Steward ownership: how Eddie Smith walked away from $400 million to save his company's soul
Greenville, North Carolina.
One hour from the ocean sits a factory where 350 people build premium fishing boats. As of July, nobody can buy it. That is what steward ownership does.
Last month the owner of that factory turned down an offer of $400 million.
His name is Eddie Smith. He is 83 years old. He bought Grady-White Boats back in 1968, when he was 26 and the company was making wooden boats in a run-down tobacco warehouse while losing money. The co-founder was already preparing to shut it down. Smith's own accountant told him not to touch the deal. Smith ignored the advice, borrowed from his father, and bought the company anyway.
Then he worked 100-hour weeks until it turned around. Grady-White has been profitable for 50 straight years since, with no outside investors and no public shares.
For 99.9% of business owners, the next step would be to sell and cash in.
Not for Eddie Smith. He chose steward ownership instead.
What is steward ownership?
Steward ownership is a legal structure that pulls control of a company apart from the right to its profits. The voting shares sit with people chosen for their commitment to the company's purpose, not for the capital they bring, and those shares cannot be bought, sold, or inherited. They are handed on to the next steward. The economic shares carry the dividends but no say over how the business is run. The result is a company that cannot be sold or stripped for a payout, and profits that stay tied to the mission instead of to whoever holds the money.
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He read the offers and saw what would disappear
When Smith finally hired an investment banker to explore a sale, several offers came in around $400 million. He read them and thought about what would disappear once new owners walked through the door.
The profit sharing would go. So would the on-site health clinic and the financial literacy classes. So would the company chaplain (a paid staff member who sits with people through a divorce, a hospital visit, or a funeral). And the learning program that turns people with no technical training into master craftsmen would land in the first round of cost savings.
The usual playbook for buyers purely interested in extracting profit.
Smith told the New York Times: "I had no confidence that a new owner would keep that kind of culture going. This company has a soul, and I didn't want to lose that."
In this video Eddie Smith explains his decision.
(Source: https://www.gradywhite.com/)
What Grady-White built with its people
I want to spend a minute on what Smith was protecting, because this is true Corporate Rebels territory.
Grady-White deliberately hires people with limited technical skill and then supports their growth. Shelley Tubaugh, who runs marketing and HR and has been there 25 years, puts it well: "People have limitless abilities and we help employees discover and develop them."
New hires get required reading. There is an on-site lending library. Employees earn up to $250 for working through books on communication and self-development.
The CEO built that library decades ago. Her name is Kris Carroll. She joined in 1975 as a production control clerk. In 1993 Smith made her president, the first woman to run an American boat manufacturer. The industry was astonished. Thirty-three years later she is still leading the organization.
Carroll's summary of the approach: "Build the people and you will build your business."
As with nearly every pioneering company we've researched, it shows up in the commercial numbers too. Grady-White has won the American marine industry's customer satisfaction award every year since 2002, without missing one.
The question every business owner eventually faces
In 2020, Smith entered an extremely tough period of his life. His wife passed away. A year later he lost his only child, Chris, to ALS.
Chris was going to inherit the company.
So at 83, with no heir left, Smith faced the question so many business owners are currently facing: what happens to the company when I am gone?
Usually, people take one of two paths. Sell out, or let investors slowly take the wheel. The outcome is almost always the same. The soul that Smith talked about gets taken out.
Smith tried the first path. Then he walked away from the $400 million pay check.
What is steward ownership and how does it work?
A growing number of owners are realizing there is a third option.
In July, Smith moved the boat company's voting stock into a perpetual purpose trust. The trust holds those shares forever, which means the company can never be sold. The remaining shares went to a newly created nonprofit. Independent boards run both. Smith sits on neither.
Pulling voting control apart from economic ownership is the core idea of steward ownership. Whoever holds the votes is bound to the purpose of the company. Whoever receives the profits gets no say over how it is run.
At the share level, companies like Patagonia and Bosch have done this by splitting common shares into two categories:
- Steward shares hold all voting rights and cannot be bought, sold, or inherited. Stewards are chosen based on their capabilities, not their capital.
- Economic shares hold the dividend rights. They can be held by investors, founders, employees, or a foundation. They allow profit sharing, but never at the company's expense. Some steward-owned companies cap investor returns (for example, at three times the original investment).
It is a powerful mechanism to avoid the temptation to extract profit.
Smith stays on as chief executive emeritus and takes a salary. He gets no big payday, no tax deduction, and expects a multimillion-dollar tax bill for the privilege of giving it all away.
"I'm not getting any kind of benefit, tax or otherwise," he said.
Does steward ownership actually work?
The obvious question: does the model hold up commercially, or is this a nice idea that eventually kills companies?
Researchers at Copenhagen Business School have studied steward-owned companies against their conventional peers. Their finding is straightforward. Steward-owned companies don't underperform. They invest more in innovation. They are more resilient in downturns. And they are around six times more likely to still exist after 40 years.
Employees tend to be more motivated. Customers tend to be more loyal.
Investors haven't run away either. Carlsberg, Novo Nordisk, and Maersk all trade on the Copenhagen Stock Exchange with steward-ownership structures in place. Institutional investors have decades of experience with the model.
Grady-White is proof of the same thing on a smaller scale. Twenty-plus consecutive years of the industry's top customer satisfaction award, while operating in a market that has chewed up plenty of conventionally owned competitors.
The difference between an owner and a steward comes down to this: an owner can sell the company, strip it, or leave it to a child who doesn't want it. A steward can't. A steward is chosen to protect the mission, and hands it on to the next steward when they leave.
A movement building for over a century
This is not a new idea. It just hasn't been the loud one.
Ernst Abbe gave Carl Zeiss to a foundation in 1889. He then wrote a statute handing his workers profit sharing, paid holidays, sick pay, and an eight-hour day from 1900. The Carlsberg Foundation has controlled the brewery since 1876. It still holds around 76% of the votes while owning less than a third of the equity.
Add the newer names. Patagonia. Zingerman's. Grady-White. Voys in the Netherlands. Bosch. Novo Nordisk. Ecosia. Each of them structured so the company cannot be sold and profits are tethered to purpose.
Purpose is doing great work in this field, grinding away at normalizing what is currently still a tiny niche. Eric Ries has now joined the conversation too, with Incorruptible, his new book on how good companies quietly go bad and how ownership and governance can help avoid that.
Meanwhile, in Greenville, almost nothing changes. The same 350 people build the same boats in the same plant. Kris Carroll continues to run the organization.
The only difference is that none of it is for sale anymore, and it never will be again.
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