Purpose Trusts at Zingerman's Deli: A Dialogue Between Peter Boumgarden, Ari Weinzweig & Mark Hand

well hello everyone this is Peter baumgarten here from Washington University in St Louis and I'm really excited for today's conversation we're going to have an opportunity to explore a certain kind of ownership alternative that's emerging here in the world of closely held businesses and really get a sense on what's possible in in the space moving forward one of the things that we're attempting to do in the Koch Center is to explore the motivations of owners what matters to them and then the options that are in front of them whether it's passing it on to the next Generation selling to a strategic buyer or private Equity or perhaps exploring some things like we'll talk about here with the purpose trust and for this conversation I have two folks that I think are especially positioned well to be able to speak to it the first is Ari and Ari will introduce himself in a second and then also my colleague Mark hand um but Ari why don't you give us a quick snapshot here of who you are and why we're on a zoom here together okay we're on a zoom here together because we met 15 months ago in Tuscany that they get together to discuss positive futures for the restaurant world but in particular we're here because of the Perpetual purpose trust program which I'm sure we're going to talk about so who who am I uh I am sitting right now out front of zinc train which is one of the businesses in the Zingerman's community of businesses we're located in Ann Arbor Michigan uh home of the University of Michigan which is why I came here originally from Chicago where you're going to a concert tonight and I came here to go to school and I studied Russian history uh which I'm still really fascinated by it's particularly painfully poignant time to be a Russian history major uh so we can we can certainly talk about that if you want to but um uh after graduating with my history degree and I also should say I studied anarchism we have the U of M has the largest Anarchist collection in the country in The Graduate Library anyway after graduating with my history degree I had no clue what to do next I mostly just knew I didn't want to move back home in order to facilitate that financially I needed a job one of my roommates was waiting tables in a restaurant I applied for a job as a server they said they'd call me they didn't I went back and reapplied a few weeks later as a busboy once again they didn't call me back and they went back a third time which I now know is called emotional resilience and I applied for I said I'd do anything they offered me a job as a dishwasher never been worked in food I just said sure sounds fine I didn't know you weren't supposed to want to wash dishes and that's how I started uh so I really lucked out I love to tell you some glamorous story about how my mother was this Greek cook and from the time I was 10 I knew I was going to have my own place but none of that is true my mother was a good person but not a good cook I have a new pamphlet out that's not our subject for today but it's about our food philosophy and I think the first line is something like once every week or so my mother cooked us fish sticks and that sort of uh epitomizes my childhood culinary upbringing and uh nobody in my family was in business so I didn't even know you could go into business it wasn't like you I know Peter you do a lot of work with family businesses mine is the opposite where business wasn't even something that was on the menu of options uh so I really just lucked out in in the context of I stumbled into work that I love I love the food we worked really just with Artisan traditional food for 41 years now and I'm still passionate about it and then also I stumbled into great people so Paul Saginaw who's been my business partner in this from the beginning was the general manager at that restaurant it was his first day he had been promoted from bar manager and that's how we met and uh I prepped and cooked for and managed kitchens for about four years for that Restaurant Group before I decided it was time to move on Paul had left a few years earlier and opened a pretty amazing little fish market that's still here in town and he and I had talked off and on about doing our own places you know it's common conversation in the food business I don't know if people in banking think you know we should make our own JP Morgan should open our own bank maybe they should I wish they were having those conversations the country would probably be run better but anyway uh he I gave two months notice the fall of 81. he didn't know I had given notice but called me uh to see if I you know maybe I should leave and I was like well good timing dude I already gave notes let's go look and so four and a half months later uh which would be March 15 1982 is when we opened Zingerman's Delicatessen and the original space uh was a mere 1300 square feet and it was me and Paul and two employees and then fast forwarding 41.25 years uh we're now uh 750 people and I don't know a dozen Zingerman's businesses our vision is that we only do stuff here in the Ann Arbor area and that we only do things once so no replicas uh and then we have managing Partners in each business and we can come back to that with governance and we'll do about 75 million in sales this year yeah fantastic well I should have uh I should have told you mark that you were going to get introduced second because it's going to be hard to follow that for your introduction but luckily I know interesting people you're one of them you also have an interesting story by which you got into the stuff you're interested in so before I get back to Ari and Zingerman's Mark tell us a bit about your background and academic interest in this space sure I'm happy to Peter and um and Ari my only Food Service experience was in Middle School when we did a fundraiser at a church for a trip we were going on and I spilled hot coffee on a lady's lap she happened to have a very old school polyester dress and it rolled off onto the floor so no harm no foul but I decided at that point that I probably didn't have a bright future in food service so I ended up if you want to change careers we could hire you I lacked emotional resilience at the time and so I spent the early part of my career in community organizing and development before uh beginning to make investments in Social Enterprises and so I've always been interested in different ways that we might achieve some of the goals that we have to reduce poverty to increase human flourishing and when I went through a PhD program that I just finished part of my interest was in the intersection between markets and politics between the making of money and maybe governance and Democratic decisions about how those uh how that money was made and so I'm now an assistant professor at the University of Texas at Arlington