[INTRODUCTION]

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"Chelsea Robinson (CR): Throughout the book Assets in Common, what we really focused on was looking basically at ground-up, bottom-up solutions to transition the US economy from incentives of that focus on extraction. Extraction from community. Extraction from business. Extraction from value being created in terms of the quality of products or services. Extraction from land to reinvestment. And that was also a part of the bias towards looking at ways to fuel stewardship models. Because stewardship models are wired for continuous reinvestment in purpose." 

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[00:00:36] Jenny Stefanotti (JS): That's Chelsea Robinson, serial entrepreneur and social impact leader who is also editor and co-author of Assets in Common, a recently published book that I'm very excited to share with you today. This is the Denizen podcast. I'm your host and curator, Jenny Stefanotti. 

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In this episode, we're taking you to the frontier of progressive economics. We spent a lot of time on this podcast exploring how we can move beyond capitalism towards economic institutions that are not fundamentally intention with the just regenerative future. We've uncovered compelling corporate governance structures. But entrepreneurs who want to adopt them face challenges operating within the dominant economic paradigm. 

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Assets in Common surfaces models of cooperation between companies that overcome the constraints single companies face making them more resilient and competitive. This conversation shares those models as well as other best practices for scaling a progressive economy. Jay Standish also joins us for this one. He one of the main researchers and authors of the book. 

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As always, you can find show notes and the transcript for this episode on our website, becomingdenizen.com. There you can sign up for our newsletter. I bring our latest content to your inbox alongside information about online and virtual Denizen events and announcements from our partners. This one's a little wonky. But I'm really excited because it really is hot off the press and the latest of what's happening in the field.

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Without further ado, here's Chelsea and Jay.

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[INTERVIEW]

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[00:01:54] JS: All right. Here we are. Thank you so much for joining me. I'm so excited about this contribution to the work. And so excited to share it with the community and with the audience of this podcast. This builds on a lot of conversations that we've been having over the years. And I love that it brings us to the frontier of what's happening in the field today and takes us up to date. But, also, gives us some meaningful strategies to think about scaling some of the really exciting progressive things that we've already learned about in this conversation. 

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Before we get into all of that though, I just love to hear a little bit more about the story of the book. What was the Genesis for writing it now? This was written in collaboration with multiple organizations within the Denizen community and our partners. I would love to hear that story first.

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[00:02:40] CR: Yeah. Absolutely. Thank you so much for having us. I can just share a little bit about how this book came to be. For those of you who are familiar with the work of the Purpose Foundation US, Purpose was running a fellowship program for emerging fund managers who were looking at finding new ways of transferring capital into steward ownership structures. That was in 2021. And kind of bled into 2022. 

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And during that process, there was an identification that there were lots of ways to improve the ability for steward ownership structures and shared ownership structures to be able to have sufficient fuel to grow. And so, the question emerged of how can we really put more fuel on this fire? 

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Through the relationship between Derek Razo and Evan Steiner, who's currently in One Project, there was a conversation around that. And that led to one project actually supplying the grant funding to Purpose and Common Trust to be able to look into that question. 

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This book was from the get-go not determined necessarily to be a book from the first blush. It was more of a question and an endeavor of trying to figure out how could we expand the facilitation and support around projects of steward and shared ownership to help it have a larger and larger share of the economy and ultimately facilitate bottom-up transformation for the US economy as a whole. And so, those kind of three organizations; One Project, Purpose, and Common Trust all came together to rally around it and support it to make it happen. 

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[00:04:13] JS: Your answer, Chelsea, is a great segue into two really important concepts that we have to make sure we understand to underpin this conversation. One is the notion of a shared economy. And the other one is a notion of a steward economy. And we have done conversations on the podcast strictly focused on co-ops and steward ownership. If you haven't listened to those, I'd point you into that direction. We also have actually summaries of those on the website. If you want the quick outline read, it's there. But let's just make sure we outline that here too.

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[00:04:46] CR: Yeah. Absolutely. I can kind of kick that off. And then, Jay, I'd love for you to add to that. When we talk about steward ownership, steward ownership really looks at governance models that separate economic incentive from voting rights. And steward ownership also really represents models of ownership where there's a commitment to not selling the company. 

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And so, essentially when you put a company or an asset, property into steward ownership, you're taking it out of the speculative economy and putting it into an economic incentive system that's more focused on reinvestment. Steward ownership at its core and a stewardship economy more broadly is a purposeful economy. Because it's really oriented around what is the point of this asset. Why does it exist? Who is it creating value for? And when you put that into a legal format, you're talking about articulating what is the purpose of this entity. But, also, where should its benefits be directed towards? It's really structured around continuous reinvestment towards its purpose and its beneficiaries as such. 

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A shared economy or a shared ownership set of models, there's tons of ways to do shared ownership. But that can include co-ops, like you say, and other sort of democratic ownership structures where shared ownership is really around involving more people. And involving more people to have a stake, a seat at the table, participation in the contribution to decision-making. But also, participation in upside that's generated. 

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The distinction really as it kind of comes down to it is that you can have a combination of both actually, shared ownership and steward ownership. But steward ownership at its core doesn't have to also be shared ownership necessarily. I think, Jay, you gave a really great example in our podcast series that we did specific to the book itself, which was really around a company could potentially be owned just by a trust and have like a relatively small number of stakeholders that are articulated in that steward ownership format. And it might have a purpose statement that's about the local environmental outcomes that that company is trying to create. And that's not necessarily shared ownership. But it's creating positive externalities through the way that it has stated and pursued its purpose. Jay, what would you add? 

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[00:06:54] Jay Standish (JayS): Well, what I would add actually is just, in terms of the key concepts in the book, we started with steward ownership and shared ownership and said how do we forward the action in these realms? But, also, really, we explored business models around collaboration and deep partnership. And so, the book is not just about steward ownership and shared ownership. It's also about how organizations can work together and structure themselves to forward impact in general. 

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I think entity structures aside, it's also about looking more broadly at an economy, and regional economies, and how currencies can be a part of the puzzle on that. Yeah, it was a broader net that we ended up casting than just steward and shared ownership. 

