Community Wealth Building Though A Commons Equity Society

A New Way of Building Community Capital, Allocating Shared Surplus & Developing A Conducive Context For Placed Based Wellbeing

by Joshua Malkin, Mark Drewell and Sebastian Parsons   

A commons [1] is a way to express a very old idea—that some forms of wealth are foundational to the wellbeing of life and belong to all of us; and that these community resources and connections must be actively protected and managed for the good of all.’

FROM ENTROPY TO SYNTROPY

Nature has a lot to teach us about design. In nature, systems that are unable to dynamically distribute energy and resources to where they are needed either evolve or die; systems that are unable to effectively conserve existing value are inherently unstable.

New thinking in biology and complexity science suggests that some of the most resilient forms of organization are self-organising, distributed networks, which create conducive, self-replenishing contexts in which diversity can flourish.  Equivalents in human terms might be described as interdependent socio-economic civil ecologies – new responsive, meta-institutions that optimize the conditions for well being.  

We argue that philanthropy and social enterprise are a necessary but ultimately insufficient basis for lasting, sustainable human flourishing and that human organizations, whether market driven or otherwise, need to take a synergetic evolutionary leap that can build additional value over the long term. Put another way, social impact within a dysfunctional system will always be sub-optimal compared to systemic impact that changes the contextual landscape.

New forms of systemic stewardship [2] – beyond state intervention – are needed that can change the market in a way that invests in shared value so that social and natural capital are protected and continue to grow automatically within it, rather than continually being degraded by it. We outline here one proposal as to how we might do so.

As a new legal structure, a Commons Equity Society offers a form of financing, ownership and distribution within the market, without government intervention that has the potential toon-goingly resource communities and local civil society organsations who are increasingly competing for a shrinking pot of money with an ever increasing number of charitable projects.

It involves a simple legal architecture [based upon hard wired social feedback or obligation loops] that builds upon previous forms of common ownership by “programming” companies to invest in people, place and planet while celebrating enterprise and its original purpose. As such, it offers one answer as to how we might use the market to design an institution of systemic stewardship.

Significantly, the Commons Equity Society also introduces a completely new intermediate civic layer from which systemic change can be mobilized and scaled at the local and regional level.

CONTENTS

  1. What Is Commons Equity & What Is A Commons Equity Society?
  2. A New Kind Of Community Utility
  3. How It Works
  4. Social & Systemic Impact
  5. Core Benefits
  6. Key Questions
  7. Conclusion & Call To Action

WHAT IS COMMONS EQUITY & A COMMONS EQUITY SOCIETY?

Commons equity comprises assets and resources that are neither publicly nor privately owned but held in trust for community benefit in perpetuity. A Commons Equity Society is a prototype design for a community wealth-building network that owns, governs and stewards commons equity for community benefit.

It comprises a network of mutually owned, employee-run, self-governed, mature, for-profit companies that fund and accumulate community-owned income, capital and assets, thereby transforming companies and businesses into engines of social change.

The Society also includes and shepherds a coalition of smaller socially responsive organisations such as charities, voluntary organisations and startups that represent potential future value for its network.

It uses the surpluses of employee managed, for-profit, companies to resource the communities they are a part of, unlike a Building Society that uses the savings of individuals to fund the purchase of individual assets.

A Commons Equity Society achieves three things within the market and without government intervention.

  1. It de-commodifies equity  (community benefit ownership models have no shareholders which prevents the sale of profitable or asset-rich companies)
  2. It separates surpluses (that would otherwise be allocated to shareholders), from private ownership
  3. It provides mechanisms to fairly and intelligently distribute such surplus for community benefit

In doing so it offers the possibility of a new choice, which at the same time can protect entrepreneurial legacy and provide resources for civil society by sharing income and assets in a new way. Its architecture offers an innovative design for a new institution to build commons capital and shared wealth.

A NEW KIND OF COMMUNITY OWNED UTILITY

A Commons Equity Society is effectively a community-controlled utility whose purpose is to consciously build community wealth – a purpose, which currently is neither a function of the market nor the state.   

It can be thought of as a social enterprise network, administered by a community development corporation (the umbrella organization), with a mutual banking arm (a development fund) which together function as a collective community wealth management system for the purpose of distributing surplus to the community through a Foundation established under charity law.

Uniquely, through its development fund, it builds capacity to capture assets and surpluses of companies outside its network, thereby having an internal mechanism for growth and expansion – of its assets and distributive power for community benefit.

It is a new form of meta-organization which in a single step can deliver a whole new system – of finance, ownership and distribution – by opening up and funding a new space for civil society and social enterprise between the state and the market to build ‘commonss wealth.

