just maximizing their self-interest and their own return." 

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Anything that will help us do that, steward ownership, I think being a fantastic way of doing that. Because it really solves for all of the above, basically. Because it puts the steering wheel back in the hands of the company itself and all of its stakeholders while still generating financial returns for the shareholders obviously. And that decoupling of those two aspects I think is absolutely key and is also proven to be incredibly successful in this kind country and overseas.

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[0:42:01] JS: Yeah. And it's worth noting that, to point back to the last question about you have to choose what you're optimizing for, right? Or how you're balancing those things. If you have owners with that fundamental conflict of interest, then you can have an open question of where we might land. And so, I think the question is how might we design governance structures that address that conflict and interest and strip it out? And that's what we'll talk to now. 

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Okay. Let's talk about the different ways of actually instantiating stakeholder governance. And I want to take the audience through an arc from the least to the most robust so that they have a sense of everything that's out there and how we might think about it in the context of stakeholder capitalism and the rhetoric versus the actual instantiation of something that meaningfully puts profit and service a purpose, right? 

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[0:42:48] JVB: Yes.

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[0:42:49] JS: Let's start by talking about metrics. Because I know you talk about, okay, everybody talks about the E and the S, but not the G. Let's first talk about metrics because metrics do – to your point around, "What are the goals? Who makes decisions?" And then adding in the labor dimension around voice, metrics do change outcomes. Let's talk about those first. 

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[0:43:06] JVB: Absolutely. Metrics are incredibly important. And because they help you measure what you're trying to achieve and how well you're doing against those goals. And it can also help measure things like externality. Really measuring what outputs and outcomes you're creating are incredibly important. 

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I would argue, if you don't have the metrics, then how you know you're making progress against the goal that you've put out there that you agreed to as a company and as a stakeholder or community? It also oftentimes really helps because these conversations have the risk of becoming kind of 30,000-foot philosophical conversations even on a company's board where everybody agrees. And then when the rubber meets the road and then a CapEx decision needs to be made or a recapitalization decision needs to be made, people kind of default into what they interpreted that 30,000-foot decision to be.

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To have actual metrics really, really, really helps. So that you can deliver on that bigger purpose that you agreed to. And I think metrics in environmental, social aspects are really important. And also around governance and making sure that you look at how are decisions made. Who are there to make decisions? What's the waterfall look like? When there are excess profits in a company, how much goes back into the company? How much goes to shareholders? How much goes to workers? How much goes to the supply chain? How much goes to philanthropy potentially? To have those conversations before there is – decision needs to be made about what to do with profits is really important. And then you can help hold yourself accountable by looking at those metrics. 

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[0:44:52] JS: I think, also, if we think in Donella Meadows terms in systems dynamics, she talks about intervention points in systems. And one of them is information flows. And so, metrics allow transparency into the things that we care about and they enable these outside constituents, you talk about these trends, to hold companies accountable for the rhetoric, right? So that you mitigate with brainwashing where you actually say, like, "Okay, now how does this actually show up in the outcomes of your company?" 

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I do think that metrics are really important as a first step in instantiating new outcomes, new types of governance. But we've been doing this for a long time and we're far from where we want to get. With respect to metrics, I am curious, what are your thoughts around B corp certification? 

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[0:45:34] JVB: Yeah. A really great step. And B Corp certification is somewhere on that spectrum of moving closer to stakeholder economics or stakeholder capitalism. The metrics that B Corp certification provides helps companies compare against each other. It also helps them be incrementally better. Let's be ten points better than last year. We want to be in the top 10% of B Corps nationally or worldwide. Those things help. I think that it's a good step.

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[0:46:05] JS: I think something that's really valuable from a systems point of view around B Corp certification is that it helps to standardize what we mean by being a company that's good in the world. And certifications are very interesting intervention points for third-parties that want to shape systems in the way that governments typically would. 