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[00:07:45] JS: Sure. 

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[00:07:45] CR: Absolutely. Yeah. The core thesis of the book, I'm sure we'll dig into.

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[00:07:50] JS: Yeah. I mean, I just really, when I started on this journey, was looking at can we reform capitalism? And looking at things like stakeholder capitalism and long-term capitalism. And when I head on steward ownership, it was like that is it. And what I find so compelling about it is because it instantiates in the legal documentation of the company profit in service of purpose. Whereas all of these other structures leave them in tension with one another. It's an anti- fragile solution to this challenge of the tension between growing a business and having profits in purpose. Whereas you have fragility when you have these mixed incentives and you're just hoping that the person who's making the decisions is balancing those things in the right way. 

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But I think, also, just to think about this question of ownership. And what does it mean to own the firm? And ownership tends to bundle economic rights and control rights who makes the decision. And I think it's just an important additional point to make was that, in steward ownership, you separate those and the people making decisions don't have that economic tension fundamentally.

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[00:08:56] CR: Yeah. Yeah. You're totally right.

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[00:08:59] JS: Whereas in most of the cooperative models or the shared models, you still have that bundling. But you have it in a more distributed factor both in terms of sharing the economic gains and in terms of making decisions around how the firm is governed. What's interesting about that too is that I think you have more stability around social objectives when the governance of the firm is more diffuse, potentially. 

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[00:09:22] CR: I just want to say that's fantastic that you're bringing that up. Because I feel like a lot of people don't understand that distinction. And it's something that's really important when we think about what kind of economic future do we want to create is do we want to have exactly the same incentives as we have today but just have more people involved? Or do we want to actually truly rewire what those incentives are driving towards? 

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[00:09:44] JS: Totally. This is why steward ownership gets me so excited. And making more stakeholders owners kind of corrupts the incentives potentially of those stakehold – owners in the sense of economic gain. Yeah. And, obviously, there's a really wide-open landscape of ways to govern that you can design and scope for innovation that we'll talk about a little bit more today. 

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Jay, I know you love to start with examples. Why don't you give us some examples just to ground these concepts of steward and shared ownership before we get into the meat of it?

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[00:10:12] JayS: Sure happy to probably my favorite example is what seems like a really boring business called Carpet One, which is a suburban carpet and flooring store. Where if you're remodeling your house and you need to buy flooring, you go to Carpet one. And it is a national brand with – it's actually international technically. But there are 4,000 Carpet Ones around the US and some other English-speaking countries. 

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And what would seem like a chain, sort of franchise model is actually a federation of independently-owned businesses. And the way that Carpet One started was small flooring companies that were getting outcompeted by Lowe's, and Home Depot, and big-box stores and just couldn't compete on price because they couldn't buy in the volumes necessary to be able to actually compete on price. 

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And so, they said, "Well, why don't we all band together and build a brand together, but also build a supply chain together?" That shared supply chain and brand is co-owned by the 4,000 stores that are members of Carpet One. 

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Functionally, from the consumer's perspective, it actually looks like a big-box store. It looks like a franchise. But it's actually small local independent businesses that are owned by their neighbors and are reinvesting money in the local economy. And so, it's a way of accessing the kind of scale as well as like enterprise sophistication that large businesses benefit from. But having the benefits of small business ownership, and local ownership, and small management, and independent decision-making. 

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[00:11:57] JS: Can we talk about Patagonia? Because that was a big thing in the news about a year ago. And I just feel like that's such an important example to highlight where people knew something happened but they didn't really understand what exactly it was because it's kind of wonky.

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[00:12:09] JayS: Yeah. I'm going to let Chelsea do that one because I think she knows the nitty-gritty details better than I do.

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[00:12:15] CR: Yeah. I would really encourage – actually, Derek Razo has done an interview with Kevin Bayuk, who I think probably a lot of Denizens know, go really, really deep into this topic. And you can find that on Spotify. But just in a nutshell, Patagonia, everyone knows this really well-loved company. Took the leadership and inspiration to become a perpetual purpose trust, which is a form of steward ownership. And essentially what they've done is articulated a purpose statement for the company that reflects a long-term commitment to climate change mitigation and looking at diverting profits as a reinvestment, continuous reinvestment in their purpose. 

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It's really like I was saying earlier about what the definition of stewardship really means, is divorcing the capital upside from the decision-making and governance. The owners of Patagonia essentially donated it into this trust format to continuously create benefits for the purpose statement, which in this case is climate change mitigation in the future of preserving our natural ecosystems. 

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There's a whole lot more detail there. When you design these structures, you end up getting into a lot of nuance around what kinds of decisions can the trustee board make versus the operating board? What kinds of seats are on the trustee board? Who has a say on what? And who even decides who those trustees are? And those are some really interesting questions that can kind of help you dig in more to the incentives that exist now for Patagonia. 

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And kind of the headline there is that they've kept it pretty close to their chest in terms of a lot of family members being very, very involved in the leadership and governance of that trust, which raises some interesting questions about incentives. But I'll leave that there and you all can dig into that more detailed podcast. 

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[00:13:59] JS: I mean, I think there's three things that are interesting about that that I just I want to make a quick points around. One is that here you have a for-profit business where profits aren't extracted but utilized in three ways. One is to compensate the people who put energy into the business, whether that'd be investors or employees or other stakeholders. Two is to reinvest in the business. Because one of the things also is that we see more and more incentives for extraction with public companies with quarterly incentives. Buybacks going up and up and up every year instead of investment in the firm. 

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But the third piece that's really exciting is that this is a way that for-profit companies become philanthropic engines for causes instead of just traditional philanthropy. That part's really exciting. The second piece is just from a design perspective, this question of what's the governance process to get to the new governance process, right? Which is a little bit tricky. And we won't get into that today. But it's actually something that we touch on a little bit in the conversation with Ted Rall that's coming out just around the same time on collective power. 

