The industry’s fairest corporate structure
Luoto Company’s mission is to help make working life fairer for everyone
A new era of capitalism
Luoto Company was established out of a desire to make capitalism people-centered and create a work environment where growth is generated fairly for our customers and partners alike. Because time is everyone’s most precious asset, we firmly believe that everyone deserves fair treatment in return for their time and skills.
Our unique corporate structure, which is the fairest in the market, has demonstrated over the years that fairness brings together experienced professionals as a genuine team, one that can fare better amid increasingly international competition than is possible through a more individual-driven approach. For our customers, this is reflected in a culture of commitment and trust, as well as a high-quality customer experience. We always act in the best interest of our customers and strengthen their business and culture, and we do so wholeheartedly.
We are also determined to increase appreciation for the work of specialists and promote fairness in a larger sense in the economy. A major transformation is underway: approximately 40 percent of the Finnish workforce, following global trend, is already engaged in specialist work where the added value of work is determined by the customer. For this transformation to continue in the right direction, it needed to be firmly based on fairness.
Fairness in practice
In our opinion, and also according to research*, fairness is the most important internal value in work communities in the 2020s. Moreover, responsibility affects society at large. We have applied the principle of fairness since the beginning, so we know how varied its impacts can be. Fairness is directly reflected in our work community and in customer satisfaction, the outcomes of which are fair growth and impressive performance.
Because we aim to be a voice of fairness in the economy in a broader sense, we condensed what we have so far learned into a format that can be applied as a fair organization model. In the handbook, we explain how fairness can be promoted in work communities regardless of corporate structure. The handbook can be downloaded without having to provide contact information.
In practice, Luoto Company’s fair organization model has been implemented through ownership, which has also attracted a lot of interest due to its unique nature. While we believe that ownership is not the only way to promote fairer growth in companies, we decided to compile not only the general handbook for practical application but also frequently asked questions that address the interest shown towards our ownership model.
FAQ for Luoto Company’s ownership model
Luoto Company’s ownership is based a group structure, with the criteria for the holdings in the different companies being determined according to the company’s operations. The company’s sales, marketing, financial administration, human resources, and other administration constitute a separate company, and the service business operations are concentrated in separate 20-person parallel companies. Ownership is divided between the founders (20%) and the working professionals (80%). We also wanted to make ownership relevant in terms of decision-making, and this is only possible through teams of limited size where people can properly get to know each other. Each company is autonomous in its own affairs, but together we are Luoto Company. Participation on various issues, from strategy onwards, is also voluntary, with open access to information. We are genuinely community-driven, with streamlined decision-making through majority vote. In the event of a tied vote, it is the task of the founders to ensure that progress can be made on the issue.
It’s been working for a long time already. In a free market economy, a company can distribute holdings as it sees fit, subject to legislation. At the same time, most companies in the world are also jointly owned. It is just a matter of different division ratios, the related grounds for division, funding, and dynamics. In our opinion, expert organizations, in particular, should distribute ownership more evenly.
It is clear from experience that joint ownership solves many of the current problems related to individual pay, ranging from internal competition to unclear pay criteria and career path choices. Most individual metrics do not take into account many factors that provide added value for a company, such as collaborative networks, success in customer service, or lunch discussions with ex-colleagues. For us, these are also things that are important to everyone in terms of performance and value.
What is also unique about us is the division of employee ownership: we are 80 percent owned by working professionals, with the remainder owned by the founders. Ownership is also an equalizing factor, but at the same time our rationale is clear enough, and the roles, skills, and work experience are similar. Alongside the freedoms, responsibilities are distributed more evenly, and the community members, including the founders, are accountable to each other and not as individuals to a supervisor. Transparency is as important as ensuring that decision-making is possible. This means that joint ownership has worked both over the course of time and in our company, where a new approach is applied merely to the distribution ratio.
No. Complete transparency, a flat organizational structure, and transparent criteria for distribution ratios are essential. Partnership is also considered from the point of view of legislation and fairness, whether the issue is free-riding or flexibility required by an individual. Partners in more conventional start-ups, just like athletes in team sports, are in it together, where everyone can see what is or is not happening on the field. Freeriding is actually much more likely in hierarchical and/or closed organizations.
Not if the criteria are clear. If anything, it leads to trust, a sense of fairness, genuine team spirit, and commitment. We also often see colleagues being helped unselfishly, as this is in the interest of everyone as a community. Help is available on request, and we have never witnessed a situation where a friend would not be given attention to an important matter even when things are really busy. In fact, transparency ultimately leads to a better customer experience because the entire company stands together (and not as individuals) behind the objectives. Customers get the benefit not only of an individual but a genuine team. In addition to pay, other company information is also fully transparent and accessible to all partners.
The key differences between an owner and employee are related to decision-making, financial power, profit sharing, transparency of information, and increasing the company’s value. In terms of valuation alone, our combined intellectual capital is an extremely valuable asset on the balance sheet, and we all take care of it together. Partnership also interconnects team members more closely, and in terms of individual freedoms, the arrangement is no different from normal employment. No one is forced to own a share of the company, and divesting shares is never a problem. However, when you are a partner in your own workplace, work becomes more meaningful. As a special feature in our ownership, we have also considered the possibility of decision-making, which in most cases is no longer practicable when the number of owners becomes so large that people do not know each other.
