A regenerative tree branch sprouting two leafy growths from a cut branch.
Image credit: Wilson Stratton on Unsplash

Can new forms of investing capital—the heart of capitalism (it’s in the name!)—transform the economy to advance social justice? To date, impact investing has been, at best, modestly effective. But a lot of people are trying to do better.

To that end, a report from the nonprofit Transform Finance, Alternative Ownership Enterprises: An Introduction for Mission-Oriented Investors, authored by Andrea Armeni, Curt Lyon, and Julie Menter, seeks to advance the conversation.

In the report’s preface, Oxford-based economist Kate Raworth lays out the stakes, arguing that “economies and enterprises must become regenerative by design” (5). But will impact investment get us there? A couple of years ago, a Transform Finance report on grassroots community engaged investment offered a promising approach that sought to connect impact investing with power building—and thereby generate meaningful shifts in the economy. This new report delves deeply into the tactics of enterprise formation and investment but loses the thread of transformation in the process.

What Is an “Alternative Ownership Enterprise,” Anyway?

A central goal of the report authors is to provide a road map for impact investors to employ their capital in such a manner as to advance social-mission-based enterprises and economic democracy. To do so, Armeni, Lyon, and Menter create a broad, catch-all category of “alternative ownership enterprises” that encompasses everything from worker cooperatives to foundation-owned companies.

The authors define alternative ownership enterprises as businesses that “distribute economic rights in different ways to 1) financially reward different stakeholders for their contributions to the success of the company, 2) create incentives for the long-term success of the enterprise, and 3) build wealth for underrepresented stakeholders as a part of their mission” (15). There happen to be a lot of ways to design businesses to do this—or at least forward certain aspects of these goals.

Among the core types of enterprises outlined in the report are the following:

  • Benefit Corporation

A benefit company is a corporation that includes in its bylaws a social purpose beyond earning profits. A British variant of this is the community interest company. Yet another variant is the L3C or low-profit, limited liability company.

  • Employee Ownership Trust

The good news, in short, is that many alternative ownership structures to the for-profit corporation exist.In a business owned by an employee ownership trust, employees share in profits and elect trustees to govern the company, but sale of the enterprise is prohibited by company bylaws.

  • Employee Stock Ownership Plan (ESOP)

An ESOP is a trustee-managed pension plan that owns a company in whole or part. This is the most common form of US employee ownership. A subset of these fall in the “ESOPerative” or “democratic ESOP” category, where employees have a direct governance role.

  • Foundation-Owned Company

This is a business owned by a charitable foundation.

  • Golden Share

A golden share is a bylaw that gives a mission-oriented group (foundation or otherwise) veto rights over key decisions (such as a sale).

  • Cooperatives

These are member-governed businesses in which each member has an equal say. A co-op can be worker-owned (worker cooperative), producer-owned, consumer-owned, or have multiple stakeholders.

  • Perpetual Purpose Trust

These businesses are formed when a trust owns at least half of voting shares and uses its ownership to advance a specified mission. Patagonia is a prominent example.

As the authors note, you could add even more categories: such as decentralized autonomous organizations or state-owned enterprises.

The framework is broad, but its breadth raises many questions, such as impact for whom and for what purpose(s)?

The good news, in short, is that many alternative ownership structures to the for-profit corporation exist. And, as NPQ readers may notice, that’s not even counting the most common form of alternative enterprise—namely, nonprofits themselves, which, according to the latest data, are responsible for 5.4 percent of US gross domestic product (GDP) and 6.7 percent of total national employment.

The less good news is that the framework’s breadth means everything counts—even when the difference may be small. For example, benefit corporations (and related enterprises) arguably are more socially minded, but in terms of ownership and governance, they are nearly indistinguishable from a standard for-profit company. Another challenge: the shortfalls that nonprofits face—and specifically the pressures that nonprofit leaders face to imitate their for-profit corporate counterparts—also apply to nonprofit-like companies, such as foundation-owned firms and perpetual purpose trusts.

Workers, Stakeholders, and Mission

The framework is broad, but its breadth raises many questions, such as impact for whom and for what purpose(s)? In their report, Armeni, Lyon, and Menter provide a Venn diagram that offers three types or “families” of alternative ownership enterprises. One category is centered on worker empowerment and bettering worker wellbeing—this includes ESOPs and worker co-ops. A second category is centered on non-worker stakeholders (this includes all forms of cooperatives, except worker co-ops). A third category is centered on mission or “purpose”—this includes benefit corporations, companies with golden share provisions, and perpetual purpose trusts.

