Her CEO Journey™: The Business Finance Podcast for Mission-Driven Women Entrepreneurs

Weekly show where my featured guests and I explore the financial and business challenges women face on the entrepreneurial journey to success. You'll hear them talk about the money side of their businesses in ways you've always wanted to know about, but wouldn't dare ask. They openly share their disappointments, failures, successes, and everything in-between as they grew sales ranging from 6 to 9 figures. Knowing where your business stands financially helps you make critical decisions with confidence. It's simply the best way to be sure you grow a business that fuels the life you want to live.

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episode 138: Steward Ownership: The Perpetual Trust Model - The Journey of Natalie Reitman-White [transcript]


As a mission-driven founder, you want to make sure that the mission and purpose of your business do not get lost over time. After all, you want your business for good to provide excellent products or services to your customers for years to come. Luckily, there are different ownership models you can explore. 

Alternative ownership or steward ownership is a concept that can help ensure that your company’s decision-making processes are in line with your mission. You can also ensure independence. In this episode, we’ll be exploring the perpetual purpose trust model with Natalie Reitman-White. Learn how the perpetual purpose trust can stock ownership and transfer it to a trust with a well-defined mission. Find out why this model allows you to share the profits and returns not only with your shareholders but also with your stakeholders. Finally, identify the considerations you’ll need to transition to the trust model in your business.

If you want to make sure your business stays on track for its purpose no matter what, then this episode is for you! 

Episode Highlights

  • [05:55] Natalie’s Journey 
  • [09:28] Organically Grown Company’s Growth 
  • [11:52] The Perpetual Purpose Trust Model 
  • [17:13] How the Trust Model Works 
  • [21:38] Balanced Stakeholder Representation 
  • [22:45] How Shareholders Come In  
  • [27:34] Investors in the Trust Model 
  • [29:59] How Conventional Business Models Work  
  • [33:13] Other Stewardship Models  
  • [36:15] The Golden Share Model
  • [39:45] How Purpose Should Drive the Company
  • [44:21] Transition to  the Trust Model 
  • [51:46] Changes in the Legal Structure
  • [53:24] Finding Investors to Support the Transition
  • [59:16] How to Look for Investors and Lenders 
  • [1:04:05] Know Your Purpose 

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Connect With Me

Ready to transform your purpose into an impactful business financial story, profit, and joy? Schedule a chat with me at any time.

Resources

  • Visit Christina Sjahli’s website! Learn more about alternative ownership through her Weekly Blog.
  • Rethinking Profit as a Business Owner and Using Your Business for Good with Steward Ownership
  • Download the Financial Modelling Guide so you can show investors how your company is going to look in the future! 
  • Organically Grown Company 
  • RSF Social Finance 
  • Natural Investments 
  • Purpose Evergreen Capital
  • The Russell Family Foundation
  • Kelley Foundation
  • Oregon Community Foundation 
  • Alternative Ownership Advisors: Website | LinkedIn 
  • Connect with Natalie: LinkedIn   


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 2021-10-21  1h7m
 
 
00:00  Natalie Reitman-White
I think
00:00
that where the mindset needs to
00:03
change is putting capital in
00:03
right relationship. The goal of
00:07
those ventures is to change the
00:07
world through what they're
00:11
offering. But capital needs to
00:11
understand that it's a input to
00:17
drive that purpose, that
00:17
maximizing the value to capital
00:23
is not the end goal. It's a
00:23
means to the end, but not the
00:27
end in itself. So capital needs
00:27
to be put in those businesses
00:31
and right relationships where it
00:31
doesn't steer the whole business
00:34
and steer the whole ship. The
00:34
purpose steers the business, and
00:37
the entrepreneurs steer the
00:37
business.
00:40  Christina Sjahli
When you build
00:40
the right structure and invest
00:42
the time, you can really
00:42
integrate purpose in every
00:45
decision consistently. You can
00:45
secure growth capital while
00:49
ensuring your mission would
00:49
never be compromised by the
00:53
needs of external stakeholders.
00:53
It is about shifting business
00:57
practices from value extraction
00:57
and short-term gain towards
01:01
stewardship, independence, and
01:01
long term purpose by disrupting
01:06
the relationship between power,
01:06
money, and the purpose of the
01:10
business.
01:11
That's the reason why we curated
01:11
this Alternative Ownership
01:15  Podcast Series
We want to
01:15
encourage you, as a
01:18
mission-driven founder, to
01:18
explore the alternative
01:21
ownership model and thinking
01:21
outside the traditional exit
01:25
strategy, so you can protect
01:25
your mission over the long-term.
01:29
By the end of this podcast
01:29
series, you will learn there are
01:33
other exit strategy option,
01:33
which likely more in alignment
01:38
with who you are as a
01:38
mission-driven female founder.
01:42
You will also have a good
01:42
understanding of key steps you
01:46
need to think about if you are
01:46
interested in alternative
01:50
ownership.
01:51
Alternative ownership is better
01:51
known as steward ownership. It
01:55
is not a new concept, but
01:55
steward ownership is more
01:58
popular in Europe than North
01:58
America. However, as more and
02:02
more founders realize that we
02:02
need to exercise conscious
02:06
capitalism versus traditional
02:06
capitalism, the movement of
02:11
steward ownership is on the rise
02:11
in North America. Last week's
02:15
episode, Episode 138 was the
02:15
first episode of Alternative
02:20
Ownership Podcast Series. And we
02:20
talked about what steward
02:24
ownership is, the stage of
02:24
business that should consider a
02:27
transition to steward ownership,
02:27
and the steps to get your
02:30
business ready for the
02:30
transition from traditional to
02:34
steward ownership.
02:35
Today's episode is the second
02:35
episode of the Alternative
02:38
Ownership Podcast Series. Our
02:38
guest is Natalie Reitman-White,
02:43
Ownership and Governance Advisor
02:43
at Alternative Ownership
02:47
Advisors, a firm specializing in
02:47
helping founders and owners of
02:52
private companies design and
02:52
implement ownership, governance,
02:56
and financing solution that
02:56
align with the mission and
03:00
protect independence. Prior to
03:00
joining Alternative Ownership
03:05
Advisors, Natalie held a few
03:05
important roles within
03:09
Organically Grown Company, a
03:09
US-based company, a pioneer in
03:13
sustainable organic agriculture
03:13
for over 40 years. More
03:19
importantly, Natalie led
03:19
Organically Grown Company from
03:23
an employee owner organization
03:23
to steward ownership,
03:27
specifically the perpetual
03:27
purpose trust model.
03:31
In this episode, Natalie shares
03:31
the important steps needed to
03:35
transition to perpetual purpose
03:35
trust, the type of investors,
03:39
the strategies used to find
03:39
investors, and the offering made
03:43
to investors, as well as the
03:43
capital structures that aligns
03:47
with steward ownership,
03:47
independence, and long-term
03:50
purpose.
03:51
You're listening to Her CEO
03:51
Journey, the business finance
03:54
podcast for mission-driven women
03:54
entrepreneurs. I'm your host,
03:57
Christina Sjahli. If you are new
03:57
here, a big warm welcome. If we
04:03
are not connected on LinkedIn,
04:03
please reach out and say hi,
04:06
because that's where I hang out
04:06
and share my business finance
04:10
tips. If you have been listening
04:10
to this podcast for a while, and
04:14
you are a regular listener, I
04:14
want you to know, I appreciate
04:18
you. My podcast won't be around
04:18
without your support. This is a
04:22
free weekly show where my guests
04:22
and I want to inspires you to
04:26
balance between mission and
04:26
profit, to create an impact in
04:30
this world, and to achieve
04:30
financial equality through your
04:34
business for good.
04:36
An investor, impact or not, is
04:36
still looking for some kind of
04:40
return. And it is your
04:40
responsibility, as a founder, if
04:44
you want to protect your
04:44
purpose, you need to show
04:47
investors how your business is
04:47
going to look like in the future
04:51
in terms of profitability, and
04:51
how are they going to receive
04:55
their return of investment, and
04:55
what makes sense for their
04:59
return of invest. After the
04:59
transition to steward ownership,
05:03
this is one of the critical
05:03
stuff. And financial modelling
05:08
can be your crystal ball. We
05:08
have created a guide to get you
05:12
started with your financial
05:12
modelling. Use the link in the
05:15
show notes to download the guide
05:15
and jumpstart your financial
05:19
modelling journey. And when you
05:19
are ready to build a
05:22
multi-scenario financial model,
05:22
we are here to partner with you.
05:27
Connect with us at
05:27
christinasjahli.com/lets-chat.
05:32
Natalie Reitman-White, welcome
05:32
to Her CEO Journey. It's a
05:35
pleasure to have you here today.
05:38  Natalie Reitman-White
Oh, thank
05:38
you, Christina.
05:39  Christina Sjahli
Before we
05:39
really dive into purpose-driven
05:42
perpetual trust, I want to start
05:42
with your journey and your
05:47
passion that led you to become
05:47
the Ownership and Governance
05:51
Design Advisor for Alternative
05:51
Ownership Advisors.
05:55  Natalie Reitman-White
Well,
05:55
it's definitely been unexpected.
