Effects of Steward-Ownership

Evidence from Denmark and beyond

Drawing from extensive research in Denmark (and abroad), this paper strives to compile literature on the effects of steward-ownership. The effects suggest that steward-ownership has a range of beneficial effects in many different areas, including the companies themselves but also on employees, the wider economy and society more broadly. Denmark has the highest number of foundation-owned companies worldwide and therefore provides the most findings on this type of ownership as related to steward-ownership which are summarized here.

 

Companies in foundation-ownership show a range of beneficial outcomes

By fundamentally rewriting the ownership and incentive structure in a company, steward-ownership changes the rules for behaviour on all levels of the company. With less short-term pressure from financial markets and investors, steward-owned companies can focus on what is best for their organizations, employees, customers, investors, and society at large in the long-term.

Stability and survival rate

Danish research shows that the stability of ownership (the non-selling of voting shares) is four times higher than in other companies.2,3,4 The majority ownership and separation of dividend and voting rights also protect companies from takeovers.5 Furthermore, research shows that companies with this model have a higher survival probability than conventionally-owned companies (see Figure 1).2.

Applied in a more specific context, steward-ownership also represents an alternative to – at times very costly – succession processes or solutions in family-owned businesses.6

Long-term orientation

The steward-ownership structure with the resulting credible ownership stability empowers business leaders to take a long-term perspective on corporate decisions.2,3,7 This is reflected in the significantly higher long-termism score compared to non-foundation-owned companies.2 This could be a competitive advantage in terms of stakeholder loyalty, trust-based relationships,2,6 as well as an argument for value-sensible consumer and labour markets. Danish data also show more stable management with a 40 percent lower fluctuation rate in management in these organizations compared to companies with dispersed ownership.8 Foundation-owned companies on average also have a significantly higher image rank than other companies.9 A sample of 110 Danish companies confirms that the separation of compensation from profitability works well, showing a strong positive relationship between this governance and firm performance.10

Financial performance

The long-termism and purpose-orientation of these companies are also reflected in financial indicators. While their financial performance is similar to other companies,11,12,13 and they show smaller sales growth,4 research shows a lower level of volatility on average in profitability measures, indicating a lower level in business risk.10 This also shows in their reduced likelihood of large losses.4,6 They show more normal, organic growth than sudden large growth spurts.6 On average, the Danish foundation-owned companies additionally have a lower leverage,14,12,15 a strong capital basis, a higher equity ratio and higher reserves than generally found amongst Danish companies.12,15 Research on productivity in Denmark shows that depending on size, these companies have similar to higher factor productivity,4 so the ownership structure does not seem to lead to inefficiency. International research supports these findings, showing that this type of ownership also improves corporate financing by providing for higher creditworthiness, lower credit risk and lower interest rates,16,17 and a higher return on equity.18 

A win for the economy

As mentioned above, the ownership stability and long-termism of foundation-owned companies in Denmark result in an average higher risk aversion and a more steady mode of conducting business.6 This greater economic stability may have a stabilizing effect on the Danish economy in general and can prove to be an advantage for stakeholders such as employees, consumers, business partners and the general public through stable and more long-term tax payments.6 Furthermore, a positive spillover effect can be found from large, foundation-owned businesses on other firms in their sectors.11,5

Innovation hubs

Also, Danish foundation-owned companies make up more than 50 percent of the Danish private investments in research and development.6 This could lead to more innovativeness.19 These significant expenses in research and development seem to have a positive effect on the companies’ performance.4 

Positive effects on economy, employees, society and sustainability

Happy employees

Due to the reduced shareholder pressure, a higher leverage to build a more productive corporate culture with less emphasis on short-term profits is observed.9,15,20 On average, employees in these companies are paid slightly higher wages than in other companies.9 This could also be a strategy to secure the long-term survival of the company by attracting qualified and talented employees with better wages and good employer reputation. Furthermore, research and statistics show that total employment in foundation-owned companies is, on average, more stable than in other companies.9,21 The stability of employment does not only account for total employment, but foundation-owned companies also show higher employee retention rates.9,21 Besides being more stable and better paid, employment also tends to be more diverse in regard to gender and age.9,21

Good for society

From a societal perspective, equity being held in this way instead of privately could significantly lower wealth inequality. If the top 1% wealthiest in Denmark were to own foundation-owned companies instead, Danish wealth inequality would increase from relatively equal to relatively unequal compared to other OECD countries.22 Foundation charters often stipulate high ethical standards for the business, products and employees. This could also have positive spillover effects on other companies in their industries.11,6 It can also be argued that the resulting business behaviour, e.g. in terms of corporate social responsibility or employee treatment, explains the significantly better public reputation of such enterprises.9

Sustainability

Danish research also points to sustainability as a potential benefit and so does international research. Global empirical research shows that indeed foundation-owned companies consistently have higher environmental, social and governance (ESG) performance.23 A global literature review suggests that more stringent forms of ownership as exemplified by steward-ownership are required for reliably sustainable company behaviour.24

Good governance

Transitioning to steward-ownership requires a deep reflection on a company’s values, mission, purpose and long-term goals. Research further suggests that entrepreneurs in steward-owned ventures make more deliberate ownership choices, treating ownership as a core element of company design. While the governance structure of each steward-owned company can take on very different forms, the design process itself forces current owners and stakeholders to identify what the best solutions are for a company in the long-term. It can be argued that this can reduce internal conflict and team break up, given that questions around equity and power (often factors for conflicts) are addressed early on. Furthermore, steward-ownership can signal alignment to co-founders, employees, and investors which can help create purpose-driven partnerships early on.25

Steward-owned companies may also be better positioned to balance value creation with long-term exploration. The model allows for more flexible inclusion of diverse stakeholder groups in governance, which can strengthen representation and accountability. With a broader range of stewards helping define what constitutes “valuable” entrepreneurship, steward-owned ventures might benefit from a richer and more purpose-driven strategic discourse.25

Customer

Due to the reduced shareholder pressure, foundation-owned companies have more leverage to build a more productive corporate culture with less emphasis on short-term profits and more emphasis on customer satisfaction, integrity and collaboration.9,15,20

Furthermore, partners and consumers benefit from the improved service of a company in which employees and managers feel connected to and directly responsible for a company’s mission. This leads to long-term customer loyalty.

Looking for more research and reading on steward-ownership?

• Find academic articles, studies, and stay up to date with the growing research community: research-stewardownership.org
• Discover stories, resources, and more at: steward-ownership.com

Sources

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4. Børsting, C., Kühn, J., Poulsen, T. & Thomsen, S. The performance of Danish foundation-owned companies. (2014)
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17. Block, J. & Fathollahi, R. Foundation ownership and firm growth. Rev. Manag. Sci. 17, 2633–2654 (2023)
18. Schröder, D. J. Publicly listed foundation-owned firms around the world: An overview. Working paper. (2021)
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