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B Labs came out and defined what it means. And, really interestingly, I remember when I looked at this, there were something crazy. Like maybe a thousand times more companies that used the B Corp certification rubric to govern to make decisions that didn't actually get certified because of the transparency requirements and the overhead. 

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Just business managers that don't even realize, "Oh, if I care about being good in the world, I should be thinking about this." There's really a lot of value in the certification than just defining it. Across the board, when we're talking about systems dynamics and things that we care about, these certifications are really interesting things. They also address information asymmetry between the consumers and the employees, et cetera, who want to do something. But it's too hard to figure out what the right thing is. 

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There's this trusted intermediary, which is B Labs, that has the right incentives. Not conflicted incentives. Like, the company that just wants to greenwash and optimize for profit, but the ones that can actually hold companies accountable with the right set of incentives. Certifications I think is a really interesting intervention point. 

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Okay, public benefit corporations. And everybody confuses B Lab certification with becoming a B Corp or public benefit corp. Let's clarify that.

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[0:47:25] JVB: Yes. They're not the same. Public benefit corporation is a way to incorporate your business around a purpose that is bigger than just serving shareholders. It expands the fiduciary duty. It expands the goal of the business to include specific goals that serve communities, the planet, the environment, et cetera, et cetera. And that gets written into a company's bylaws and is actually in several states now a formal way to incorporate your business as a PBC.

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It's one stbp Beyond the B Corp certification and an important step to expand from that singular focus on shareholder value maximization.

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[0:48:10] JS: I think a really important point here is that for well-intentioned entrepreneurs, if you incorporate as a C Corp, which most companies did, the board has a fiduciary responsibility to maximize return to shareholders. If you find yourself in a situation where there's an offer to buy your company that's going to wash out mission, you're legally required to take that offer. 

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And so, what public benefit corporations did was they flipped it and said fiduciary responsibility is around mission. And so, it allowed for that ability to not have to take that offer when it came through. 

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I think PBCs are also very interesting because, from a policy perspective, it defines a subset of the economy where businesses are trying to do good clearly. And so, it's a very easy way for government to then put in place policies that incentivize those structures. They could be procurement preferences, or tax benefits, or et cetera. It's almost like a special economic zone for policy that I think is really interesting. 

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Okay. Board representation.

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[0:49:06] JVB: Board presentation in the sense of co-determination. Like, in boards in Germany, for instance, where a third to half of board representatives represent workers. That it's a possible step, right? Looking at who's on the board and who do they represent? Whose interests do they represent on the board that will help inform board decisions? That's another interesting way of looking at this. 

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And it was really interesting, Jenny, that you mentioned in the beginning of our conversation the idea that Ralph Nader had around putting someone on the board of GM that represents the environment. Because that is exactly – that's the next frontier of board representation. What would it look like if car manufacturers would have a seat for Mother Earth? That sounds crazy. I know. 

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[0:49:53] JS: It doesn't sound crazy. It seems abundantly reasonable.

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[0:49:57] JVB: Well, it does to me. But if you talk to Wall Street, it probably won't. But it's really interesting to think about it's not only the goal, but it's also who is in the room that's making the decisions. And what are the communities or the interests that they represent? 

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What the German model does well is this employer-employee balance. That's helpful. But it's only one aspect. There are multiple aspects that you could include in a board to ensure stakeholder-type governance.

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[0:50:31] JS: Cool. Yeah. I mean, I think that this is also – just to say a tiny bit more about, in Germany, it is required by law that companies have worker representation on their board beyond a certain scale. And in the German economy, you have, lo and behold, much better outcomes for workers and much better outcomes for society by virtue of that. And that has been happening for decades. 

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And I always look at board representation because I think it's really important, right? If you are a Silicon Valley entrepreneur, as soon as you raise from venture, venture is on your board, you're corrupted. And so, you can imagine all of the stakeholders represented on the board. Like, "Okay, now we're talking about true stakeholder capitalism." Right? I mean, it's not just the board where decisions that are made. It's also voting rights and how that's associated with shares, which is a separate conversation. But I think board representation is really important to move from voice to real decentralization of power. 

