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Doing business with alaska native corporations
A New Model for Native American Business Entities
By E. Budd Simpson
Alaska Native Corporations (ANCs) are unique business institutions that present an interesting array of opportunities for U.S. and international transactions. ANCs take the place of traditional tribal organizations but are structured like modern business corporations. They are 100 percent minority owned (Native American/Alaska Native), which results in a number of significant business advantages to the ANCs and their business partners. This article will attempt to describe some of the unique characteristics of ANCs and opportunities for doing business with them that may be of interest to readers.

Historical and Geographic Perspectives

From the lower 48 states, the image of Alaska may be one of glaciers and oil fields. In fact, our largest state has a rich cultural and historic heritage that began with its Native inhabitants. Not just "Eskimos," Alaska's aboriginal peoples fall into three broad ethnic groups: Indians, Aleuts, and, of course, Eskimos or Inuit. These groups have distinct cultural and linguistic differences, as reflected in their diverse traditional art forms and subsistence-oriented lifestyle.

Alaska's Native residents are proud of their heritage, including the fact that they were never conquered or subjugated by the American government, or before that by the Russians. With the exception of one small island, there were never Indian reservations in Alaska, and there are none to this day. Historically, Alaska's Natives have lived in village communities throughout the state, from the Inupiat Eskimos of the Arctic North in Barrow, to the Athabascan tribes of the state's interior, the Aleuts of the rugged Aleutian Chain, and the Tlingit and Haida Indians of the southeast rain forest.

Alaska's size and far northern location make for unique problems with unconventional solutions. Everyone knows Alaska is big. U.S. maps usually show it stuck away in a corner and represented in a smaller scale than the rest of the country, so it will fit. In Alaska, we believe the mapmakers are from Texas, which has been peeved ever since Alaska became a state and made Texas second largest. Alaskans say, if the Texans don't get over it, we will split our state in two and make Texas the third largest. From Ketchikan, the southernmost large town, to Attu, the farthest west of the Aleutians, the distance is the same as from Miami to San Diego. And Ketchikan to Barrow on the Arctic Ocean shore is like that of Miami to Portland, Maine. Alaska's 670,000 residents are jammed together in only 600,000 square miles. Half of those residents live in and around Anchorage, the largest city, so the true population density throughout the rest of the state is about one person per two square miles. The western islands of the Aleutian chain are beyond the 180th meridian and are therefore the easternmost place in the United States. Many Alaska towns and villages are so isolated that they are not connected to any road or highway system—including the state's capital at Juneau.

The Alaska Native Claims Settlement Act of 1971 (ANCSA)

In the late 1960s, after Alaskan statehood was decreed in 1959, oil was discovered on Alaska's North Slope. A pipeline was planned to deliver the oil to tidewater in the ice-free port of Valdez. Issues concerning land tenure and ownership arose that required settlement of aboriginal land claims to secure the pipeline right of way. Alaska's Natives had been fighting a legal battle for many years to recover their ancestral lands. The fortuitous timing of the oil discovery led to passage of the Alaska Native Claims Settlement Act of 1971 (ANCSA). Under ANCSA, the state was divided into 12 geographic regions, roughly along historic ethnic tribal lines. Each region set up a Regional Native Corporation (RNC), which was established as a conventional for-profit business corporation under state law. Also authorized were over 200 smaller village and urban corporations located in communities throughout Alaska where a significant number of Natives live. To settle the land claims, the federal government conveyed 44 million acres to the ANCSA corporations in fee simple. The amount of land that went to each corporation was generally based on the number of Native shareholders originally enrolled in that corporation. About 70,000 Alaska Natives were enrolled. The land settlement averaged nearly a square mile for each Alaska Native alive in 1971. The RNCs own both the surface and subsurface or mineral estate to their lands, as well as the subsurface estate of the lands conveyed to the village and urban corporations within their region.

Sealaska Corporation, the RNC for the Tlingit, Haida, and Tsimshian Indians of southeast Alaska, was the largest of the 12 in terms of population, with 15,700 original shareholders. Sealaska actually got less land per capita than the other 11 corporations because it selected land from the Tongass National Forest, including extensive stands of valuable old-growth timber. The smallest RNC was Ahtna, of the Copper River region, with only 1,090 original shareholders. The author has represented Sealaska since 1978. Because it is the corporation that he knows the most about, it is sometimes used as an example in this article.