HOW IT WORKS

Profits accrue in the mutually owned business network, and according to the determination of the business leadership, a surplus may be issued.  According to the legal architecture of theCommons Equity Society this surplus is received and then distributed equally each year in three ways:

  1. A third to the employees (as profit-share for creating the wealth – with the additional beneficial side effects of making the “bottom line” profit in each company transparent to all members across the network);
  2. A third to a business development fund (for purchasing and funding new companies enter and expand the network- like an internal mid-tier investment banking service), and
  3. A third to the host communities that the members are a part of (to invest in people, shared assets, civil society voluntary sector projects and land to deliver a life– enhancing context for human flourishing).

A small proportion of the surplus is kept back [up to a maximum of 10%] to fund t the governance structure and necessary communications functions required for the effective operation of the umbrella structure that manages the relationship between the organisations within the network and the development fund and to enable complete transparency to the Society’s members.

SOCIAL IMPACT WITHIN THE MARKET

For example, if a local Equity Society were able to acquire companies with an annual surplus of £3million, this would enable £1million to be invested every year in that community.

A further £1million a year would be used for purchasing growing the capacity of the network to produce surplus through purchasing further companiesnew companies to expand the network and a further £1million in bonuses could be distributed to employees on a yearly basis.

This would begin to change our culture of scarcity into one of abundance and alter the perception on the part of customers and employees of the original purpose of enterpriseto use our gifts and capabilities to meet each other’s needs.

Over time, communities could invest in land for food and housing, in schools, in community services and facilities, in environmental conservation schemes, in new social enterprises, in apprenticeships, training schemes or educational bursaries, in additional health centres or whatever is seen to be a priority for the community by the membership.

 In short, they would invest in the human, social and natural Commons. This purpose is ‘asset locked’ into the legal structure of the organization, which is anchored in the multiple individuals participating in all the different ways.

The[SP2]  Commons Society architecture of distribution thus enables the acquisition of more and more companies so the network gradually expands therebyus developing as a community development corporation through an economic ecology that builds assets owned in perpetuity by the society’s members and legally committed to building a generative context for people and nature. Importantly, bBecause the companies in the network remain separately managed legal entities, the failure of one cannot bring the whole mutual network down.[SP3] 

Built into its constitution are legal mechanisms called purpose locks and asset locks of both ownership and distribution that ensure that the Commons Society’s assets cannot be sold or co-opted by the state and that surpluses are invested for the purposes intended. The Society retains authority over Directors core remuneration (through negotiated ratios established when companies join the network) but otherwise gives all power to run the separate individual companies (including the right to fail) back to the company’s employees. [SP4] 

Importantly, because the companies in the network remain separately managed legal entities, the failure of one cannot bring the whole mutual aid network down.[SP5] 

As Buckminster Fuller noted, sometimes the best way to fix a system that is broken, is to make a new system.  If the logic of the CES works, then in due course, it will change the way a significant area of our economy is manag5. CORE BENEFITS

In the past, before de-mutualisation, almost every town and region in the UK had a Building Society – usually named after it. Our vision is to develop a similar network of Equity Societies. 

Let us imagine a Commons Equity Society with upwards of 25 companies in a town, a series of towns, a city or a region.

The Commons Equity Society model is different from most other ethical social enterprise models in that :

  • It is a system rather than a single entity
  • It is a naturally expanding self-organising network
  • Like a building society it is controlled democratically by its members who include not only employees of its core companies and their families, but affiliated local people not employed directly through its companies, start ups and voluntary organisations  who get to vote on how surplus is distributed
  • Locally it creates loyalty to the Society’s companies offering a natural competitive advantage to them and an enabling context for local start ups
  • At scale it creates a parallel system within the system enabling a generative local economic and social context by making local for-profit companies engines of social change
  • As it does so it mutualizes an expanding sector of the local or regional market rather than a single company nudging external companies towards ethical and social enterprise initiatives
  • Its members [rather than companies or their boards] control a significant proportion of the surplus made by the companies within the network
  • This allows the community to invest in local people, local places, local services, local land and local assets thus offering communities resources that otherwise would only be available via philanthropy or government policy or taxation
  • The values and general purposes for which surpluses are democratically directed can be written into the legal constitution of each Commons Equity Society through a Purpose Lock
  • It provides important opportunities for further significant systemic interventions such as curating the retail offers in the high street of a local town and thereby ensuring the community rather than rent seeking property agents determine the retail options of local consumers, as well as mutualizing land around urban settlements for organic food production, agroecology, environmental education and skills training thereby influencing the quality of food, food prices and the distance it travels.  
  • By buying and mutualizing companies it protects existing jobs, local skills and assets that entrepreneurs have already built up locally, which otherwise would be lost or at least threatened by a free market sale
  • Instead of entrepreneurs selling up when they leave or retire from their business, a Commons Equity Society allows entrepreneurs not only to be paid their due, but to leave an on-going, surplus-producing legacy for their community in perpetuity through its unique hybrid legal structure,
  • The Commons network becomes a directly democratic mini ‘local authority’ within the state without taxation, thereby reducing the necessity to influence central government policy in order to maintain the wellbeing of local people.
  • It offers a new level of agency, local sovereignty and democratic wellbeing by enabling and motivating a more active democracy 
  • In doing so it constitutes a naturally expanding micro model of a wellbeing economy and governance system that can be scaled within the existing system