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And now we're going to talk about some different governance structures. And some of these are their own standalone episodes on the podcast that I would encourage people to check out if they like to geek out about this stuff. What do you think about co-ops? 

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[0:51:35] JVB: Co-ops can be magical, right? They can be a fantastic way to organize yourself as a company, so that the company really supports and benefits the entire community. There are also several pitfalls. And they've been widely described, I would say. 

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Namely, you can have paralysis in a co-op where there are too many voices, too many votes, too many people trying to influence where the decision goes. And also, raising capital in a cooperative isn't always easy. There's a number of drawbacks to cooperatives. 

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And at the same time, there are lots of examples of highly, highly successful and also mission-successful, I mean. Not only financially successful. But very successful co-ops that are very uniquely able to produce outcomes that, as a byproduct, also produces financial sustainability.

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[0:52:35] JS: One of my favorite quotes from maybe all of the podcast was from the co-op conversation. And my guest, Greg Brodsky, he said, "You've seen one co-op and you've seen one co-op." 

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And co-ops are misunderstood because a co-op means that it is owned by a set of constituents. And, again, what do we mean by ownership? Back to the question we just asked. Okay, ownership is control. And co-ops can be employee-owned. They can be consumer-owned. They can be supplier-owned. They can be multi-stakeholder co-ops where investors are part of those stakeholders, but they're sub-control. Sub-50 in terms of both economic ownership and control ownership, right? 

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And so, there's a vast array of membership. And then when you are a member, you adjudicate over some sort of decisions in the landscape of how you might define that is also vast. 

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[0:53:26] JVB: Yeah. Well-said.

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[0:53:27] JS: Yeah. And so, there's an enormous landscape of what co-ops could actually look like when you instantiate them. The beauty of that is there's a tremendous amount of flexibility for what it could look like. 

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I think, for me, the challenge I have with co-ops is the people that are members are both – or owners in the sense of control and owners in the sense of economics. And so, co-ops lead to more equitable distribution of the economic gain of a container that's a business. But they still leave intact incentive to grow that pie for the economic benefit of the members. Vis-a-vis, the rest of society.

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[0:54:04] JVB: Exactly. Yes. Yeah. Again, there's no divorce between the two. Or not always. And to your point, you've seen one co-op, you've seen one. You can build that in. It's not like one size fits all. But I think it's an important data point and an important area to pay attention to. And I certainly don't want to discount the possibilities that are there working in a cooperative structure.

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[0:54:29] JS: I think co-ops are amazing. I think they lead to much more equitable outcomes. Interestingly, also, when employees are in those seats, you get much more resilient companies. Like, you get an exogenous economic shock. And instead of laying off a quarter of the employees, everybody just takes a pay cut and then everybody's got a job at the end, right? 

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But my challenge with co-ops is just that, again, you have this conflicted incentive of the decision-makers. And so, I deem it a fragile governance structure for stakeholder capitalism and the outcomes we want because it is contingent on how much the people who happen to be sitting in those decision-making seats bias the planetary outcomes we care about versus their own economic preferences, right? 

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[0:55:06] JVB: Exactly. I think there's that. And also, I've seen co-ops go off the rails because it wasn't possible to lead them. Because it's really hard to get all those people on the same page and you get a lot of static on the line. In decision-making processes and with big strategic moves, it becomes really hard to get cooperative to move.

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[0:55:27] JS: Well, again, you can define it however you want, right? And so, it may be that members only vote on certain types of decisions. But I think co-ops fall prey to what I think a lot of what's happening in just the decentralized Web3 space, which is decentralized decision-making for the sake of decentralized decision-making. When people don't have time to make informed decisions across everything and delegation is actually a good thing.

