Problem: Is the distribution of a corporation’s long-term performance fair?
Typically, when a corporation goes public or is acquired, the fruits of its labor go to the founders, investors, and some employees. In the past, in the manufacturing industry, there was a clear separation between producers and consumers, and the performance of a corporation that was a producer clearly belonged to the producers. In the platform era, however, the distinction between producers and consumers is blurred, and consumers are often the backbone of business success. YouTube and Instagram are successful because of the millions of creators, and Airbnb exists because of the superhosts. This is even more true in the gig economy. Uber is successful because of its drivers. However, they don’t benefit from the company’s long-term success because they’re not formally employed. Even though they make a decisive contribution, the long-term benefits ultimately go to the shareholders.
Solution: Grant company stock to stakeholders outside the company
Company stock may be given to stakeholders outside the company to share in the long-term benefits of the business. Equity acts as a long-term incentive (LTI) for stakeholders, giving them an incentive to actively contribute to the business. This can lead to higher business performance. By granting equity to some of top drivers, Uber can increase their loyalty to the company and improve the quality of their service. This means that granting equity is not just a goodwill gesture, but an investment in our stakeholders.
However, granting shares to a large number of people outside the company is not an easy task. Tax/accounting issues, contractual complexities, and shareholder management difficulties make it difficult to implement in a traditional corporation structure. The solution is to create a legal entity to bundle the stakeholders and enter into a stock grant agreement with that entity. The entity is then allowed to operate autonomously and independently of the company, so that no additional company resources are required.
Community Entity
A group of people who are not directly involved in running a company’s business (owners, executives, employees, investors, etc.), but are external stakeholders in the business, is named a community, and creates a legal entity to which they belong. For example, superhosts for Airbnb, Uber drivers for Uber, creators for Roblox, popular YouTubers for YouTube, and contributors for open source projects. It’s up to you to decide who your community members are. The key is to create a legitimate entity that can grant shares.
Community Stock
A company (or founder) enters into a contract (warrant) to grant shares of company stock to the community. This is called community stock. The shares are not transferred, but rather a promise that the shares will be transferred in the future, or that the shares will be cashed in and transferred. This is the concept of a shadow stock. This allows you to share in future performance without the actual shares changing hands. This avoids many of the problems that come with granting shares to individuals.
The parties to the contract are the company and the community entity, not individual community members. The contract can specify how and when shares are distributed. The way shares are distributed can be timed to coincide with when the shares are cashed out (in the case of a privately held company, an IPO or M&A). In this case, the actual shares are not distributed, but rather the proceeds from the sale of the shares. The individual member is not contracting with the company, but with the community entity to receive a promise of future share distributions.
Community Governance
Communities are supposed to operate independently of the company. We want to ensure that the company does not spend additional resources managing the community, and as an external organization, we want to encourage contributions in a different direction from the company. To do this, we need to create governance that allows the community to operate independently and autonomously. We also need to transparently and accurately measure the contributions of community members. This is because the distribution of shares is based on this. For this purpose, most activities are recorded on the blockchain and an internal token is needed for voting, governance, and contribution measurement. We also use various DAO tools to build programmatic governance.
Implementing real-world examples with a company, Everyone’s Lab
Let’s put Community Stock into practice with Everyone’s Lab. Everyone’s Lab is a business that allows anyone to create their own research lab to write papers or create products. The key to the success of this business is the lab members who open the lab and work hard. We will selectively organize them into a community and give them some shares in the company. This community will then operate independently with community governance.