Through the legal institutionalization of values of care, collaboration and community wellbeing into the way communities organize themselves a Commons Equity Society constitutes an ethical, systemic evolution.

Because values of mutuality and care are integrated into the structure, the logic of a Commons Equity Society naturally orientates towards a long-term human-centred approach. Whilst this is significant we recognize it is not completely unique. 

What is unique is that it develops a localized democratic framework that has real influence and real resources, which arise neither from tax nor philanthropy, that draws all members of the community together towards shared purpose focused on accumulating value rather than accumulating capital which is so often accomplished at the expense of degraded places, nature and civil society. 

Fundamental is the balancing of power. The system provides structural limits to the acquisition of personal power. Surpluses cannot be taken by any self-interested or benign central authority but legally must be distributed in a way that is hard-wired  into a democratic distribution structure  that balances social growth, economic health and cultural vitality.

The Commons Equity Society gives up its resources to its three virtuous dimensions of contribution, investment and community wellbeing in equal measure so all elements of the system may be sufficiently resourced to be powerful and effective but so that no part may be better resourced, more powerful and become master over the others

6. THREE KEY QUESTIONS[SP6] 

1. What companies will be bought into the first Commons Equity Society?

There is huge overlooked value and untapped potential in the integration into a new mutual architecture of what already exists – the unspectacular, regular, viable businesses that profitably deliver what people want on a daily basis in towns and cities across the country.

Every day, almost everywhere, business owners, who have successfully built a living for themselves, decide it is time to retire or simply do something else. At that point, for the most part, they have only one option – to exit the business that they have diligently spent many years creating and to abandon their staff, who they have painstakingly trained, and to sell the business knowing it will be run in a different way with the risk of it beingor asset-stripped, broken up or even even shut down.

Our aim is to offer a different choice to retiring owners by building a fund that can buy take in for-profit businesses, give retaiian management of them back toby the employees already running them  and then distribute the surpluses according to the architecture built into the constitution of the Commons Equity Society.

Clearly, in the logic of the market, entrepreneurs need to be rewarded for their efforts in building their company and for some it doesn’t matter who buys them out. But we want to give retiring entrepreneurs the opportunity of leaving a legacy to their community as well as being rewarded for their efforts. It is often not in employees or the community’s interests for companies to be sold to new owners who may not have the same values,  and vision and local connections.

The price paid for the companies coming into the Commons Equity Society would depend on individual circumstances. A few owners might be happy to gift all or a part of their shares.Some may accept payment for the shares from within the resources of the company itself, and sometimeswhen possible the Commons Equity Society woulddecide to contribute too.

The selection of which companies to purchase in the first instance would be the subject of diligent research by a skilled team, be dependent on funding and good will and the specific circumstances of which companies were available at the time.

2. How will money be raised to buy the first companies before the first self- replenishing network is established?

The Commons Equity model requires only one of two things to make it happen.

  1. A willing company owner/owners to bring their company into the commons by way of gift or through payment from future income flows from within the business itself
  1. A fund being made available to buy the first companies from willing sellers irrespective of their interest in the commons. There are several sources from which such funds might be made available.

The legal structures are available, no permission is required from government and we would be using the present system’s own mechanisms to build a new system from within.

Is there an Implementation Strategy? 1.

We envisage a 3 stage initial implementation strategy :

Stage One

  • Raising funds for the legal drafting of the Commons Equity Society constitutional template and for a short animation video to explain the model
  • Applying for seed funding to establish a skilled team to bring the concept to second stage fruition
  • Creating a new website and to develop a membership community to support the process

Stage Two

  • Identifying potential SME businesses that are interested in securing their legacy by becoming part of a Commons Equity Society structure
  • A major element of this that we are seeking to pursue is to pIdentifying,  and connecting with and partnering with with other organisations committed to transitioning baby boomer owned companies into employee ownership following the model operated by Project Equity in the USA and 4purpose.co.uk which is an associate of our team [3] 
  • Appointing a company acquisition and finance team to identify, dialogue and negotiate the first company purchases with enterprise owners
  • Establishing an initial commons secretariat governance, administrative and communications team for the support, development, management and transparency of the network

Stage Three

Is there an existing example of a Commons Equity Society?