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[0:55:47] JVB: Yeah. Yeah.

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[0:55:50] JS: Okay. That was co-ops. How about employee ownership trust? This is something that you mentioned in one of your articles. And I know, for the audience, this is getting dry. And I hope that you'll stick with us. Because it is in these structures and it is in how we put people in decision-making positions within firms and what their incentives are. This is where the rubber hits the road in re-imagining and reforming the economy from the extracted pernicious version of capitalism that's destroying the planet towards something that actually puts business in service of life. Please bear with us. It's really important. Now let's talk about employee ownership trust.

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[0:56:25] JVB: Yeah. I think trust as a form of ownership are actually incredibly juicy and not boring at all. It's a way of putting the ownership of putting shares in a trust, but not a trust that has a certain short lifespan, but that will exist perpetually until the business goes out of business, or folds, or for some reason stops to exist. A trust that really serves the mission of the company. 

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And then the issue with employee ownership, with ESOPs, is – 

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[0:56:57] JS: Employee stock ownership programs or employee stock ownership plans. 

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[0:57:01] JVB: Right. Thank you. What that does is it makes the employees co-owners of the business. And that can be a minority. It can be a majority. All kinds of things. But the employees as a block have the legal obligation to vote for whatever is in the best interest of all shareholders of a company, which means highest price, biggest shareholder return. That means that protecting the mission and the integrity of the company, the purpose of the company or the employees' interests outside of the pure financial gain that they would get from a transaction are not taken into account. 

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The issue with ESOPs is that it helps spread the wealth and employees can really benefit from that economically. But what it means for their company itself and all of its employees is that, ultimately, what drives decisions still is the share price.

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[0:57:57] JS: Yeah.

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[0:57:59] JVB: And the return to shareholders. Yeah.

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[0:58:00] JS: Yeah. And this is like if you had ESOPs with co-determination, you again have more equitable distribute – same thing that I just mentioned with the co-ops, right? You have more equitable distribution, but the decision-makers still want to grow that container for their own economic gain. Or at least they have that objective intention with whatever their social objectives are.

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[0:58:17] JVB: And they have the legal obligation to do so, right? I mean, technically, an ESOP can get sued for not pursuing the maximization of shareholder returns. That's their fiduciary duties. If those shares are being put in a trust and the employees are named as the beneficiaries of that trust, that changes the whole dynamic there. And that is somewhere on the continuum also with a perpetual purpose trust that I know we want to talk about as well. 

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But the commonality there is that you put those governance rights and the economic rights to benefits that come from the company, you put them in a trust. So that the company cannot be sold unless the trustees would agree to it and the trustees have a duty to do everything and anything they can to protect the mission of the company rather than pursuing shareholder value at all cost.

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[0:59:12] JS: Yeah. Yeah. And so, simply put, the trust enables the control part of ownership, which we're going to say, essentially, ownership and control come together into a trust right, which ensures – legally ensures that decision-making will be aligned with mission and purpose. Instead of the, "I'm going to put you in the seat and you're going to have a conflict of interest and we're going to hope for the best."

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[0:59:34] JVB: Right. 

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[0:59:35] JS: Right? Yeah. And that's why when I look at co-ops, or public benefit corporations, or these things which better distribute the wealth or put people in decision-making who care about different things, I call them fragile instantiations of stakeholder capitalism. Because they're contingent on who sits in those seats. Versus the perpetual purpose trust and the ownership trust, which are anti-fragile because it's illegally codified into those seats regardless of who is sitting in them.

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[1:00:00] JVB: Yeah. That's exactly right.

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[1:00:02] JS: Yeah. And so, these trust models, we have officially crossed the critical threshold of once we are here very clearly in the governance structures of the company, profit is in service a purpose and not the other way around.

