How Legacy-Minded Business Owners Are Turning To This Special Trust

Perpetual purpose trusts can support a social good or cause long after the owner departs

By Bob Chiarito

After running Walker Group, a digital consulting firm in Farmington, Connecticut, for 32 years, founder Kate Emery was looking to retire and focus on her art. It was 2018, and Emery, then 60, had spent decades growing her company to 50 employees with annual revenue of around $10 million.

However, even though she could cash out for millions, selling did not appeal to her. For years, she investigated pathways to social entrepreneurship. Then, in 2018, Emery learned about a little-used corporate structure, the perpetual purpose trust (PPT), which ensured that her company’s values would remain in place long after she retired.

Specifically, Emery learned about an organization called Purpose Foundation, which has the goal of changing capitalism’s focus from maximizing profits and shareholder value to focusing on a larger purpose, which was attractive to Emery because in her mind, a PPT would cement her legacy. 

“I think there are individuals who are like me, who want to make their life’s work something meaningful beyond what it does as far as a source of income,” Emery said. “You spend a lot of time building your business and now you’re thinking about ‘Where do I go from here?’ and your legacy.”

Unlike most trusts, a PPT is a non-charitable trust that is established for the benefit of a purpose rather than a person. For many companies, the purposes include sharing profits with workers; protecting the environment; hiring people at risk, such as employees with criminal records; and preventing future owners from discarding the goals for higher profits.

In the case of Walker Group, the PPT states that one third of the company’s profits will go straight to its employees.

“Employees love it because of that and because they know it’s not just going to be sold to the highest bidder and scrapped for parts,” Emery said.

With more and more companies focusing on ESG issues, a PPT is the ultimate way for a company to put its actions where its hypothetical mouth is, according to Aner Ben-Ami, managing director of Candide Group, an investment advisement company that is dedicated to directing capital away from an extractive global economy towards investments dedicated to social justice and sustainability. 

Ben-Ami said while PPTs have only been utilized by a very small portion of companies, it’s something that is growing, particularly with companies that tried implementing employee stock ownership plans, known as ESOPs. 

The new ESOP

“ESOPs are a well-known entity, which is a little cottage industry, but it really hasn’t grown beyond that,” Ben-Ami said. “The reasons for that are that we’re seeing founders who don’t see solutions in ESOPs. With this, I’m certainly hopeful that it expands the market.” 

Purpose Foundation co-founder Derek Razo said the market for PPTs is diverse, both from an industry standpoint and from the size of companies setting them up. 

“I go from setting them up for $5 million to $10 million businesses to a $500 million tech company. It’s wild,” Razo said. 

For Emery, the fact that she was the sole shareholder of Walker Group made it easy, but Ben-Ami said companies with many board members and owners have created them. 

He cited the example of Organically Grown, a Eugene, Oregon-based distributor of organic produce. 

“Organically Grown is a $170 million business that had many shareholders,” Ben-Ami said. “In their case, they identified five stakeholder groups in the trust documents. There were the workers, the investors, the suppliers, their customers and then community organizations that promote organic practices.” 

While some company owners who opt to sell their shares to PPTs walk away with less money than had they sold to a private equity firm, they frequently get market price, Razo said. 

“We are always trying to get what is right for the company and its stakeholders. Often that’s something close to market, but maybe the owner pushes some of their liquidity out so their employees can benefit,” Razo said. 

Emery likened it to a “financial poison pill” – but done “on purpose.” 

Minimal crossover with private equity 

Razo doesn’t believe PPTs are cutting into private equity investments because of the type of people setting them up. 

“A lot of these people otherwise wouldn’t sell. I don’t think we’re really competing with private equity firms because before they even talk to us, they’ve ruled out selling to PE,” Razo said.

Ben-Ami said that he has been working with a few investment banks and private equity firms that are dedicated to ESG issues but conceded PPTs do scare some away.

 “Banks are certainly becoming impact investors in many ways, whether it’s clean-energy commitments or ESG commitments, certain job-quality standards or diversity policies,” Ben-Ami said. “This vision is a few steps removed because it takes some of the power that investors have away from them.” 

He added that for venture capital firms, perpetual-purpose trusts are a “nonstarter” because it takes the exit off the table. 

Attracting mainstream investors 

Ben-Ami said one way to attract traditional investors including private equity firms, family offices and pension funds is by creating a fund comprised of multiple businesses with PPTs. 

“Ultimately the idea would be to create a holding company, Berkshire Hathaway-style, that holds a lot of these businesses that are good businesses and in service to their stakeholders,” Ben-Ami said. “Once you have an entity like that, would those companies attract mainstream investors? Hell yes.” 

“Owners value legacy and longevity way more than anyone in the current private equity market realizes,” Razo said. 

Bob Chiarito covers consumer M&A for Mergermarket. He is based in Chicago and can be reached at [email protected].