Ask not what you can do for the RCO, ask what it can do for you!
When you found something, or source it, why do you do it? Why do you take yourself through the endless pain and hardship that it actually takes to find the right seed, plant it in (what is hopefully) fertile ground and then feed it with love and nutrients so that it can become a plant? Simply to get rich? Then perhaps you might want to stop reading now, this is not for you.
If you do it, for reasons I’ve had myself like, to change the world, because this service/product/idea is worth doing, because you want to contribute, be in service… basically any other reason than to ‘just get rich’. Then this is for you.
The Regenerative Community Organism (RCO) is fundamentally a path to introducing a balancing act between financial interest and the other interests to serve the idea you’ve generated. It is a response to the longing we have been hearing from most founders in our conversations: “they want their idea to be in the world and they want themselves and their loved ones to be ok”.
This is not a new invention really. But it is a new way of putting a bunch of ‘old’ ideas together. A way that we believe has the potential to really shift something about how the world of business works.
In this piece we will deal with the WHY and closely after we’ll follow up with the WHAT of an RCO is. The why will be a little bit of a review of what we see needs to be addressed in the limited liability companies as of now. To get a handle on what problems we are trying to fix. It will map out some of the different aspects that you will have to start having an opinion on before you become an RCO.
This is a piece that I’m trying to write coherently after a very wide exploration for what is now going on a 4 year journey into the space of what the components of a regenerative business structure are.
The case against the limited liability company
Douglas Rushkoff writes about the religion of corporatism in his book Life.inc. It is not very new but it is a very good portal into these types of topics. Giles Hutchins, Daniel Christian Wahl, Helen Norberg-Hodge (and more with them) point to separation as a core predicament of our times, we separate ourselves from nature, each other and ourselves. There are a number of other authors that have addressed the topics that I will address here below so I will try to be brief.
The limited liability company is a remnant from the late middle ages. Right at the beginning of the colonial era. It was an invention to allow investors to come together and pool (some) of their resources so that they could collectively fund these incredibly expensive expeditions without losing all their capital, if the expedition did not go as planned. The limited liability also meant that you had to share the spoils of the expedition and it meant a path for an emerging, ambitions class of risktakers to start making their way up in the world. The main feature was that the investors could limit their liability in the venture to the money they put into it. I.e. separate a part of their resources instead of any mishaps taking away all their resources.
As far as I’ve understood it, in the early days the permission to incorporate was given by the ruler. It was a privilege and in one way or the other the companies were in service of the whole. This construction was a raging success. Capital flocked to the initiatives and the companies formed were able to set off to discover (or was it loot?) the unknown world.
Fast forward a few 100 years and 3 corporations (by market cap) are on the top 10 list of the largest economical entities in the world - the other ones are countries. Regenerative practitioners and sustainability professionals point to our economic growth as one major cause for the multiple unfolding crises, Rushkoff points to the reign of a new movement: corporatism. It’s everywhere and it’s not making life any better. Rather the opposite. If you want more details of these arguments you’ll have to go to other sources. What we’re addressing with the RCO are 3 main points:
The limited in the limited liability
The possibility to separate and limit the impact on ones personal wealth has an additional consequence. As I reduce my risk I also reduce my responsibility. It creates what is called in economic circles the concept of ‘externalitites’. Adjacent to that economic term is the economic concept of the ‘commons’. Commons are things we all use but no-one owns like oceans, air, lakes etc. Externalities (negative ones) are when these are impacted as a result of activities in a way that no-one takes responsibility for. The firm has an opportunity to outsource some very expensive and unwanted effects to the commons, saving money for themselves and thereby increasing their profits at the cost of our ‘commons. That is what an externality is fundamentally. The RCO aims to put the company back into relationship with the whole. Socially regulating the possibility for the company to generate externalities. We are creating a mechanism for accountability.
It has been argued to be a consequence of a world view where we can take apart the world and explain it fully in terms of its parts. The reductionist worldview. That is under fire from scientists, philosophers and artists alike. It is also based on an idea that the business of business is business to quote a famous economists by the name of Milton Friedmans saying.