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But the third piece I think is an interesting – just to kind of talk about the cautionary – some of the challenges with the democratized model, which I think we already touched on, which is that you have this sort of you still retaining the incentive structures of the dominant paradigm. But with steward ownership, you're still appointing a very small group of people to make collective decisions. 

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[00:15:26] CR: Yes. Yes. And the way that you can design the trustee board or what is called the trust steward committee in these perpetual purpose trusts or PPTs can really signify and represent the values that you want in the way that those decisions are taken. In some PPTs that I've been exposed to, you can have different seats that represent very different segments of the stakeholder groups. You could have seats that represent employee committees. Or you can have seats that represent the rights and interests of the local river or however you want to actually engender the values of that company from a more collective power perspective. You can design it into the way the trust stewardship committee is architected. That's just a choice.

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[00:16:11] JS: Yeah. I appreciate that point. And there is so much scope for what this looks like. I mean, I use this quote all the time. But from the co-ops conversation, our guest said, "You've seen one co-op. You've seen one co-op." Because it is so particular to the circumstance. But this principle of representing the stakeholders I think is really important in these models where you could just appoint a couple people to make the decision.

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[00:16:33] CR: Yeah. And I want to highlight also one of the words that you used. You talked about extraction. And I would say that throughout the book Assets in Common, what we really focused on was looking basically at ground-up, bottom-up solutions to transition the US economy from incentives of focus on extraction, extraction from community, extraction from business, extraction from value being created in terms of the quality of products or services, extraction from land to reinvestment. And that was also part of the bias towards looking at ways to fuel stewardship models. Because stewardship models are wired for continuous reinvestment in purpose. 

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[00:17:11] JS: Jay, tell us why this is different than B corps, and public benefit corpse, and most of the social enterprise and impact space as we know it.

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[00:17:19] JayS: Sure. The way that I think of it is B corp is a negative filter and steward ownership is a positive filter. And so, B corps are both a legal structure and an impact certification that share a name but do two different things. The legal structure mostly protects the managers and board of the company from being sued by the shareholders for making a decision that does not maximize shareholder profit but does forward an ethical purpose. 

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If they decide to choose a regenerative cotton for their supply chain and it costs 10% more, and so profits are down, shareholders could say that was not an economically rational thing to do. You increased expenses for no reason. And they said, "Well, we think it's better for the planet. And that's what we care about. And so, we're protected in making that decision." And that's a little bit more where the sort of B corp entity type is coming from. 

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And certification is more about how much ethical behavior are you doing. And being certified by a third- party body that says, "Okay, we think it's great that you spent 10% more on regenerative cotton. But we'd really love to see you also move the needle on water. And so, we're going to give you a scorecard on how you're doing with your ethical practices." 

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Steward ownership is more about where are you going with this company. What direct impact are you positively making? How does the actual activity and purpose of the organization forward the action in the world in a positive way? Rather than making widgets in a slightly more eco-friendly way, which I think is sort of where the culture and ethos behind B corp might come from for a lot of companies, is you're just doing business as usual with a recycled T-shirt on. 

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And so, I know that's a bit of a caricature. But that's kind of how I think about it. And so, steward ownership says how can all of the activities of the business make an impact in the world? And the board and the managers, rather than being protected from being sued, they actually have a fiduciary responsibility to the purpose of the organization that is legally encoded in the actual documents of the company, the legal documents, the formation documents of the company and say this is the official purpose. This is the legally binding purpose of this organization. And your job is to fulfill on that purpose. Which is very different than your job is to make as much money as possible. And if you do something good in the process, we won't sue you for it.

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[00:20:10] JS: Yeah. And it's almost like a lot of things that are per – I don't know if you've ever read Rebecca Henderson's Reimagining Capitalism. But it's all a story of how you can increase your profits with a purpose lens, right? And so, a lot of things in that space don't really resolve this fundamental tension. And in fact, many of them embrace the "we can continue to get rich while also doing good in the world". It's very marginal and it's really sitting on top of just the fundamental incentive structures of venture-backed companies and public markets. Whereas these models that we're talking about really fundamentally change how decisions are made within firms and the incentive structures within them in a deeper way. 

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What I get so excited about what you're highlighting in this book is that it's ways in which companies are working together to address constraints that are faced by firms that try to operate alone. Because I know there's been a lot of interest in these more progressive models by entrepreneurs particularly in the psychedelic space, which I'm closer to. But then they get into issues with attracting capital, scaling. We're talking about transition in the economy. But all of these progressive models are trying to operate in an environment that's dominated by something very different. And so, I love the way that these models are just addressing some of these constraints that they're facing. 

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[00:21:29] CR: I think you've just raised this really important point about the reason why companies are struggling throughout the economy right now. We're seeing greater and greater consolidation and monopoly activity. We're seeing a huge, like you say, extraction. Extraction is a predominant norm throughout the economy. Investors who kind of are often pitching themselves as partners to companies can often end up being the ultimate compromise creator in terms of purpose and extraction from the value that's being created. 

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What we really looked at was our question at the very beginning of research was how do we increase the competitiveness and the resilience of United States small to medium businesses and assets that want to be in these shared and steward-owned formats? And we also looked at a few problems that were currently preventing competitiveness and resilience. Some of those were investor norms. Some investor misconceptions. A lot of investment community can believe that a shared ownership model is not going to be as profitable. And, evidently, in many different situations, that has just been proven to not be the case. 

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[00:22:38] JS: Yeah.

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[00:22:39] CR: We've also seen just misaligned incentives in terms of companies wanting to prioritize the quality of the execution of what they're there to do versus the pressure to reduce cost in a lot of operational environments. Economies of scale are also obviously eroding the ability for a small business to experience resilience because they can't take advantage of fluctuations in the market in the same way someone sitting on 100 million can. 

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And then, finally, lack of sophistication. A lot of people are just not aware of their options. There are tons of different problems that we looked at. But just, again, want to reinforce and agree with the point that you made about this is about what can we do when we put assets in common? What can we do when we bring assets together? And how does the togetherness and the enmeshment and the deliberate connectivity of assets, whether that be legal connectivity, financial connectivity. 