When Congress enacted ANCSA, it had in mind that the history of Indian reservations in the lower 48, and the treatment of Native Americans, had been far from exemplary. The reservation system had led to dependency on the government, discrimination, endemic poverty, and all of the social problems that flow from those. The corporate model was a bold experiment intended to provide economic autonomy, self-reliance, and a complete departure from the reservation system. Some say the hidden agenda was to assimilate the Alaska Natives and eventually pass their lands into non-Native hands. As we will see, the land has remained under Native control and the Native culture is stronger than ever, thanks to the funding of nonprofit entities dedicated to preserving indigenous languages, culture, and art forms.

Each Alaska Native alive in 1971 was issued 100 shares in the appropriate RNC. If the shareholder came from one of the villages or urban areas that established corporations, he or she received another 100 shares in that corporation as well. The corporations are governed by boards of directors, elected by the shareholders. Since every shareholder received 100 shares, there are no institutional owners or founding families that control the boards. This can result in some interesting and hotly contested proxy fights at election time. When issued, the stock could not be sold or alienated. The only legal transfers had to be by will or intestacy at the death of the owner, or by certain inter vivos gifts among close relatives. At first, the transfer restrictions were supposed to be lifted in 1991. A later amendment was intended to keep the corporations in Native ownership indefinitely, and held the restrictions in place unless the shareholders voted to lift them. So far, no corporation has lifted the transfer restrictions. Every ANCSA corporation remains in Native ownership.

The lands owned by ANCSA corporations are not Indian reservations, nor are they held in trust. These lands are held in fee simple and can be sold, mortgaged, or developed just like any other private land. The corporations also received nearly $1 billion as part of the settlement. A portion of that was paid to individual shareholders and the remainder reinvested in economic development projects throughout the state and outside. The corporations are not designated as Indian tribes for purposes of sovereign immunity, so it is easier to do business with them on the same basis as any other corporation. The ANCSA corporations are considered tribes for certain other statutory purposes. For example, they can and do provide special benefits to elders and can vote to issue new shares to young descendants of shareholders without compensation.

Some of the early investments by the corporations were not profitable. There were some lean times, a couple of bankruptcies and near-bankruptcies before all the corporations really found their stride. Now, some 35 years into the ANCSA experiment, the corporations are a prime economic driver of the state. Collectively, they have revenues in the billions and distribute tens of millions of dollars a year in dividends directly into the economy. They have hundreds of millions in payroll within Alaska and thousands of direct employment jobs. They have made investments all over the United States and globally. As examples, Sealaska has subsidiary businesses in Alabama, Alaska, California, Colorado, Iowa, Washington, and Mexico, all of which sell products globally. Sealaska had 2006 profits in excess of $41 million on revenues of $178 million and paid over $16 million in dividends.

Not surprisingly, many of the RNCs have business investments in natural resource development. The corporations in the southern coastal regions of Alaska are heavily involved in the timber industry. Significant mining investments have been made by interior corporations and, on the North Slope, the Arctic Slope Regional Corporation (ASRC) is heavily involved in petroleum and oil field services.

As important as paying dividends to shareholders, providing jobs and economic opportunity have been major policy goals of every corporation. NANA is the RNC for northwestern Alaska, with about 11,000 Inupiat shareholders, 2 million acres of land, and over $500 million in total revenues in 2005. With investments in contracted government services, hospitality and tourism, professional and management services, and oil field and mining support, NANA paid $27.8 million in salaries and wages to its own shareholders. All 12 corporations could tell a similar story.

ASRC, headquartered in Barrow, booked a remarkable $1.6 billion in revenue in 2005, including net income of $127.5 million. This is not just oil money, either. It is a reflection of sound investment strategies in a number of profitable enterprises.