The different individual elements of the jigsaw that it takes to put a Commons Equity Society together already exist.

Individual mature employee owned social enterprises, the facilitation skills of transitioning companies into employee ownership, social and environmental capital accounting skills, the facilitation skills for collective and transparent decision making as in citizens assemblies and holocracy, and the legal design ability to draft the necessary constitution required for the umbrella mutual aid structure.

What is missing at present are the funds to legally draft a pilot constitution and purchase the first companies.

A pilotThis project,which was the inspiration for the model,has led to the creation of a 181-acre land trust in Worcestershire.,Stockwood Community Benefit Society.  This project returns 5% to its investor members, of which there are over 300 who have together invested over £1,000,000. Not as such, but the original project that was the inspiration for it is thriving. Stockwood Community Benefit Society  is a 185 acre biodynamic farm and business park that offers 5% return to investors. You can see more about it and a short video about it here: https://stockwoodcbs.org/

The ElysiaStockwood CBS is one part of an embryonicCommons Equity Society in Worcestershire that is waiting to be expanded and formally constituted. Currently we have no’for-profit companies within the project to drivethewider scheme and as yet itsconstitution has not been formally drawn up due to the legal fees required. 

However we are currently looking for partners – that might be able to bring capability and resources to the table to establish a legally constituted fully functioning model.

7. CONCLUSION & INVITATION

We believe that a Commons Equity Society is an un-controversial, practical, yet game-changing economic architecture of systemic stewardship that can take for-profit companies out of private ownership and the shareholder-value ecosystem into one that delivers fairness and community wealth as a matter of course. At scale, it could change the economic and social landscape of economic a town or a region by developing a self-growing, self-regulating parallel, mutual zone within the market.

We need a new basis for systemic economic change – one that that is capable can of not only reducamelioratinge the increasing inequalities of wealth that are destabilising our democracy but that has the potential to gradually change the local economic landscape and beyond.

We assert that some of the biggest breakthroughs are to be found through new forms of collaborative civil ecologies that offer systemic solutions capable of delivering social impact as an automatic outcome of economic activity.

We believe the logic of such or similar organisational innovation is both inevitable and compelling but whilst the capability to implement such an evolutionary shift is already with us, as yet the will to invest in such collaborative systems is not.

If you share our vision and you have expertise or suggestions relevant to establishing the first fully operative Commons Equity Society or you are an entrepreneur who would like to discuss legacy issues of your business, in the first instance please contact:

Joshua Malkin 07494 460699  or email: jpmalkin@planetmail.com

NOTES

[1] The ‘Commons’ can be thought in different ways – oneconsidered isof as the shared value – all the things in nature, communities, the public space and civil society – that provides and supports an enabling context for human flourishing from which we all benefit and which we are duty bound to protect, extend and develop for the wellbeing of present and future generations.

 [2]  ‘Systemic’ refers to a systemwide design that connects the parts of a system together and regulates them in a way that maintains functionality of the system as a whole. It often does so by circulatory flows,  and feedback and feedforward loops whose function is ‘invisibly’ operated through integral mechanisms embedded in the system to sustain it. These crucially influence the outcomes, equilibrium, resilience, longevity and nature of a whole system.

[3]  Organisations with expertise and capability of transferring businesses into employee ownership in the UK include:

http://4purpose.co.uk/

 [SP1]The problem with “employee run” is that is a particular way of governing a company, and we are more flexible than that.  We might encourage that approach, but we don’t depend on it.  What matters here is that the company is self-governed, ie the CES can’t take over.

 [SP2]This paragraph is mostly a repeat, consider deleting…

 [SP3]Consider moving to an FAQ section or appendix.

 [SP4]Consdier moving to FAQs or appendix.  eg Oversight of remuneration; transparency; companies can go bust; almost all company ownership structures can be arranged to fit the CES

 [SP5]Consider moving to an FAQ section or appendix.

 [SP6]May FAQs?

 [SP7]I’m deleting this because we are innovating a new way of distributing money as well. This is the Elysia Health model, which is based on 3 independent collaborative activities: centres, funding and expertise.  These innovations will transform public service… (but we can’t talk about everything at once).

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