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And in some of these examples that we looked at, cultural connectivity as well, how does that connectivity and putting assets in common actually advance resilience and competitiveness? And we saw a lot of different ways that that played out over many different case studies. And like you said, we found a number of themes across them as well. I don't know exactly which pieces of that you want to kind of pull on and get more of. But, yeah. I think you framed it up really well.

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[00:23:54] JS: Oh, no. I really appreciate the way you stated that, which is how do we help these models be more competitive and resilient? And the things that you are seeing is these creative ways that they're stitching themselves together so that the sum is much greater than the parts and they're not these just tiny Islands trying to compete for the same reasons that small businesses have a hard time competing and many others. I appreciate that. 

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And I know, Jay, just bringing some of these themes into the conversation before we get into the initial details, which ones would you like to highlight? 

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[00:24:25] JayS: Sure. This idea of internal cooperation that then supports external competition. This idea of Carpet One, a group of small businesses banding together. Facing inwards, they're cooperating. They're sharing a brand. And they're pulling their supply chain together so that they can compete in the broader market against bigger players. It's a good example of that. 

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As well as there's a group called Industrial Commons in North Carolina. And they have a nonprofit that uses its resources to lease equipment and to very small cooperative sewing startups basically. And that allows them to have the ability to create sewing products at scale that they wouldn't otherwise be able to do. And internally, they're sharing balance sheet to do so. This is sort of this idea of balance sheet sharing is an example of internal cooperation. 

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And another theme that that sort of segues into is this idea of structural collaboration. Where the very structure and form of the entities themselves are fused together in some way. Where you have a nonprofit that's in deep partnership with a for-profit. They're not the same organization. But without the other, they wouldn't look the same. They're sort of married together in long-term strategic value-sharing collaboration with one another. Yeah, those are a few of the big-picture themes that we looked into.

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[00:26:05] CR: I was just going to add that some of the most profound structural collaboration that we saw was there were multiple American examples. But we also did a lot of international case studies as well and really saw some quite incredible interconnectedness. When we think about monopoly we think about the fact that monopolies set the agenda. They set the price. They have all this power at any negotiating table. But when you look at things that are structurally cooperating, you can actually access that economy of scale in non-monolithic ways, right? You can gain access to markets that you wouldn't have otherwise gained access to because of who you're collaborating with. 

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And I know that we want to probably dig into kiritsu throughout this conversation. But the Japanese history of these large interconnected corporate structures like Toyota and many others. In our book, we focus on Sumitomo. And that research was conducted by Charity May. And Sumitomo really showcases a group of different manufacturing companies and banks. That's an interesting conversation of its own little subtopic that we should go down. But they share trading companies. 

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The trading companies represent the group. But each of these companies have their own presidents, their own board, their own operating systems. But they share trading companies so that it can behave in really dominant ways in the market and international markets even though it's made up of many small companies or large, in this case, put together.

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[00:27:31] JS: I appreciate that. I mean, that is a great example. A couple of examples within this – what I saw is like a model to talk about specifically. Jay, you just touched on in the themes, which is just this – something that sits somewhere in the space between merging of companies and partnership. Like a marriage. Or in our talk the other night, Jay, you called it like polyamory amongst autonomous companies, right? You gave the example in Japan. And that's such a common one that people heard of maybe didn't understand in detail what was happening. I think Mondragon is an important example to also touch on in this theme as the largest co-op in the world. 

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[00:28:09] CR: We actually had the opportunity to learn from some folks who not only have participated in Mondragon. But, also, some of the folks who've been involved in leading their more academic side. Now for those of you who may not be so familiar with Mondragon, it is very famous for being the largest co-op in the world. But there are so many things about it that people just do not realize. 

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And so, what we really sought to do was to look at the lesser-known aspects of what makes Mondragon successful that people may not have seen before. Some of those things that people may not necessarily know about include the fact that there are incredibly high investments in training and education as a core part of the Mondragon ecosystems. They have a university, for example. But that is all part of their bigger thesis, which is that it's kind of like you need the right mindset in order to participate in a cooperative world. And so, there's a curriculum and a philosophy, and a sort of dogma associated with partaking in that extended community. 

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Another thing that people may not know about that we were so interested to learn is the level of job guarantee that is provided within Mondragon. Now just linking this back to some of the conversation we've just been having, Mondragon is ultimately a network cooperative structure that has multiple cooperatives. It's what we technically refer to as a multi-stakeholder co-op. The co-ops are sort of owned by a meta co-op, if you will. 

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And so, there's a technical and legal and financial inter relationship between all of these entities. As well as different voting methods all between them. As well as them having their own distinct governance as well, each one. When I talk about job guarantees, I'm talking about the benefits that are afforded to the fact that you have the competitiveness and resilience of the ecosystem of companies in Mondragon. Because it's not one. It's many, right? 

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A job guarantee in the way that plays out is basically if there isn't – and this was the same in kiritsu is as well. If there isn't job availability in one of these entities, there may be in another. And so, there's this overall guarantee that someone who's part of the Mondragon ecosystem as a worker is going to have the benefit of financial sustainability and security of being part of a network where, "Okay, maybe for the next five years, one of the other companies may benefit from your participation more than another." And being able to have an open set of books between them allows for them to determine where resources are best allocated. 

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Now, that job guarantee goes even further. This was one of the crazier things we learned was that there's actually an intergenerational job guarantee. Now I don't know any company that I've ever heard of in the world that has an intergenerational job guarantee. Your children are guaranteed a job if you are part of this community. And that is a profound contribution as well. Because it basically says intergenerational wealth building. A legacy. A participation in this alternate economic ecosystem that takes you out of the extractive economy. That's also a profound contribution on their side as well. 

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Mondragon has banking systems. One of the things that we looked into that, again, people may not be aware of and that I just want to point at, and people can kind of go further into our book and look at it if they choose to, is that not every company that started inside Mondragon has chosen to stay in Mondragon. And I think that's a really interesting thing too when we talk about structural collaboration, economic mutualism and some of these key principles like conscious consolidation. Not in every case does it make sense for companies to just go all-in and become one company and have a big old merger and be one thing. 