05:58
I was actually pursuing my
05:58
graduate degree in sociology. I
06:03
grew up in Hawaii. And I'd seen
06:03
a lot of environmental
06:08
degradation throughout the South
06:08
Pacific, and also a lot of
06:11
poverty. And in my travels, as a
06:11
child, my parents were
06:15
physicians, and so they did a
06:15
lot of medical volunteering
06:17
across Asia and the Pacific. And
06:17
I was really concerned about the
06:22
state of the environment, and
06:22
kind of realizing that we have
06:25
all this environmental science
06:25
that's telling us that we need
06:28
to change our interaction with
06:28
the planet in order for the
06:32
planet to survive and thrive.
06:32
But it's really about changing
06:36
human behavior. And how do you
06:36
change social behavior?
06:39
I studied a lot about social
06:39
movement theory and
06:42
environmentalism, the history of
06:42
indigenous cultures and what
06:47
changed when we went towards
06:47
capitalism in terms of our view
06:51
of the environment as a,
06:51
something to be extracted from
06:55
versus something to be nurtured.
06:55
And so, I was very curious about
06:58
how you create a healthy economy
06:58
and a healthy society that lives
07:02
together in harmony with nature.
07:02
I studied a lot about social
07:06
movement theory and also a lot
07:06
about corporate behavior and
07:09
corporate structures and
07:09
governance and motivations.
07:14
In doing that work, I thought it
07:14
was going to be in academia. My
07:17
husband kind of challenged me.
07:17
Then he said, "Well, you know,
07:20
it seemed to really think that
07:20
the business is all part of the
07:23
problem." I said, "Yes." And he
07:23
said, "Well, have you ever tried
07:27
to work in a business and tried
07:27
to try to get it to behave
07:31
differently?" An opportunity
07:31
came up to work with Organically
07:36
Grown. They had just had a
07:36
summit around sustainability. It
07:39
was a advertisement that said,
07:39
you know, "We're the largest
07:43
distributor of fruits and
07:43
vegetables in the Pacific
07:46
Northwest, and we want to become
07:46
a more sustainable company.
07:49
We're looking for some students
07:49
to help us." And I thought,
07:53
well, you know, I don't know
07:53
they're a pretty big company.
07:56
And what kind of opportunity
07:56
will this be? And so I joined as
07:59
a underpaid, overqualified
07:59
intern. I already have my
08:03
master's degree. And I thought,
08:03
"Well, this job doesn't pay
08:07
much. And I'm not quite sure."
08:09
The thing that really attracted
08:09
me was the people, the group of
08:12
people there who seem to really
08:12
care about doing business the
08:17
right way, and they were in
08:17
search of how to do it better.
08:20
They're moving hundreds of
08:20
millions of pounds of food every
08:23
year. They're interacting with
08:23
hundreds of farmers, hundreds of
08:26
employees and joined Organically
08:26
Grown, helping them identify
08:30
kind of a baseline of their
08:30
practices. And then what would
08:33
it look like if they were fully
08:33
sustainable, and in compliance
08:37
with the principles of
08:37
sustainability, and how, for
08:41
example, eliminating fossil
08:41
fuels in their entire production
08:44
chain, kind of cataloging all
08:44
the company practices from seed
08:49
to plate, and looking at the
08:49
whole supply chain, and thinking
08:52
about ways to be more
08:52
environmentally conscious, and
08:55
also socially just. And the food
08:55
supply chain was a big deal. I
08:58
mean, food supply chains are
08:58
historically some of the lowest
09:02
paid jobs, the hardest labor,
09:02
longest hours, lack of
09:06
regulation. So there's really,
09:06
if you look at addressing food
09:09
system sustainability, there's a
09:09
lot of work to do.
09:12  Christina Sjahli
From the
09:12
sustainability role, you become
09:16
one of the most important role
09:16
in OGC's journey to become one
09:22
of the first companies in the US
09:22
to be owned by a purpose-driven
09:27
perpetual trust.
09:28  Natalie Reitman-White
Starting
09:28
off in sustainability, it was
09:30
about how do we change our
09:30
business practices, our products
09:34
and services to be more aligned
09:34
with good environmental
09:38
practices and social justice?
09:38
And so, really looking at how we
09:43
were farming, and then how we
09:43
were developing and distributing
09:46
the products. And I realize that
09:46
you can work on it in the
09:50
farming, you can work on it in
09:50
the products, but you also have
09:53
to look at how your company is
09:53
run. So who makes the decisions
09:57
and where does the money go? How
09:57
are we owned and financed? And
10:01
does that potentially pull us a
10:01
different direction?
10:04
And realizing that conventional
10:04
ownership models oftentimes are
10:09
misaligned with all of that
10:09
mission that you want to embed
10:15
throughout your business if
10:15
you're owned by a handful of
10:19
people who are not necessarily
10:19
actively involved in the
10:23
business, and there's the
10:23
potential to sell the business
10:28
to someone else who could take
10:28
control and drive the business a
10:31
different direction. All of that
10:31
good that you've built in the
10:34
infrastructure of the company
10:34
can really be shifted or
10:39
undermined by a change of
10:39
control in the business. And
10:43
also, one of the challenges for
10:43
businesses is, as you grow, the
10:49
value goes up, and where's the
10:49
value accruing? Who is sharing
10:55
and the value that's created?
10:57
You know, it's this whole supply
10:57
chain and all the people within
11:00
the business who are part of
11:00
building value of the business.
11:03
And is there a way for them to
11:03
participate in the value that's
11:07
being built? Because if you can
11:07
find ways for them to
11:09
participate, it actually becomes
11:09
this circle of reciprocity,
11:13
where they actually are
11:13
themselves benefiting from their
11:16
contribution, and they
11:16
contribute more. And so, I
11:19
actually think it's a very
11:19
strategic thing to think about
11:22
how businesses align all their
11:22
products and services with their
11:25
mission, align their people
11:25
around that. And then reward
11:30
their people and people in the
11:30
supply chain for furthering
11:34
that. I think that it can create
11:34
more growth and more innovation,
11:38
and more motivation over time.
11:41  Christina Sjahli
If you can
11:41
give like a description of what
11:45
is perpetual purpose trust?
11:45
Because a lot of my audience,
11:49
they don't understand what is
11:49
this all about.
11:52  Natalie Reitman-White
Traditional
11:52
ownership is held by
11:54
individuals. So individuals hold
11:54
stock via the founders who start
11:59
a company or investors who come
11:59
along. And as you hold that
12:04
stock, you have the rights to
12:04
two things: You have the rights
12:07
to the value of the company. And
12:07
as the value of the company goes
12:11
up, that's your property, and
12:11
you can sell the stock over
12:15
time. And you also have a right
12:15
to a portion of the profit
12:19
stream, potentially. So those
12:19
are called economic rights. And
12:22
then you also have governance,
12:22
right? So with your stock
12:26
typically comes the ability to
12:26
vote on the direction of the
12:29
company in the board of
12:29
directors.
12:31
The challenge over time is, as
12:31
you might have people who get
12:35
together and own a company who
12:35
really have a shared vision for
12:38
what they want the company to do
12:38
around its mission, its purpose,
12:42
its growth trajectory. Over
12:42
time, maybe people come and go,
12:45
or somebody needs liquidity and
12:45
needs to retire. And you need to
12:49
find the next appropriate owner
12:49
to hold the stock who will keep
12:53
the mission and the values and
12:53
the intact and still be good
12:56
stewards of the steering wheel
12:56
of the company, the direction,
13:00
and be in alignment with the
13:00
other owners. And so, what we
13:04
find is that over time, that can
13:04
be a challenge for businesses,
13:07
right? People will come and go.
13:07
You need to raise money. You
13:10
need to bring in some new folks.
13:10
And so, keeping everyone kind of
13:14
aligned over time can be a
13:14
challenge.
13:18
And so, what a perpetual purpose
13:18
trust does is it takes it away
13:22
from individuals. And you
13:22
actually transfer the stock
13:27
ownership into a trust. And the
13:27
trust that holds the common
13:31
stock, or the controlling stock
13:31
of the company, has a defined
13:35
purpose that you define from its
13:35
inception in terms of, as an
13:39
owner, it will direct the
13:39
company to carry out this
13:43
purpose. And so, you're
13:43
essentially designing a
13:47
benevolent owner that will never
13:47
die, never need liquidity, can
13:51
hold the stock into perpetuity,
13:51
and it is very clear for what
13:56
purpose you want the company to
13:56
be owned and what results you
13:59
want the company to deliver. In
13:59
that system, you can have people
14:03
come and go in their employment
14:03
for the company, have leadership
14:07
change over time, but the
14:07
purpose stays the same. And what
14:11
the board and the management is
14:11
accountable to stays the same.
14:14
So in some ways, it can be very
14:14
empowering for a management team
14:17
because they are not going to
14:17
have a change in future control
14:22
and owners that might say,
14:22
"Well, we wanted you to to
14:25
achieve these things. And now we
14:25
want you to shift to these
14:28
things." And so, in this case,
14:28
Organically Grown's trust is
14:33
focused on sustainable food and
14:33
agriculture. So it wants
14:36
Organically Grown to run a
14:36
healthy, profitable business
14:39
that furthers sustainable food
14:39
and agriculture. So the
14:43
management team has a lot of
14:43
leeway to develop all sorts of
14:47
products and services and vendor
14:47
relationships and customer
14:50
relationships over time. It can
14:50
be quite creative, so long as
14:54
they further sustainable food
14:54
and agriculture. So that's, on
14:58
the government side, it kind of
14:58
stops that treadmill of needing
15:01
to find the next mission-aligned
15:01
owners who will be the, continue
15:05
to steer the company in the same
15:05
direction. And instead, you have
15:09
a stewardship group that has the
15:09
trust that ensures that the
15:13
management has a commitment to
15:13
the end results to the purpose
15:17
over time.