where I study employee ownership and workplace democracy and in particular I'm curious about the emergence of what is really a new organizational form that's emerging not just in the United States but around the world in which companies are increasingly owned by a purpose rather than by an individual or a group of individuals and that has massive ramifications potentially for not only how those businesses are run and how those individuals in those businesses operate and relate to their business but then also potentially depending on how many of these things developed and how our economy functions and right now Zingerman's is one of a very small number of these kinds of organizations so in the world of employee ownership there are employees stock ownership plans and worker operatives and now increasingly this this small group of companies about 36 of them that are owned by a purpose through the form of a trust and some of our listeners will have heard at some point the Patagonia became one of these at the end of last year and they're now rumors that Bloomberg is considering the same and so this pretty interesting little structure has gone from almost unheard of and completely unused to now the seventh wealthiest person in the world is considering using one of these structures and so I think it's something that is worth studying and that's particularly what I'm excited to be here with you all today and to hear exactly what goes on inside of one of these companies from Ari to be clear I'm not December are you the seventh I was wondering he's top 10 but not quite at the seventh level so um so our Ari I want to step back from the actual decision here for a second and to talk about your motivations as an owner uh and in particular the motivations that translated towards things that you were or were not interested in when it comes to the Alternatives so in other words what do you care about what's the mix of Financial and non-financial elements and as you started to think about its fits to options even before you thought about purpose stress did that make certain things off the table did it raised certain things that you wanted to do when it came to exploration tell us a bit about that okay I'll do my best um I guess for a couple contextual things so when we opened uh 41 years ago this was not something we were that worried about like most people who start a business uh it's more just can we make it through the first year and if you made it through the first year how do we make it through the next couple years and and on from there so this was not something that we started the business with this in mind uh and then we're not in denial about succession but it's you know it's a challenging conversation in many ways and I don't know that we actively resisted it it's just there's no clear great answers right and I think as you both know I mean and Peter you do work with family businesses it's often clear from the get-go that they're going to leave it to their kids and in that case it's fairly straightforward and there's issues I'm sure that go with that but that wasn't one of the options for us I don't have kids but it was never Paul's thought that he would leave it to his kids I don't think they have any interest in doing it they work in the Arts and Music which is awesome but not related to this and so that was off the table um as we'll get into we have a pretty evolved governance structure that uh is not tied to any of this that's been in place I'll be 30 years ago 30 years next year that we have been running our organization by consensus of what we call the Partners group which is now I think 20 people uh four of whom are what we call staff partners and so that's a whole thing that's been in place regardless of the trust for many years uh the other options as you know and and and you guys study this for a living so I'm only the the dumb user but uh one option of course is you sell the company and that's a fairly common one I have many friends of our age group who've done that it's not out of malice they're just it's time to you know let go or move on or go do something else they've built up a lot of value and it's an it's a normal and quotes way to get out like you sell it to people who you think are sort of values aligned at least and they are usually bigger companies that's why they have a lot of money that they can pay you what the marketplace tells you the company's worth which you course we know I don't have the money that the company's theoretically worth it's a theoretical model that never quite made sense to me but it's all gambling it's even being the 10th wealthiest individual in the world oh so so uh yeah so that was not we we didn't want to do that uh another option is as some friends of mine have done is to go public which is another way of selling it and you get a lot of money that way but you can keep running it but you're now subjected to the market pressures which is not my interest uh to work that way uh another option is of course the Employee Stock ownership plan which uh you mentioned which I never really intuitively liked and then I've since learned there were some other there's some other issues that I really don't like about and uh and and so there just seemed like there wasn't any great way and one one option for us is that the other partners managing partners of our businesses could buy us out but that would have meant them borrowing quite a bit of money and going in debt uh which in theory makes sense if the if you're going to flip the company in five more years and cash out at a bigger level but if you're not really selling the company it doesn't make a lot of sense and it wasn't really our intent that we would give them a good deal but then they might turn around five ten years later and take the big deal from somebody else and it's hard to turn down those deals and so there wasn't really a great option that we were looking at and so around 10 12 years ago I was reading EF Schumacher's book small is beautiful which came out in 1973 so whatever that is 50 years ago this year and it's not the main point of the book and I do highly recommend the book but somewhere about two-thirds of the way through he writes about the Scott Bader Commonwealth in England uh and I'm going for memory so I might be slightly off on my dates but Scott Vader was an immigrant from Switzerland to the UK I think around the end of world war one he got an hourly job which he didn't really like in 1923 I think he started his own company Scott Bader Company and chemical industry and they did good work they grew again they could tell their own story far better than I am but the main point of the story is that uh in 1951 I I think they he he decided it was time to do his succession he didn't want to leave it to his kids he didn't want to sell it and he created this Commonwealth which is now what we're calling here Perpetual purpose trust really