Some business forms, the authors add, overlap categories. For instance, employee-owned trusts combine a purpose component (the no-sale requirement preserves the business for future workers) and a worker benefit component. A multi-stakeholder cooperative combines non-worker and worker stakeholders. And then there is the (largely theoretical) multi-stakeholder perpetual purpose trust that combines all three categories (workers and additional stakeholders, combined with social purpose).

The report makes many more distinctions. On one chart meant to guide investors as to which business type best aligns with their investment goals, the authors rank each of the different enterprise forms on nine different criteria—eight of which involve the economic and governance rights of four parties (workers, purpose-focused trustees, non-worker stakeholders, and outside investors), with a ninth criteria that considers the degree to which a given business’s mission is “locked in” through bylaws or other means.

A Theory of Change?

 In their report, the authors offer two rationales for creating the new “alternative ownership enterprise” nomenclature. One is to “help investors more effectively make sense of this body of work and mobilize capital toward it” (75) and the second is to create a coalition as broad as possible “to achieve the shift in public awareness and the public policy wins needed to grow this field” (75).

The report illustrates a few key weaknesses that seem less about the shortfalls of the report than about some of the shortcomings of the field.

Building a coalition sounds good, but what holds together the different elements of the coalition? Here, there is much less clarity. The framework, the authors write, aims “to help investors, the business community, policymakers, and others understand each model’s respective needs and drive a shared narrative of displacing shareholder primacy” (76). For this purpose, the authors advise a “campaign” to educate investors and policymakers and call for philanthropic funding for support organizations (76–77). At the end, in a way that unfortunately feels like an afterthought, the authors call for coordination “with labor movements, Solidarity Economy organizers, and other movements for racial and economic justice in developing strategies.”

What Is the Impact Investing We Need?

The work, in short, is well researched and contains valuable information. The report includes over 100 pages of appendices with details on a wide range of worker-led, stakeholder-led, and mission-led enterprises. If you want to read up on the pros and cons of benefit corporations—or, any of the other forms of business analyzed by the writers—the data is there to do so.

At the same time, however, the report illustrates a few key weaknesses that seem less about the shortfalls of the report than about some of the shortcomings of the field as it exists today. Here are four that come to mind:

  1. An Overemphasis on Dethroning Shareholder Primacy

To be sure, the notion, popularized by Milton Friedman, that the corporation is meant to maximize shareholder value and disregard all other values has been toxic. But it is one thing to say that dismantling shareholder primacy is important—and quite another to say that dismantling shareholder primacy should take precedence over other more expansive goals, such as dismantling racial capitalism. Here it is important to recall that long before shareholder primacy became the dominant theory of management in the 1980s, capitalism (even of the managerial variety) produced and reproduced very extensive racial, gender, and class inequality.

  1. A Failure to Choose

Are all forms of “impact” equally valid? Raworth, in her preface, suggests otherwise. Specifically, she calls for an economy that is “regenerative by design.” Elsewhere, she has called this “doughnut economics.” Raworth’s argument is that the goal of economics should be to ensure that the production, distribution, and allocation of resources fully satisfy both human and planetary needs.

  1. An Overemphasis on Technical Detail

As noted above, the report offers nearly encyclopedic information on different forms of business organization. But these kinds of reports can inadvertently reinforce the notion that economic justice is a matter of technical proficiency. This is not to deny that legal and technical assistance are necessary to build more democratic economic forms, but the focus on form risks discouraging the creative, self-organizing activity that is most likely to advance economic justice.

  1. An Underemphasis on Movement Building and Politics

Impact investing can make a difference. But this is only possible in coordination with movement actors. It’s worth remembering that impact investors—certainly those who might invest in a solidarity economy—are a small percentage of all investors. There is, to be sure, an impact investing “lane” in efforts to democratize the economy—and the support that impact investors can provide is important. But, by and large, leadership in economic justice is far more likely to come from movements organized from the ground up.

Building the Path

In their zeal to map out every conceivable business type, the authors sometimes lose sight of the big picture. That said, in their conclusion, they do importantly point out that the overall imperative is to reduce the power of outside investors “to shape businesses and society as a whole” (77). The idea, as the authors explain, is to “deliver transformative material impacts for workers, working class communities, communities of color, and other groups who have historically not made major decisions about capital and ownership” (77).

Getting there, however, remains the challenge. One wonders, for example, whether an “unwillingness to work with more complex financing structures” (78) is a significant factor holding impact investors back from supporting forms of community or worker-based ownership—or is it a reluctance of investors to act in ways that are designed to reduce their own power? It’s a significant conundrum that the field of impact investing will have to reckon with in the coming years.