How to structure ownership to protect your mission

1 The bottom line

Lock control into a legal structure, such as a foundation, a trust, a family holding or a super voting share class. Rules written down early outlast heirs, raiders and the founder's own doubts.

2 Key takeaways

• Decide what must never happen to the company, then write it into the ownership. A structure only protects against the dangers it names.
  • Hans Wilsdorf, Rolex47:19 set up a trust in 1944 whose bylaws block a sale or a listing, and it still controls Rolex today.
  • Ingvar Kamprad, IKEA55:00 spent almost a decade with lawyers so the company could never be sold or dismantled.
• Use a foundation or trust when you want no owner who can cash out. Heirs, shareholders and governments cannot break up what nobody personally owns.
  • At IKEA the Kamprad family sits on the boards but cannot control either company, even all three sons together Kamprad, IKEA1:42:00.
• Use a family holding with a lock-up when the family should keep control. Pooled shares cannot be picked off one relative at a time.
  • In 2011 over 50 Hermès family members put 50.2% of the equity into H51 with a lock-up of at least 20 years Hermès34:30.
  • Walton Enterprises owns about 36% of Walmart, and the family owns just over 50% in total Sam Walton, Walmart26:00.
• Use share classes if you want to go public and still keep control. Super voting shares let outside money in without handing over the vote.
  • Google was the first tech company to use super voting shares at its 2004 IPO, and Meta, Alibaba, Shopify, Airbnb and Zoom copied it Larry Page and Sergey Brin, Google3:08:13.
• If you sell a stake, trade price for written control. What you keep in the contract matters more than what you collect.
  • Enzo Ferrari sold 50% to Fiat in 1969 and kept final say on racing Enzo Ferrari, Ferrari1:21:24.

The company itself can never be dismantled.

Ingvar Kamprad, IKEA

2.1 Name the threat before you pick the structure

Each famous structure answers a specific danger, so list yours first.

• List who could break the company up, and what they would do. Kamprad did this at IKEA1:42:00.
  • He wanted to protect IKEA from his three sons fighting over it, from any one country's politics, and from short-term public market pressure Kamprad, IKEA1:42:00.
  • Taxes were a threat too: Swedish inheritance taxes above 60% and a 2.5% annual wealth tax in the 1970s Kamprad, IKEA1:42:00.
  • He put his view on going public bluntly: "going public is a little like wetting your pants it's warm and comfortable for a few minutes" Kamprad, IKEA1:42:00.
• Decide what you will never do, and say it in the founding documents. Wilsdorf at Rolex47:19 chose never to sell and never to list.
  • The trust's bylaws block a sale or a listing Wilsdorf, Rolex47:19.
  • That frees the company from catering to anything but making timeless watches Wilsdorf, Rolex47:19.
  • His vision is still being carried out more than half a century after his death Wilsdorf, Rolex47:19.
• Keep the number of partners small from the start. Enzo Ferrari took this from his father.
  • Alfredo Ferrari said: "A company is perfect when the number of partners in it is odd and less than three" Enzo Ferrari, Ferrari7:00.
  • It shaped why Enzo guarded racing control in every sale talk with Ford and Fiat Enzo Ferrari, Ferrari7:00.
  • Bill Gates turned down Ross Perot's mid seven figure offer in 1979 with "No, I want to remain independent," when Microsoft's revenue was only $2.4 million Bill Gates, Microsoft57:47.

2.2 Put the company inside a foundation or trust

An entity with no personal owner cannot be sold, split or inherited away.

• Move the shares into self-owned foundations and split them by job. IKEA is the model Kamprad, IKEA1:42:00.
  • He used Dutch and Liechtenstein foundations, split into an operating company (Ingka) and a brand and concept company (Inter IKEA) that collects a 3% royalty Kamprad, IKEA1:42:00.
  • The family sits on the boards but cannot control either company, even all three sons together Kamprad, IKEA1:42:00.
  • To get there he moved to Denmark and then Switzerland Kamprad, IKEA1:42:00.
• Budget years of legal work, because the structure is layered. Kamprad did not rush it.
  • He hired lawyers for almost a decade, and the result was a web of holding companies, a nonprofit and a Dutch foundation that owns IKEA Kamprad, IKEA55:00.
  • The foundation is now among the largest in the world, and he insisted IKEA never go public Kamprad, IKEA55:00.
• Let the trust's bylaws, not the trustees' mood, forbid a sale. Rolex47:19 shows it.
  • The Hans Wilsdorf Trust owns and controls Rolex, and its bylaws block a sale or listing Wilsdorf, Rolex47:19.