This notion of the business of business is addressed by a number of movements. Take a look at for instance the Stakeholder capitalist movement or the B-corps or the rising trend of impact investing. And of course the RCO. The RCO puts purpose first which means that the business is a means to an end, to fulfil the purpose that the founders have set out to address.
A third important aspect to understand is that company law is not written prescriptively. It was originally written to address the information asymmetry between owners and management. Management or operations in a company have vastly more information than the owners so laws were put in place so that the owners (contributors of financial capital mainly) could not be kept in the dark by the management. As time has passed this power dynamic has, to some degree, shifted in favor of the financial owners. Secondly, perhaps due to our culture, we tend to look at what is written into law as the only things that are not allowed in business operations while our lawyers and legal professionals are mainly interested in minimizing risk and therefore define what is possible from what has been done and what is stated. There is less and less ethical judgement in business. The story is that if we don’t do whatever it takes to maximise profit as fast as possible others will do it. It is what is called a multipolar trap by complexity people: unless I do it first I will not be around to correct it. Therefore there is very little that qualifies in the field as ‘ethical business practices’ in the early 2020’s. This idea that self-regulation is for losers, does however seem to be shifting very fast as awareness of the multiple crisis we are facing is sinking in.
The RCO is an attempt to put the company back into relationship with the whole. This means that the business is taking a stance on ethical principles that they will follow, the RCO introduces a measure of democracy in the decision making and it introduces a large amount of transparency all the way into the shareholder agreement to all the members of the association. The RCO decenters the financial motive. To recenter the aspects of the living organism where self-regulation, self-organization and redundancy are critical parameters.
Timescales and growth
Companies exist on different timescales. At the conception of most companies the timeframe is infinite. It’s called going concern. We assume that companies just keep going and keep growing. No matter what. I wonder if it is our fear of death that is skewing this perspective? Nothing in the natural world is exempt from the process of dying and decay nor does it grow unrelated to its context.
Companies are seen as vehicles, empty vessels that can take any shape they want. No need to look to the company’s needs or actual lifecycle. Yet countless entrepreneurship research is pointing to lifecycles of ventures and companies at large. These are emergent properties. What we are doing in the RCO is that we are inviting founders and initial financial investors to take a look at these initial assumptions right at the outset. Like: for how long does the company grow until it is healthy that it starts focusing on contributing to its niche? Not to be out competed but as a means to grow the pie and keep the cost of competition low. How much return do I as a founder need/want out of this venture and how much do the financial investors want? When we’ve been able to deliver on that initial multiple, how do we limit the mutual risk and start growing the pie?
The current process which entails an assumption that ‘more is better’ therefore just maximizes in terms of value and profit puts a strong implicit prioritization to any activities of the company that may or may not be good for the whole of the venture. Again B-corps, the Companization, the cooperative movement and other innovations in this space is challenging this presumption by adding in other focal points. People, planet, profit or what is called triple bottom line is one of the clearer ones formulated. A diversity of goals encourage the owners to have a generative discussion about their priorities.
To us that is not enough however. If a company that has been successful in the current environment it very often gets trapped by that success. That is true for startups as well as more established companies. Sustained performance is not really rewarded in a stock market focused on growth. If the economy is not separate and infinite, but part of and dependent on a finite biophysical world - then what happens?
In the startup world this assumption takes hold as well. Infinite growth. Often business models assume that there is market capture, then there will be profitability. It is playing out the same multipolar trap mentioned above. Not because of necessity but as a strategy. Best case it presupposes that we trust ourselves and that we are good and therefore it is good that we have power - we’re going to… first. What ends up happening more often than not is that the players get caught in the logic of the system. Once you’re moving down that path there is very few off-ramps. No way to escape. Not if you’re successful. The economic system wants more.
