The shareholding foundation in 5 key questions

Silvia Steisel - Managing Director of Degroof Petercam Foundation

Marie Melikov - Senior Program Manager of Degroof Petercam Foundation

The shareholder model, which brings together economic and philanthropic interests, is a rather unknown yet very European type of foundation. Find out everything you need to know about this model.

When Yvon Chouinard, the founder of Patagonia, announced just over a year ago¹ that he had donated the full 100% of his shares to philanthropic causes, the press went wild. Through this donation, the shares came into the hands of structures² dedicated to the protection of Patagonia’s nature and its sustainable values.

This announcement has put the shareholding foundation into the spotlights. A revolution? Not really, at least not in Europe where this model is more widespread and longstanding than the media frenzy over Patagonia suggests.

Did you know for example that Europe's largest stock market value Novo Nordisk (Denmark) is owned by a foundation? And that a lot of well-known companies such as Playmobil, Staedtler, Aldi, Bosch, LIDL, Zeiss (Germany), Carlsberg, Lego (Denmark), Ikea (Sweden), Rolex, Victorinox (Switzerland), Laboratoires Pierre Fabre (France), Chimay Beers (Belgium) are partially or in whole owned by a foundation as well?

What is a shareholding foundation?

A shareholding foundation is a foundation (or similar legal form) that owns all or part of a commercial company. It therefore has a dual mission: philanthropic on the one hand, which means that it supports projects that serve the public interest (in particular through the dividends it receives). And on the other hand, economic, by fulfilling its role as a shareholder.

Hence, it is a participation model that combines economic and philanthropic interests. Although very much under the radar until now, this model is a typical European phenomenon that emerged after the industrial boom at the beginning of the 20th century.

In Scandinavian countries, meanwhile, the model has become a true capitalist philosophy. In Denmark, more than 50% of listed companies are owned by a foundation. The country has as many as 1,300 shareholding foundations. And in Germany too, there are more than 1,000 such foundations.

Motivation of shareholders?

The shareholding foundation is a form of governance that meets a series of economic objectives:

Stable shareholding: the foundation generally cannot sell its shares in the company. As a result, it does not face the ownership issues that ordinary shareholders are confronted with. Moreover, it provides protection against a hostile takeover bid as well.

Long-term strategy: the stable long-term shareholding allows the foundation to develop a long-term strategy whilst preserving employment.

Continuity: The foundation ensures that the company can continue to carry out its mission and protects its values. For example, the Staedtler Foundation, which owns the German company bearing the same name, spends 95% of the company's profits on internal research and development, while the rest is distributed as dividends to the foundation to fund university research or local cultural initiatives.

Transfer of the business: through a foundation, it is possible to transfer a business when the context is complex, such as when the younger generation does not want to take the reins or when there is no heir.

Economic patriotism: strong local anchoring allows to prevent the transfer of businesses abroad and protect local jobs. Denmark is a good example: it is certainly no coincidence that this country's industrial flagships, which were owned by foundations, still exist today.

When the shareholding foundation combines its management role with a philanthropic mission³, other motivations are added:

Funding philanthropy: raising a large amount of capital to fund philanthropic projects in line with the company's values. In 2022, the Novo Nordisk Foundation spent nearly €920 million on scientific research and €80 million on humanitarian and social aid³.

Social awareness: infusing the company with the values of social responsibility and a distinctive corporate culture.

Value distribution: sharing the value created in total confidence.

Family project: creating a philanthropic family project that unites people around a common goal.

Situation in Europe?

This structure is not very common in Belgium. It does, however, amongst others exist in the brewing sector since it is used by the monks who brew Trappist beer. As a matter of fact, the Chimay Wartoise Foundation is the reference shareholder of the Chimay Group, brewer of the beer bearing the same name. The monks chose this solution because they wanted to maintain a clear distinction between material obligations related to the group’s economic interests and the monastic vocation of the abbey. The foundation's mission reflects its attachment to the region in which it was founded and its desire to contribute to that region’s sustainable development.

In Luxembourg, it was André Losch who established the first and until now only shareholding foundation. His objectives were clear: securing the long-term future of his company, firmly anchoring his business in the Grand Duchy and at the same time supporting Luxembourg's young people. In 2009, he created the André Losch Foundation, a private-public foundation under Luxembourg law, to which he would bequeath all of his company's shares upon his death.

