The Beauty of One

EDITOR’S NOTE: I originally wrote this for Equal Exchange’s 2008 Annual Report (where it appears on page 12.)

Close to the center of Equal Exchange’s business model there are two gates. One is open, one is closed, and therein lies a great strength and a secret of our success. Most businesses are designed to deliver two financial results: to make profits and to grow in value. They then distribute those gains back to the business’ owners; profits can be returned through dividends and growth in value through increasing share prices, through capital gain.

For over two decades, Equal Exchange has chosen just one means: we welcome profit and decline capital gain. The chart below is the result; it shows our fixed share price and annual dividend (typically five percent), which are reinvested in more shares. It looks pretty good, so let’s dig a little deeper. The Freedom of No Capital Gain. The answer to “How much is a company worth?” can change every few minutes. We’ve all seen the stock market graphs. The answer goes up and down and huge wealth is won or lost on that guesswork and speculation. At Equal Exchange we have closed that gate. Buy a share in our co-op, and its price is fixed. There is no capital gain, no hope of windfall riches, no ticker symbol to obsess over, no precipitous decline. You can’t trade that share in the stock market for a
variable price, you trade it back to Equal Exchange for the price you paid. With no way to get rich, the need to control is also weakened.

In most business models, control allows owners to maximize their return and get the biggest piece of the pie. But if your pie slice is fixed what are you trying to control? That allows us to sell non-voting shares, and keep control with the worker-owners who are both the biggest investors and are closest to the mission. But wait, if all our pie slices are fixed, yet Equal Exchange is growing, who does the rest of the pie belong to? It belongs to the community. That’s what our bylaws say. If the co-op is ever sold, any extra money and capital gain goes to further Fair Trade. That is freedom; freedom from having to, or the temptation to, turn our co-op into cash. It’s freedom to deliver on our mission. The Character of Profits. Profits, that’s different We like profits. We are traders, and sustainable trade involves profit. Profits give us the means to invest in new ideas, to cover occasional failure, and to reward the worker-owners and investors for their labor and money. Profits, unlike share prices, are measured by auditable standards. They reflect what we did. Profits demonstrate to others that Fair Trade can thrive.

So while non-profits avoid both gates, and corporations embrace both, Equal Exchange has chosen a singular path – yes to profit, no to capital gain – and we’ve grown steadily for over 20 years. We hope you’ll continue to travel this path with us. As more people seek economic alternatives, we are expecting company.

A table showing the beauty of one. I guess if we wanted to be complete we could add “speculators” who seek only capital gain and not profit.