Aligning on governance

Implement an alternative way of owning and governing companies that creates maximum value for all stakeholders

The Breathe Approach for companies is designed to maximise their ability to successfully fulfil their Purpose in the most efficient and effective manner whilst serving the needs of all stakeholders, including the people within the organisation

Most companies today are owned and controlled by shareholders. The logic is that all other stakeholders are protected by law (employees for example) or that their interests are being taken care of by other parties outside of the company (taking care of nature for example). It is, however, evident that this assumption is incorrect. On balance, most companies do create (significant) financial value, but it has come at the expense of the planet and society.

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The model where only financial stakeholders govern the company (within the boundaries of the law) is not sustainable. Hence, a "voice" must be given to the other relevant stakeholders in the company's governance.

Companies should start to assume integral responsibility for the impact they have on planet and society. This impact becomes explicit by defining a clear purpose that explains a company's contribution towards its stakeholders. A new governance blueprint is needed to support and anchor purpose in a company. Or, in the words of Colin Mayer, the purpose of governance is the governance of purpose.

To put purpose central in a company, we should look at who gets a seat at the table. Voting rights must not only be given to the shareholders but also to the other stakeholders of the company. Who these stakeholders are and how big their vote should be, depends on the impact the company has on society and the environment. In our governance model, economic rights are separated from voting rights. Shareholders do have a vote, but they don’t have majority voting rights which would enable them to push through decisions that are in their interest only. Other stakeholders, such as society and the environment, are also represented in the governing entity of the company.

Where the governance model is leading, the legal form should support. However, as laws differ by country, there is no one single blueprint for a legal structure that is suitable for all jurisdictions and circumstances. It is therefore important to note that an evolving legal framework may also lead to new insights and solutions. Nonetheless, there are already many examples of legal forms that are not purely shareholder-owned nor solely profit-driven.

One form that has proven to work in many jurisdictions is a foundation. In the Board of a Foundation, multiple stakeholders, besides the financial investors can be represented. Furthermore, decisions can be made not based on simple majority voting rights but based on achieving optimal solutions that create ‘broad value’ for all stakeholders.

The method used for this is called "integrated decision making", which is not to be confused with consensus-based decision making. In this highly structured 5-step process, decisions can only be rejected if it is detrimental to the company's purpose, thus avoiding that one stakeholder abuse its position to either force through decisions (like in shareholder-controlled models) or stall decision making (like in consensus-driven models).

There are many examples of Foundation controlled companies, a large proportion of which are also listed at a stock exchange. Financial stakeholders are evidently comfortable with this model, and there is increasing proof (and consensus) that stakeholder governed companies create at least as much financial value as shareholder-controlled companies, but at lower risk and with a higher contribution to society and the planet.

Breathe is co-founder of Home.Earth, a real estate development company that is raising over €200 million of capital with institutional investors based on these governance principles. This demonstrates that also investors are increasingly comfortable with new governance models in which they don't have the ultimate control, provided that (1) their financial interests are adequately taken into consideration and (2) the company can very clearly articulate which other stakeholders are relevant for the company and how their "voice" will be taken into account.

To read more about the other four components of the Breathe Approach – Purpose, Structure, Capital and Culture – have a look over here.