Origins and Future of the Ownership Economy
Cooperatives and mutual companies are being reimagined in a explosion of organizational designs that are built on more inclusive economics and governance.
I.) The Ownership Economy - Background
The concept of the “Ownership Economy” builds on a long and storied history of mutualization, whereby varying groups of stakeholders have come together to share risk and rewards. Producer, consumer, and worker cooperatives have existed for centuries, offering each stakeholder group a means to tweak the economics within the organization to minimize costs and collaboratively share business success. Cooperatives predominantly contain a one-member, one-vote governance structure alongside profit/dividend sharing schemes as part of their organizational DNA. More recently, entire new classes of organization structures have come into vogue. “Benefit corporations” are now a class of for-profit entities, legal in 35 US states, that allows for companies to pursue a “positive impact on society, workers, the community and the environment” alongside financial value creation. LC3s, or low profit limited liability companies espouse similar organizational ideals while fitting the legal framework required to receive program related investments (PRI). Finally, the last sixty years has seen a steady increase in the proportion of firms utilizing ESOPs, ISO, and RSUs within traditional organization structures to better incentive and align employee and company success.
Abstractly, one way of considering these early attempts at early organizational structures is an optimization problem in sharing governance rights and earning mechanisms more broadly. The challenge these early organizational forms face in today’s world is that the definition of who creates value within a firm, and even what a firm is, has broadly changed. Firms like AirBnb, Uber, Upwork, and Amazon all have employee stock option programs in place. Such programs, even if granted to all employees, which they are not, would only cover a small portion of the stakeholders that create value on these platforms.
II.) Shared Governance and Ownership v1.5
Traditional organizational models that include governance rights and earning mechanisms for stakeholders have more recently given way to a “Cambrian explosion” of organizational structures enabled by blockchain technology. These platforms are unbundling the corporate structure, and designing stakeholder incentives that choose specific earning mechanisms and governance rights, rather than adopting a one size fits all model. Among these new trends, are:
Platform Cooperatives: Drivers Cooperative, Savvy Cooperative, and Stocksy Cooperative are examples of digital communities that are applying an alternative to traditional digital platforms but with a large portion of ownership owned by stakeholders.
Coin and Token Enabled Protocols and Companies: A growing number of venture-backed companies and protocols are utilizing tokens, built on layer one cryptocurrency protocols (such as Ethereum and Solana) to incentivize and evangelize early adopters. These models shift early allocation of founder and investor shares to community members and stakeholders, with the belief that these broadly shared incentive structures will lead to vertiginous growth and competitive moats.
Distributed Autonomous Organizations: While the platforms mentioned above are attacking the economics of traditional business models to share success more broadly, decentralized autonomous organizations are fundamentally reimagining human coordination toward shared outcomes. These completely flat, open, transparent, grassroots organizations allow individuals to rapidly coordinate around a common mission or goal. DAOs completely reimagine governance rights and allow global organizations to be built overnight on top of blockchains. They enable human coordination based on underlying protocols that quickly allow attracting talent, pooling capital, and governing transparently. Yet, despite their phenomenal growth over the past twelve months, it remains unclear if DAOs are an effective way to create long-term financial value for stakeholders.
III.) Moving to Ownership and Governance 2.0 – “Marginal Stakeholder Incentive Alignment”
At their core, these new organizational design innovations seek to fix a macroeconomic reality that is glaringly obvious in a world awash with cash: capitalism is broken, and inequality levels cannot be sustained. At the core of this macroeconomic problem is a microeconomic reality; many who create value with and for both private and public companies are not participants in the “cap table”. As such, in a world awash with QE and fiat currency expansion and defined by loose macroeconomic policy, a small segment of society grows capital through ownership, exacerbating inequity.
Given these distributional outcomes, the current market for positive societal outcomes leaves a lot to be desired. Despite the vertiginous growth of ESG and impact investing, inequality remains at all time intra-country and intercountry highs. Blockchain, DeFi, NFTs, and other third wave trustless protocols, are increasingly playing critical roles in incentivizing large groups of non-employee actors to create long term company value. To this end, participation as owners or co-creators within online protocols and platforms could provide meaningful quality of life improvements in western democracies, not to mention developing economies. The challenge today remains in the coordination and transaction costs of affecting a stakeholder incentivization program.
Funding and growing companies with smart stakeholder incentive programs is an art that can be refined into a science over time and will result in unprecedented market cap and wealth creation. Moreover, any stakeholder incentive program tied to earning mechanisms of governance rights should incentivize behaviors that align with firm value creation. And while broadly shared earning mechanisms and governance rights (tokenization, dividends, transactional incentives) are here to stay, as time goes on a finite set of mechanisms will prove to be the most effective in aligning broader stakeholder involvement with firm value creation. This is true because there is a finite number of ways that companies can be valued in the market. GMV & take-rate models, attention, and recurring revenue are examples of a few of the core metrics that underpin thousands of competitive businesses today.
The time is ripe to reimagine stakeholder rights, namely the right to earn through an organizational structure and the right to participate in governance of that structure, through value creating actions. As coordinating costs continue to fall, more and more businesses will choose stakeholder incentive programs as a way of more effectively engaging value creating stakeholders in business co-creation.