Perpetual-Purpose Trust: Can this Trust help businesses give back to communities?

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  Quantumrun Foresight
• October 20, 2022

Insight summary

The Perpetual-Purpose Trust (PPT) offers a fresh approach to business, focusing on social causes rather than just profit. With flexibility in operation, PPTs allow companies to maintain their core missions, like sustainability and social responsibility, without the risk of being overtaken by profit-focused entities. This trend is gaining traction, influencing larger corporations, startups, investors, and even government policies.

Perpetual-Purpose Trust (PPT) context

Traditional for-profit corporate structures are motivated by making money. Their goal is to increase the value of their shareholders’ investments. However, as younger generations grow weary of capitalistic ideals, some organizations are promoting a more meaningful way to start a business through the PPT.

The Purpose Foundation (also known as Purpose Economy), formed in Germany in 2015, is an international network of organizations intended to change profit maximization as the critical goal of capitalism through PPTs. In 2017, two Americans opened a Purpose Foundation branch in Berkeley, California. The Foundation developed a unique corporate ownership structure, containing loopholes based on trust-law provisions. Typically, trusts have physical beneficiaries; however, it is also possible to set up a PPT—a trust with no beneficiaries in particular but aims to achieve a social cause. Unlike most trusts, which have an expiration date, a PPT may operate indefinitely. 

A PPT’s operation is overseen by a purpose-determined Trust Agreement, which redefines the legal fiduciary obligation of its Trust Stewardship Committee (TSC). Trust Agreements are highly flexible, which allows the PPT to protect different areas of a company’s mission for the long haul. This feature may include profit-sharing programs, recurring donations, supply chain practices, stakeholder inclusion in governance, and beyond. The TSC is in charge of the Trust’s assets according to the purpose described in the Agreement. 

Disruptive impact

The second-largest organic fruit and vegetable distributor in the US, Organically Grown Company (OGC), was one of Purpose Foundation’s first successes. OGC had been established with an Employee Stock Ownership Plan (ESOP), a stock ownership plan where employees own part of the firm. Every ESOP has a trustee obligated to maximize its shares’ value. This strategy implies that deep-pocketed investors may buy out the business.

To avoid being bought by a larger company, the retiring founders of OGC sold their shares to a PPT. This strategy ensures that individuals manage the company with a genuine interest in its mission. The profits generated are reinvested into supporting the mission of making food systems more sustainable.

Perpetual-Purpose Trusts are not only being established by retiring businesspeople. Young entrepreneurs are also looking into PPTs to ensure their companies adhere to their original vision long-term. An example is the owner of US-based bakery Firebrand Artisan Breads, Matt Kreutz.

Since opening the bakery in 2008, Kreutz has hired an underprivileged workforce, including refugees, the homeless, ex-convicts, and at-risk youth. He views this policy as an integral part of Firebrand’s identity. The bakery had a thriving cafe, several partnerships with restaurants and stores, and 50 employees by 2018, most of which had complex backgrounds. Kreutz wanted to obtain financing for expansion but quickly realized that the traditional investor route would not be the best for Firebrand’s business goals. In the end, he gave 51 percent of his ownership to a PPT, which states 11 goals, including profit sharing and recruitment of people often barred from employment.

Implications of Perpetual-Purpose Trusts

Wider implications of PPTs may include: 

• Large enterprises establishing PPTs to improve their brand reputation and ratings for environmental, social, and governance (ESG).
• More organizations like Purpose Foundation being established to broker PPT deals with socially minded companies.
• A growing market for progressive investors who support companies with a cause.
• More startups and small businesses aiming to profit-share with their employees instead of scaling up into commercialized brands.
• Millennials and Gen Z being attracted to investing in PPTs or working for companies with PPTs.
• An increase in PPT adoption by companies leading to heightened employee engagement and retention, fostering a more dedicated and productive workforce.
• Governments developing incentives for PPT-driven businesses, spurring economic growth and job creation in sectors prioritizing social impact.
• Consumers increasingly favoring products and services from PPT-aligned companies, accelerating market demand for ethical and socially responsible practices.

Questions to consider

• How else do you think PPTs can change local communities?
• What are the other possible risks or benefits of PPTs?