15:17
And then on the money side, the
15:17
trust never needs any income. It
15:22
doesn't need to extract profit
15:22
for its own income because it's
15:26
not a person and it never needs
15:26
to liquidate. As you have a for
15:29
profit company owned underneath,
15:29
the company will generate
15:33
profits and grow. And the
15:33
company can simply take those
15:36
profits and reinvest those
15:36
profits back into the company to
15:41
share those profits with the
15:41
stakeholders as you go. So the
15:45
stakeholders such as employees
15:45
and farmers and the community.
15:50
In Organically Grown's case,
15:50
they're not owners; the trust is
15:53
the owner. But as the company
15:53
grows and is profitable, they
15:59
get to share in a portion of the
15:59
returns and the profits, which
16:04
can create a shared motivation
16:04
to participate and help it be
16:07
successful.
16:08
This way, you get the alignment
16:08
of the long-term kind of
16:11
mission, what the company is
16:11
about. iIt's not going away.
16:14
People know what they're working
16:14
for: They're working for a
16:16
shared purpose. And as they're
16:16
successful, and working towards
16:20
that shared purpose of
16:20
furthering the growth of
16:23
sustainable organic agriculture,
16:23
getting more products on
16:25
shelves, more of the community
16:25
eating this healthy food, they
16:29
get to share in the growth and
16:29
the profits of doing that good
16:33
work with each other as they
16:33
contribute. And when you leave
16:36
the company, you stop
16:36
participating in that, and the
16:39
next people who join get to
16:39
participate in the value that's
16:42
created.
16:43  Christina Sjahli
I'm trying to
16:43
wrap my head around this. A
16:46
trust owns Organically Grown
16:46
Company now. But a trust needs
16:52
to be managed by a group of
16:52
people, I'm assuming. And then
16:57
that group of people is going to
16:57
come and go. So there are still
17:02
like people involvement in
17:02
managing the trust. How is that
17:07
not influencing the management
17:07
of OGC?
17:13  Natalie Reitman-White
In a
17:13
traditional trust, you might
17:16
have individuals as been as
17:16
beneficiary. So think of like a
17:19
family trust, where the people
17:19
have the rights to the assets
17:23
under the trust. So over time,
17:23
they may want to cash in on the
17:27
assets or think about some
17:27
personal gain. In this case, the
17:31
trust, the beneficiary is
17:31
literally the purpose. So no
17:36
individual has rights to claim
17:36
the assets under the trust as
17:40
their personal property and to
17:40
influence the assets to be used
17:44
for their personal gain. So the
17:44
fiduciaries of the trust, the
17:48
trustees have to ensure that the
17:48
assets in the trust are used for
17:51
the purpose of sustainable food
17:51
and agriculture.
17:55
And you're right, you do have to
17:55
have what we call a stewardship
17:58
group. In these trusts, you have
17:58
a group of trustees who act as
18:03
stewards to ensure the assets
18:03
are being used for the purpose.
18:08
So you can't get rid of
18:08
governance, right? You have to
18:11
have an owner. But in this case,
18:11
the owner is a trust that's
18:16
represented by a stewardship
18:16
group that the management team
18:21
is accountable to and the board
18:21
is accountable to just like
18:24
shareholders, but the people in
18:24
the stewardship group can be
18:28
selected not because they had
18:28
the most money to invest as
18:31
shareholders, but they are
18:31
selected based on demonstration
18:36
of a commitment to the values
18:36
embedded in the purpose.
18:41
So the people who are in our
18:41
Trust Stewardship Council, I'm
18:44
actually one of them, have a
18:44
long history of working on
18:48
dustainable food and
18:48
agriculture, of running
18:51
businesses committed to
18:51
sustainable food and
18:53
agriculture. And so, they are
18:53
responsible for ensuring that
18:59
the management delivers results
18:59
to that. The management still
19:05
runs the company day to day,
19:05
makes all the decisions, the
19:07
strategic planning, the budget
19:07
decisions, but they have to
19:11
demonstrate that they're
19:11
furthering sustainable food and
19:14
ag to the trust, and if they're
19:14
not, the trust could step in and
19:19
replace the CEO via the board of
19:19
directors. But for the most
19:23
part, it's hands off and the
19:23
management runs the company and
19:28
delivers results to the purpose.
19:30  Christina Sjahli
And I'm
19:30
assuming that this group of
19:33
trustee has no financial benefit
19:33
to whatever or OGC performance.
19:40
And then are they compensated?
19:42  Natalie Reitman-White
Correct.
19:42
They don't have any financial
19:44
benefits there. They are
19:44
compensated for their time, just
19:47
like a board of directors would
19:47
be. They have a fiduciary
19:50
responsibility to make sure that
19:50
the company is in good standing
19:53
so that the asset is healthy
19:53
underneath, so we do look at the
19:57
financial reports from the
19:57
company, just like an owner
20:00
would, and we look at the
20:00
results to the purpose. And the
20:05
other interesting feature about
20:05
Organically Grown's trust, which
20:08
isn't true of all purpose
20:08
trusts, but OGC made this a
20:11
feature is that a balance of the
20:11
stakeholders actually elect the
20:15
trust protector committee,
20:15
Organically Grown actually made
20:19
it so that they have five
20:19
stakeholder groups: employees,
20:22
customers, vendors, which are
20:22
farmers, the community, and
20:26
investors. And they all share in
20:26
electing the trust protector
20:30
committee.
20:31
The employees have a important
20:31
part in making sure that the
20:36
company is heading the right
20:36
direction. They work there every
20:39
day; they put their life's
20:39
energy into the company. But if
20:43
it's just the employees, they
20:43
might start to just do things
20:46
that are good for the employees
20:46
and not focus on the customers.
20:49
Or similarly, investors can be
20:49
really helpful in bringing ideas
20:55
and financial acumen to the
20:55
table. Customers can be really
20:59
helpful in giving feedback about
20:59
why they do business with the
21:03
company. Vendors, the people who
21:03
supply the product, without them
21:07
being healthy and well taken
21:07
care of, you can lose your
21:10
supply chain, which is critical
21:10
to your work. The notion is that
21:14
you have a balance of people who
21:14
are participating in the
21:18
business coming together to
21:18
elect a trust protector
21:21
committee that holds the company
21:21
to the purpose over time.
21:25  Christina Sjahli
The board of
21:25
trustee, or this group of
21:28
trustee, is actually
21:28
representative, of each of the
21:33
stakeholders that you just
21:33
mentioned earlier.
21:35  Natalie Reitman-White
Correct.
21:35
Yep.
21:36  Christina Sjahli
Ah, that's
21:36
interesting.
21:38  Natalie Reitman-White
You've
21:38
seen some of this in Europe,
21:40
where there have been more calls
21:40
to say, "Well, it shouldn't just
21:44
be investors electing the board
21:44
of directors or sitting on the
21:48
board of directors. We should
21:48
have some sort of stakeholder
21:50
participation on the board of
21:50
directors, maybe an employee
21:53
seat, maybe a community seat, a
21:53
seat for people representing the
21:58
communities in which we
21:58
operate." In New Zealand,
22:01
there's been some calls to have
22:01
a seat on the board of directors
22:05
for nature. So that nature is
22:05
considered in the boardroom. And
22:08
so, in this way, we have a trust
22:08
protector committee that's
22:13
thinking about the stakeholders
22:13
that the business interacts with
22:16
and touches and affects every
22:16
day who are who are key to the
22:20
success of the business. And
22:20
they all get to participate in
22:24
electing a trustee group that's
22:24
there not just to represent
22:28
shareholder interest, maximizing
22:28
share value, but they're there
22:32
to represent the company
22:32
maximizing its purpose, and
22:35
that's who the leadership of the
22:35
company is accountable to.
22:40  Christina Sjahli
But at this
22:40
point, for the perpetual purpose
22:43
trust, there is no shareholders,
22:43
right?
22:45  Natalie Reitman-White
It's the
22:45
trust; however, you can, and OGC
22:49
did this, raise money at the
22:49
company level. So we have
22:53
non-voting preferred
22:53
shareholders at the company
22:56
level who can invest in
22:56
financial shares, so shares that
23:00
have an economic stake in the
23:00
company, but they aren't
23:03
entitled to control. So they
23:03
don't have the ability to sell
23:07
off the company or to influence
23:07
the purpose in the direction of
23:11
the company. They invest money.
23:11
And they have a share in a
23:15
portion of the income that the
23:15
company makes amongst other
23:19
stakeholders. So it's kind of
23:19
like employees bring their labor
23:22
into the company, and they get
23:22
their wages, and then they can
23:25
get profit sharing from the
23:25
company. Farmers bring their
23:28
product, and then they can get
23:28
profit sharing from the company.
23:32
Investors invest money, and then
23:32
they can get a dividend from the
23:35
company.