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It is actually potentially advantageous to have this kind of structured, enmeshed and interdependent ecosystem of entities. Because there are some circumstances in which it's better for a company to leave that ecosystem in order to better pursue its purpose and its goals. And then also be welcomed back if they so choose. And to have that ability to have that autonomy in the context of collaboration. I just think these are a few aspects that are really interesting. And if people want to dig deeper, they can obviously visit that chapter of that book. 

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[00:32:01] JS: I really appreciate that too. The episode that we're just releasing before this one is looking at these patterns of diffusion of power that start in groups and go all the way up to movements. And this tension that exists at all – the patterns exist at all levels around autonomy and alignment. You have this with the individual even in like a dyad. And how do you create structures to enable alignment while still diffusing as much responsibility and decision-making down to the levels that you can decentralizing as much as you can? This tension between centralization and decentralization. And I think Mondragon is such a fascinating example too. Well, we'll get into other ways that you're seeing organizations creatively structuring themselves to get scale while still maintaining autonomy that are super interesting. 

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One of the things that – moving on to the next model is that, often, there's a hard time – companies have a hard time or entrepreneurs who are interested in this model have a hard time accessing capital in the early stages. Or there's a succession. There's a small business. And the original founder is retiring. And what happens to the business? They don't want to sell to private equity. They care a lot about their employees. And so, there's this interesting concept of exit to steward and cooperative models. 

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And Patagonia, which we already spoke to, is a great example of that. But I want to speak a little bit more to this because this was one other thing that you uncovered and gave a different example. How about some of these smaller examples that we saw around small businesses converting? 

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[00:33:33] JayS: Yeah. A great example is Clegg Auto. It's a four-location auto repair shop in Utah. And they converted to steward ownership and shared ownership. Because a lot of the economic benefit ends up flowing to employees. But it's technically under a broader steward ownership structure. 

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And the way that looked is buying the company. The trust bought the company from the founders and the equity holders that had started the company. They're able to get paid for the value of the company. But now it's owned in perpetuity by the trust and in service of employees and their broader mission. 

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This is an example of how that transaction can look. It's not always a donation. Patagonia is actually an outlier in the sense that the founders sort of donated the equity to the trust. In most cases, these conversions are actually market prices that the company's sold for. It's not just an idealistic benefactor. There's a real economic transaction that happens. 

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And in that process, there's also this question of how does management change? If it was a owner-driven company, how do the staff and employees start taking on more leadership and decision-making in the company? And that's a multi-year process for most of these companies. 

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One idea that sort of takes that one level further is looking at buying multiple companies into a single steward ownership or shared ownership structure. Obran Cooperative is a holding company that is a cooperative that owns multiple businesses inside of itself. And employees get the benefit of owning multiple companies and having their employee benefits diversified across multiple businesses. But, fundamentally, it is a shared ownership structure in the sense that it's mostly about returning economic benefit back to employees.

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[00:35:37] JS: This takes us to the next model that I want to make sure we highlight. Because there is this exit to. And the exit could just be the one entity is exiting to a different kind of structure. Different kind of governance structure. And it's valuable to note that once companies have become profitable and reached escape velocity, there's an opportunity to buy out original investors and convert to these models. That's an interesting philanthropic opportunity potentially to accelerate this kind of transition. 

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But the example that you gave where it's an exit to a holdco, I love this. Because it basically takes private equity models, which you think of as the more pernicious things happening in the dominant economy. And repurposes those concepts for a shared steward models that we're talking about here. I just want to say a little bit more about that.

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[00:36:27] JayS: Sure. Absolutely. And part of the borrowing from private equity is really the strategic advantage of buying small companies and bundling them together. The way companies are priced in the private markets, the smaller the company is, the cheaper you buy those cash flows for. 

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If it makes $300,000 a year, you might buy that for two and a half times earnings. But if a company makes a million dollars a year, you might buy that company for five times earnings. These are actually realistic market prices as well. I'm not just making up numbers. And so, part of the idea of doing a roll up in private equity is you buy multiple companies that make a smaller amount of money. Bundle them together. If they do the same thing, you buy multiple pool servicing companies, for example. 

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And then now, the group overall makes a million and a half dollars a year. It might take you two or three years to buy the companies. You don't even have to grow them at all. And then and now it's just priced higher because it's at a higher tier in the market. And so, that's a lot of the basic idea of kind of multiple arbitrage that private equity does. 

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And so, in steward ownership, we're actually taking that terminal value off of the table we're saying we're not doing this to sell the company. We're just doing this to build more and more stable cash flows so that money can get reinvested. But, also, you're building a larger organization that benefit from economies of scale, that can pay for a head office, that can pay for professional HR and can pull some of these costs and do internal shared services so that they have a little more resilience. And it's not just three people. And if someone calls in sick, the whole business falls apart. That's some of the benefit of using multiple companies inside a holdco toward the benefit of stewardship. 

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[00:38:24] JS: Yeah. And I think another key thing here I want to make sure we note is just the shared balance sheet, which allows smaller entities within the holdco to access capital that they might not otherwise be able to access as a small entity. 

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[00:38:38] JayS: Yeah. And it's not only the balance sheet. But I would say the time and expertise to be able to leverage your balance sheet. If you're a small company, say you make $150,000 a year in profit, it's basically you know one owner that pays their salary. They might have a pretty small balance sheet to begin with. So it may be hard for a bank. The bank says, "Hey, our minimum is $400,000 a year." You're just out of the criteria. Accessing reasonably priced debt is a big issue. 

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You bundle those companies together into one holdco and the bank says, "You guys are great. I love that you make a million and a half dollars a year. And I also love that you're diversified across multiple industries. So you're more recession resilient." And they're much more likely to lend to a larger organization. But almost more importantly, that larger organization can now afford to have a CFO who has the time and expertise to go and talk to the bank. 