where he the benefit of the profitability would go to the employees but essentially the company was self-owned so that it couldn't be sold um and that if it was sold for some catastrophic reasons I forget the number but two-thirds or three quarters of a sale price would go to non-profit to charity so that it wasn't gonna do what's happening to esops which is the owner sells it to the esap we turn around and flip it for a lot of money five years later or whatever which is I think what just happened in New Belgium Brewing so uh I really like that and as you said I started to share this idea and met mostly with like eye rolls and it's illegal you can't do it it's impossible it's stupid why would you do that uh but I'm quietly tenacious mostly quietly not always emotional resilience emotionalism yeah it is it's it's so I just kept poking around and asking questions and it felt like a good outcome to me uh in part because we could create it in a way that would benefit as we wanted the people working in the business but also equally important to keep it in the community so we're all our businesses as I said earlier are located here in the Ann Arbor area and it's just it just seems like ripping it out of here would cause a lot of harm to the ecosystem and the typical models like when you sell it like all of a sudden somebody in Manhattan or Dubai or London or San Francisco is now making the decisions and so the power and the profits start to shift further and further afield from the local community and people are deciding what the price of a corned beef sandwich should be or whether we should sell corned beef somewhere where they might have visited three times here and it just doesn't make sense and this way it allows us to keep the purpose of course but it allows us to keep the business in the community hopefully for many decades to come if we run it well and it allows the profit to stay mostly within the business and not to be sent further and further field in a much more Colonial context which is the work is done one place but the money and the decisions are made half a world away so that's my synopsis I love it I love it so I want to make a few connections here but let me just play this back to you so it sounds like one way to think about this transition was that one motivation but less so than for others was profit there's a financial transaction that's happening here but it's not the number one motivation for you right and instead there's some other things around continuity with what you were doing immersion in the community uh some level of wanting to avoid the possibility of it being sold Downstream in ways that would change its entity and then also trying to avoid some elements of future owners not being immersed in this business and therefore understanding how it should work or the things that could drive its value Financial but also non-financial in the entity is that a fair way to capture that yeah I think so it's it's the money's not irrelevant I mean pirate we need to live you know and part of the way that we've designed this is Paul and I keep getting paid a salary for 20 years and it's basically the one we're getting now I mean it's not excessive but it does allow us to pay our bills it's certainly not living in poverty it's far less than the public would imagine we make uh and far more than our entry-level employees make you know it's it's hopefully reasonably Equitable for what we do uh but in essence then while getting that salary were which we could keep getting just by paying ourselves because we're the owners uh we could then sell it in 20 years so this is essentially in a wonderful way gifting the company to itself uh when we're done with that process this staff who own a share here and this is gets a little more complex but we have about 245 of the 750 right now have purchased a share it's like a co-op you can only buy one Share value doesn't change they just get a dividend Been a Good Year but about 50 to 60 65 percent of the ownership of the intellectual property I.E the brand will have shifted to these staff members uh and so it will essentially become the brand will become employee owned in that way uh it was a lot of complexities that we can get into if you want but that's the nut of it so yeah I think your summation was good all right so here's here's what I want to do rapid fire question here for you and then I want Mark to respond to this um so you said there were certain things about esops that you liked and then also certain challenges that you were worried about said I bring this up because we've got our expert on the line Mark hand who's been thinking about esops a lot this last year what were you excited about and what were some of the concerns you have of that particular opportunity well I won't say I was ever excited about it I would say it seemed interesting because it's clearly seems like a good way for the owner to uh pass the ownership the founders to pass the ownership to the employees which is a good thing in my mind he Mark studies employee ownership we're all for it it's in our vision and we've been working on various ways of making it a reality what I wasn't drawn to is it just intuitively seemed like there was a lot of legalities that I didn't love uh and I I'm not a big fan of market value Asians it just seems like a fallacious guess by somebody who knows enough to be able to have credibility and I'm not trying to undercut people who do this for a living but it's like Wall Street it's kind of made up and it's made up based on people's beliefs and what they think they're going to do and it sort of seems like betting on the St Louis Cardinals to win a World Series like you think they're gonna but a lot can happen so for me it's it's more about the actual work and not about the theoretical valuations and so I didn't love that and then as I began to explore more and more and Mark is an expert on this I'm again just a lay person trying to understand it I started to understand that uh I mean there's one thing is it can be sold by the employees and or it can be purchased out from under the company which is I think what happened at New Belgium even if they don't necessarily want to sell it and then we also have a logistical issue which gets in our way even if we did like it which is that we have these whatever dozen businesses and the staff members are employees of those businesses so we don't even have one payroll that we could do in esap with so even if I like it's that's not the driver for me but it certainly would have made it harder yep so Mark with that said then as you've kind of dug into the employee ESOP part of this world what are the things that you hear that you resonate with about what Ari just mentioned and then also again you do esap research but you've also then migrated into this Perpetual purpose trust space and so I'm I'm curious just like I already found some things that were