Things can get tough for any company, and it is mainly the company structure that determines who makes the decisions. In the traditional context, this eventually leads to co-determination negotiations, which can result in lay-offs. In our company, in the event of major difficulties, such as financial problems, we would first convene the partners to discuss the situation. Everyone is involved in decision-making. After all, an extensive analysis, complete transparency and decision-making ability is everything you need to resolve the situation. Final decisions are made through majority vote, and in the event of a tied vote the founders have the final say. Another strength of our culture is that knowledge is not concentrated in the hands of a few – it is widely distributed, so that decisions can be made from a broad perspective.
Obviously it is based on national tax legislation. From the outset, in Finland we have acquired know-how, sought legal advice and dealt openly with the tax authorities in matters related to partnership while considering advance rulings. We were pleased to note that the Finnish Tax Administration’s new, in-depth guide, Taxation of Employee Offerings, entered into force on January 1, 2021, making it easier for unlisted companies to develop a broader partnership-based model. Other relevant regulations of the Finnish Tax Administration concern matters such as disguised dividends, taxation of dividend income, and valuation of assets in inheritance and gift taxation, and, to some extent, taxation of dividend and surplus based on work contribution.
The main applicable legislation is the Limited Liability Companies Act, labor law, the collective agreement for the industry and partnership agreement are most important. We all have transparent normal salaries, which can be adjusted by employees. Although benefits are individual-based, with budgeting decided as in any normal company and all partners can make purchases and use services and flexible working hours and, for example, take time for skills development as needed. We also hold Annual General Meeting, where we decide on any distribution of profits in accordance with the ownership ratios. We also increase the value of the company’s share capital together.
It depends on how you look at it. On the one hand, there will be a new type of work related to it, and the company must have a good knowledge of tax law, the Limited Liability Companies Act, labor law, and other applicable rules. On the other hand, a great deal of non-legislative bureaucracy between the employer and the employee is eliminated, such as negotiations about annual salaries and careers, and investment decisions. We also have considerably more freedom, we are nimbler, responsibilities are divided more evenly, and individual flexibility is possible. We know from experience that overall, the amount of administrative work is not significantly greater than in a conventional company.
Why not? It’s also a matter of ownership and a fairer working life. Nevertheless, we do not think that different models can be ranked, because everything always depends on the individual’s desires and life situation. As for us, we wanted to introduce to the market a new option, where we believe in a strong team for many reasons, and which is one of the motives for the establishment of Luoto Company.
By comparison, we have a team structure with a common value system, and our own sales (vs. freelancers, often through outsourced sales) and other operational functions. Our own sales are for our partners, and we can submit bids for projects as a community. In addition, community spirit, business development and skills development are for everyone’s benefit. The partners themselves also decide on the cost structure and individual flexibility. In addition, the company has value and, in terms of financial results, we are stable in the long term. For example, sporadic gaps in projects and the hourly prices applied in an individual project do not stand out in the community to the extent that they would for individuals. From the perspective of international competition, we also think that a team is stronger than an individual.
In summary, our community offers many opportunities that cannot be achieved as an individual, but on the other hand, joining it also binds you somewhat more, for example to common decision-making and values. What is the best model? That must be decided by everyone individually. For us, the most important thing is that there are many different fair options on the market, and you can select the one that suits you best.
We are creating something completely new, so we are still at square one. For example, we are aware that long periods of parental leave and other absences are not compatible with partnership, as shares cannot be put “on the shelf” for a year. However, this is a feature of partnership in other companies as well. In general, we also have fine-tuning to do e.g. working time bank, procurement, and the ownership-related culture in general, and a digital leap in financial administration would also be valuable but everything works good at the moment.
It will also be interesting to see how, in our case, the structure of the different companies works in the longer term. However, through open discussions, we have already been able to have everyday life run smoothly, and we have found solutions to dozens of issues. In these matters, value itself is an extremely strong driver: how do we resolve issue X fairly?
Moreover, larger, completely open issues related to development include, for example, other industries, cost and financial structures, not to mention juniors or joint ownership between people from otherwise different backgrounds and with different skill levels, where there are greater differences between individuals. Perhaps arriving at these issues will mean we’re close to squares two or three. Time will tell.
We believe that instead of large companies, the future of specialist work lies in smaller companies that work together as an ecosystem. For this reason, we have given new entrepreneurs access to the details of our ownership model. The founders of the new companies have a clear majority holding and control over their own affairs. In this way, we also ensure that identity becomes rich and distinctive. As a factor uniting the ecosystem, we share the same values and ownership model, so we can better serve our customers together.
We prefer to talk about the new era of capitalism. By this we mean that in addition to money, there are other forms of capital – especially know-how and time. These days, several researchers also speak of nature as capital in the context of new capitalism. For us, it does not really matter what terms are used to talk about this in a free market economy. Change is more important than wording.
Almost every service company could share more decision power to people in means of self-organization. We believe that intellectual capital should be at the heart of the valuation of these companies. In service and specialist companies, hierarchical structures built on middle/central management are also slow to respond to market flexibility and their decision-making takes place too far away from the customers. We believe that in a rapidly changing world, smaller jointly owned service companies are a much nimbler and efficient way to serve customers well. Based on the procurement trends, this is also the opinion of an increasing number of customers.
In our experience, fair ownership and decision-making power also increase commitment and result in better decisions. In any case, who would make smarter decisions for the customer than the people who perform work for the customer?