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Because in the small company, the owner who makes $150,000 a year is filling in for the pool cleaning guy that didn't show up to work today. And so, he doesn't have time to go deal with the bank and understand how to borrow money to grow his business. That part of that escape velocity is the time that key staff has available to be able to grow the business, finance the business, et cetera.

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[00:40:05] JS: I love that.

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[00:40:06] CR: Yeah. There's another quick example too, which folks can go dig into more in the book. But there are many ways to have shared balance sheets that don't necessarily look like holding companies. And I know that we're probably going to touch on some of them separately as well. But one that I want to point out is supply chain financing. And that is going back to this discussion of your companies don't have to all be under one roof in order to be financially interdependent and have a network of contracts between you or agreements between you that stipulate that you can leverage each other's financial setup in order to benefit your overall cash flow and continuity of operations. 

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Charity May, again, one of our researchers, looked into examples where you might kind of get an agreement in advance to have a buyer agreement that is creating exclusivity in a procurement environment that allows a company to have stable cash flow knowing that that money is going to come in. Or if they say, "Actually, we need to take out a loan from the company that we would normally provide certain equipment to or whatever it might be. We actually need to take a loan from somewhere. And we'd prefer to take it from you because you're our partner and you've been our partner for 12-plus years." As opposed to going and paying a bank the same amount of interest. 

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You can actually construct that benefit of creating almost like a virtual shared balance sheet, if you will. Instead of actually all going under one roof in a legal conglomerate. There are multiple different ways of setting that up. I just want to point that out as well. 

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[00:41:37] JS: I mean, it just underscores how much scope there is for innovation and creativity in the space if we can just highlight what's out there and learn from it. That's why I also often try to kind of think about the design space and how this is an example of particular values for the variables in the broader design space when we can think of about governance, and incentives, and financing. There's so much opportunity for innovation as well. 

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What's interesting is the holdco example kind of shows what it looks like to share services under one umbrella. And then there's the shared service company, which is a way to effectively outsource in a way that isn't the traditional outsource vendor but is instead a company that is co-owned by the companies. And Carpet One was an example you gave earlier. But I love the example of credit union service companies. Maybe it's because banking is such an important piece of this economic transformation puzzle. I don't know why I get so excited about this one. But can we talk about credit union service companies? 

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[00:42:39] JayS: Sure. Yeah. And I think it builds off this idea of accessing scale as well. Credit union service organizations, you can think of as little sidecar projects that multiple small credit unions participate in. If you're a credit union and you only have three employees and you have maybe $20 million in assets under management, you don't have enough money and you don't know have enough staff to make mortgages, and auto loans, and provide credit cards, and build an ATM network. This is way too much for you. But you need to compete with banks for depositors. Because people are using you as a bank, they're expecting these normal services. I need to get an auto loan. I need to get a mortgage. I need to have a credit card. I they need to get cash from an ATM. And so, to access all of those different financial products and services. 

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CUSOs, credit union service organizations. CUSOs provide those value streams for multiple small credit unions. And so, one of the biggest ATM networks in the country is a credit union service organization that then credit unions become members of. They sort of subscribe to that service. But they actually co-own that entity. They're owner members of almost like a B2B cooperative that enables them to extend their functionality and their reach.

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[00:44:09] JS: And then they're benefiting fully from the economies of scale instead of partially through outsourcing to a traditional vendor. I love that model. I think it's so exciting to see that replicated more broadly. I want to talk about just a couple of other – I don't know. They're kind of themes. They're kind of models. But it's important. There's a lot of talk about bioregionalism. We'll talk about that with Samantha Power in a couple of weeks. But this regionalism in place and how these models can facilitate more resilience and more sort of cultural retention in certain regions and certain places. I just want to speak to that and what your learnings were from the research you did in the book. 

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[00:44:50] CR: Jay, I think it would be great if you wanted to talk about Goodworks Evergreen actually. If you're open to that? 

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[00:44:55] JayS: Yeah. Sure. Yeah. We haven't talked about this yet. There were multiple case studies that we did that it was really clear – we were interviewing the actual principles of these groups that were starting and running these organizations. And it was really clear from the first few sentences that what they cared about was the place that they lived in and the place that they worked in. It was about Montana. 

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Goodworks Evergreen, it's actually a holdco. It's a small holdco in Montana. It's actually not steward-owned. But we thought it was a relevant organization because of their mission, which was to preserve and steward small businesses in Montana that would have otherwise gone out of business and would have pulled the rug out on a local community of a key piece of infrastructure. And, in this case, hardware stores. 

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Almost all the companies that Goodworks Evergreen has bought over the years are small rural hardware stores. Where if you imagine you live in a town with 100 people in rural Montana, that's an hour drive from the next town. And you're a Rancher. And you need to go to the hardware store to get wire to fix a fence. And, suddenly, that hardware store goes out of business and you have to drive an hour each way to get to the next hardware store. It's a huge impact on the local community. It's actually a really vital piece of infrastructure for them. 

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And so, they saw that they could make a big impact and only buy these really small companies that were making, yeah, a hundred to $300,000 a year maximum. And their focus was entirely on Montana and now entirely on hardware stores. And now that they've sort of built this holdco, they're looking at doing sort of regionally-focused workforce housing development. They're building middle-class, working-class housing outside of Missoula. Because Missoula's got a big housing problem now. They're very focused on how do we make a difference in Montana for the real problems on the ground. 

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And I think that also touches on another thing that we saw consistently or at least a few times in the book was this notion of civic integration and municipal integration. Let's touched on urban wealth funds, because I thought that was an interesting way to think about supporting these progressive businesses in the context of leveraging public assets. 

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[00:47:21] CR: Yeah. Absolutely. I'm so glad you brought this up. I think it's one of the most profound of the case studies in the book Assets in Common. And, again, acknowledgements to Charity who led the work on this. When we look at how – I mean, let's kind of zoom out for a second. What we're talking about here is rewiring the American economy towards continuous reinvestment into well-being, into our places. And reducing the pressure to extract from our communities, right? 

