Steward Ownership, Sustainability, and Capitalism: Part 2

This post examines Germany’s proposal for ‘Steward Owned Corporations’ and their role in shaping a ‘Purpose Economy’. It explores how this model of ownership contrasts sharply with traditional and emerging legal forms, such as the Benefit Corporation. The piece also discusses Steward Ownership’s potential to promote sustainability and how it relates to capitalist frameworks, offering fresh perspectives on enduring economic challenges.

In Part 1 of this article, I discussed the conceptual criticisms of Steward Ownership (SO). The concept – namely in the form of the German VE-GmbH draft law – has also been criticised many times from a legal doctrinal point of view. This objection claims that SO is not ‘full ownership’, but mere ‘staffage’, which ‘reverses the term property’ and aims at a ‘dissolution of the personal-centred quality of ownership’. This is considered not only a political danger, but also incompatible with the constitutional guarantee of property under Article 14 of the German Basic Law (‘Grundgesetz’). However, as we will see below, much of this criticism does not appear to be based on specific features of German law alone.

It is true that the conceptual elaboration of SO has had an alternative ownership of companies in mind from the outset. Ultimately, it is the proponents’ understanding of ownership from which all efforts to create suitable company law structures are derived. Contrary to the criticisms just mentioned, however, these proponents present a proposal that is fully compatible with the Basic Law and which directly links ownership with human responsibility.

Any investigation of these diametrically opposed assessments must operate at the interface of corporate law and constitutional law. My exemplary object of investigation will be the above-mentioned draft law, which proposes to introduce the desired corporation in SO as a ‘legal form variant’ (‘Rechtsformvariante’) of the GmbH (the German Private Company Limited by Shares). From the civil law point of view, the situation is initially clear: the shareholders of a GmbH in SO are the sole owners of their shares as well as of the corporate rights to co-administration and capital granted to them by law or in the articles of association. On the other hand, the owner of the company’s assets is solely the corporation itself as an independent legal entity. Despite the long-standing debate on the ‘theory of the corporation’, all of this is widely recognised in most national legal systems today.

At first glance, the assessment from the German constitutional law point of view appears equally clear: both the rights of the members and those of the corporation fall within the scope of protection of Article 14 (1) Basic Law. However, this picture becomes clouded when one takes a closer look at the asset lock which characterises SO. That is because the German Federal Constitutional Court has consistently ruled that the assets of corporations are part of the so-called ‘share ownership’ (‘Anteilseigentum’) of the shareholders, too – not only economically, but also constitutionally! It is precisely this allocation that would not be intended by a corporation in SO de lege ferenda. Rather, such a legal form would need a secure constitutional foundation for its asset lock, which, irrespective of all contrary interpretations, should in principle allocate the company’s assets exclusively to the company – not only under civil law, but also (and especially) in economic and constitutional terms. Extending the established jurisprudence of the Federal Constitutional Court to the planned corporation in SO would therefore be a predetermined breaking point for the entire concept.

This raises the question of whether the ‘pro rata corporate (body) ownership’ of the shareholders of corporations implied by the German Federal Constitutional Court is part of the constitutional requirements that the German legislator must observe even when introducing new, alternative and ‘voluntary’ property rights. This ‘inverted piercing of the corporate veil’, as which the shareholders’ legal access to the corporation’s assets could be described, is in fact a significant (judicial) artifice involving considerable doctrinal inconsistencies. These inconsistencies have been the subject of long-standing criticism on both sides of the Atlantic. Ultimately, this facet of share ownership is not based on constitutional requirements, but rather on ideas of an ‘appropriate’ economy – which has been expressed very clearly in the explanatory memorandum to the 1965 German Stock Corporation Act. However, it is precisely these economic ideas that SO seeks to challenge. If the legislator were to join this attempt to overcome conventional economic beliefs by introducing a corporation in SO, the Basic Law and its Art. 14 would not stand in his way; legal doctrinal criticisms to this effect are without foundation.

