This sustainable investment firm is now governed by a perpetual purpose trust

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Guest Author

Michael Kramer

As one of the earliest registered investment advisors exclusively dedicated to socially responsible, sustainable and impact investments since 1985, our financial advisor-owners of Natural Investments have always strived to walk the company’s talk. But despite becoming a founding Certified B Corp in 2007, a Certified Green America business, and a Public Benefit LLC, we could not escape the nature of its ownership. Owned exclusively by white men for 24 years, and 80% white men since 2009, we were long aware that the firm’s ownership didn’t match its values. 

This is the key reason that we recently formed a perpetual purpose trust and sold all shares to it. 

There aren’t yet 50 companies in the country that are owned by purpose trusts, but they offer an important solution to the problem of concentrated power and ownership within our economic system, a dynamic that eliminates small businesses, reduces competition, and only further perpetuates the gender and racial wealth gap.

As the first financial firm to have converted to a new type of trust ownership, Natural Investments instantly made it possible for anyone working in our firm to steward it as a strategic leader without going into substantial debt to purchase an ownership stake. Our longstanding tradition had always been to sell ownership shares to younger advisors, which we did in 2007 and 2017. But as we neared $2 billion in assets under management, our success brought with it a higher valuation and share price than many advisors could afford. We therefore needed to create an exit strategy for the founders and partners, facilitate governance succession, all while increasing the diversity of leadership to match our values and investment commitments.

Through the sale of the company to a trust that its advisors designed and established with the help of consultants at Purpose Owned, Natural Investments has codified its long-held practices, priorities and internalized style for how it operates. This assures that when the founders retire, the company’s purpose and values will be maintained in perpetuity, creating a vital sense of stability and security for all. It was essential to the now-exited partners to retain the firm’s independence given its unique culture and distinct values; selling to a larger firm or bringing in equity partners to buy owners out didn’t match these objectives.

In selling to a perpetual purpose trust, we instantly changed our governance and power dynamics. By removing the concept of individual ownership and their percentage-based voting power in favor of an advisor-elected Trust Stewardship Committee where each Trust Steward serves a term and has an equal vote, we have democratized its governance and reduced the power long-held by partners, adding new, younger, and more diverse leaders to help make strategic and financial decisions. The composition of the first Trust Stewardship Committee is 43% female and 29% people of color.

New guard

Bringing in new people as leaders also serves to mentor newer people who can take over the firm’s direction as veteran former partners transition out. This slow, deliberate succession process has been intentionally designed to be smooth while assuring that people who are steeped in the company’s values and management style will oversee the company in perpetuity. To those who’ve led the firm for decades, this graceful transition was far more important than maximizing personal profit. Natural Investments has had many offers from larger firms to fully purchase or take equity positions in the company that would have been more lucrative for the partners, but we opted for an approach that would preserve our autonomy and identity while maintaining internal financial control.  

Natural Investments borrowed a small percentage of money as a down payment on the sale from RSF Social Finance, an experienced impact community development financial institution. But the former owners are largely financing the transaction ourselves over time through both promissory notes and earnout, assuming the possible downside risk in so doing.  These decisions may be unusual within the financial industry but they are a reflection of our long-held belief in doing what’s best for the company.

Environmental, social, and governance, or ESG, criteria have long been how socially responsible and impact investors evaluate their investments. While the “E” and the “S” receive the majority of the focus both within companies and in society, the “G” is an essential aspect of corporate responsibility, for it is the realm where the rights, influence, power, and payment of workers, management and ownership intersect.  

Yet, while the global trend of investing in entities owned and managed by and benefiting employees and people of color is growing, there is frequently little attention paid by investment firms to their own governance and ownership. In fact, even in the impact investing industry, there are only about 100 registered investment advisors in the U.S. (out of 15,000+) who have been certified as B Corps, reflecting the clear need for more firms to walk their ESG talk.  

Some people, especially conservatives, often ask about what diversity in ownership and management has to do with making money. Aside from the questionable underlying presumption that a company exists solely for the purpose of making money, the simple truth is that diversity is a strategy for making more of it.

As McKinsey put it in its December 2023 report, “Diversity Matters Even More: The Case for Holistic Impact”: “Companies with greater diversity on their boards of directors are more likely to outperform financially. This correlation is statistically significant for both gender and ethnicity. Companies in the top quartile for board-gender diversity are 27 percent more likely to outperform financially than those in the  bottom quartile.”

Good governance is good for business. It is critically important that owners consider ways to improve the health and profitability of their businesses, particularly as succession plans are established. The perpetual purpose trust offers an outstanding way to accomplish that in concert with other sustainable and responsible business practices. We hope other firms will adopt this important ownership structure.

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Michael Kramer is Manager and Trust Steward of Natural Investments PBLLC and co-author of “The Resilient Investor.” He joined the firm in 1990 as a client, has been one of its investment advisors for 24 years, and was a managing partner for 16 years.

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