attractive about this alternative what you've found is well attractive about the alternative uh in addition to the upsides of the older models sure I can tell you Peter that um just to step back in terms of scope the ESOP structure has been around for a long time since the 70s in law and in the United States there are about 10 million workers that are covered by an ESOP in some form or fashion and so that might not that might not sound like a lot but compared to the growth of this new form of Perpetual purpose trust they're still the first thing that most people think about when they think about employee ownership and um one of the things that is reflected in what Ari is saying I think is that when people talk about why they might look for alternatives to the ESOP one is the cost and the other is the complexity of it so they are structured as a retirement account and regulated as a retirement account and that that comes with a lot of complexity and a lot of cost to it including have to Value the having to Value the company every year and so that it sounds like Ari is one of the things that that might have um that might have made you look for alternatives to the ESOP now what they have have that that is important that is harder to naturally structure into an employee ownership trust or a worker Co-op is this is the equity ownership and so it's pretty simple and a trust structure to set up or a worker Cooperative structure to set up profit sharing but if you want your employees to have appreciating equity in the company that then they can sell for a much larger amount then that's that's how the ESOP is structured and that's how it's set up and so the New Belgium example is one that's that's really instructive because from one perspective maybe it's bad that it is no longer employee owned maybe if that was one of the purposes was to generate a sense of ownership among employees that's no longer there but if the purpose was to make a bunch of employees really rich then they succeeded and then there are now people who are millionaires who might not otherwise have been and so the way that I think about it is somebody that's interested in employee ownership writ large is that depending on the motivation of the founder and the kind of business one or another of these structures might be more appropriate and so if you have six employees maybe a worker Cooperative with direct democracy is is a good way to go maybe once you get up into 40 or 50 that starts to feel a little cumbersome and the trust starts to fit but if you're a giant company with a pretty stable valuation maybe an ESOP is the right thing yeah and I think it makes total sense I just so for us building what on what Peter asked before and what Mark just said like the the keeping it in the community is a Big Driver as well as employees doing well and so making employees wealthy's clearly a good thing at the same time it then completely undercuts the other piece and so this was a way that it seemed like we could have gradual Improvement in people's Financial Health which is honestly what we've had I mean like yes we're doing pretty well but it's 41 years down the road it's not what you know and we've chosen over and over again not to sell the business and not to do the things that would bring a lot of quick cash in and that's not a value judgment but this seems a way to go forward that's congress with how we create the business Peter back to you look at that I feel like a talk show host that was a nice transition so here here's one other think of it as a um a little path outside of this but I think it's worth digging into that I want to address before you then dig into the weeds and the purpose trust and it was around this governance piece and so one other thing that I think is interesting about the connection between the two of you is our already here you are talking about this group of about 20 or so that look for consensus Mark I know you've been looking at some things around workplace democracy and other forms of kind of consensus building so Aria I wonder if you can speak a little bit in detail around what is this governance model and what you get out of a consensus-based approach yeah and Mark as a little bit of a response to that what are the things that are happening in this workplace democracy space that might be related to that or extend the stuff that Ari mentions absolutely so uh yeah I mean I think it's it's just what you're describing I mean we so Paul and I uh not necessarily intentionally but we just always worked as equals uh the reality is when we opened the deli all the way back in 1982 I owned more of the business there was a third partner who was the partner at the fish market the original intent was that Paul would help me get the Deli open we only had two employees remember it was pretty small and then he would go back to the fish market which at the time was bigger uh in volume right in the work over there over time of course the deli grew the fish market is fantastic for quality but hasn't really grown uh and so Paul started coming back a day or two and then three days and then four days and then he was full time at the deli and I always owned more but it's just I'm not saying I'm so great it's just never really dawned on us that we would ever pull one of us would pull rain it was just like always operating as peers um in hindsight I wasn't conscious or intentional but it goes back clearly to a lot of the stuff I studied around anarchism and it wasn't like a conscious attempt to apply it it just played out in a way that's in quotes seemed right uh when we brought new partners in to the org each business which would be in 1994 when we rolled out our 2009 vision and visioning as a whole another conversation although it's actually the way uh to Mark's point the the motivation of the owner is their Vision what's your vision of the future that you want to create right and so uh we in the beginning this has evolved over time but we're going to be Paul and I would be the majority owners and if like Peter was going to be the managing partner at our Consulting business let's say he would be a minority owner and so one of the common questions as we were trying to figure out how to do it was like well why would anybody want to be the minority owner you're just going to outvote them every time you don't agree and so our quick answer was well no let's we'll just we've always used consensus they're our partner we're going to use consensus with them and so that was a piece of it and then the second piece of it was in hindsight I think was one of the best things we ever did I'm not sure how brilliantly intelligent we were at the time which is what we did but we wanted it when we wrote the 2009 Vision which described having this community of businesses all located here in Ann Arbor area managing Partners in each one each business being unique Etc we wanted it clearly from the