Governance mechanisms beyond voting rights
Investors have high stakes in the organization and often bring valuable experiences and resources to the table. Particularly if you are a steward-owned business, having someone who has the right and interests to challenge you can be crucial for your success. So, including investors in decision-making can be considered a huge asset and value in itself. At the same time, their involvement and (financial) interest in the company can legitimize certain provision rights.
However, investors being included in decision-making and having provision rights does not necessarily mean that they also need to have partial ownership of the company. There are further governance mechanisms to be considered that go beyond directly holding voting power. There is a multitude of options from information rights, the right to be kept informed about all key metrics and major decisions and regularly updated, consultation rights, the necessity to be heard in specific scenarios, specific consent requirements or veto rights or minority decision rights for specific decisions and situations as well as non-contractually but agreed consultancy or feedback mechanisms.
Which mechanisms are used, and when, and to which decisions they should apply depends on the relationship between the investor and the organization. But be careful: While all this holds up, investor provision rights should not undermine the principle of self-governance! If entrepreneurial control is no longer upheld – meaning stewards cannot carry out essential business decisions without approval – then the principle of self-determination is violated. This is a balancing act which allows stewards to remain in control with investors still being able to add their perspective, contribute to and influence certain decisions, and be a valuable strategic and operational partner.
Now, let’s take a closer look at some of the mechanisms we've worked with or encountered that can be used here, ranging from more to less control for investors:
Information rights are the basic rights to be kept informed about major decisions and regularly updated, which makes sense for most investor-company relationships. In general, investors want to be kept informed, involved, and be given updates on financials and other important issues regularly. And for companies, these rights can be equally important, as they enable them to tap into the knowledge and networks of their investors.
In many investor-company relationships, there is a shared interest in maintaining a regular exchange — whether for general updates, idea-sharing, or concrete discussion points — without formalizing outcomes in advance. This desire for connectedness can be contractually secured — for example, through agreements to hold recurring meetings and discuss specific topics — but the content and consequences of these conversations remain open. These mechanisms are built on mutual trust and can take the form of structured feedback sessions or strategic check-ins. They are valuable to both sides: companies benefit from reflective input, strategic sparring, or early signals, while investors stay involved and can contribute their perspective without necessarily influencing decisions directly.
e.g. a company and its investors agree to meet once a year to discuss key performance factors and the possibility of an upside dividend. The results of this exchange are then shared in the shareholders’ meeting as input for the decision-making process on dividend distributions – but the investors themselves do not hold a vote in that meeting.
Specific decisions and actions can be defined in which the investors have to be consulted and heard before the decision is made. Consultation rights can be very sensible to involve investors in relevant decisions, hear their opinions and get them on board with their experiences and knowledge. They need to be heard but not obliged. Consultation rights are often used as a medium to involve investors in decision-making and can be a good solution both for investors and companies.
e.g. the investors have to be consulted before a change of stewards or before a large strategic decision is made.
Similarly to above, specific decisions and actions can be defined in which the investors have a veto right, which they can opt for. If their veto is not obliged, depending on the financial instrument used, either the company cannot move forward on the decision, the investment relationship has to be terminated or another solution needs to be found.
e.g. a change of the purpose of the company could be specified as an event in which investors have a veto-right for the stewards before the decision is made. Similarly, the appointment of new steward-owners to replace departing ones could also warrant such a provision.
In some investment contracts, certain interference rights or “red lines” are defined in the scenario in which the investors can interfere in the entrepreneurial control over the company. Some entrepreneurs wish for interference rights/ red lines which, in escalation scenarios, protect the company from themselves.
e.g. If the company is highly indebted and makes further losses over the years through strategic mistakes, this could be a red line at which point investors or a board could interfere and reappoint new stewards/ additional stewards for the company. Another scenario could be corruption, imprisonment, etc. of the current steward-owners. Note that also after such a reappointment, control must remain with individuals (stewards) who are not investors.
If equity is used anyway, some entrepreneurs opt for giving their investors minority non-blocking voting rights to include them in the final decision-making process. This turns them into shareholders, meaning they are informed about all resolutions and hold all rights associated with shareholder status and can potentially block decisions that are based on unanimous shareholder resolutions. In many countries, specific decisions can only be made with a qualified majority (e.g. over 75% of the voting rights). While most other decisions can be made with the majority of voting rights, this is something to look out for.
Most of the above can be structured using debt-based or equity-based financing structures (besides direct voting rights, which are only possible in equity). Which rights investors can and should have depends very much on which rights the steward-owners feel comfortable with granting (while still retaining entrepreneurial control!), what type of investor-company relationship is wished for and what the investors’ real needs are. The different options already show a good answer to the wish of many investors to support a company with more than money and also helps with their understandable need to keep some control over their investment. At the same time, it also makes sense from the company’s perspective – creating a healthy relationship with investors and ensuring access to both funding and valuable support.
Want to dive into some examples? We recommend exploring these case studies.
Final NoteThere are many ways to design governance mechanisms, each adding its unique flavour to steward-ownership-aligned financing. As you move forward with designing your structure, you may find yourself drawn to a “grey” tone or option of steward-ownership – and there may be valid reasons for choosing such an approach. However, the true beauty and strength of steward-ownership comes to life most fully when its principles – self-governance and purpose-orientation – are fully reflected in the design. Then, steward-ownership can have the greatest impact on the company and its mission and deliver the most benefit to its founders, employees, and broader stakeholders.
But designing governance mechanisms isn’t just about technical or formal decisions – it’s also a deeply social, psychological, and structural process, shaped by how we as individuals and societies are conditioned to think about power. Power is often equated with control – more power means better outcomes. This habitual view of power can lead us to prioritize its consolidation rather than its thoughtful distribution. This, in turn, forms the foundation for many of the relationships we build.
If you find yourself in such a situation, it may therefore be worth pausing to take a moment to reflect: Why does this particular governance option feel like the best fit? Could other governance mechanisms better align with your goals and the principles of steward-ownership? Maybe reflect on why you chose steward-ownership in the first place. If the “grey” option remains the right path for you, that’s fine – just be sure to make the decision consciously and intentionally.
Finally, while this guide covers steward-ownership and aligned financing in all the variety and forms we’ve seen, remember that some in the movement define steward-ownership only when built as closely as possible around its principles. As you craft your structure, keep these perspectives in mind and approach the process with thoughtfulness.