In France, this type of governance form is still quite rare, although it is emerging. In 2016, shareholding foundations formed a very closed circle with only three members (La Montagne, the laboratories Pierre Fabre and the agri-food group Avril). Since then, other organizations⁴, regardless of their business model, have also chosen this form of governance. The reasons for doing so appear to be very diverse and varied. They are usually closely related to the ambitions of the individuals behind the companies.

For whom?

This shareholder model makes sense for a vast variety of businesses.

Family businesses

First and foremost, for family businesses facing the issue of transferring the family company. For them, a shareholding foundation offers a good alternative to deal with this matter. Depending on the history of the company, several family motives may come into play, for example if there are no direct heirs or to avoid family disputes. Or to preserve and protect the company’s history as well as the values of the founders by making a sale of the company impossible. An important note here is that, from a fiscal point of view, the transfer to a public benefit foundation may give rise to tax reductions or even exemptions in some countries. An example of this is the Naos group (which includes NAOS, Bioderma, Institut Esthederm and Etat Pur brands) and its founder Jean-Noël Thorel, who wanted to ensure that his company would never be sold. By protecting its assets in this way, he effectively secured the future of his company.

Small and medium-sized enterprises

In addition to family businesses, there are also small and medium-sized enterprises that are firmly rooted in their local environment. An example is the Nantes-based company CETIH, which was run for 26 years by Yann Rolland, who over time became the majority shareholder. When the time came to hand over the company reins, he felt that the company's funds did not belong to him. Together with his wife and children, he chose to set up an endowment fund (Superbloom) to which he would donate half of his shares to launch a philanthropic family project.

Growing start-ups

There are also growing start-ups that want to make sure their mission does not change after attracting funds from private equity investors. When entrepreneur Pascal Lorne created his temp agency GoJob, he immediately started donating a portion of his shares to a French endowment fund to ensure that his company could assist the entire French population in their job search, including those people with the least access to employment (such as NEET's⁵).

Companies in the social economy

There are also companies in the social economy that seek to protect their public interest mission through more sustainable governance. In the social enterprise sector, this practice is becoming increasingly common for a variety of reasons. For example, Mozaik RH, an inclusive recruitment agency in France, is owned by the Fondation d'utilité publique Mozaik, which guarantees the company's social mission through its shareholding. By means of the dividends generated, the foundation finances public utility programs that are an extension of its own business activities, such as training for people who have difficulty accessing the labor market.

What future for shareholding foundations?

Is the shareholding foundation a new, sound capitalistic model? Those who have chosen this model will confirm this. Although there are challenges as well, especially in terms of governance, as economic realities can be at odds with the foundation's values. An example of this is Playmobil, where the shareholding foundation was forced to decide on a restructuring plan in 2023. The role of the children and, in addition, the relationship between foundation and company are also important challenges of these new structures. There may still be legal obstacles, especially in France where the inheritance reserve is still very large (although it is now possible to waive the right to oppose a reduction in inheritance).

Conclusion

A foundation as a shareholder is an interesting means of bridging the gap between business and philanthropy. The complex alliance thus created between financial survival as a business on the one hand and social impact on the other can create a dynamic that reconciles commercial success and initiatives for the common good. Which ultimately translates into common goals: economic success, long-term sustainability, prosperity, and a contribution to a better society. In this way, philanthropic ideals are translated into practice through entrepreneurship. The European examples that have secured their survival in this way are living proof.

Degroof Petercam understands your needs as an entrepreneur and accompanies you at every step of the way.

Our Private Bankers proactively raise important subjects such as governance and Philanthropy, both in a national and international context. Structure your assets and plan your succession with confidence.

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¹ https://eu.patagonia.com/lu/fr/ownership/

² 100% of the non-voting shares were transferred to Holdfast Collective, a nonprofit organization dedicated to addressing the environmental crisis and protecting nature. The entirety of the voting shares were transferred to the Patagonia Purpose Trust, whose purpose is to protect Patagonia's sustainability values.

³ Unlike France and Luxembourg, where only legal forms with a philanthropic purpose can be used (with the exception of the fonds de pérennité in France) to establish a shareholder foundation, shareholder foundations in the Nordic countries are not required to pursue a philanthropic purpose. Sometimes they are family foundations, such as the Belgian private foundation.

⁴ https://novonordiskfonden.dk/app/uploads/Novo-Nordisk-Foundation-Annual-Grant-Report-2022.pdf

⁵ Most of these French structures are now grouped within the De Facto community (European dynamics in favor of shareholder foundations), created in 2018 at the initiative of Prophil to inspire and spread this new type of shareholding in France.

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