beginning to be one organization this was not as is commonly done and again no judgment but Ari and Paul invest in multiple businesses this was clearly from the get-go one organization with semi-autonomous pieces so it's actually meant to be a healthy application of the federal state relationship which is not being modeled very well in the country right now but it's not supposed to be conflictual it's supposed to be collaborative and mutually rewarding and that's what we wanted so part of what we did from the beginning in 1984 was to say to all of the managing Partners not only are you charged with running your own business but you're going to sit in this group which was like six of us in the beginning sitting on the floor at Maggie Bayless from zinc Train's house uh we're gonna run the Zingerman's community of businesses by consensus of this small group and at the time it was five six seven people I can't remember uh it wasn't to make the decision about what a cup of coffee costs it wasn't to make the decision on which manager got hired to run the deli sandwich line but it was about organization-wide things so everything from benefits plans to starting a new Zingerman's business to a I mean we weren't thinking about it in 1994 but writing the next Vision you know whatever it might be and that group grew as the organization grew there were more partners and then eight years ago this fall we added uh three Staff Partners so these are uh in the spirit of Mark's comments about employee about uh democracy in the workplace this was a way to incorporate formally more uh voice so we they do two-year terms it's a I can talk more about how they get the position it's a whole uh it's the opposite of the American political system so they don't run for office it's a it's a very other focused not me focused uh process last summer we added a fourth because it's gone so well uh and so there's like I said now about 20 people in that consensus and we just met yesterday and uh and it's just what it sounds like consensus Works people have a lot of negative beliefs around it we have some nuances which if you want I can get into that I think have made it more effective but consensus this just takes longer but you end up with far more effective work it it institutionalizes or systematizes more diversity it doesn't guarantee it but it invites it and it pushes us to have the conversations in advance as opposed to the typical autocratic model where the boss with two or three people retreats to the back room we don't actually know what we're doing but we can't stand it anymore we're supposed to look decisive so we go announce a decision and if you're Vladimir Putin you invade Ukraine and that's a horrific example but it's exactly the same model that is used to run most companies and and this may move more slowly in a way but nature in when it's doing good things nature also moves slowly not quickly so Mark what are you seeing in this in this democracy space that's related to what already just mentioned he's had this kind of representative democracy model uh in terms of these employees that are being a part of it the workers that are being a part of it what's happening here and what's the potential of those kinds of Alternatives that you see that's great um Ari it's really fun to hear you use some of that language and even and it reflects some of my interest in as a political science a political scientist and how these companies are run and one way that I talk about it with my political science students is up until just a couple of hundred years ago in many parts of the world we just assumed that you had to have a king and just assumed that you had to have a leader and that power and authority would flow from that leader and even in the beginning of the United States there was one American founding father who said that the king is the son around which the world revolves and couldn't conceptualize we might have an alternative system and we've been able to develop this amazing experiment in which we have these ideas about how power might be split up so already your point that sovereignty might be both at the state and the federal level as a revolutionary concept that we adopted from the Iroquois or the idea that we might separate power into different branches and that kind of hierarchy which we also absorbed in part from from Native American governance and so there are and so there are all of these different ways that we might experiment with how to make big decisions and yet that experimentation has not made its way into most companies from the polis which we was what we call politics and political science sometimes into the market now one of the things that might be interesting some of the listeners or viewers here is that Ari is on one end of experimenting with some of the more radical techniques of how we might make some of these decisions but that there might be some more entry-level things that companies could do so for example you could have a representative of employees on the board this kind of this is something called co-determination which is pretty common in Europe in in a legal structure in Germany for example in which you just have a representative of that group of people on the board who has a vote you might also have works councils that are responsible for a particular part of the business in which workers are given some Power Authority over a chunk of the business but even before you get there you might just begin to experiment with how it is that workers might have an increasing amount of voice in the decision making of the company and that's reflected in some of what re is talking about so some of the companies that have converted to trusts and even some esaps for example use a system called the great game of business which is a way of opening up your books to employees so that they can see what the financial statements of the company look like and that's that's pretty unusual but it is a way to begin to incorporate employees into the conversation about how decisions are made in the company even if you're not structurally working them into the final call and all of those things to me are expressions of what I would call workplace democracy yep and I'll just add that's awesome we've been open book great game for 30 years uh in the e-news that I do which Peter mentioned thank you for the kind words this week I wrote about our bottom line change process which is an inclusive change process which is what I often see is it's it's like open book but for decision making around the organization uh and then I don't think it was really a conscious decision but about 20 years ago all our meetings sort of became open with a few minor exceptions uh there's there's so really if you want to show up so I you know Mark my my Anarchist stuff is really direct democracy not representative democracy and so if you want to say something just show up and I'll leave the