23:36
So again, they're one of the
23:36
stakeholders who's bringing
23:40
something of value to help the
23:40
company grow capital, and
23:44
they're getting a portion of the
23:44
value that's created. They're on
23:48
balance with others. So they
23:48
don't have outsized influence,
23:52
the ability to take over, or to
23:52
sell off the company away from
23:56
the purpose, but they have
23:56
ability to participate in the
24:01
income that's generated.
24:03  Christina Sjahli
Yes, so the
24:03
investor who invests directly to
24:07
OGC but they are not looking or
24:07
seek for this 10x or hockey
24:14
stick growth. What they receive
24:14
as part of their investment is
24:19
dividend. And it's not that exit
24:19
strategy, big lump sum of money
24:26
that they receive in the end. Is
24:26
that correct?
24:28  Natalie Reitman-White
Correct.
24:28
Yep, they're getting an income
24:31
as the company grows and is
24:31
successful, but they're not
24:35
getting a big exit when the
24:35
company goes public or sells,
24:39
consolidates and sells to
24:39
another larger company. Because
24:43
that's not the goal. The goal is
24:43
for the company to continue to
24:45
be owned by its purpose into
24:45
perpetuity.
24:49  Christina Sjahli
Basically, if
24:49
the owner is the trust, there is
24:53
no way anybody can sell this
24:53
company?
24:56  Natalie Reitman-White
Correct.
24:57  Christina Sjahli
And then the
24:57
investor, is there like a
25:00
certain limit on how much return
25:00
they can receive from their
25:06
investment? Or their return of
25:06
investment can be forever and
25:12
ever?
25:12  Natalie Reitman-White
There is
25:12
no limit. Since there's not this
25:15
opportunity for, say the company
25:15
has tremendous growth. And in a
25:20
traditional model, you might
25:20
have four times your original
25:23
investment when you go to sell
25:23
your stock. Since there's not
25:26
that potential for upside, so
25:26
basically, you invest $5,000.
25:30
And when you want to take your
25:30
money out in the future, you get
25:33
your $5,000 back, but while your
25:33
$5,000 is in, you're earning a
25:38
dividend over time. Since
25:38
there's not that potential of
25:41
upside on your original
25:41
investment, your $5,000, you
25:44
know, doesn't become 20. So
25:44
since there's not that
25:47
potential, what we did was, we
25:47
set a baseline return, so a
25:51
minimum return. So the baseline
25:51
return is 5%. So you will at
25:56
least get a 5% dividend every
25:56
year. And in the year that the
26:01
company can't produce that, it
26:01
will pay you that dividend in
26:04
the future. So that's like a
26:04
minimum baseline return that you
26:08
will get on your investment.
26:09
And then in addition to that,
26:09
you have shared upside, so you
26:14
have the potential for
26:14
additional profit sharing on top
26:17
of that 5% that is unlimited.
26:17
But that upside, we say is
26:23
shared because that's the same
26:23
pool that the employee profit
26:27
sharing comes from, that the
26:27
farmer profit sharing comes
26:30
from, that the community
26:30
dividend comes from. So the
26:33
upside pool of dividends is
26:33
shared across the stakeholder
26:37
group. So that's where I was
26:37
talking about shared motivation,
26:40
is that if the company does
26:40
well, it's not just the
26:43
investors getting all the
26:43
upside, but the employees get
26:47
some of the upside, the
26:47
community gets some of the
26:50
upside. We paid out the baseline
26:50
dividends last year. And we did
26:54
a few percentage points above
26:54
that for the investors. And the
26:59
employees get a chunk of profit
26:59
sharing, and there was a half a
27:02
million dollars in community
27:02
giving.
27:04
So it's like a waterfall. We
27:04
call it the cash flow waterfall
27:08
of, as the company does well, it
27:08
flows out to these different
27:12
stakeholder groups. So some
27:12
people might say, "Well, my
27:16
investment is limited because
27:16
there's no opportunity for me to
27:19
sell my stock in the future for
27:19
a lot more than I bought it for.
27:23
On the other hand, I get a
27:23
minimum baseline return and the
27:27
opportunity for an upside that
27:27
is never capped and is shared
27:32
across stakeholder groups."
27:34  Christina Sjahli
This is only
27:34
works for a certain type of
27:38
investor, isn't it? Like it's
27:38
not the general public investor
27:43
does it?
27:43  Natalie Reitman-White
Well, we
27:43
were surprised, you know, we set
27:46
out to to fundraise. And we were
27:46
able to raise 11 and a half
27:50
million dollars in about 18
27:50
months. And what we found was a
27:56
lot of investors are thinking
27:56
about a constellation of value.
28:00
So they're thinking about a
28:00
return, for sure. But they're
28:03
also thinking about how the
28:03
return is made and where the
28:08
return is coming from. And I
28:08
think this notion that the
28:12
return is coming from a business
28:12
that is delivering results to
28:17
the purpose first, and then its
28:17
profits are a means to the end,
28:20
but not the end in itself. But
28:20
the end is this company is
28:23
putting more acres in
28:23
sustainable food production and
28:26
getting more sustainable food on
28:26
the shelves and paying farmers a
28:30
good return and creating jobs in
28:30
the community that the
28:33
stakeholders get to share in the
28:33
return.
28:35  So people think of it as
"I'm
28:35
making an investment. But I can
28:39
actually measure and see the
28:39
impact." Because a lot of
28:41
companies talk about having an
28:41
impact, but they're still owned
28:44
in a traditional way. The
28:44
investors get all the upside,
28:47
and the investors get to sell
28:47
the company. Versus in this
28:50
model, the value is actually
28:50
shared. So I think a lot of
28:54
investors are attracted to
28:54
putting their money where their
28:57
mouth is to say, "Hey, if I do
28:57
well, others also do well in
29:02
this system." And so, being
29:02
attracted to that holistic
29:05
approach.
29:06
And also, I think some of them
29:06
see it as risk protection.
29:11
Because if you do well and
29:11
others do well at the same time,
29:15
they're going to be motivated to
29:15
continue to keep the thing
29:18
healthy and going. You know, a
29:18
lot of employees, if they just
29:22
work for some absentee
29:22
shareholder, what's the
29:24
motivation? "Oh, the harder I
29:24
work, the more they get. And
29:27
they have all the control, and
29:27
they can sell the business at
29:30
anytime they want, and my job
29:30
might go elsewhere." Versus:
29:36
"This business can't be sold,
29:36
and if I work for this, then I
29:40
get to share." So I think it's
29:40
there's potentially a lower
29:44
upside but reduced risk.
29:48  Christina Sjahli
Because I want
29:48
to become a valuable asset for
29:52
OGC, and if I'm becoming part of
29:52
owner too, somehow and then get
29:56
the profit sharing, that's even
29:56
better. It might.
29:59  Natalie Reitman-White
Yeah,
29:59
yeah. Yeah, so I think there's
30:01
actually a lot of loss of
30:01
productivity, creativity, and
30:05
innovation, by not harnessing
30:05
that power of finding a way to
30:10
design the company to share the
30:10
upside with the people who are
30:13
contributing the value. A farmer
30:13
is going to want to bring their
30:16
product to us first if they know
30:16
that Organically Grown shares
30:21
its profit back with the
30:21
farmers. Similarly, employees
30:26
are gonna want to stick with us,
30:26
give give us their labor, help
30:28
contribute, if they know that
30:28
they get to share. So I think it
30:32
actually creates some strategic
30:32
advantage for the company's
30:35
growth and performance and
30:35
reduces risk for investors, you
30:38
know, so much.
30:39
So many companies, traditional
30:39
companies have an antagonistic
30:42
relationship between owners and
30:42
labor. The shareholders are
30:47
oftentimes not involved in the
30:47
business. So they're directing
30:52
management to say, "I expect
30:52
these kinds of returns." But
30:56
then management is having to
30:56
turn around and squeeze labor or
31:00
squeeze vendor relationships, or
31:00
even make some short-term
31:03
decision that create a quarterly
31:03
profit, but aren't long-term
31:09
sustainable. And that's where
31:09
you see these booms and busts in
31:12
businesses, where they'll do
31:12
extremely well, and then they'll
31:16
fail because management was
31:16
making decisions to drive
31:21
short-term gains for a group of
31:21
shareholders versus thinking
31:25
about the long-term. And in this
31:25
model, management knows that
31:29
there's not going to be a change
31:29
in control, that it's owned by
31:32
the purpose. And that they need
31:32
to keep the company healthy to
31:35
keep generating dividends over
31:35
time that benefit all
31:40
stakeholders that becomes this
31:40
engine. So there's this
31:43
motivation and this pressure to
31:43
create a quarterly or annual
31:49
return at the expense of the
31:49
future is not there, there's not
31:53
that pressure.
31:54  Christina Sjahli
And then the
31:54
truth is, Natalie, if you think
31:56
about it, startup that becomes
31:56
the unicorn, they really focus
32:01
and in business because of
32:01
pressure from investors and
32:04
shareholders. And I'm trying to
32:04
get my head wrapped around it.
32:08
As I'm doing more research about
32:08
startup, and how startup works,
32:12
and how does all this unicorns
32:12
can get this big exit, what I
32:16
realized is that it really focus
32:16
on hypergrowth on the top line,
32:21
because that is what matters to
32:21
the shareholders and investors.
32:26
But where is the profitability?