2.3 Pool the family's shares in a holding

If the family should keep control, bind the family to act as one.

• Lock the family's shares into one vehicle before a raider arrives, or as soon as one does. Hermès did it under attack.
  • Bernard Arnault spent 2001 to 2010 secretly building a stake through equity swaps, then disclosed 14.2% in 2010 and grew it to 22.6% by 2011 Hermès34:30.
  • His buying shrank the float and inflated the share price to tempt 80 family members Hermès34:30.
  • In 2011 over 50 of them put 50.2% of the equity into H51, with a contractual lock-up of at least 20 years, since renewed for another 10 Hermès34:30.
  • The family kept control, a French court later fined LVMH about 105 million euros, and Hermès's market cap rose roughly 16x from 2010 Hermès34:30.
• Set up a family partnership that must agree to any sale. Sam Walton did it in 1953.
  • Following Helen's father LS Robson's advice, Sam and Helen created a partnership that became Walton Enterprises Sam Walton, Walmart26:00.
  • Because the partnership had to agree to sell, the stock was never splintered Sam Walton, Walmart26:00.
  • Sam believed this is why raiders and larger companies like Kmart never took over Walmart, and he warned his heirs in his book against changing it Sam Walton, Walmart26:00.

2.4 Use share classes and rules to keep control while raising money

When you cannot avoid outside owners, write the voting rules so they cannot outvote you.

• Issue super voting shares before you list. Google did at its 2004 IPO.
  • Larry and Sergey worried that public markets and employee sales would dilute their control Page and Brin, Google3:08:13.
  • They borrowed the idea from newspaper families such as the New York Times company Page and Brin, Google3:08:13.
  • Google was the first tech company to use it, and nearly every major tech IPO since has followed Page and Brin, Google3:08:13.
• Bind members to one set of rules that only a very high vote can change. Dee Hock did this at Visa.
  • One universal set of operating regulations bound all members, now and as later amended, and banks were implicitly barred from joining competing networks Dee Hock, Visa1:19:40.
  • Every member could call a vote, but "they set the Threshold at 80% for anything to happen" Dee Hock, Visa1:19:40.
  • In practice the arrangement gave Hock, as CEO, most of the practical control Dee Hock, Visa1:19:40.

2.5 If you sell a stake, keep the control rights

A partial sale is safe only when the contract says who decides what.

• Split the decisions between you and the buyer in writing. Enzo Ferrari did it with Fiat in 1969.
  • Sick with kidney disease, he sold 50% to Fiat, with a secret deal for 40% more on his death and 10% for his son Piero Enzo Ferrari, Ferrari1:21:24.
  • Fiat would run road cars and Enzo would keep final say on racing Enzo Ferrari, Ferrari1:21:24.
  • One real bidder meant a low price of about 6.8 million dollars for the whole company, and he lived another 19 years Enzo Ferrari, Ferrari1:21:24.
  • Fiat bought the other 40% in 1988 at a valuation of 192 million dollars Enzo Ferrari, Ferrari1:21:24.
• Make your own role a condition of any merger. Jensen Huang did.
  • In the mid-2000s lull, with the stock flat, AMD tried to buy Nvidia, and Jensen "insisted that he be the CEO of the combined company" Jensen Huang, Nvidia1:29:30.
  • The deal fell apart, and AMD bought ATI in 2006 and became Nvidia's main GPU rival Jensen Huang, Nvidia1:29:30.

2.6 Where they differ

The right tool depends on who should hold control, and whether you need public money.

• Foundations take control away from the family, while holdings keep it with them. Pick based on whom you trust.
  • The Kamprad sons cannot control IKEA, even all three together Kamprad, IKEA1:42:00.
  • The Waltons own just over 50% of Walmart in total, and Hermès family members hold 50.2% through H51 Sam Walton, Walmart26:00, Hermès34:30.
• Some protect the mission by never listing, others by listing with special shares. It depends on whether you need public capital.
  • IKEA and Rolex are built never to go public Kamprad, IKEA55:00, Wilsdorf, Rolex47:19.
  • Google and its many followers list and use super voting shares instead Page and Brin, Google3:08:13.
• Formal democracy can still leave practical control with one person. Visa shows the gap between the rules and the reality.
  • Hock called Visa a pure democracy, yet the arrangement gave him most of the practical control as CEO Dee Hock, Visa1:19:40.