curse words out but show up at the meeting and if you can't get there then tell somebody else what you think but me trying to guess what you think with all due respect and I don't have a better solution with 300 million people or whatever in the US right now but I don't really you know when they say the American people want something I'm like I barely agree with myself or Paul let alone the other 299.99 and it it's it's really about giving people a voice in the context of dignity that they have a meaningful say and not a dog and pony show where you know we have a council and I you know this was Peter was at the thing with me in Tuscany and people were in a nice way talking about setting up employee focus groups to share ideas and I'm like why don't you just put them in a meeting instead of sending them off to the kids table and then you relate back what some of their ideas were that you talk about them want to I'll leave the swear words out again but why don't you just put them at the table because they know as much as we do they just know different things and if you want diversity then institutionalized diversity it's and diversity is not just about hiring more effectively and equitably around race and gender and sexual preference or whatever it's also about perspective and you know those things for us have been very important so open book The Bottom Line change process uh and and and opening the meetings and that's created over a lot of years Mark I think a pretty collaborative culture where it's not like we don't screw up and somebody kind of makes I mean it's actually just doesn't matter what the details are but we're a small group uh here's has moved way down the road to make a change and they haven't conversed and you know some people are pissed and it's going to get worked through constructively but it's a good example of where the culture is going to stop somebody from their intentions are good but it's going to stop it from going awry by letting an isolated group make a decision and it's not the actually the bosses that were doing it but it's just an interesting example well second Peter yeah please just follow up on that real quick because I think it touches on one of the questions that you asked us earlier about motivations and I think that some of some of what is interesting to me about the trust structure is that depending on how it's set up it can hit a ton of different motivations that Founders might have and so in a paper that Peter and I are working on right now Ari uh one of the things that we see is that is that Founders or owners in some of these transitions that they're trying to make they do have financial goals and motivations and and that and there is nothing inherently wrong about that biohabitats is a company that just converted to a trust and and um being able to be a good father and provider to his children is one of the first things that the owner in making the transition wanted to account for but then owners often have these other non-financial goals which the literature would call socio-emotional Wealth which is kind of a big term for I care about things like hearing people click off the podcast right now as soon as you started driving I care about things like making sure that the company keeps going that um that the mission of the company stays in place that this company continues to be a positive presence in in the community that we're in and then sometimes there are these other altruistic goals that I want this community to thrive I want to save the planet or in the climate crisis like patagon you would say and so there's this whole wealth of motivations and trusts can I think provide the platform for owners to express those motivations in a lot of different ways and so one of yours it sounds like might be one of the points is that employees participate in the governance of the company participate in the decision making of the company 100 and I again I'm not we're not down on the money I mean like I said we're getting we're going to get a salary and I want to live you know and I I don't take that for granted for us the governance stuff has been embedded in the way we've worked long before the trust I have a couple friends who are doing a trust based on this learning and they have not governed that way and it's not out of malice it's just you know if they're still the monarchy like you said they're just they're but super benevolent monarchs but it's still the monarchy and they've already been moving in the direction of involving more people which is great but this will be a pretty big transition for them whereas for us uh you know when you ask like how it's going it's going fine because really nothing's changed like the trust is about 20 40 in practice it's and it will gradually move more ownership and more of the profit from the intellectual property of the staff but in terms of the day-to-day our governance by consensus of the Partners group open book meetings open uh use of conversation it's it's all continues to pace so for us in a in a positive way and I think when change is done well like this it's more like one river flowing into another than it is like no no tragic uh extra somebody blowing up the dam in Ukraine uh and causing the cataclysmic uh outcome you know this is much more fluid and Congress with what we've done in the past Ari I would love to once your friend has established another trust I would love to know about it um because we yeah I'm happy I'll say it to you I just don't want to announce it to the world because they may not be ready for that well let's uh let's land the plane by talking about the trust structure here and in particular what I want to hear as you identified those motivations and I'm guessing you as a kind of a governance group also collectively identified those motivations how those were articulated so in other words Community embeddedness might be a piece of it maybe it's about elements of the the employee representation and voice whatever those things might be how are they operationalized into the trust structure and what is done over time to ensure that it actually happens okay well I'll tell you whatever you want to know and I'll say as a caveat that our everybody Mark already knows this I mean everybody's going to be different because until people start starting companies with this in mind it's always added on to an existing structure it's always added on to an organizational history that didn't just start today so it's I guess in the same way for the many flaws of American democracy which Mark and I can go on at Great historical length about but assuming that we acknowledge those it was started that way so yes they had to abandon in essence their childhood history and relationship with England like you described but they did start that way when you go to a place and try to impose it from the outside it's difficult because whether people want to embrace it or