Evergreen Companies are the Bright Lights of Capitalism

Dear Evergreen Journal readers,

Happy New Year!

Over the past year, there has been a growing call for companies to embrace the idea of running their businesses for all stakeholders, not just shareholders. In August, this idea was brought to the fore when the Business Roundtable announced a new Statement on the Purpose of a Corporation, signed by 181 CEOs who committed to lead their companies for the benefit of all stakeholders—customers, employees, suppliers, communities, and shareholders.

The new statement further fueled the discussion around the role of purpose in business and, more generally, of companies in society. While there is no shortage of examples of companies that take a mercenary approach to wealth generation and would benefit from a primer on purpose, I have to say that is not our experience at Tugboat Institute.

The Evergreen® businesses and leaders that comprise membership of Tugboat Institute adhere to a Purpose-driven, values-based definition of business success. Evergreen leaders believe in the power of People First. They trust that by being of service to their employees, their teams will, in turn, be of long-term service to their customers, their suppliers, and their communities, building companies that will add significant, long-term value and make a difference in the world.

In 2019, we had the opportunity to visit five Evergreen exemplars, members of our tribe who generously opened their companies to their Tugboat peers to share best practices and connect. Our visits to Radio Flyer in Chicago last spring and to Balsam Brands, SmugMug + Flickr, The Bi-Rite Family of Businesses, and the San Francisco 49ers in Silicon Valley last fall once again confirmed what I have been learning over the past eight years about these extraordinary Evergreen companies and their leaders—and the contrast they represent to mainstream business commentary.

These are companies that care deeply about their employees, investing in training and development, rewarding them fairly, and striving to ensure a comfortable retirement that doesn’t require winning the stock option lottery or a second job late in life. They are actively involved in intentionally creating good jobs in their local areas, bettering their communities, and supporting impactful philanthropic efforts.

Rather than being run for the benefit of the shareholders’ bank accounts, Evergreen companies are being operated for the benefit of the shareholders’ values. Often, in an Evergreen company, the CEO is also the owner, or, in some cases, the owners are a small group of individuals and employees. Ownership is not represented by a hypothetical, blank-faced group of hedge fund professionals, day traders, or racks of robot computers running trading algorithms, moving in and out of ownership at a drop of a hat.

In Evergreen companies, managers make decisions that reflect the owner’s values. This can mean foregoing distributions of profits/dividends to protect the company in a downturn, investing in long-term projects, letting the business slow down to absorb recent growth, and avoiding knee-jerk layoffs to meet quarterly projections—all things that the majority of public company investors have little tolerance for or consider lack of managerial discipline. Facing a penny-a-share-miss, even the best public companies are tempted to lay people off to “make the quarter,” potentially harming the company’s culture and employee trust for years and years. Unbelievable but true.

Evergreen leaders also understand that while not their purpose, profit is the most-accurate measure of customer value delivered, the fuel of future growth, and the protector of company viability and survival. Many owners of Evergreen companies share a portion of the company’s profits with their employees through a number of creative profit sharing plans, share a portion with our government through taxes, use some to pay down debt (if they have any), and reinvest the remainder back into growth and Pragmatic Innovation projects that will fuel the company’s continued relevance to customers and its future success. And, some Evergreen companies allocate a specified share of annual profits to charitable causes.

For many, the Evergreen mindset leads owners to defer personal financial gratification for a long time—in some cases, beyond their lifetimes. Why? Because their Purpose and their people are more important than a yacht, a private jet, or a mansion. These leaders want to see their companies and their values survive and thrive for a hundred years or more. That said, if the byproduct of being a great Evergreen company is significant wealth generation for the owners,  then that hard-earned financial success  is something to celebrate, and, ideally, a motivation for other entrepreneurs to take the Evergreen path.

For all of these reasons, I continue to believe that Evergreen companies represent capitalism at its best and deserve greater appreciation and recognition. Knowing what I know about Evergreen leaders, I look ahead to 2020 with optimism and enthusiasm, regardless of what happens in our capital markets.

I hope you will continue to read Evergreen Journal each week to meet these leaders and companies and learn from their experiences. May the positive example of business that they represent serve to inspire you and provide a welcome, alternative perspective on business success in the year ahead.

With Gratitude,

Dave Whorton
Founder & CEO, Tugboat Institute