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And so, a lot of what we focus on in the book is about business-oriented solutions to that. But that's only one layer of many layers of this conversation. Because there's the incentives that exist in our regulatory environments. There's the incentives that exist even around regulating banks. Because the way that American banks are regulated, it actually makes it really hard to start new banks. There's a lot of layers to this conversation. And municipalities and the way that they operate and the way that they incentivize things are part of that bigger picture as well. 

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When we saw this emphasis on regionalization, and I want to just add to what Jay was saying, we saw a couple of themes here that linked also to civic participation. One of them is once people are able to participate in a source of livelihood that is actually directly allowing them to care about their place, and their neighbors, and their people, and their community through the way that they show up at work every day, they were also able to participate more in the civic life around them. 

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And we saw this really positive feedback loop in the case of the Industrial Commons. Where Industrial Commons, which is a nonprofit owned, or has a nonprofit element, was a ble to do a really interesting integration of advocacy work, partnering with more civic projects, raising certain grants that then benefited the business ecosystem. And just tying all these different pieces of the sector together from private, to public, and civic, and third space, and everything in between. Because people felt reinvested in. People felt nourished by their business in a way that allowed them to participate in their community and create citizenship as a value, and a principle, and a culture in their space. That's a beautiful thing I want to point out. And I think that's probably also what's going on too with Goodworks Evergreen in Montana to your point about the housing development being a sort of contribution to public goods, right? 

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Part of this picture is municipalities, I think a lot in the US, don't always know how to help with developing their local economy. I'm living in Tahoe. And Tahoe is a really tricky place because it's got a lot of wealth and a lot of service-class workers. And it's quite a confused place when it comes to its vision. I know there's a lot of places in small town America that are confused about how does my local little municipal government set an agenda and a direction for figuring out economic wealth and community wealth in our place? 

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Urban wealth funds is an incredibly unique kind of combination of a lot of themes we're talking about. It is a methodology that is really coming from Europe and being seen extensively used in Scandinavian countries as a way to use a holdco model for the resources that are held by municipalities. You're thinking the parks and red department. You're talking the local playground. You're talking all of these pieces of real estate. The local swimming pool, the rec center. These very, very valuable forms of public real estate held by municipalities. Most of the time in United States, they're held in all these little silos. All the different departments of the municipality are managing each of their little pieces. And urban wealth fund says, "Okay, let's bring someone in to do an audit of all the resources in our municipality that are held in public ownership. Let's put them together under one roof and treat them as a portfolio of assets. Let's hire a financially savvy external private company who knows how to do asset portfolio management. And let's work with them in public-private partnership to leverage these assets for the benefit of our community." 

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Just a few minutes ago, when we're talking about shared balance sheets to be able to access bank loans that small businesses may not have otherwise been able to access, we're talking about that for cities. We're talking about that for towns. We're talking about putting the swimming pool, putting the playground into portfolio asset management. Leveraging it to be able to get enough money to build the next big contribution to affordable housing or whatever it may be in that community. 

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And you're thinking sovereign wealth funds. But think about more localized versions of a wealth fund concept. I just think it's a fascinating area of experimentation. There is some initial experimentation happening on this in the United States. But it's very early days. 

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[00:51:51] JS: It's super interesting too. Because a critical point here is that it's a revenue source for municipalities that is not taxed. And interestingly, obviously, in this case, the assets are publicly owned instead of privately owned. But this is another case of business creating resources for public ends in the same way we talked about business is creating resources for charitable ends and the steward-owned models, right? It's a way to take all the things that are good about business. But actually, use profit for purpose. In this case, the public agenda of a municipality. I love this example too. And I thought I was excited to read about that one. 

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We've covered so much. And I know this has gotten wonky. I want to close with talking about some of the horizontal success factors that you talked about. We talked about a lot of these key themes. Success factors like shared balance sheets. Conscious consolidation. Companies cooperating. Shared services. But one of the things that you highlight in the book in terms of key success factors is just leadership. I want to make sure we surface that. 

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[00:52:55] CR: Yeah. Yeah. I'll speak a bit to that. And then, Jay, I'd love for you to add to it. What we did in our process before we even decided to write a book was, like Jay said, build direct relationships with people who are leading these examples. And we looked at dozens and dozens of examples and spoke to many, many people who were in possessions of trying to figure out a way to bring assets into a collaborative format for the benefit of their community or for a greater purpose. 

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And we were just struck over and over again. I would get off the calls. And Jay would just be coming off an interview. Or charity would be coming off an interview. And some of these interviews left folks in tears. Because they were profoundly inspiring with regards to how passionate and determined and Incredibly committed to the long-haul outcome of their project. 

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And the style of leadership that we were seeing was so much deeper than business skills. But it was also not possible without business skills. And so, the leadership and culture sort of chapter of the book that we expand on this whole in really goes into looking at the kind of people who are leading these are not the people that would typically succeed necessarily in like a VC pitch room or a shark tank. They're not like all polished. And they're not all Silicon Valley. There's a type of almost spiritual commitment or deep, deep emotional commitment that's drawing from a place of belonging and purpose that is driving folks to be pragmatists make incredibly hard tradeoffs on behalf of their community. It's driving people to become experts in things that they never would have experienced themselves as experts.

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And people who have to figure out nuanced tax code issues for the benefit of building wealth for their community. And they're willing to do the work and figure that out. And bang their head against a wall until they find a solution. We're talking about people who are taking risk on other people's behalf, which you kind of almost never see in business, in my opinion. You see a lot of self-interest as norm in business. 

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And we're talking about this hybridity of self-interest and collective interest as being a driving impulse for people. We had examples of individual leaders who basically were setting up co-ops inside of LLCs and taking full personal responsibility for all of the tax because they were like, "Let's just get this going. Let's just make it happen." 

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We saw people who were basically willing to, yeah, just hold an incredible amount of uncertainty and then put pen to pap paper and sit in the spreadsheets until they figured out a way forward. And doing so not necessarily for glory. I think when you are in a lot of nonprofit spaces, which a lot of my career has been in nonprofit spaces, I'm sure both of you know and probably a lot of our listeners know that nonprofits have this kind of accidental culture, I think, of quite a lot of ego from nonprofit leadership. Because it's a form of martyrdom. It's like, "Well, there's no financial upside here for me. But I'm here for the cause." Are you with me or not?" 