not here we had all this governance that was in Mark's context some manifestation of imperfect democratic practices in the workplace in our context the trust is only around the intellectual property or the brand uh Paul and I own a part of each business but we only owned we owned on our own the brand so this allows the managing Partners to retain their equity and their management of their own business it allows the Partners group to continue to govern the whole Zingerman's community of businesses but this one was really our decision Consulting openly with the others we've spent two years in conversation but in the end of the day it was ours so we could sell it if we wanted to we didn't or we could do something like this uh for us the trust work is really only around the brand so that means there's a budget the prophet of course is what's left after the budget is spent uh it's not black and white because we've spent 30 years running it you know is a much more closed Circle but this is a good way he's going to open it up so there's three boards that go with the trust I forget the exact names one of them governs the budgeting and the work around the intellectual property which could be approving a new uh use of the name so that could be a new Zingerman's business in order to get to that stage that business would already have been approved by the Partners group so it seems like kind of a no-brainer if it got through the Partners group then the trust group is going to approve it of course it could also be if we wanted to co-brand so if the Koch Institute and Zingerman's were going to co-brand some program it would need to approve the use of the name and the licensing agreements and then it would also those say no to something that's not ethically aligned so as I've said many times if the American Nazi party said dude we love Zingerman's let's co-brand a t-shirt we could both come out ahead we'll give you five million dollars for the that board's gonna say no because it's not aligned with their values and our purpose uh and then what it also needs to manage the use of it so if there's as happens once a year or whatever somebody starts using the Zingerman's name somewhere they don't have permission it needs to be that board needs to be the people who call the the biggest thing that trust actually does is that it says no if somebody wants to sell the business unless it's a cataclysmic thing it's its job is to maintain the organization uh in line with our values our mission and our beliefs um obviously it's not a hundred percent black and white it could be sold so as I've said like if we were in New Orleans and climate change dictated 15 years from now we're going to be under water in a few years it would make sense to sell it other than something that extreme it's really not meant to be sold the employees will get more and more of the profit but their governance say in the organization is already coming through the Partners group and the open meetings over there so the way we have it the trust has really no say in the running of the actual organization and the actual organization has no technical say in the trust although there's crossing over in the boards right I said that in a way that made sense but no that's perfect and I wonder just for a second Mark uh you've looked at for example the Patagonia model um and that's been talked about a lot in the the media people have discussed it a bit more but where is there alignment between the Patagonia version and what we just hear from Ari where are there distinctions between those because again there's 36 of these or so they probably all take 36 different forms but I wonder if you can speak to what you heard from Ari and how it situates itself in the context of other versions that are taking place certainly yeah so the I'll touch on the Patagonia model briefly and then actually I'd like to move to another company that might be a simpler example even for some of the folks that might own businesses and be listening to the podcast or watching the video um so the Patagonia model was was different in one large respect which is that it was a gift of the entire company and now there is a trust that oversees the running of the company which then to my understanding then spits profits out for its charitable work and and so that might be an option available to some of the super wealthy but a more interesting analog for some from for other listeners might be the there is one employee ownership trust there's one of these organizations in Texas it's called ACP International and the way that that company which makes uh signage for roads among other things the way that that worked was that the founder actually sold the company to the trust which now owns ACP International and is responsible for insuring over time that ACP International operates to the benefit of the employees of ACP International and so over time that founder his name is Joe he's a great guy over time Joe will get paid out for the sale of the company by the trust which oversees ACP International and so that kind of transaction is probably the simplest and the one that's most readily available and I think the kind of thing that is most likely to be used in the United States by a lot of folks because it looks a lot like what we see in the United Kingdom where there are now thousands of these things yeah and that's not out of alignment with what we're doing it's just because of the way we're already set up we focus this on the intellectual property but like I said Paul and I are getting paid like he is and it sounds like a great model well just just one question about this ACP model just to kind of clarify so we talked a little bit about valuations and purchase and the like what might one expect in terms of a purchase price when sold to a trust versus if ACP were to go out to the market and sell it to a strategic buyer a private Equity Group sure so the owner of ACP International did take a haircut on the deal so he probably didn't get the multiple that he would get if he were going out selling to a private Equity Firm now is that going to be true across the board we don't really know yet whether um whether it's the case that the what the Gap is going to be what that haircut is going to look like but it was one that was small enough that this owner felt like if I'm considering how to leave this organization into the future he's in his early 70s I think maybe late 60s now as I leave this organization at some point what do I want this organization to become and it was pretty clear for him that a private Equity purchase in which he would then as a result have no control over what the company became or whether it even continued to exist or was strips and sold for parts that that was off the table and so for those owners that are driven exclusively and only by maximization of the amount of wealth that they can pull out of the company that's that's