32:26
Because at the end of the day,
32:29
if there is no profitability,
32:29
all the other stakeholders are
32:33
not being taken care of. Where
32:33
is the long-term gain instead of
32:38
short-term gain like that, what
32:38
you mentioned?
32:40
Absolutely what you are saying
32:40
and sharing today is like
32:44
resonate with me all the way.
32:44
And I really hope this is
32:49
something that my audience can
32:49
learn. Now, I also understand
32:54
that there are other options of
32:54
steward ownership, right? There
32:59
is cooperative. There is
32:59
employee-owned. There is the
33:03
golden share model. Why did all
33:03
OGC choose the trust ownership
33:10
instead of the other three
33:10
models?
33:13  Natalie Reitman-White
Organically
33:13
Grown, over its 40 years,
33:15
actually experimented with
33:15
direct employee ownership as
33:19
well as cooperative ownership.
33:19
Some of the reasons why those
33:25
didn't fit was one, cooperative
33:25
ownership tends to be by one
33:29
stakeholder group. So a
33:29
cooperative is either
33:33
employee-owned company, worker
33:33
cooperative, or a consumer
33:38
cooperative, which would be you
33:38
know, like some of the grocery
33:40
stores that you might go to that
33:40
are co-op; they're owned by the
33:44
people who shop there. Or say, a
33:44
farmer cooperative, the
33:48
producers. And OGC kind of
33:48
realize that its success was
33:53
built not just on one
33:53
stakeholder group, but on
33:57
balancing the interests and
33:57
needs of multiple stakeholder
34:01
groups.
34:02
So if you just focus for
34:02
example, on the customers:
34:07
getting them, the lowest prices
34:07
you can get for healthy organic
34:11
food might actually undermine
34:11
the farmers and their ability to
34:16
be successful. On the flip side,
34:16
if you just focused on the
34:20
farmers and getting them the
34:20
highest prices that you could
34:23
get for the food, you might lose
34:23
all your customers. So
34:26
Organically Grown plays this
34:26
middle role of trying to help
34:32
the farmers plan production to
34:32
understand what they could grow
34:35
to get the best value, and to
34:35
help them get the best quality
34:39
product. So OGC has invested
34:39
over time and agronomic services
34:43
and packing infrastructure and
34:43
all these things to help the
34:46
farmers get the best, most
34:46
affordable product. On the other
34:50
hand, OGC has helped the
34:50
customers market the value of
34:54
their food and merchandise the
34:54
food on that side.
34:58
Similarly, your workers always
34:58
interested in getting the most
35:02
they can get out of the system,
35:02
but they need to also be put in
35:06
balance with how much profit the
35:06
company needs to retain, to stay
35:09
healthy, and to reinvest in
35:09
itself, and how much needs to be
35:14
reinvested in the supply chain
35:14
and the equipment and the
35:17
infrastructure.
35:19
So OGC felt that employee
35:19
ownership can give the employees
35:25
all the control and potentially
35:25
not pay attention to the needs
35:29
of the business. A cooperative
35:29
ownership model, if you went
35:33
with consumers, or farmers could
35:33
maybe put too much control in
35:38
their hands at the expense of
35:38
running the business. So we
35:42
moved away from direct
35:42
shareholding by any stakeholder.
35:47
None of the stakeholders have
35:47
control on their own and can
35:50
drive the business in their
35:50
direction. The purpose holds the
35:55
equity. And the trustees and the
35:55
management team have to run a
35:59
great company that benefits,
35:59
that is successful in growing
36:04
and distributing the best
36:04
products benefiting the
36:07
stakeholders on balance and
36:07
thinking about a balance of
36:10
their needs.
36:11  Christina Sjahli
What about the
36:11
consideration for the golden
36:14
share model?
36:15  Natalie Reitman-White
Golden
36:15
share can be a very effective
36:19
model, especially for startup
36:19
companies. So oftentimes, in
36:22
startup, you've got founders who
36:22
are putting in a lot of sweat
36:26
equity that they need to be paid
36:26
back for. They need the
36:29
opportunity for upside. And you
36:29
might have early investors who
36:34
also need an opportunity for
36:34
upside, because the company is
36:37
not going to be profitable for
36:37
some time. So they're going to
36:40
need to be paid back in the
36:40
future. Looking for so many X
36:45
return might be appropriate to
36:45
get investors to invest in and
36:50
motivate the founders and the
36:50
early investors.
36:54
A golden share is more of a
36:54
traditional model in terms of
36:57
investing and then in the future
36:57
getting a return. However, the
37:02
difference in a golden share is
37:02
you assign a golden share to a
37:06
purpose steward who ensures that
37:06
the company is never sold away
37:11
from the purpose. So in the
37:11
future, you can have investors
37:15
paid back, founders paid back by
37:15
either the company redeeming
37:20
their shares with the cash flows
37:20
of the company. So at some
37:23
point, the company becomes
37:23
profitable, it saves the cash,
37:26
and it buys out the investors or
37:26
the founders. Or you can have
37:30
new people invest. But no one
37:30
can take the company away from
37:34
the purpose and sell it away
37:34
from the purpose. The golden
37:37
shares a way of locking in the
37:37
purpose and making sure that
37:40
never changes even when you have
37:40
investors coming and going in in
37:45
a more traditional sense.
37:47
The other key feature with most
37:47
golden shares is there's usually
37:50
a pre-determined at some point
37:50
when the shares will be
37:53
redeemed. So it's not this
37:53
runaway hockey stick, but it's,
37:58
"Hey, we will guarantee you a
37:58
portion of the income once the
38:02
company starts becoming
38:02
profitable. We will give you a
38:05
portion of of the profits until
38:05
you achieve 5x. And then your
38:10
shares are fully redeemed." So
38:10
it's a way for the company to
38:13
move towards self ownership like
38:13
a trust, but have the upside for
38:18
investors, but move towards
38:18
self-ownership and have the
38:21
purpose protected over time.
38:24  Christina Sjahli
Then for OGC
38:24
case, or Organically Grown, this
38:27
is not suitable because
38:27
Organically Grown has been
38:30
around for 40 years before it
38:30
transitioned to the perpetual
38:35
trust, correct?
38:36  Natalie Reitman-White
Correct.
38:36
In Organically Grown's case, it
38:39
already had a track record of
38:39
business profitability. Not
38:43
every year, right? There's
38:43
variability but because it
38:45
already had that, there wasn't a
38:45
need to have investors have to
38:49
wait to get a future return. The
38:49
company could start sharing a
38:53
return as it went, which was
38:53
sharing as you go. Because
38:57
anytime you make a promise to
38:57
pay somebody back in the future,
39:01
that creates a liability, right?
39:01
That you have to start driving
39:04
towards that. And that's why
39:04
oftentimes, golden shares, have
39:07
a cap and an agreement to once
39:07
the company is profitable, you
39:12
will get this until you reach
39:12
this and then you're redeemed.
39:15  Christina Sjahli
Which is I
39:15
think in a way, it stops that
39:19
mentality of hypergrowth because
39:19
the goal is to move towards
39:23
profitability.
39:25  Natalie Reitman-White
But to
39:25
not become the unicorn because
39:27
the unicorn often puts
39:27
unrealistic pressures on the
39:31
management team to grow the
39:31
company in a way that oftentimes
39:36
is boom or bust. Right? So it's
39:36
like some people benefit if they
39:39
get out at the right time but
39:39
then other people are left
39:42
holding the bag.
39:43  Christina Sjahli
Exactly. No I
39:43
hear you.
39:45  Natalie Reitman-White
It's not
39:45
necessarily sustainable for the
39:47
purpose. Because of the purpose,
39:47
what is the purpose of your
39:50
company? Is it to create
39:50
products and services that
39:53
benefit the community, that
39:53
benefit humanity, society in
39:57
some way? If that is your goal,
39:57
then that Where you should focus
40:00
your time and energy. But what
40:00
happens in these kind of more
40:05
unicorn scenarios is, you might
40:05
start off with a purpose, like
40:08
we're designing some technology
40:08
product that is going to make it
40:12
easier for people to access
40:12
their health care results or get
40:16
tested for COVID. I don't know,
40:16
I'm just throwing it out there.
40:18
But if you get a bunch of
40:18
investors who want the hockey
40:21
stick return, the focus of the
40:21
management team stops being on
40:25
creating the best product and
40:25
service to fulfill that purpose;
40:28
it's more about what are the
40:28
decisions that I can make to
40:31
drive the hockey stick. And so,
40:31
that's where you see CEOs and
40:36
management teams getting into
40:36
trouble that they start to, to
40:39
not do as well.
40:40  Christina Sjahli
They're
40:40
normally creative.
40:41  Natalie Reitman-White
Exactly.
40:41
And how many companies do we
40:46
know that used to we like, as
40:46
consumers, we really valued the
40:51
quality of the product and the
40:51
thoughtfulness of what went into
40:55
it, maybe how they sourced the
40:55
ingredients or how they produce
41:00
the product. But then you have
41:00
new investors come in, and it's
41:03
about driving maximum
41:03
profitability. So the company
41:06
starts to cut corners with the
41:06
ingredients, and you find out
41:09
that the product is no longer
41:09
produced where you thought it
41:12
was. And it's cheaper and
41:12
cheaper labor, cheaper and
41:14
cheaper inputs, and it loses the
41:14
quality and the values that you,
41:19
as a consumer, were willing to
41:19
pay for. So you lose trust in
41:24
the products and services. So to
41:24
me, that's part of the danger of
41:29
the unicorn type situation is
41:29
it's not that people are bad
41:32
people, it's that they start
41:32
changing their decision-making
41:37
based on trying to achieve the
41:37
hockey stick. And it can
41:41
undermine the business model.
