At its core, a Stewardship Trust, like all trusts, is simply an agreement (a fiduciary relationship). In this case between the original owners of a Company (the Trustor) and a new entity – the Trustee. In entering the agreement, the Trustee agrees to run the Trust on behalf of the Company (the Beneficiary). In return, the Trustor gifts the Company to the Trust.
In an Employee Ownership Trust, the Beneficiaries must be the eligible employees of the Company. However, this isn’t an obstacle as the Stewardship Trust model is quite clear that the employees are the Company (and vice versa).
As such a Stewardship Trust is an Employee Ownership Trust (under current legislation), but not all EOTs are Stewardship Trusts. The difference is that Stewardship Trusts make clear that the responsibility of Trustees (and Beneficiaries) is to care for the long term future of the Company as a whole. Stewardship Trusts promote Stewardship at the expense of Ownership.
“The act of caring for something worth caring for”.Definition of Stewardship
To this end, there are several essential restrictions on a Stewardship Trust, beyond those that exist for EOTs.
No Partial Ownership (No Shareholders)
An EOT requires that the Trustees retain a minimum of a 51% stake in the Company. In contrast, a Stewardship Trust not only extends this minimum to a 100% stake but also insists that no Company within the Trust can be partially owned (and no action can be taken to create partial ownership within the Trust). This vital distinction ensures that there are never any external beneficiaries within the Trust. Only the people currently working within a Trust can benefit from it.
Without a doubt, this is the most controversial and radical restriction. In particular, it raises concerns about the ability to raise external capital or ‘attract the best talent’. There isn’t space in this post to adequately address both concerns, but I recommend reading “Sharing Success: the Nuttall review of employee ownership” (in particular 2.16). In short, Stewardship Trusts will naturally favour internal growth and innovation, which is a strength rather than a weakness. Similarly, they will still attract talent, just talent with different motivations – motivations that we would argue are far better. The model is different, but that’s the point.
Ultimately, the goal is to ensure that Stewardship Trusts create Companies “worth caring for”. It does so by providing that Steward (employee) effort is exerted purely for Company benefit, that is for themselves.
The Trustees of a Stewardship Trust cannot sell the gifted Company, save to another Stewardship Trust. They can sell that Companies assets (including child companies) with the above requirement that they cannot partially sell a child company. However, when selling any child company or asset, no employees can be involuntarily transferred out of a Stewardship Trust as a result.
A Stewardship Trust is made up of Stewards, people who joined something to take care of it, not to work for owners, but for each other. The Trustees cannot betray that motivation by transferring Stewards into a non-Stewardship context.
One of the benefits of Employee engagement laid out by the Nuttall review (c.f. 2.14), was such companies tended to take a long-term view. Stewardship Trusts go further in insisting that Trustees balance the needs of the current beneficiaries (the Stewards) with those of future beneficiaries. As Stewards only benefit from a Stewardship Trust while they work there, this places an obligation on them to be generous to those who will follow them.
Most importantly, Stewardship Trusts are required to ensure they are not discriminatory, are run ethically, and pay fairly. This latter restriction ensures that there is no excessive wage inequality, with executive pay requiring justification and all employees receiving a living wage.
The last two restrictions combined encourage Trustees to seek ways to drive up employee remuneration and benefits, rather than to make one-off distributions. Likewise, as Stewards cease to benefit directly from a Stewardship Trust once they are no longer a part of it, Trustees should take steps to prepare employees for ‘life after the Trust’ (for example pensions).
Ultimately, Stewardship Trusts promote Stewardship, and Stewardship is a two-way contract. Not only do the Trustees have an obligation to build companies worth caring for, but Stewards are obligated to care for those companies.
Next time, we will look in more detail at the Trustee.