Finally, it is worth pointing out that Art. 14 Basic Law does not guarantee a uniform level of protection. Rather, it is generally recognised that the protection of a specific property right is all the stronger, the more this right can be classified as an individually acquired and individually used basis of personal freedom, ie the greater its so-called ‘personal directionality’ is: Building on the tradition of Enlightenment ideas manifested in the declarations of fundamental rights of the American (‘liberty, with the means of acquiring and possessing property’; 1776) and French (1793) revolutions, the Basic Law conceptualises property as a right to freedom that (whilst entailing obligations) guarantees individual freedom as a factual basis of personal existence and development.

In this respect, according to the logic of the critics, SO should enjoy comparatively weak protection. However, this is contradicted by the fact that the Federal Constitutional Court emphasises the relatively low ‘personal directionality’ of share ownership in current corporate law, because and insofar as such share ownership is ‘rather an investment than the basis of entrepreneurial activity’. Currently, however, exactly this is often the case due to the widespread separation of ‘share ownership’ and actual entrepreneurship – although this separation has been prominently criticised since the 18th century, most notably by Adam Smith (‘[n]egligence and profusion’; 1776), Adolph A. Berle and Gardiner C. Means (‘unity that we commonly call property [destroyed]’; 1933) and Joseph A. Schumpeter (‘[d]ematerialized, defunctionalized and absentee ownership’; 1942).

Steward Ownership, on the other hand, has from the outset been concerned with securing personal and individually responsible entrepreneurial freedom by way of property law. In clear contrast to common structures, Steward Owners pursue their own entrepreneurial interests out of their own right. The accusation of a ‘dissolution’ of the personal-centred quality of ownership is therefore downright bizarre. On the contrary, SO implies a structural constriction of property, freedom and personal responsibility. It thereby aims to take seriously the ‘old liberal provenance’ of the guarantee of property, instead of dismissing this provenance as anachronistic by referring to alleged constraints of modern economics. From this perspective, SO even presents itself as a possibility for a legislative ‘repersonalisation of ownership’, which Charlotte Kreuter-Kirchhof has insistently called for as the result of her study on the ‘changing forms of property’.

If one follows this line, ‘Steward-Ownership’ presents itself as a more personalistic and ‘less capitalistic’ alternative to the common ‘Capital-Ownership’ of companies. In doing so, it challenges not only this widespread understanding of corporation ownership, but even the dominant ‘imaginary of privatised prosperity’ (Marija Bartl). SO separates capital power from entrepreneurial freedom on the property level and abandons the logic of ‘property’-based, potentially uncapped allocation of added-value. A corporation in SO is not a ‘sole-proprietor surrogate’ (Charles R. T. O’Kelley), but a social institution that is embedded in the complexity of society and structured to take on its collective challenges.

Conclusion

Steward Ownership is certainly not a panacea for the myriad challenges faced by humanity and it would be a mistake to load the concept with expectations it cannot meet. However, it would be equally wrong to ignore its social potential. In a ‘world on fire’, we legal scholars have a responsibility to treat thought-provoking answer proposals to urging questions as such – and to distinguish between doctrinal, empirical and ideological arguments as consistently and transparently as possible. The common criticism, for example, that a ‘limited liability company in Steward Ownership’ would be an ‘alien element’ in German corporate law, is no more than a (disputable) doctrinal claim. However, this claim does not negate the transformative social potential of SO. On the contrary, it might even suggest such potential.

In my opinion, a new legal form for SO would be nothing less than a social innovation. It is such innovations that make structural ‘Revolutions for Life’ conceivable in the first place. Steward Ownership could prove to be a necessary foundation for a new ‘purposiveness’ of private entrepreneurship. This new purposiveness, in turn, could be an essential piece in the puzzle of a transformed economy which finally begins to regenerate instead of advancing depletion and destruction. That would be an end to capitalism we could live with sustainably in the truest sense of the words.

The full article can be accessed here.

Marvin Reiff is a postdoctoral researcher at the European University Viadrina Frankfurt (Oder).