41:43  Christina Sjahli
Exactly. And
41:43
the real why they started the
41:47
business at the very beginning.
41:47
I think it's really going back
41:52
to that mentality about
41:52
long-term, instead of
41:55
short-term. It really go back to
41:55
there.
41:58  Natalie Reitman-White
I think
41:58
that where the mindset needs to
42:00
change is putting capital in
42:00
right relationships. So there's
42:05
a economist called John
42:05
Fullerton who writes about this.
42:09
Capital is extremely important
42:09
in growing a business, and
42:12
business is this tremendous
42:12
engine for entrepreneurship to
42:16
solve the problems that we have
42:16
in society, to meet the needs of
42:19
society. When I started this
42:19
interview talking about in terms
42:23
of people learning to have a
42:23
good quality of life and a good
42:27
society and live in harmony with
42:27
nature, the engine of
42:30
entrepreneurship can help us
42:30
achieve that. You know, the
42:34
alternative energy fields, the
42:34
people creating sustainable
42:37
agriculture, sustainable
42:37
packaging, sustainable textiles.
42:42
That entrepreneurship to create
42:42
products and services can be a
42:46
tremendous driver of the change
42:46
we need. But the capital that
42:51
finances those ventures needs to
42:51
be in right relationship. The
42:54
goal of those ventures is to
42:54
change the world through what
42:58
they're offering. But capital
42:58
needs to understand that it's a
43:04
input to drive that purpose. But
43:04
maximizing the value to capital
43:11
is not the end goal. It's a
43:11
means to the end, but not the
43:15
end in itself. So capital needs
43:15
to be put in those businesses
43:19
and right relationships where it
43:19
doesn't steer the whole business
43:22
and steer the whole ship. The
43:22
purpose steers the business. And
43:25
the entrepreneurs steer the
43:25
business, because they're the
43:27
ones who are bringing the
43:27
spirit. Capital is there to
43:31
support and enable and get a
43:31
return on balance with the
43:35
purpose and other stakeholders,
43:35
but not take the lion's share
43:40
and control and then steer it
43:40
the wrong direction.
43:43  Christina Sjahli
Absolutely. I
43:43
cannot agree more. I mean, you
43:47
have to see capital as a tool.
43:47
It shouldn't be the main driver.
43:52
Instead of, the way I see it,
43:52
putting the capital to create a
43:58
better world for everybody. It's
43:58
just my personal opinion. Okay.
44:03
So I know the transition to
44:03
trust ownership is not easy. I
44:09
wonder if you can share what
44:09
exactly Organically Grown
44:15
Company went through for this
44:15
transition? What are those
44:20
steps?
44:21  Natalie Reitman-White
There
44:21
were 45 people who owns the
44:23
company, own shares in the
44:23
company. It was as corporation.
44:26
Plus an employee stock ownership
44:26
plan owned part of the company.
44:31
So an ESOP. The big challenge
44:31
for Organically Grown was the
44:36
shareholders, when they exited
44:36
the company, were owed fair
44:41
market value. It was something
44:41
that was set up with the ESOP
44:44
plan. So every year the company
44:44
would do a valuation and then
44:48
every time an employee left the
44:48
employee stock ownership plan,
44:50
they were owed that that value.
44:50
Then shareholders could sell
44:54
their shares to other
44:54
shareholders.
44:56
It created a tension. One was
44:56
the potentional for the any
45:01
shareholder or the employee
45:01
stock ownership plan to sell the
45:05
company to the outside, because
45:05
if someone from the outside was
45:08
willing to offer way above fair
45:08
market value of, say, three
45:13
times fair market value, you'd
45:13
be tempted to sell the company
45:16
because that would maximize your
45:16
share value. And so, the danger
45:20
there was that the new owner
45:20
might come along and really get
45:24
the mission and priorities and
45:24
principles and just take the
45:27
brand and take all the business
45:27
that OGC had built and change it
45:31
right to make more money. So
45:31
that was the big threat that we
45:35
were facing was Organically
45:35
Grown was worth more and more
45:38
and more; our valuation kept
45:38
going up and up. And more people
45:44
wanted to potentially acquire
45:44
the company. We wanted to figure
45:49
out how to protect against that.
45:51
And the other thing with fair
45:51
market valuation is it's based
45:55
on your own success. So your own
45:55
growth, but it's also based on
46:00
what similar companies are
46:00
selling for in the market. So
46:04
Organic has experienced a ton of
46:04
consolidation. So the grocery
46:09
industry, the distribution
46:09
industry, all of the organic
46:13
food brands, many of them have
46:13
been bought for multiples that
46:17
are crazy multiples, like 20
46:17
times their revenue, or EBITDA.
46:22
That is really an unrealistic
46:22
expectation, but it was driving
46:26
the valuations so high. So you
46:26
can actually, if you want to
46:29
stay independent, and you want
46:29
to stay self owned, it can
46:34
become a challenge for you
46:34
because there's this more and
46:37
more pressure to sell the
46:37
company out because the
46:39
valuation is getting so high and
46:39
so overinflated. And you can be
46:43
stuck using a lot of your
46:43
company cash flows to do stock
46:47
buyback versus reinvesting in
46:47
the business and the mission and
46:52
sharing with stakeholders. So we
46:52
wanted to get off this
46:54
treadmill.
46:55
We researched what models could
46:55
keep the company independent,
47:00
focused on the purpose, where
47:00
returns would be shared amongst
47:04
the people who are actively
47:04
involved in the business. And we
47:08
could raise capital, but raise
47:08
capital in a way that capital
47:12
would be supportive, but not
47:12
takeover. So that's where we
47:16
landed on the trust model. So we
47:16
decided to do a tender offer to
47:20
buy back all of the existing
47:20
shares from the shareholders.
47:24  Christina Sjahli
The 45
47:24
investors and the ESOP?
47:27  Natalie Reitman-White
So we
47:27
raised over $20 million to buy
47:32
back the shares and transfer
47:32
them to a trust. We did that
47:37
through a traditional leveraged
47:37
buyout. So just like when you
47:40
might have shareholders in a
47:40
company who wants to buy out a
47:43
partner, because the partner is
47:43
ready to exit or maybe it's a
47:47
private equity firm that's out
47:47
their time, or what have you.
47:50
Sometimes companies will use
47:50
their own cash, or sometimes
47:53
they'll borrow some money. So we
47:53
borrowed money from RSF Social
47:57
Finance to buy back a portion of
47:57
the shares. And then the other
48:01
thing that we did was we issued
48:01
this non-voting preferred stock.
48:05
So a stock that, as I described
48:05
earlier, people invested in and
48:09
they get a portion of the
48:09
dividends over time, but it's no
48:12
longer tied to this fair market
48:12
valuation and the ability to
48:17
sell the company.
48:18
We recapitalize the business.
48:18
The entire cap table, we bought
48:23
back the shares, move them into
48:23
a trust and recapitalize the
48:26
business through a combination
48:26
of debt and preferred equity.
48:30
And then we've been paying down
48:30
the debt over time, and the
48:34
preferred equity is still on the
48:34
books, and we owe the preferred
48:38
equity a dividend. What our
48:38
finance team liked about this
48:42
is, we know how much we owe, and
48:42
how much we owe is reasonable to
48:48
our cash flows.
48:50
So with valuations that changed
48:50
year to year, that's based on
48:55
what's going on in the
48:55
marketplace, you can have a lot
48:57
of variability. So your your
48:57
valuation can go up by 100% in
49:01
one year. And so, if you want to
49:01
stay independent and buy back
49:05
your shares, that's a lot more
49:05
burden on the company. But if we
49:09
know that we're going to buy
49:09
back the shares one time, and
49:12
then we're going to be done, we
49:12
pay down those loans, and the
49:15
company is self-owned. And then
49:15
we just have that outstanding
49:19
dividend. It's predictable. We
49:19
know we owe a minimum of 5%. And
49:23
then upside, we share with the
49:23
investors and the employees.
49:28
It's not based on future
49:28
projections; it's based on
49:32
actual results as we go.
49:34  Christina Sjahli
I agree like I
49:34
mean, the predictability, it
49:37
helps. And then also with
49:37
valuation that is going up and
49:39
down. I used to work for a real
49:39
estate company. And in real
49:43
estate, the building, the asset
49:43
that company own is like up and
49:47
down, up and down. And at the
49:47
end of the day, if you look at
49:50
the profit and loss, there is
49:50
that non-cash gain from your
49:55
asset that is going to be like
49:55
increasing your profitability at
50:00
some point. And then maybe
50:00
another time when the industry
50:03
is not doing so well, it just
50:03
drop.
50:06
So in this case, like what you
50:06
are explaining, the fact that
50:10
there is dividend that you have
50:10
to pay and then Organically
50:14
Grown understand how much they
50:14
need to pay, it's easier to
50:17
really plan for the future.
50:19  Natalie Reitman-White
If
50:19
there's a downside to there's
50:21
some protections built in. So
50:21
for example, if we have a
50:24
downside year, we do not have to
50:24
pay the dividends in that year.
