Clifford Kurz and Susan West Kurz are romantic zealots. Passion has ruled their 21-year relationship, as well as the tetchy perfectionism with which they ran Dr. Hauschka Skin Care, the exclusive distributor of German-made holistic skin-care remedies, from a converted barn in Hatfield, Massachusetts. It's that fervor that let the Kurzes ignore the advances of sugar-daddy suitors that would have paid them tens of millions of dollars, bucking the trend of onetime fellow die-hards selling out to major beauty companies.
Then, as the Kurzes prepared to retire last year, they did something even weirder. "We neutralized our equity in the company," Susan Kurz gushes, sounding as if she's just revealed a secret out of Gordon Gekko's playbook.
In a transaction believed to be unprecedented among U.S. companies, Kurz and her husband legally eliminated their ownership in Hauschka, and then placed the operating company, which is profitable, inside a Massachusetts nonprofit corporation. The result is a novel corporate structure that acts a lot like an irrevocable trust, with one significant exception: It has no trustees or beneficiaries, which means that the
Why would anyone do something like that? We live in an era when labor competition from abroad and a waning economy at home leave large, venerable companies like Chrysler and Dow Jones vulnerable to being swallowed up by private-equity firms and deep-pocketed billionaires. In these deals, sustaining a corporate culture takes a backseat to commanding the highest possible price.
But the Kurzes put a premium on sustaining their business's mission and values—notions as romantic as you'd expect. "We aim to heal the earth and humanity," Susan, 58, says, pausing as if she's anticipating the skeptical retort, Through $14.50 tubs of lip balm? "Every action that is taken in this business, every intersection between the earth and end user, has a proactive healing impulse behind it." Hauschka's products back up the boast. Its raw ingredients are grown or sourced primarily from biodynamic farms and at fair-trade pricing.
Susan first discovered the Hauschka line in 1976 as a 27-year-old apprentice at a biodynamic herb garden in Rhode Island. Her tutor had been selling the German-made cosmetics for years and asked if she'd like to take over his importing. She discovered her other great romance 10 years later at a natural-products expo in Washington, D.C.: "When I shook Susan's hand, I said inwardly, 'Uh-oh,'" Clifford recalls. "It was love at first sight."
Their business has ridden the wave of growing interest in sustainable products. Hauschka has logged average annual revenue growth of 17% over the past decade. It expects to gross more than $20 million in 2007.
And in that time, the cosmetics giants have come calling. They've spent billions to buy other small, high-end brands. L'Oréal's stable now includes both the Body Shop, acquired for $1.1 billion in 2006, and Kiehl's. Estée Lauder paid $300 million for Aveda in 1997 and an undisclosed amount to snag Jo Malone, which makes $60 lotions and a $345 grapefruit-scented luxury candle, in 1999. Typically, publicly traded conglomerates scale back the product lines of their new cult brands, consolidate sourcing for raw materials, and replace human labor with automated manufacturing—all with maximizing profits in mind.
"People are trying to buy Hauschka all the time," Susan says. Current CEO Mirran Raphaely says the Kurzes have never let discussions get far enough to set a purchase price. Clifford, 60, says they feared that even a suitable steward for Hauschka could later sell to a buyer with different priorities. Some advisers suggested converting the company into a private foundation. "But our mission isn't charity," he says. "We're in business to do business. We also didn't want to have the IRS calling the shots." Eventually, the Kurzes concluded that "we had to eliminate the individual ownership [of the company]."
They expressed their desires to an attorney, Michael Frankel of Frankel, Devlin in Springfield, Massachusetts. "I scratched my head for awhile as Clifford explained it to me over the phone," Frankel recalls. "I kept asking, 'Why? Why do you want to get rid of ownership?' But he was steadfast in his reasoning." It took two years to devise the financial structure that would achieve their goals.
In the end, the Kurzes took a buyout from WALA Heilmittel, the German manufacturer of Hauschka products. (The couple will say only that they received the face value of the equity they had accrued in the company. Amarjit Sahota, an analyst at market researcher Organic Monitor, estimates Hauschka's total value at $50 million.) The Kurzes set up a Massachusetts nonprofit and "entrusted" the profitable operating company to the nonprofit holding company.
Hauschka looks like a nonprofit but isn't one. It makes money, and it pays taxes. It is governed by a four-member board that includes the Kurzes and two WALA representatives. Their charge is to see that the company complies with Hauschka's long-standing mission "to heal." The articles of incorporation prohibit board members from receiving any financial gain for their role, in salary or dividends. They also prohibit the sale of Hauschka's distribution rights. Without owners to collect dividends, all net profits are reinvested in operations, sustaining development.
Theoretically, someone could come along and unravel this protective web. But Susan points out the difficulty in such a deal: "Who would get the money?" Blame it on love.
A version of this article appeared in the December 2007 issue of Fast Company magazine.