Perpetual Purpose Trusts (Part II)
March 20, 2023 – John Abrams
Last month I wrote about Patagonia’s Perpetual Purpose Trust (PPT). This month I’ll introduce another PPT, recently formed by the Zingerman’s Community of Businesses (ZCOB) in Ann Arbor.
The two PPTs are as different as the two companies. Patagonia’s long-time mantra is “Simplify.” (Make the zipper so watertight that you can altogether get rid of the flap that covers it). Zingerman’s famous sandwiches, on the other hand, are piled high with exotic ingredients, and ZCOB is a complex constellation of 12 companies.
The two PPTs reflect the difference.
I first met Paul Saginaw, one of the two Zingerman’s co-founders, about 15 years ago at a conference. Paul was speaking about their commitments to service, quality, and employee well-being. He cited their various initiatives and principles then someone asked, “Isn’t it expensive to do all those good things?” and Paul responded, “Principles aren’t principles until they cost something.”
Sometimes they cost a lot. Like the whole company.
On the 18th of January, Paul and his co-founder Ari Weinzwieg formally announced that they were “giving away the store.” The “store” now consists of the 12 Ann Arbor businesses with 750 employees and $75 million in annual revenues.
Ari says “While the phrase ‘giving away the store’ is usually used to connote poor negotiation skills, in our case, ‘giving away the store’ is actually a big, big win. It’s the result of ten years of challenging conversations and a whole bunch of very complex work formally coming to fruition.”
Although the new PPT is the culmination of ten years of work, its seeds were planted 40 years ago, soon after the business was founded in 1982. They began to consider how they could share the wealth created by the business with the partners and staff who created it, and how they could assure that ZCOB’s values would endure long after the two founders departed.
A richly layered system (think sandwich) has evolved. At first I had a hard time understanding it; it wasn’t until a phone conversation with Ari and Natalie Reitman-White at Alternative Ownership Advisors, who helped to design the Zingerman’s PPT, that I started thinking I understood it enough to write about it.
Here’s my simplified version, with all the parts:
Any one of the 750+ Zingerman’s employees who has completed a 90-day orientation can purchase a share of ownership for $1,000. Each year a share of the profits are distributed to each and the investment is recovered after a few years.
There are 18 managing partners who own the 12 ZCOB businesses. Two of them are Ari and Paul. They all share another portion of the profits.
Each Zingerman’s business pays 3.1% of annual sales to an entity called Zing Intellectual Property (ZIP) as a royalty for the brand that has developed over time. ZIP pays the founders and provides a second layer of profit sharing to owners, currently 5% of the operating income. Over time, as Paul and Ari divest their interest, this will grow, to as much as 50 or 60% being distributed to shareholders.
Finally, there is the Perpetual Purpose Trust, the key ingredient. The PPT will ensure that the Zingerman’s mission and values will outlive the founders. The only beneficiary of this trust is purpose – no person, just purpose.
The Trust has, in perpetuity, veto power over any sale of the intellectual property and significant use of the Zingerman’s brand. The job of the Trust board and its Protector Committee and Enforcement Committee are to maintain, defend, and protect the Zingerman’s Community of Businesses. Zingerman’s will remain Zingerman’s.
Here's a diagram of how that works:
An essential part of the backstory is that, over time, many have encouraged Ari and Paul to franchise Zingerman’s. It’s a natural next step. But they have steadfastly maintained that Zingerman’s is an Ann Arbor community business and that new ZCOB businesses will remain local. In essence, the newly completed system will keep ZCOB in the Ann Arbor area, grounded in the community, to benefit the people who work in it, and to give a sense of security that the organization will stay true to their Mission and Guiding Principles.
It’s about continuing to engage with the things they love: vision, hope, positive beliefs, inclusion, equity, long-term sustainability, a service mindset, dignity, and continuous improvement. It’s about “No going public, no franchising, no big ‘cash event,’ no selling the business” as Ari says.
In January of 2013, I traveled to Portland Oregon to meet with the ZCOB partners group during a three day off-site retreat. It was the beginning of the 10-year journey of exploration ZCOB would take toward democratization and legacy.
Ari had asked each of the partners to read my book, Companies We Keep, and asked me if I would come to react to their governance and ownership plans and to share the SMCo model.
The dialogue was rich – funny, philosophical, expertly facilitated. I was the only outsider in the room. I’m glad to have been part of the beginning of their path to shared ownership.
Natalie Reitman-White was an essential part of the completion – the Perpetual Purpose Trust. She says, “We were thrilled to support Zingerman’s to develop a unique ownership succession plan that will keep the integrity of their brand going and benefit their employees for their contributions into the future. They are modeling a truly regenerative business and ownership structure. We are seeing a ground swell of founders exploring this new succession option as a way to retire and ensure their legacy remains intact”. You can read more about the particulars of the PPT in this article.
I’m seeing a similar groundswell among small business owners converting to worker co-ops for the same purposes – to share with those who built the business, to promote workplace democracy, and to protect legacy.
Two great models, each with extraordinary flexibility and adaptability to individual business aspirations. An older one with a tremendously successful history and a newer one with remarkable promise.
There are roughly 1,000 worker co-ops and 40 PPTs in the U.S. today. Very small numbers. But there is significant evidence that each is growing exponentially.
Pretty exciting stuff.
NOTE: One of the 12 ZCOB businesses is called ZingTrain, which provides training about Zingerman’s structure and governance, leadership, visioning, customer service, and open book management. They do a superb job and I highly recommend; several of us at South Mountain have benefitted from their trainings. Ari teaches the Zingerman's Experience, among others (the next one is April 3-4 of this year) and he says you can e-mail him with questions at ari@zingermans.com. For more in-depth information see company writings at Zingerman’s Press.