50:28
We can put it off to the future.
50:28
So there are some protections
50:32
built in to protect the company
50:32
so that it is more equity-like
50:37
than debt-like on the preferred
50:37
side. On the debt side, we do
50:41
owe the principal and the
50:41
interest every year. But that
50:45
was a seven-year loan amortized
50:45
over I think, 10 years, and we
50:49
only took on enough debt that
50:49
would be, like we did a lot of
50:52
financial modelling. It was very
50:52
doable for us to pay that back.
50:56
So we didn't over-leveraged the
50:56
company with taking on loans or
51:02
equity that couldn't be paid
51:02
unless we always knocked it out
51:05
of the park. We did it so that
51:05
it was we could do it even in a
51:09
challenging year, we would be
51:09
okay.
51:12  Christina Sjahli
So step one,
51:12
basically, you have to find a
51:16
way to buy back the existing
51:16
investors and employees stock
51:22
option. What about step two?
51:24  Natalie Reitman-White
Step two
51:24
is now you're owned by the
51:27
trust. You're paying down the
51:27
debt that you took on to finance
51:30
into it, and then you're paying
51:30
your dividend to investors, and
51:34
then over time your debt is paid
51:34
back, and all you have is this
51:37
outstanding dividend to
51:37
investors that you pay every
51:39
year.
51:40  Christina Sjahli
What about the
51:40
legal structures? Do you have to
51:43
make changes to the legal
51:43
structure?
51:46  Natalie Reitman-White
One of
51:46
the benefits, we changed from S
51:48
Corporation to a C Corporation.
51:48
And the benefit there was in an
51:51
S Corporation, you can only have
51:51
one class of stock. So all your
51:55
investors have the same exact
51:55
rights, economically and
51:59
governance-wise. And in the C
51:59
Corporation or an LLC, you can
52:04
actually make different member
52:04
classes or different classes of
52:07
stock. And we find that this is
52:07
very helpful in a stewardship
52:10
model. Because you can assign
52:10
different rights to different
52:15
classes.
52:16
So for example, in the trust
52:16
model, the trust has all the
52:19
control rights. They have the
52:19
governance rights, the common
52:23
stock, the ability to direct the
52:23
company, and refuse a sale. The
52:30
preferred stock, which is a
52:30
different class of stock, has
52:33
economic rights, so a right to a
52:33
baseline and then an upside
52:36
dividend.
52:37
So similarly, in a golden share
52:37
model, you might have investors
52:42
who get certain economic rights,
52:42
so we will start paying you 80%
52:48
of the company profits once we
52:48
become profitable until you
52:51
reach three times your original
52:51
investment, and then you're
52:55
redeemed. And you might issue a
52:55
class of founder shares for
52:58
their sweat equity. And you can
52:58
say you're going to get paid
53:02
this portion of the profits in
53:02
the future until you reach X.
53:06
And then you can also issue
53:06
governance share. So okay, the
53:10
golden share will be held by a
53:10
stewardship group that will
53:13
ensure that the company stays on
53:13
track to the purpose.
53:17  Christina Sjahli
How difficult
53:17
was it to find an investor to
53:22
support this transition?
53:24  Natalie Reitman-White
When we
53:24
first started talking to lenders
53:28
about doing a leveraged buyback
53:28
to transition our ownership, we
53:33
found that most lenders were
53:33
primarily concerned with our
53:36
ability to pay back the loan. So
53:36
they didn't really care about
53:39
what the purpose was for,
53:39
whether we're building a new
53:41
facility or buying back
53:41
investors. It was more about our
53:45
ability to repay the loan and
53:45
have the collateral should the
53:49
loan, should we default.
53:51
So on the lender side, the debt
53:51
side, it was pretty
53:54
straightforward. However, we
53:54
were interested in thinking
53:58
about supporting a lender that
53:58
wasn't just a traditional bank,
54:01
but also looking for a lender
54:01
that was values aligned. And so,
54:07
that was a challenge for us,
54:07
because the amount that we were
54:10
looking for $10 million, the
54:10
smaller kind of community-based
54:14
banks and cooperatives and
54:14
community development financial
54:19
institutions don't have that
54:19
many that much money to lend.
54:22
Most of them are looking at
54:22
smaller loans.
54:25
However, we were able to meet
54:25
with RSF Social Finance and
54:28
convince them over time to
54:28
stretch their loan limit. So
54:31
they had a loan limit that was
54:31
lower than what we needed. But
54:35
after talking to them about this
54:35
project, and then going back to
54:39
their loan committee and their
54:39
board, they decided to up their
54:42
loan limit for us to be able to
54:42
make this happen and the reason
54:46
why we wanted to support them is
54:46
they are nonprofit that has
54:51
individuals put money into
54:51
deposits there. And then they
54:55
turn around and they loan that
54:55
money out to organizations that
54:59
are aligned with sustainable
54:59
agriculture and furthering the
55:02
principles of RSF. And so, we
55:02
thought that if we're going to
55:07
pay money to someone through a
55:07
loan, we'd like it to be to that
55:10
organization and to the
55:10
individuals who choose to
55:12
deposit with them.
55:14  Christina Sjahli
You receive 10
55:14
millions from RSF Social
55:18
Finance? What about the other 10
55:18
million?Because you said you
55:21
borrowed 20.
55:22  Natalie Reitman-White
In our
55:22
non-voting preferred stock, w
55:26
raised 11 and a half millio
55:26
dollars. And that was a privat
55:30
offering that we marketed vi
55:30
individuals in the company. S
55:36
we talked to trade partners an
55:36
relationships that we ha
55:41
already, and then the
55:41
introduced us to other friends
55:43
and so forth. And we ended u
55:43
having 82 different investor
55:48
participate in that 11 and
55:48
half million dollars. What w
55:51
were excited about was it's
55:51
very diverse group
55:54
So we have individual impact
55:54
investors who live in our
55:59
region, and like the work that
55:59
we do, supporting farmers in our
56:02
region, and go to the grocery
56:02
stores where the food that we
56:06
distribute is. And so, they
56:06
wanted to invest in a local
56:10
business in their backyard can
56:10
continuing to do good work. So
56:14
they saw it not just as an
56:14
investment, but also something
56:17
that would benefit something
56:17
they use every day. It's the
56:20
people in our community.
56:22
We also had impact investors
56:22
that came to us through
56:25
financial advisors. For example,
56:25
Natural Investments was one of
56:29
our partners. Their network of
56:29
financial advisors, that helps
56:34
individuals invest in
56:34
alternatives to the stock
56:38
market. So preferred stock, and
56:38
for example, Organically Grown
56:43
or an alternative energy company
56:43
or an organic food company, or
56:48
maybe something like RSF Social
56:48
Finance, where they're
56:50
diversifying their portfolio
56:50
into independent, sustainable
56:55
businesses and organizations. So
56:55
that was another source of
57:00
investment.
57:01
We also had some funds invest.
57:01
So there's a Purpose Evergreen
57:06
Capital, which is a fund out of
57:06
Europe. They have a portfolio of
57:11
steward-owned companies that are
57:11
in different sectors that are
57:15
committed to these principles of
57:15
independence and shared returns
57:19
with stakeholders. And they give
57:19
their investors a blended return
57:24
from those investments. So
57:24
similar to a private equity
57:27
fund, but a fund that plans to
57:27
stay invested for the long-term,
57:32
to not flip the funds after five
57:32
years or seven years, but just
57:36
stay invested in a portfolio of
57:36
companies and get a an evergreen
57:40
dividend over time.
57:42
We also had some family offices
57:42
participate. So people who have
57:47
large amounts of wealth, who
57:47
have a family office that's
57:50
looking for alternative
57:50
investments. And we find that
57:53
the impact investment world is
57:53
starting to shift from just
57:56
looking for ESG companies that
57:56
are publicly traded to actually
58:01
looking for unique private
58:01
companies that are creating this
58:05
kind of deep impact, like
58:05
Organically Grown. And the
58:08
family offices can make a
58:08
variety of commitments for
58:12
different time horizons and have
58:12
a lot more flexibility than
58:15
maybe a fund manager who has a
58:15
fund with the life of X that
58:20
they need to pull out all the
58:20
investments at X time. Instead,
58:23
a family assets can say this one
58:23
is shorter, this one is longer,
58:26
this one is this return, and
58:26
they can kind of blend it.
58:30
And then last, we also had some
58:30
foundations invest. So we had
58:35
the Russell Family Foundation,
58:35
as well as Oregon Community
58:39
Foundation, and the Kelley
58:39
Foundation. They're looking for
58:44
opportunities to not just donate
58:44
money to things that are aligned
58:48
with their mission, but also
58:48
look to start to invest money to
58:52
things that are aligned with
58:52
their mission, because then they
58:54
can make money and give more
58:54
money out.
58:58  Christina Sjahli
If my audience
58:58
are interested to basically
59:01
transition to steward ownership,
59:01
and then one of their bottleneck
59:06
is looking for lenders and
59:06
investor, where would you
59:10
suggest they should start to
59:10
look for the lenders and the
59:15
investors?
59:16  Natalie Reitman-White
The first
59:16
thing is, just like you do with
59:19
any investment, really doing a
59:19
solid business model and
59:23
business case for you know, what
59:23
are your products and services?
