Purpose-Driven Structures For Impact Entrepreneurs In Aotearoa New Zealand: Considering Kaitiakitanga And Steward Ownership
“Put simply: business of the past has often had a focus on being extractive rather than being regenerative. In response, a growing movement of impact entrepreneurs and investors are taking up the challenge of rethinking, redesigning and reorienting available legal structures of ownership and finance to ensure ‘purpose primacy’.” The authors propose an intergenerational and sustainable approach to business ownership.
By Steven Moe, Susan Gary, Jan Hania, Natalie Reitman-White, Murray Whyte, and Phillippa Wilkie
Photo: Tobias Stonjeck/Unsplash
There is a paradigm shift occurring in how we think about the role of business. Impact-driven entrepreneurs launch businesses for a purpose and generate profits so they are sustainable while they also deliver products or services that add value to society.
These entrepreneurs often have an intergenerational perspective on the role that their ventures will play in solving social or environmental issues. They may frame their purpose by looking through the lens of the impact on some combination of the environment, society, their employees, customers, suppliers and other stakeholders over the long term.
While they embrace the private enterprise as a powerful vehicle to deliver and scale impact, they measure success not in maximising profits, but in maximising the advance towards the purpose. At the same time, they recognise that financial sustainability is a necessity to ensure long term viability of a private enterprise.
But what is the best structure for these future-looking entrepreneurs to adopt? The challenge faced by impact entrepreneurs is that conventional corporate vehicles, governance systems, shareholder agreements, term sheets, liquidity horizons and return expectations are framed around the presupposition of shareholder primacy. This focus means they can be misaligned with the entrepreneurs’ operating models and value systems. As a result, these structures can pull the business in directions that are more suited to the needs of the investors rather than a focus on delivering maximum value and impact to the purpose.
Put simply: business of the past has often had a focus on being extractive rather than being regenerative. In response, a growing movement of impact entrepreneurs and investors are taking up the challenge of rethinking, redesigning and reorienting available legal structures of ownership and finance to ensure “purpose primacy”. Some have referred to these new ideas as the “fourth sector” or “steward ownership”.
Emerging models are innovating in the areas of:
• impact investor terms that focus on sustainable versus extractive returns, and creation of broader stakeholder benefit;
• multi-stakeholder inclusion in governance and/or economic rewards; and
• governance mechanisms that ensure economic viability, along with results towards, and protection of, the business purpose.
Impact-driven entrepreneurs wanting to set up business in Aotearoa New Zealand have a range of legal structures to choose from, albeit a more narrow range than in other jurisdictions. In this short White Paper we will focus on the available legal structures in New Zealand as well as indigenous concepts of Te Ao Māori (the Māori worldview) and approaches. We will also chart some developments in thinking and legislation overseas on “steward ownership”. Our kaupapa (purpose) is that by explaining the options available in New Zealand in the context of the indigenous and stewardship models, entrepreneurs will be empowered to be creative and experiment in their choice of structure and surpass the for-purpose vs for-profit dichotomy.
We welcome your comments and feedback on this White Paper and look forward to an ongoing dialogue about the concepts and options. We also welcome your engagement around advocating for possible changes to New Zealand law that could incentivise and further catalyse the addition of more purpose primacy models. We are excited and enthusiastic about what the future could hold.
Part I: Ways of thinking
Before we dive into the detail of structuring options, in this part we want to set the scene by talking about foundations – we will do that by looking at different ways of thinking. This is important because the structure options that can be chosen are best understood in the light of these ways of thinking about business, wealth generation and generational thinking.
So much can be learned from the wisdom of Te Ao Māori (the Māori worldview) in approaching stewardship of land and the environment for future generations. Systemic long-term thinking is fundamental in Te Ao Māori, offering an intergenerational, sustainable and enduring approach to life, business and investment. For Māori and many other indigenous peoples, the cosmology and knowledge systems (matauranga) do not separate people from land, water and the environment (Te Taiao). A fundamental element of the Māori worldview is whakapapa; whakapapa in one sense is your genealogy, but the extension for Māori is that whakapapa includes lineage to your relevant mountain (maunga), river (awa), lake (moana) and land (whenua). This means that the land, water, mountains and creatures within your place are your direct relations or kin (whanaunga). And Māori have a teina/tuakana relationship with Te Taiao: we as people are the younger or junior sibling (teina) to the older or senior status of our tuakana, Te Taiao. The respect and value set of custodian or stewardship for land and water is one of caring for and nurturing our revered whānau as one of us – family, our elder, our ancient relative. This knowledge system is intergenerational, with ultimate respect for our ancestors – land and people – and for the future of those to come.