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And, actually, these types of leaders that we saw didn't have that problem either. They had this like – again, I want to say, they were channeling some bigger sense of purpose and they were saying, "I'm going to find the line between the black and the white. I'm going to walk in the gray for as many decades as it takes for me to find what works for this community." 

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And, yeah, it's something that is kind of hard to describe until you go deep into the case studies. But it's a unique form of leadership that I wish that we could just raise up more. And I just want to use the word pragmatist to define it. Because it's people who are just making constant tradeoffs. And it's not shiny. And it's not ideological. And it doesn't necessarily look good on paper. And it's not all buttoned up. And it doesn't have a well wrapped VC pitch story. But I think that's the kind of leader that is needing more resources in this movement towards a new economic outlook. Yeah. Really want to highlight that.

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[00:56:48] JS: I think, also, when we think about the complexity of systems change, the cultural piece is really interesting. These leaders are moving culture. And then the culture is inspiring more leaders. And this is the way that all these different pieces can interplay. 

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And so, I want to talk about the cultural piece. And I want to close on that. Because that was another key success factor that you saw. You mentioned three different cultural things. Trust and purpose, reciprocity mindset, and shared economic destiny. 

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[00:57:17] CR: And something that underlies all of those is frankly just caring about other people. It's really what it comes down to. And that's what you get when you are on the call with some of these leaders. It's so clear that what's motivating them is not, "Hey, we're going to build this company. We're going to exit it. We're going to make a bunch of money." They're motivated because they actually care about the people they're working with. They care about their customers. They care about their vendors. They care about the broader community of the region that they live in. And they're really working on behalf of something larger than themselves. 

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And the counterpoint to that culturally is they're not getting stuck in the kumbaya consensus decision-making, "Hey, let's have a process to talk about our process, to about our governance model." They're like, "Look, I'm just going to put my head down and get this thing going." And it's actually not really a collaborative project at the beginning. There's an effort to get something started. And then once there's traction and momentum, then, as appropriate, collaboration and more democratic decision-making comes into being. But you don't see these kinds of projects start with a bunch of Berkeley people saying, "Hey, let's have a nonconference and talk about a vision." It's very practical. And it's very hands-on. And I think that's an important part of the cultural zeitgeist that we saw on this is a utilitarian approach that cares about people and fundamentally is getting nourishment from those relationships. If you get nourishment from the relationships in your community and the relationships in your workplace, you're less hungry for profit. Because you're actually getting fed. 

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[00:59:18] CR: Yeah. There's so much we haven't touched on today. And so, just kind of naming some of the things that you were mentioning, Jenny, around shared economic destiny. I think that that is a big topic that it would be really wonderful. To kind of link what you just said, Jay, and think about future discussions and future inquiries for listeners to look into more. In what ways are our life defined by shared economic destiny? There's not that many. 

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In an American economy, there aren't that many people who you have opted into kind of financial solidarity with. And one of the things that's been absent from our conversation today is the recognition that there's so much history of all of these processes. And a lot of that history comes from people who have been systematically oppressed, and who have fought for their lives, and have fought for their cultural lineage, and fought for cultural sovereignty. 

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The reason that Japan even has a kiritsu model is because it was the method they used to resist economic colonialism. A lot of the different savings and sort of mutual rotating loan funds that we looked at and that are in the book come from communities of women who are trying to hold each other through distress and the onslaught of different economic colonialism and other forms of colonialism. 

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And, of course, so much of the American lineage of being bound up in one another's economic destiny comes from the black community and recognizing that as well. I really want to bring that in. But think about how do we construct a more shared economic destiny without necessarily losing our freedom and autonomy? 

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And I think that's the big question. How do we use the Western sort of pedagogy and ideology set? How do we use the tools that we've got living and breathing around us every day and today's capitalism? And how do we shoehorn them into something that is ultimately about creating shared economic destiny? Whether that be in regions or in sectors. Because as evidenced by the book Assets in Common, there are plenty of examples of how to do that. So we can. And now it's, "Well, will we? Are you willing to? Do you know any business owners who want to band together and make one corporation that unifies their neighborhood or whatever it might be?" Yeah. 

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And then I'll just add, also, that those bigger questions about how the role of our financial systems and the way that they're regulated create incentives for that to either succeed or fail. And I think we could have a whole other conversation about banking. But I hope that one day the Denizens are on that as well.

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[01:01:39] JS: No. Banking is a critical thing that we have not covered yet. And there's a whole policy piece to talk about too that we're not getting into here. Because we're looking at what entrepreneurs are doing and rolling it up. But I so appreciated that comment, Chelsea. Because you're, one, reminding us that there's a long legacy of these creative models stemming from people who didn't benefit from the dominant system. 

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And, two, just posing these really critical first order questions about what does it mean to have a shared economic destiny. And how do we take all the things that are good about a market economy and repurpose them to be truly purpose-driven instead of extraction- oriented? 

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Thank you so much for this conversation. Thank you so much for the work that you do. Thank you for the book. I hope people will dive in and read it. I hope this conversation is a great little synopsis of it for those who don't. And, of course, for those who are interested in learning more and adopting these models, I am always more than happy to connect you to Jay, and Chelsea, and everyone at Purpose and Comon Trust who is doing the work arm-in-arm with these entrepreneurs to help scale these models. 

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[01:02:48] CR: Thank you. 

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[01:02:49] JayS: Yeah. Thanks so much for asking such good questions and being a thought partner in this.

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[01:02:54] JS: Yeah. My pleasure.

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[OUTRO]

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[01:02:55] JStefanotti: Thank you so much for listening. Thanks to Scott Hanson, also known as Tyco, 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 for our most essential topics like universal basic income, decentralized social media, and long-term capitalism. We also have posts summarizing our research, which make it easy for listeners to very quickly get an overview of these particularly important and foundational topics.

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