Foun­da­ti­ons as shareholders

There are nume­rous bene­fits to having a foun­da­tion as the owner of a company. Delphine Bottge, lawyer and acade­mic fellow at the Univer­sity of Geneva’s Centre for Phil­an­thropy , has published a new study on foun­da­ti­ons as shareholders.

 ‘A foun­da­tion is a long-term share­hol­der by nature – which has nume­rous bene­fits for the company and its other stake­hol­ders,’ says Delphine Bottge. Espe­ci­ally when it comes to estab­li­shing family gover­nance, or finding a succes­sor for a foun­der who respects their vision, for exam­ple. It’s a model that can take many forms, but it’s not the ideal solu­tion in every case: ‘The over­ri­ding inten­tion is key,’ she explains. The forma­tion of the foun­da­tion, its struc­ture and gover­nance always need to be carefully plan­ned. Bottge is a lawyer and has been conduc­ting rese­arch on the topic at the Centre for Phil­an­thropy at the Univer­sity of Geneva for the last five years. She recently published a book entit­led Les fonda­ti­ons action­n­aires en Suisse (Foun­da­ti­ons as share­hol­ders in Switzerland).

The founder’s vision

As part of her rese­arch, Delphine Bottge inves­ti­ga­ted a sample group of 106 foun­da­ti­ons in Switz­er­land that are stake­hol­ders in over 2,000 compa­nies. Share­hol­der foun­da­ti­ons (also known as holding foun­da­ti­ons) do not consti­tute a sepa­rate legal cate­gory in their own right. ‘The term refers to a foun­da­tion owning a major stake in one or more commer­cial compa­nies, inde­pen­dent of the foundation’s statu­tory objec­ti­ves,’ clari­fies Delphine Bottge, quoting a state­ment by the Fede­ral Court.  A share­hol­der foun­da­tion can have public inte­rest as its objec­tive. Owning shares can be one of the foundation’s means of achie­ving its statu­tory objec­ti­ves, by using the divi­dends gained in its role as a share­hol­der. It can have an econo­mic objec­tive, such as the conti­nua­tion of the company, in which net profits are reinves­ted. Its objec­tive can also be a combi­na­tion of the two. The rela­ti­onship between the foun­da­tion and the company can take many forms (whole or partial owner­ship, along­side family share­hol­ders or inves­tors, direct owner­ship of the company or owner­ship via a holding company, etc.). Whate­ver the format, says Bottge, the struc­ture of a foun­da­tion makes it a long-term share­hol­der by nature: ‘A foun­da­tion doesn’t have an owner; it’s run by a board in accordance with its statu­tory objec­ti­ves, and there’s very little room for mano­eu­vre when it comes to these objec­ti­ves.’ This ensu­res that the foun­da­tion stays true to its founder’s vision. It also guaran­tees stabi­lity and consis­tency for the company in ques­tion, even in times of crisis. Bottge cites recent studies indi­ca­ting that compa­nies owned by foun­da­ti­ons have a longer life­span than most compa­nies and are more resi­li­ent during peri­ods of crisis.

The bene­fits

When a foun­da­tion is a company share­hol­der, it is not compel­led to try and maxi­mise the company’s short-term reve­nue. As compa­nies owned by foun­da­ti­ons are not driven by the same need to pursue profit at all costs, they are much more likely to invest in rese­arch and deve­lo­p­ment, and ensure favoura­ble working condi­ti­ons for their employees. ‘This model seems to have a posi­tive impact on employee moti­va­tion, too. Employees tend to be more stron­gly inves­ted in the corpo­rate culture, the company and its foun­der,’ notes Bottge. She also high­lights another bene­fit: ‘Foun­da­ti­ons prio­ri­tise the founder’s vision and preserve the company’s inde­pen­dence. They also ensure that the company remains rooted in the local area.’ Accor­ding to Bottge crea­ting a share­hol­der foun­da­tion can also prove advan­ta­ge­ous when it comes to estab­li­shing family gover­nance. The foun­da­tion takes on the role of media­tor and unifier with regard to family share­hol­ders over multi­ple gene­ra­ti­ons. The gover­nance prin­ci­ples can be set out in a family char­ter, which also estab­lishes provi­si­ons for selling company shares. ‘The foun­da­tion itself can pursue a public inte­rest objec­tive and act as an agent for carry­ing out the family’s phil­an­thro­pic aims.’

 Not for everyone

The sector in which the company opera­tes makes no diffe­rence – as a survey of around 2,000 Swiss compa­nies has shown: ‘There’s a very broad spec­trum, inclu­ding in terms of company size, ranging from start-ups to SMEs to multi­na­tio­nals,’ says Bottge. The foun­da­ti­ons own compa­nies both in Switz­er­land and abroad, some of which are listed on the stock exch­ange. The survey included promi­nent brands such as Lindt & Sprüngli, Victo­rinox and Rolex, l’École hôte­lière de Lausanne, Ethos, the daily news­pa­per Le Temps and the foot­ball club Servette FC.

There are nume­rous chal­lenges, howe­ver, as Bottge obser­ves: ‘Struc­tu­ring the project takes times, as it’s crucial to fully under­stand and set out the inten­ti­ons behind it, inclu­ding taking into account all entre­pre­neu­rial, fami­lial and perso­nal conside­ra­ti­ons, and the values of the foun­der.’ The conti­nua­tion of the company gene­rally depends on its success when it was mana­ged by its origi­nal foun­der – often based on their own perso­nal charac­ter – as well as on the quality of the gover­nance and manage­ment struc­tures in place, and is rooted in the company values and a certain degree of finan­cial stabi­lity. Bottge also stres­ses the importance of respec­ting any finan­cial and succes­sion requi­re­ments (forced heir­ship). Howe­ver, she remains convin­ced of the bene­fit of the model, as long as it is set up with care: ‘Recent studies show that compa­nies owned in whole or in part by a foun­da­tion perform the same as clas­sic family-owned busi­nesses – and have a grea­ter socie­tal impact.’

Setting up the model

The company doesn’t neces­s­a­rily have to be crea­ted before the foun­da­tion. ‘Some foun­da­ti­ons expand their profit-making acti­vi­ties by crea­ting a “subsi­diary” consis­ting of a company in which the foun­da­tion is the sole share­hol­der, with the aim of diver­si­fy­ing and sustai­ning the sources of funding for their public inte­rest acti­vi­ties,’ explains Bottge. The approach works well in the context of social enter­pri­ses, too: ‘Rejec­ting a model that prio­ri­ti­ses share­hol­der profits above all else and opting for one that combi­nes profit-making and non-profit mind­sets is parti­cu­larly rele­vant for social enter­pri­ses, which have flou­ris­hed over the past two deca­des. Having a share­hol­der foun­da­tion is a parti­cu­larly effec­tive approach if you want to unite both finan­cial and non-finan­cial objec­ti­ves.’ This struc­ture gene­rally meets the needs of all the company’s stake­hol­ders – suppli­ers, employees and society as a whole. ‘The model also allows compa­nies to pursue strong, consis­tent phil­an­thro­pic goals,’ adds Bottge. Switz­er­land is not the first to imple­ment this model; it is wide­spread in Scan­di­na­vian count­ries in parti­cu­lar. Brands such as Carls­berg and Lego are owned by foun­da­ti­ons, for exam­ple. ‘In Denmark, half of the listed compa­nies are owned by foun­da­ti­ons,’ says Bottge. ‘Thanks to pionee­ring entre­pre­neurs, the model is also beco­ming incre­asingly popu­lar in count­ries where there has tradi­tio­nally been a strong cultu­ral divide between busi­ness and phil­an­thropy, such as France.’