The concept of nature as an ancestor has been honoured and reflected in New Zealand law by according legal personality to nature. In 2014 the Tūhoe-Crown settlement legislation made Te Urewera, a former National Park of immeasurable value to Tūhoe, a legal person with its own identity. This personification was repeated for Te Awa Tupua (the Whanganui river) and most recently Taranaki Mounga (Mount Taranaki). In the cases of Te Urewera and Te Awa Tupua boards of persons are appointed to exercise kaitiakitanga (guardianship) over the land and water. They do not “own” it but actively act on its behalf and are responsible for promoting and protecting its health and wellbeing.
The notion of exercising guardianship of the environment and ensuring its wellbeing and regeneration for itself and future generations can (and we would say should) be broadly applied in today’s world. When constructing a board of guardians (kaitiaki) of purpose it would suggest having appointees whose role is to actively represent the environment (Te Taiao) and future generations (mokopuna). These representatives would be necessarily forward-thinking and proactive, assuring regenerative outcomes are achieved for both.
Te Ao Māori is directly relevant to the idea of “Steward ownership” which is an emerging term being used in the United States and Europe that refers to a different way (both old and new) of thinking about “ownership”. The foundational thinking is that ownership is not a commodity to simply be bought and sold, but as a responsibility to carry forward an enterprise that exists for a purpose. It derives from a constellation of principles and beliefs including shared prosperity, service and contribution, ecological regeneration, and responsibility for guardianship for the future. It can perhaps be summed up by this way of thinking: we are not inheritors of past wealth from our parents – instead, we are guardians of the future for our children.
Photo: Tobias Stonjeck/Unsplash
In some respects this is a translation of the Māori spiritual concept of kaitiakitanga into a Western legal structure in that its stewards use the tangible rights attached to share ownership as the tools to vote and protect purpose. The specific legal structures can vary across organisations and countries. At their core, they embed the premise that corporations should contribute to some purpose beyond generating profits for shareholders and should consider holistic long-term impacts. Since conventional corporate and investment structures are more geared towards shorter term profit maximisation and shareholder primacy, it often involves thoughtful redesign of existing legal structures.
The “Structuring for Impact” report is worth reading for more details and depth on this area. See Horan, Rowland, Wilkie, Hosking and Moe, “Structuring for Impact: Evolving Legal Structures for Business in New Zealand”
To reset the goals and incentives that drive decision making in companies to guide them towards the inherent value of two key principles:
1. Profits Serve Purpose: Profits are used primarily as an engine to support a company’s purpose/mission. In other words, profits are not an end in themselves, but a means by which the purpose is furthered. Profits are needed to make the organisation sustainable but that is just one factor to be aware of. Practically, this means the profits are reinvested in the business, shared with stakeholders who are contributing to the purpose (e.g. employees, suppliers, community, customers), and/or donated to purpose-aligned charities. Both founders and investors are fairly compensated with capped or non-extractive returns/dividends.
2. Self-Governance: While investment can come and go over the company lifecycle, control of the company is not sold, it is kept with “stewards” – people who are actively engaged in, or connected to, the business and are responsible for ensuring it delivers impact to benefit and further the purpose. This typically begins with Founders and is then passed on through natural growth of the company culture and through formal governance structures that over time enhance the stewardship ethos. As such, the business is not seen as a manager for short-term private wealth generation, but as a living system of people working towards a shared purpose.
Social Enterprise: This is a label which has been helpful to distinguish purpose driven initiatives from traditional business. Ākina have been helping empower this ecosystem of purpose driven initiatives for many years and have many resources available. Back in February 2014 the Government statement still is accurate in summarising some of the key elements, where they said: “Social enterprises use commercial methods to support social or environmental goals. They principally reinvest surpluses in the social/ environmental purpose rather than maximising profit for shareholders and owners. Potential benefits of social enterprise include innovative responses to societal issues, new employment opportunities, and sustainable income generation.”
In our view, and the view of Ākina, the terminology is evolving very quickly and shifting towards the word “Impact” to best describe the concepts we are dealing with. We prefer the term ‘Impact Enterprise’ because that covers more than just the ‘social’ impact implied by the term social enterprise. For that reason we will mainly be talking about impact enterprises rather than social enterprises.
Photo: Tobias Stonjeck/Unsplash
Introduction and the first part of a report published at the end of 2020 and this was co-written with some amazing people: Susan Gary, Jan Hania, Natalie Reitman-White, Murray Whyte, and Phillippa Wilkie. Thank you all for your insights and chance to collaborate together on this report and to Reggie Luedtke for your connecting pieces of the puzzle together too.