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[1:00:13] JVB: Yeah. Exactly. Yes. And that is – so, if that's the starting point, then the question becomes how do we best organize ourselves around that goal? And trusts are a great way of doing this. I had the privilege of working for a company that's owned by foundations, European company. And what that does is it doesn't make the company a non-profit. It's still a for-profit business, but you know that the profits go to support non-profits. And it's a very different way also of looking at what's the purpose here of what we're trying to do. And what's going to happen with any excess profit? 

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And the interesting part of that is also that a company is then protected from hostile takeovers, from all these financially-engineered M&A transactions that create value on paper for a few. But in the end, oftentimes, destroy a lot of value in the company and for the customers and creating these huge conglomerates that aren't really better for the economy creating better outcomes.

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[1:01:21] JS: Yeah. And I think it's important to note that there is a point in the set of governance opportunities for companies where we officially cross the threshold of instantiating legally the primacy purpose over profit. And perpetual purpose trust is one. Foundation ownership is one. There's lots of ways to do this. And I'm going to, for the purposes of time, just point everyone towards the steward ownership conversation. That is another episode on the podcast. And also, the steward ownership post on the Denizen website, which outlines this comprehensively and succinctly and also has links to purposes by paper, which outlines in detail the different ways that you can instantiate this and other pieces of the puzzle. Because this is a really, really essential topic. I actually think this is where the keys to the castle reside. And I know you do too. Let's not go too into the weeds and just point people there. 

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But that kind of encapsulates I think the arc from least to most robust of ways of actually instantiating stakeholder. I mean, I would almost argue, it's the arc from stakeholder capitalism to stakeholder economics, right? 

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[1:02:24] JVB: Yes. Yeah. Yeah. 

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[1:02:26] JS: To hold both of those definitions, right? We're still in stakeholder capitalism when it's marginal reform, but still optimizing for return and extraction. And then we cross over into stakeholder economics, which is the economy that we're all actually talking about getting to on this podcast once we move into legally instantiating in a very solid way. That's the spectrum. And I think that's really essential to have this conversation robustly about stakeholder capitalism. This is the key piece of it.

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Now what's interesting is that what correlates almost perfectly with that spectrum is how easy it is to access capital to fund your company. Because I have heard people saying, "Public benefit corporation, I would really love to do that, but I need to fundraise and I can't do it," across the board, right? 

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And you talk co-ops. So much interest in co-ops. Harder to raise capital. Steward ownership. So many entrepreneurs in the psychedelic industry want to do these models and they can't. Very prominent players want to hold on to these and they can't. And so, I think what's really important. And I want to hear your perspective around this with respect to – and I know this is what you're doing at RSF Social Finance. 

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And I think we're going to have to touch on the quick answer to this and say this is actually so important that we're going to do a follow-on podcast on this. Because it's the next kind of piece of it. But I want to touch on it here, which is I think in today's environment. While intentioned entrepreneurs want to take on these more progressive structures or they want to convert to these more progressive structures, but they can't because they can't access capital. 

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And so, what happens is they have to do the best version they can given the capital constraint. And I just love to hear your perspective on the capital constraint that you're seeing in this. And then tied to that, what's the work that you're doing at RSF Social Finance to address it? 

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[1:04:08] JVB: Yes. Great question. Two answers. And I'll try to be brief. One is pragmatic. The other one is systemic. The pragmatic reason that it's hard to raise money for these kinds of structures, public benefit corporation, perpetual purpose trust, golden share, et cetera, is that there's not a lot of experience in the market. There are not that many companies that have successfully transitioned and have demonstrated over a long time period. That they're able to generate shareholder returns despite the fact that that's not the sole purpose. That they generate value. That they're sustainable. That they can raise new capital, et cetera, et cetera. 

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There is capital out there that's interested in almost debt-like equity investments that are really for the long-term and that generate some in the current market, I would say, high single-digit percentage return. That if investors that say, "I'll put my money in this company and I'm not going to really bother for the next 10 years. But I'm totally fine with receiving an 8% dividend every year." Something along those lines.