probably the Avenue for them is probably a private Equity sale for those owners that want to think about that have some of these other motivations at hand there are some of these other structures available with which they can begin to figure out what's the right structure that might balance might help me balance the different motivations that I have coming into the deal great well let me let me end with one question for each of you to close us off here and so Ari I'm going to start with you when it comes to a thing that you think that Zingerman's in this new form needs to keep their eye on you all need to keep your eye on to to have the kind of outcomes financial and otherwise that you desire moving forward what is that thing or set of things that you think are most critical well I I guess what I'll say I I it's another conversation but I've done a lot of work around creating this as Peter knows from reading stuff but the this metaphorical model of organizations as ecosystems and you know Mark what I've been saying is that this is really like helping Zingerman's Community businesses become an old growth forest instead of what most owners historically have done which is start to forest grow the forest clear-cut it take the money and retire to Arizona or wherever one wants to go uh and that's not evil but it the the industrial mindset says hey there was five thousand trees we're just going to plant five thousand more new ones over here it's going to be the same what's the big deal but anybody who studies ecosystems and Forest knows that old growth forest impact on the greater ecosystem is not the equivalent of 5 000 new trees planted in an industrial uh forest and so this is really a chance to do that that said for us to get to the old growth forest we need to operate well so it's all the same stuff that we've been trying imperfectly to do for 41 years we need to give great service we need to serve amazing food or deliver great training and we need to watch our margins and cost our products and keep the waste in line and all of that and then I guess the other thing I'll add because of the way that we work and we're not one single business we're one organization is that we need the we they need to hold together and I'm not going anywhere right now but you know as the founders aren't there and I think it will happen but there's always tension between states rights and this is what's going on in the U.S right now like if I'm you know thinking negatively and I'm in Nebraska I'm like I'm not paying for a Navy what's the and I'm not paying for nuclear weapons they're not going to buy me and I'm not paying you know so when we start going down that road it can really it's logical to some degree but it creates a disintegration uh I'm a big fan of Timothy Snyder's work the historian of Ukraine and he's written a lot about autocracy and democracy if you don't know it I'd highly recommend it but he writes a lot about that we need to be conscious of how much work it is to keep a democracy healthy like you if you just assume it's going to be there it's going to come apart and I think that's true for the organization and I'm not saying that in a doom and gloom way it's just it's going to require 10 years 20 years 40 years down the road people who continue to choose to give up a little bit of what they could have for themselves in a moment in order to create the greater good that's great and Mark just to close this off here when you think about the owners in light of our project on owner motivation the owners that might benefit from considering this as an alternative structure what is the the profile of owners that you think maybe isn't thinking of this right now but would benefit from looking into the kind of stuff that Ari or other organizations are doing sure I so my my thought here Peter is that if we can make more good options available to owners especially as more business owners in the United States hit that point where they have to decide what to do next with their company the more options available to those folks the better and in part that's to Ari's point that if you're a startup you get a lot of love right now everybody is interested in entrepreneurship everybody is interested in how do we create more firms and it's hard but it's harder to talk about what are the things we need to do to make more make sure more firms stay alive and so for those owners that are that are interested in making sure that the organization that they developed continues after they're gone the trust structure might be a really good way to do that and it might be the kind of thing that would be so that could be framed is so important to policy makers that we would figure out how to incentivize transitions into these kinds of ownership forms in order to make sure that those companies that do exist continue to exist it's a lot it's a lot easier from a policy perspective to make sure that 10 firms in your county stay where they are than it is to grow 10 firms into your accounting that don't exist right now and so I'm really encouraged by this this kind of move and then um within the company I think if you're an owner thinking about this that if part of your motivation is figuring out how to turn your workers into leaders or owners or to extend it even beyond that better citizens and community members that elevating employees into some of the management and the firm might be the way that we do that and for me as a political scientist might be part of how we re-establish some of the habits and muscles of democracy that might it sounds like or you might agree with this might be getting a little weaker right now yes so I'm very excited I'm really grateful to be here Peter Ari awesome to meet you back at you man I look forward to reading your stuff and uh I write a lot about the application of anarchism to Progressive business so it might be interesting from your political science background I've read some I'm looking forward to reading more well Ari and Mark it's been great to have you here Mark I think your comment was spot on which is oftentimes we limit our sense of what's possible and so for a family business for example they might limit the only consideration to I have to pass it on to my child and they should expand their options to Alternatives and the same is true for the mbas that come through our respective programs sometimes they think the only way to be successful in a business is to go get Venture Capital grow it and then eventually sell it and I think there are really important lessons to be learned from companies that are exploring the landscape of what motivations look like as well as the Alternatives that are in front of them so grateful for the two of you for the time again thank you for the space here and I hope this is helpful for many people as they think about the Alternatives in front of them and their own transitions thanks again Peter thank you both