The RCO makes the evolving needs of the organism explicit. I.e. founders and investors in the company have a discussion upfront around what is enough growth/size that the venture needs to gain in its initial phase (sprouting phase). These things are adaptable over time. It also imposes an evolution of the organism to different needs allowing the organism to shift out of maximum growth and instead redirect excess resources into other ventures that could sprout and build momentum. Focusing on the niche that the company is addressing with it’s purpose rather than focusing on one business idea solely (although initially that single focus is necessary). It is a way of building resources in the system and then gradually graduating them into a portfolio strategy covering the entire niche of the market that the purpose addresses. This is good for founders and investors increasing everyone's focus and decreasing risk over time.
The RCO does not stop there however. There are suggested mechanisms for succession in service of the organism as a whole. Perhaps there needs to be trimming of the bush to increase its vitality or something wants to be birthed and sprung off from the organism. Eventually it also introduces the thought that as the structure solidifies and grows rigid and brittle it could allow to die and for its resources to refertilize the ecosystems that, at that time, serve the evolved purpose of the entity. I know from first hand experience that sometimes the best way to evolve an organization is to take it apart, let it die and put it back together again fresh. The RCO invites us to do whatever it is that serves the purpose of it in the best way possible. That is the key. The RCO puts the purpose of the business at the center and then lets everything else unfold from that. Even if it means empowering or resourcing other entities in the niche. Not at the expense of investors but to the mutual benefit of the organism and its parts.
Putting the organization back into relationship.
Companies are typically trans-national and lack grounding in a physical place (factories can be moved, headquarters also depending on where the conditions are most favorable to the mission of the company). This has been a factor of power compared to for instance politics. If the shoe doesn’t fit, they will move (or threaten to move). That threat often sparks a negotiation where companies will be able to secure better terms in exchange for staying. This has long been considered ‘fair game’ in most parts of the world. I wonder if it is the christian / cartesian contempt for the material, biological, physical as something to be overcome that is seeping through? That might be for another paper though.
This relates to the limited in the limited liability. When we draw a strong, constructed boundary around the company as an entity and place certain things (that it is still dependent on) outside of it. We are taking it out of context. Since we do not believe in souls, why can’t you just move the headquarters from where it’s been for 100’s of years to where it makes more sense for the CEO or the other ‘top talent’ to be? Why does that have consequences. This relates to our desire to have one answer to fit all the contexts. The truth is that there are no such answers. Companies exist in different contexts and the material output in these contexts are going to vary. Now more so than ever. The entire BANI or VUCA world is putting an increasing localisation pressure on companies and governments alike. This is part of a trend that might go on for a few decades. This also means that what is extractive is going to vary. It depends on the resources available in each place. What business practices are re- vs de-generative is also going to vary to some degree.
The company is out of relationship with its surroundings. That limited is limiting the responsibility it takes. We can see that companies do well to take responsibility, to be responsible, trustworthy corporate citizens. What might cost a few % of margin in the short term will provide loyalty, less employee turnover, better results, more creativity over decades. Contextual relationships are good for business. The cost of trust goes down if we behave in a way that inspires.
The RCO puts the company back into relationship. The association which is safe guarding the not-for-profit part of the company is tasked with taking all stakeholders into account and all of them are invited to participate. This introduces a messiness (similar to that of the triple bottom line) of conflicting needs and ‘jobs’ that the company does for different stakeholders. That way the data is warm (see Nora Bateson, meaning not separated from its context), the decisions are real and the living comes to the forefront. We believe that compromises and engagement are generative to value in the long term. It will allow us to see more than we had if we were only looking through one pair of glasses. That said we’re not introducing endless discussion or incapacitating the profit driving part of the RCO, just putting it in relationship to the other part. By creating containers that can afford more focus (the companies) and other that relate to the whole (the association) we foster generative tension that will improve the outcome of the ecosystem that will cultivate around the organism.
The RCO is a toolkit that we have built in order to be able to respond to the perverse incentives that the current organizational structures give to founders and financial investors. It increases the responsibility of the organism in relationship to the context its in, it imposes an evolutionary process i.e. a progression of priorities in the company in service of the purpose and it softens the limited part of the limited liability company, not removing the boundary but softening it, making it a little more porous so that more nutrition can flow in and build a more resilient, responsive organism. In the next piece we will go into some more of the details of what the RCO is.