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September 4, 2023

Charitable Mindset: The Walker Group transitions to unique trust-ownership model that ensures it will never be sold

HBJ PHOTO | STEVE LASCHEVER The Walker Group founder Kate Emery (right) has transferred ownership of her Farmington-based IT company to a perpetual-purpose trust. The company is now led by co-CEOs Jessica Rich (left) and Todd Bailey (not pictured).
The Walker Group founder Kate Emery (left) has transferred ownership of her Farmington-based IT company to a perpetual-purpose trust. The company is now led by co-CEOs Jessica Rich (right) and Todd Bailey (not pictured).
By Andrew Larson

As Kate Emery, founder of Farmington-based IT and digital marketing firm The Walker Group, considered retirement options, she wanted to find a way to step back while preserving her business philosophy — that success is measured by contributions to the community, not by profits alone.

While self-interested, profit-seeking decisions may guide the invisible hand for businesses to achieve economic and social gain, for Emery, helping other people shouldn’t be a byproduct of profit maximization.

“There are a lot of technology companies out there that are looking to grow and are looking for companies to take over,” Emery said. “But oftentimes, that can mean something pretty ugly in terms of the idea of ‘how much money can we suck out of this company?’ And oftentimes that means the services suffer, the people suffer — forget any kind of community spirit that’s going on.”

She was instilled with a charitable mindset from a young age, and wanted those values to be ingrained into The Walker Group in perpetuity.

After a yearslong process, on June 6, Emery transferred her sole ownership of the company, which she started 37 years ago, to a perpetual-purpose trust. It’s the first Connecticut company to use trust law to establish such an entity, she said.

The new ownership structure means The Walker Group is owned by a trust without a direct human beneficiary. The trust exists to fulfill a purpose, which, in Walker Group’s case, includes donating a third of distributed profits to local nonprofits and sharing a third with employees.

“We don’t have an owner who’s looking to maximize the value of the company to sell and get out and not care about what happens to everybody else,” said Walker Group’s co-CEO Jessica Rich.

Todd Bailey

She and co-CEO Todd Bailey succeeded Emery as the company’s leadership team.

“We are governed by a trust agreement that says you have to be a socially focused company, you have to share profits with the employees, you have to share profits with the community,” Rich said. “I mean, we could sell water bottles if we wanted instead of technology services, … as long as we keep giving back.”

Preserving social values

A perpetual-purpose trust may operate indefinitely and is governed according to a purpose set forth in a trust agreement.

That agreement redefines the legal fiduciary duty of its trustees, according to the Purpose Foundation, an organization that helps businesses implement equitable ownership, governance and financing models.

Through the arrangement, Emery still owns a third of the company in the form of a preferred share. She plans to hold on to that share for now.

Most importantly to Emery, being a perpetual-purpose trust means the company can never be bought or sold. She doesn’t want the company she started to grow in an irresponsible way that could jeopardize the people it serves.

“If you are a regular C corp with shareholders, and you make decisions that don’t maximize the profits of the company that then go to the shareholders, you’re violating the law, basically,” Emery said. “And so, you can be sued.”

The Walker Group has operated as a social enterprise since 2014, when Emery converted it to a public benefit corporation. The state created a framework for companies to convert to B corps in 2013, following Emery and others’ testimony in favor of the legislation.

Since then, the company has shared one-third of its profits with employees and another one-third with the community, Emery said. The other third was reinvested in the company through shareholders.

The B corp structure allowed The Walker Group to operate differently from most businesses in a free market economy, as it had no fiduciary responsibility to act in the best interests of shareholders.

HBJ PHOTO | STEVE LASCHEVER
Employees of the Walker Group (from left): Chris Burak, Diana Sutcliffe, Kevin Lewis, Scott Pare, Bill Feda, Dylan Oakes, Kristen Beausoleil, Melissa Bryers, Gary Simmons, Jessica Rich, Paula Avoletta, Candace Kochosky, Rob Brandt, Cheryl Elmore, Donna Rondeau and (front) Kate Emery.

But that wasn’t enough for Emery; it didn’t give her an avenue to protect her ideals from being stripped from the company as part of a future sale. She wanted to preserve her social values.

She eventually hired an attorney from California to create the trust in Delaware; there are no attorneys in Connecticut who can handle a trust ownership conversion, she said.

Connecticut law does not yet provide an avenue for it.

Emery remains The Walker Group’s board chair and sits on the trust stewardship committee, a group of stakeholders who oversee the trust that owns the business. While she plans to eventually give up her board seat, she intends to stay on the stewardship committee for the rest of her life.

The trust has a promissory note with Emery to pay her for the value of the company over time, Rich said.

“That’s how she gets her liquidity for retirement, instead of getting a lump sum payout like she would from a traditional sale,” Rich said. “It’s not overly taxing to the company, and there are a lot of controls around it to make sure that we’re still healthy and stable.”

While The Walker Group will forever serve the trust’s interests, it still seeks to earn profits. But it does so knowing that the more money it makes, the more good it can accomplish.

“We want to be profitable, because when we are profitable, the employees benefit from it, the community benefits from it,” Rich said. “Our employees get to vote on where the community dollars go. We talk about it as a team.”

The company also donates services to nonprofit organizations, although it also has nonprofit clients who pay for services.

Growth mindset

The Walker Group is growing. It expects to generate more than $10 million in revenue this year. In 2017, it made about $6.5 million and had 34 employees. Now it has 45.

The company has given almost $1.5 million to charity since 2007.

Walker Group’s giving priorities include organizations that address basic human needs, hunger, housing, environmental sustainability and social enterprise. Emery is also the founder of reSET, a Hartford-based nonprofit whose mission is to advance the social enterprise sector.

Emery retired from The Walker Group in January 2018, stepped back from the business’ day-to-day operations and began serving in a strategic role. She now works as a full-time landscape painter.

As more Baby Boomers reach retirement age, businesses owners are increasingly hatching plans for their exit strategies.

Last year, Yvon Chouinard, founder of outdoor clothing company Patagonia, transferred his and his family’s ownership in the business to two nonprofits established to fight climate change.

Chouinard announced that Patagonia would transfer 100% of its voting stock to the Patagonia Purpose Trust, which was created to support environmental activism.

At the time, Patagonia estimated that after reinvesting some profits back into the company, about $100 million annually will be distributed to the trust’s beneficiaries.

A 2019 study by researchers at the Copenhagen Business School in Denmark found that foundation-owned companies are “highly stable owners compared to other owner types” and are more likely to survive in the long term.

Emery said she considered an employee-stock ownership plan for The Walker Group, but it didn’t afford her the ability to prevent the company from being sold by a future owner.

She also considered a nonprofit model, but nonprofits can run into tax issues if they sell a service that is different from their mission, she explained.

The Walker Group has found that clients are enthusiastic about the social-good aspect of the company, which gives it a competitive edge.

Also, because the company can never be bought by a larger firm, clients have a guarantee that they’ll never be dealing with a faceless out-of-state conglomerate.

Employees like the arrangement, too, because it means they’ll never have to worry about a restructuring due to a sale, Rich said.

Emery and Rich said they hope more companies in Connecticut will adopt the model, and they’re willing to share their experiences and advise anyone who reaches out to them.

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