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[1:05:20] JS: Sorry. Really quickly. We forgot to talk about holding companies and evergreen holding companies. And I think that's something that's quite important. Do you mind commenting on that quickly? Because it's related to exactly what you just said.

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[1:05:30] JVB: Yeah. Long-term holding companies have the – or quickly as hard. But long-term holding companies, they're part of the solution. And they're part of the solution because they're able to include basically different companies within one holding structure. They provide an opportunity for founders and shareholders to exit and to get some liquidity or to get shares in the bigger and potentially more liquid holding company without needing to give up the mission of the company. 

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And a lot depends on how the holding is structured itself. If that is a perpetual purpose trust or, say, a golden share company, it's obviously different from if it's a typical C Corp, or S Corp, or a more typical structure. But holding companies, they need to be on the menu. They are part of the solution. And especially for those mission-focused, purpose-driven entrepreneurs and founders can be a great way to become part of something that's bigger, that's purpose and mission-aligned, and that's able to give them, yeah, some liquidity for all the sweat and equity that they put in.

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[1:06:38] JS: Cool. Okay. Back to the financing.

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[1:06:41] JVB: Yeah. Back to the financing. Again, I said there's a pragmatic element to it and there's a more systemic element. The pragmatic element is there is capital out there that that's been my experience at least. And I would just postulate that there's capital out there that wants to do these types of conversions and fund these types of structures. But we need more case studies. We need more examples. We just need more longevity. And all the work that's being done in this space and a lot of work is being done is going to help investors get more comfortable with those types of investments.

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[1:07:17] JS: I think it's just also really interesting here to look at the opportunity with the generational wealth transfer, right? I think there's potentially something very interesting to look at when you have financing gaps and doing things that are creative where they can understand the kind of the coordination failure nature, frankly, of the capital constraint. Which is that, when you're fundraising, you fundraise from lots of people, right? 

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And so, one might be interested in doing something progressive, but the rest of them don't. So you almost need like a whole cohort of financial actors, investors in tandem saying, "We're going to support this new model." Or you can do it at the seat or you can do it at the A. But then at the B, everybody washes that out. I think it is very interesting when we think about strategic interventions around the financing constraint. The role that this transfer of philanthropic capital that would be willing to think more progressively, I think it's an interesting opportunity.

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[1:08:08] JVB: Thank you for that bridge, because that's the systemic element that I wanted to touch on. And that has to do with if we want to fundamentally change the way that companies are funded and that companies are able to focus on providing societal value while making a profit instead of the other way around, then a fundamental question is what is the role of money? 

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And, again, I promise to try and make this relatively short. I'll just say more and more people are recognizing that money is a tool and not the goal. There's a lot hiding behind that one statement. A tool for what? Okay, that's a whole different topic. 

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But if it's a tool, then what are we telling it to do on our behalf? What do we want our money to do while we're sound asleep at night? And that money is working on our behalf. And the more transparency we have around what that money is making possible, the more we're going to start making different decisions. 

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And the fact that next-generation wealth holders are not – across the board, I would say, but increasingly making decisions that are much more values-based than financial value-based is an indication of that cultural shift that's happening. 

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I would say the systemic shift that's needed is for all of us to ask ourselves the question, "What's the role of money in my life? What do I want my money to do on my behalf? And also, how much is enough?" 

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[1:09:42] JS: Ah, that's the question. I asked this question all the time. I asked this question – I mean, I bring it up all the time in this conversation. It's really, really critical. It's really critical. How much is enough? What is my appropriate compensation for the value that I create in world? At what point have I hit my threshold? And do I just recycle it back to society? 

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[1:10:02] JVB: Exactly. And if I'm a money manager who's acting on behalf of a pension fund that's acting on behalf of, say, school teachers, then it becomes really easy for everybody to say, "Oh, it doesn't really matter. It's only about the financial returns here." 

