At The Stakehold we cover experiments in distributing ownership, or what we call the ownership economy. But ownership is about more than just profits and assets. It is a bundle of rights that employee ownership scholars divide into two primary categories:
Economic rights: Where the money goes. Who has a stake? Who benefits?1
Control rights: Where the power lies. Who has a say? Who decides?
Corporate lawyers get paid to split control and economic rights apart, then frack them into a slurry of deal terms (share classes, board seats, information rights, etc.).
Splitting control and economic rights is how Mark Zuckerberg controls Meta despite owning less than half its stock. Many other family-controlled, publicly traded companies do the same.
Silicon Valley-style employee stock options offer economic rights without control.
Novo Nordisk is controlled by a foundation which owns less than a third of its stock but over two-thirds of its voting rights.
In the beginning, labor unions fought for both control and economic rights. But faced with pushback on the former and policy support for the latter, they tend to focus on economic rights.
Generally, the splitting of ownership rights among owners and investors lets both parties negotiate for what is most important to them. Employee ownership broadens who is considered in those negotiations happen, in different ways:
Employee stock ownership plans (ESOPs) give employees government-protected economic rights and a modicum of control over some major decisions, mediated through the ESOP trust.
Worker cooperatives give each worker-owner an equal vote in determining how economic rights are distributed.2
German-style codetermination gives workers voting representation in the boardroom.
Employee ownership trusts typically codify economic rights into profit-sharing plans without offering any control rights, except via the trust enforcer.
These are structural ways to distribute control and economic rights. But as we argue in a forthcoming white paper, organizations don’t have to go full co-op ✊ to distribute decision-making power more broadly. There are informal and cultural ways to do this, too.
Why (and How) Should Owners Distribute Control?
We have spilled ink before identifying the different labels for broad-based distribution of control rights, and we’ve noticed two things:3
Existing labels and connector concepts don’t communicate how to share control well, in practice.
Most of the labels--including and especially workplace democracy--make business owners squirm, or infer something other than what we mean.
So in this series of posts we ditch the labels in favor of answering two questions:
Why do business owners choose to distribute control? (👈 Coming up next)
How do business owners distribute control in practice?
In the interim, I’m curious to hear from you by email/comment/Facebook poke about where power, control, and decision-making are concentrated in your organization. Why did (or would) you decide to distribute them?
Employee ownership scholars tend to use the phrase return rights here, but I cut my teeth in startup investing and think economic rights is more clear.
Yes, it’s way more complicated than that; more to follow.
Including democratic management, labor-managed firms, liberated companies, deliberately developmental organizations, non-hierarchical workplaces, latticed organizations, holacracies, heterarchies, adhocracies, heterarchies, living companies, post-bureaucratic organizations, self-managed organizations, teal organizations, freedom-oriented leadership, and worker-directed nonprofits 😵💫
P.S.: Thanks to Michael Palmieri for his feedback.
What is the purpose or the why of the system being created? Who decides this?
I agree with Peter's comment and I'd push back on collapsing EOT control rights down to "without any control rights, except via the trust enforcer". In practice, control rights in an EOT are typically distributed across several mechanisms: the Trust Stewardship Committee, the trust enforcer, and the corporate board. Within those, there are a variety of strategies (Peter gave several examples which we also commonly see). Which combination a company chooses varies pretty meaningfully depending on the goals and what kind of alignment they are trying to drive. I'd reframe your description to: "EOTs typically codify economic rights into profit-sharing plans, while control rights are typically codified through a mix of mechanisms, ranging across the roles and rights of the Trust Stewardship Committee, the trust enforcer, and the corporate board."
When I think about the structural vs cultural layer you are looking to tease apart, I also think there is real nuance between: (a) what's structurally required , (b) what's technically possible, and (c) what's becoming market standard. (a) is set by law, (b) is expressed as a governance strategy selected by a particular company from many possible configurations, which is where EOTs allow a wide degree of variety and customization, and (c) points to the conventions that are emerging as more companies make these choices, which in turn are likely to begin to shape what future companies default to (although I'd say we are still in the very early innings, so we should be mindful about what conclusions to draw). All 3 of those live at the structural level, but depending on which lens you are looking through could lead to a very different set of conclusions about how control is determined in EOTs, so I think the distinction is an important one to consider. And then the fourth dimension you rightly called out is the informal/cultural layer, which is not structurally protected (like the first 3), but is often the most frequently felt expression of "who decides" in the day to day operations of a business.