59:26
What are your margins? How do
59:26
you plan to grow? And locking
59:29
all that in. You have plans to
59:29
change the world, how are you
59:32
going to do that successfully?
59:34
From that really developing kind
59:34
of a multi-year financial model
59:38
that's not based on just returns
59:38
to capital, but like what do you
59:43
actually need to capitalize your
59:43
business and grow your business
59:47
in a sustainable way? How much
59:47
do you want to reinvest in your
59:50
business and share with your
59:50
stakeholders? So to really kind
59:53
of map that out.
59:54
And then input into your model.
59:54
What is the capital I need for
59:58
this? What would be reasonable
59:58
return to capital with my
1:00:02
ability to reinvest in the
1:00:02
business share with, you know,
1:00:05
myself as a founder and some of
1:00:05
my stakeholders?
1:00:08
So that way you're having the
1:00:08
conversation about what the
1:00:11
business needs, and then how
1:00:11
capital will be an input and get
1:00:17
a return versus what I think
1:00:17
some entrepreneurs do is, you
1:00:21
have your idea, and then you go
1:00:21
to the market, and you say,
1:00:25
"What is the cost of capital?"
1:00:25
And then you design your whole
1:00:28
business model to be able to
1:00:28
kind of contort to the returns
1:00:32
that investors expect, even if
1:00:32
that doesn't really fit your
1:00:35
business. And that's when you
1:00:35
get into trouble is you make
1:00:38
promises or you try to, to
1:00:38
change your business model so
1:00:42
much to meet the needs of
1:00:42
capital versus creating a
1:00:45
sustainable business and then
1:00:45
saying, "Where does capital fit
1:00:49
in? And how do I pay it back
1:00:49
reasonably, and then find
1:00:53
investors who are willing to
1:00:53
participate?"
1:00:56
It might be that when you first
1:00:56
start talking to folks, they
1:00:59
say, "No, I, you know, I only
1:00:59
invest in things that achieve
1:01:02
X." But you say, "Well, but
1:01:02
you're interested in the sector.
1:01:06
And here's why this return is
1:01:06
appropriate. It gives you kind
1:01:10
of the footing to demonstrate."
1:01:10
And you might have a lot of
1:01:13
conversations and people say,
1:01:13
"Not interested." But then some
1:01:16
people start to get interested.
1:01:16
And then maybe you have some
1:01:20
back and forth negotiation with
1:01:20
them. And then they introduce
1:01:23
you to some others and some
1:01:23
others. And over time, you have
1:01:26
a lot of conversations, and
1:01:26
eventually you find those people
1:01:29
who are enthusiastic about your
1:01:29
mission, what you're trying to
1:01:33
do, and they buy into your
1:01:33
model, and think it's
1:01:37
reasonable, and then they
1:01:37
convince others.
1:01:40  Christina Sjahli
How long did
1:01:40
it take OGC to find this various
1:01:45
investors and lender?
1:01:47  Natalie Reitman-White
It took
1:01:47
us 18 months to raise $11
1:01:50
million. I think the big thing
1:01:50
for us was telling our story. So
1:01:54
talking about who we were, what
1:01:54
our mission is, how we produce
1:02:00
real results to it, and how we
1:02:00
need capital to further that.
1:02:04
And then telling the story about
1:02:04
how we modelled where capital
1:02:08
would participate and what a
1:02:08
reasonable return to capital
1:02:11
would be.
1:02:12  Christina Sjahli
Did you have
1:02:12
to hire a business valuation
1:02:16
third-party to value OGC at the
1:02:16
time?
1:02:20  Natalie Reitman-White
We did at
1:02:20
the time of the transaction,
1:02:22
yes. But then moving forward, we
1:02:22
don't have a need for annual
1:02:26
evaluation, which is huge. Like
1:02:26
we used to pay $30,000 a year
1:02:31
for annual evaluation, and the
1:02:31
whole management team would have
1:02:34
to spend a lot of energy on it.
1:02:34
We're done with that. We're on
1:02:37
higher purpose; we're not for
1:02:37
sale. We're on higher purpose;
1:02:41
we're not for sale. We have to
1:02:41
keep the company healthy and
1:02:43
profitable, produce results, and
1:02:43
then we share it out through the
1:02:47
cash flow waterfall. So our
1:02:47
equity is held by our purpose.
1:02:50
And it's it's not for sale. And
1:02:50
we can just, you know, share as
1:02:54
we go.
1:02:55  Christina Sjahli
Did you have
1:02:55
to go through the normal due
1:02:57
diligence process with investors
1:02:57
and lenders?
1:03:01  Natalie Reitman-White
Yes, even
1:03:01
though the structure of the
1:03:04
return was set in the preferred
1:03:04
stock through this baseline, and
1:03:08
then a shared upside and the
1:03:08
cash flow waterfall, investors
1:03:11
still wanted to make sure that
1:03:11
the story we were telling about
1:03:15
business and our financial
1:03:15
modelling was reasonable. So our
1:03:20
lead investors and RSF Social
1:03:20
Finance did diligence, just like
1:03:25
you would have in any
1:03:25
investment. Many of the other
1:03:28
investors relied on the
1:03:28
diligence of the lead investors.
1:03:32
It's very much like a
1:03:32
traditional investment: You have
1:03:34
to create a pitch deck, who you
1:03:34
are, what you're trying to
1:03:37
achieve, what the financial
1:03:37
model is, and then finding
1:03:41
investors who are attracted to
1:03:41
what you're offering.
1:03:45  Christina Sjahli
Natalie, this
1:03:45
has been a great learning, even
1:03:50
for me. And is there anything
1:03:50
else that I haven't asked or you
1:03:55
want to share with my audience
1:03:55
in terms of steward ownership or
1:04:02
the purpose-driven trust that
1:04:02
they need to know?
1:04:05  Natalie Reitman-White
I think
1:04:05
fundamentally, it comes down to
1:04:08
structuring your ownership in
1:04:08
alignment with why your business
1:04:13
exists and why you're starting
1:04:13
your business. And what are my
1:04:16
goals? And if your goals are not
1:04:16
just to drive shareholder value,
1:04:22
but to drive other values, how
1:04:22
do you make sure that you're
1:04:27
designing your business to
1:04:27
prioritize delivering results to
1:04:32
those values? And then how do
1:04:32
you put capital in right
1:04:36
relationship with that? You
1:04:36
still need capital to run your
1:04:40
business. You're gonna need to
1:04:40
take on loans or equity, and so
1:04:44
forth, but you need to make sure
1:04:44
that it is structured so that
1:04:49
the returns to that are part of
1:04:49
the overall success towards that
1:04:55
purpose. And if you structured
1:04:55
in a right relationship, it can
1:04:58
be incredibly powerful.
1:04:58
Investment is one piece of the
1:05:02
puzzle but not the driver.
1:05:04  Christina Sjahli
How important
1:05:04
is it for steward owners
1:05:09
business to have a strong
1:05:09
financial foundation, strong
1:05:13
financial processes in place?
1:05:16  Natalie Reitman-White
Oh, it's
1:05:16
essential. Just because you have
1:05:19
a sustainability mission doesn't
1:05:19
excuse you from running a good
1:05:23
business. You still have to run
1:05:23
a good business because without
1:05:27
a good business, there is no
1:05:27
mission. You fundamentally, as
1:05:32
somebody who wants to run a
1:05:32
sustainable business, you have
1:05:35
to run a good business that will
1:05:35
survive and thrive without
1:05:41
needing crutches of lots of
1:05:41
external capital. You need to
1:05:45
figure out the fundamentals. And
1:05:45
that's how you deliver results
1:05:49
to your purpose. Because if you
1:05:49
can't grow, you won't have the
1:05:52
impact that you want. So you
1:05:52
need to fundamentally have a
1:05:56
strong, solid business to
1:05:56
further your purpose.
1:06:01  Christina Sjahli
Natalie, it
1:06:01
has been an absolute pleasure to
1:06:05
have you here. Where can my
1:06:05
audience find you?
1:06:09  Natalie Reitman-White
Well, we
1:06:09
have a consultancy that helps
1:06:13
companies consider whether
1:06:13
steward ownership is right for
1:06:16
them, and then explore various
1:06:16
steward ownership models. And
1:06:21
then if you're interested design
1:06:21
ownership and governance and
1:06:25
financial structures that will
1:06:25
align with your purpose, and
1:06:28
it's called Alternative
1:06:28
Ownership Advisors. And we can
1:06:31
be found at
1:06:31
alternativeownershipadvisors.com.
1:06:35  Christina Sjahli
Natalie, thank
1:06:35
you so much for being here.
1:06:37  Natalie Reitman-White
Thank
1:06:37
you, Christina. It's been a
1:06:39
pleasure.
1:06:40  Christina Sjahli
And that's
1:06:40
bring us to the end of another
1:06:42
show. Thank you so much for
1:06:42
listening to another episode of
1:06:46
Her CEO Journey, the business
1:06:46
finance podcast for women
1:06:50
entrepreneurs. If you want to
1:06:50
create a proactive financial
1:06:54
plan and process for your
1:06:54
business, so you are ready to
1:06:58
weather the financial storm over
1:06:58
the next few months, let's chat
1:07:03
and see what's possible for you.
1:07:03
Book in a time to speak with me
1:07:07
at
1:07:07
christinasjahli.com/lets-chat.