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But the fundamental systemic question also there is how much is enough? Because if that money manager is just driving for a maximum financial return because that's how they're paid and the pension fund does the same because that's how they're paid. And the teacher says, "Thank you. Because now I can retire." I mean, that is fundamentally a question that we need to ask ourselves. 

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[1:10:45] JS: Yeah. And when we get into like the design of these things in the details, we talked about them at a high-level, but what some interesting things are? When can investors say, "What's enough return on my capital?" Because if it's optimizing for return on capital, we're in trouble. We actually have to fundamentally change that objective function. But how much is enough? 

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One of the interesting interventions that we see is capped returns. The investor puts money into the firm or the fund and they say, "After a certain return, all the money gets recycled into the container." Right? And I think this is really interesting for let's say you have an executive who's compensated in equity. And that company could become a billion-dollar company and their equity could be worth hundreds of millions of dollars. But in the future, we shouldn't have hundreds of millions of dollars of wealth accumulation. How much is enough, right? 

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Instead of – to point to something we talked about earlier, instead of philanthropy where it's okay to accumulate and then use that to do good in society by virtue of your own preferences for what that looks like, which perpetuates the power that you've accumulated. I feel if that money doesn't stay within the container of the firm, then we still have a problem with the society that we've designed in these new governance structures, right? 

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[1:11:52] JVB: I think you're absolutely right. Yeah. Sorry. Go ahead. 

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[1:11:54] JS: But these are deep questions. No. These are deep questions. And then this is why the cultural change part is I think really important where we no longer laud accumulation of wealth. It becomes – 

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[1:12:03] JVB: Exactly. Yeah. 

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[1:12:04] JS: Yeah. It becomes deeply problematic that I am buying a third house. I don't deserve to buy a third house. I know I'm working hard – and then there's deep questions about we just make assumptions about meritocracy. And I worked really hard for this. It's like, "But you're already privileged. And you inherited an entire civilization of cultural and ideation history." As an entrepreneur, that's your idea. But somebody else could have had that idea too. You're giving yourself too much credit when you think that you deserve that kind of fraction of the cap table.

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[1:12:30] JVB: Exactly. And coming at that question, not out of a place of scarcity or envy, that's the real art. And that's difficult. That's why it's a culturally super important systemic shift or process.

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[1:12:42] JS: Well, yeah. Yeah. And this is why culture and consciousness are part of this conversation too. This has been amazing. We went so far over, but I think it was really worth it. Because I love that we have not just laid out the landscape of ways to instantiate this, but have started to touch on the deep philosophical questions at the heart of actually redesigning it within those containers. And with respect to the finance piece – again, I ask you that question just to wet the listener's appetite. But let's just do a whole follow-on conversation around finance, financial constraints. What are those innovative things that you're seeing and more about the work that you're doing at RSF? 

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[1:13:21] JVB: I can't wait to dive in even deeper. And this was such a terrific conversation, really. Inspiring, interesting. And we're talking about the real topics here. Wewe're talking about the real things. And I would say, yeah, we're talking philosophically about how to reimagine. But also, about real tools. Things that people can do today or tomorrow with their money. And things that a company can do today with how they organize themselves. 

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I always want to point towards not only how do we systemically reimagine the entire system. But what can people do today with the resources that they have that's going to shift the narrative in that direction? 

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[1:14:02] JS: Thank you for getting it. And thank you for the work that you're doing to address the constraint for the entrepreneurs that want to instantiate that, which is around finance. And I'm so excited to bring you back to dig into that next time.

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[1:14:15] JVB: I look forward to it. Thank you so much for this conversation, Jenny. I really, really enjoyed it.

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[OUTRO]

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[1:14:19] JS: Thank you so much for listening. And thanks to Scott Hansen, also known as Tycho, for our musical signature. In addition to this podcast, you can find resources for each episode on our website, www.becomingdenizen.com, including transcripts and background materials. 

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