A Unique Business Model

Although the ANCSA corporations were set up as regular business corporations, there are some unique features built into ANCSA that govern a significant part of their economic reality. Although Alaska is rich in natural resources, those resources are not evenly distributed across all the regions of the state. The North Slope has gas and oil, of course. The southeast region has massive stands of timber in the world's greatest temperate rain forest. There are untold reserves of coal in the Cook Inlet region and gold and other valuable mineral deposits in the interior. Some regions would be "haves" and others "have nots" when the land was conveyed. Congress sought a compromise that would assure that all Alaska Natives got some benefit from the incredible wealth conveyed to their corporations. The compromise found its home in section 7(i) of ANCSA, possibly the most sweeping redistribution of wealth since the income tax.

Under section 7(i), the RNCs must share 70 percent of the net revenues from their natural resource development—timber, minerals, oil—among all of the regions. This is mandated on a per-capita basis, such that the larger corporations receive more, the smaller less. The distributing corporation keeps 30 percent plus its pro-rata share of the per-capita distribution. Accordingly, for example, if Sealaska has $1 million from timber operations, it will retain about $440,000—its 30 percent share plus about one-fifth of the rest, because its shareholders constituted about one-fifth of the total number of shareholders originally enrolled in all of the corporations. The other $560,000 goes to the other 11 regions.

To put it in real numbers, since it began timber operations in about 1980 through 2006, Sealaska distributed over $308 million under section 7(i). In the same period, it received about $178 million from other corporations. About five corporations have never paid anything to the others, but all have received section 7(i) revenues under the sharing program. There are haves and have-nots.

Continuing the socialist spin on this experiment in capitalism, ANCSA also requires that half of the money shared under section 7(i) be paid out to individual shareholders and village corporations. That money goes straight into the Alaskan economy, but still leaves half for the RNCs to reinvest or do with as they wish. The corporations have used these funds for investments, including stock portfolios, and passive and active business investments all over the country.

And one last ANCSA twist: the 44 million acres are exempt from property tax until they are developed. Most of Alaska is undeveloped anyway, and unlike other places, most areas of Alaska are not even within a taxing jurisdiction. There are no counties in Alaska, but some municipalities are organized as boroughs that can levy property taxes. The tax-exempt status of Native lands may be critical to the corporations in the future, however, as more communities within Alaska seek to increase revenues through property taxes.

Government Contracting and Diversity Supply

Many of the ANCSA corporations have found a niche in the government contracting and diversity supply field. In this context, the ANCSA corporations have some attributes of Indian tribes. Unlike other for-profit corporations, the ANCSA corporations have assumed obligations to advance the social, cultural, and economic welfare of Alaska Natives. Congress has authorized unique federal procurement rights for ANCSA corporations, which provide federal agencies and federal contractors with strong incentives to contract with ANCSA-owned companies. The public policy rationale for ANCSA federal procurement preferences is to jump-start Alaska Native economies and flow the economic and other benefits to tribal shareholders. These businesses provide an excellent opportunity for established lower-48 businesses to partner with an ANCSA corporation for a mutually profitable venture. Section 8(a) of the U.S. Small Business Act, which assists companies in contracting with the federal government, gives special consideration to small disadvantaged businesses when they bid on federal contracts. ANCSA corporations enjoy a special statutory status that grants preferences in section 8(a).Section 8(a) status gives ANCSA corporations and their partners a significant competitive advantage in the federal marketplace. ANCSA corporations are eligible to receive sole-source government contracts regardless of the size of the contract, and there is no dollar limit to the total amount of the sole-source contracts. Other firms are restricted to sole-source contracts under $3 million for services (or $5 million for construction), with a total amount of sole-source contracts not to exceed $100 million.

ANCSA corporations also may own multiple 8(a) companies, while other firms can own only one. Section 8(a) companies are eligible for set-asides in which only 8(a)-certified firms can compete. These set-asides include all branches of the military and NASA. Examples of Alaska Native investments in 8(a) companies include environmental remediation, information technology, and provision of prototyping, tool design, machining, and fabrication for defense contractors. These are competencies developed, in this instance, by Sealaska Corporation through its other business investments, not just partnerships with outside companies to take advantage of section 8(a) status. The ANCSA corporations are active participants in these businesses, seeking profitable contracts with opportunities for shareholder employment. The advantages enjoyed by ANCSA corporations in 8(a) contracting are remarkable to the extent that there has been some push-back by other minority-owned and small business entities. The companies doing business with the ANCSA corporations have found the relationship to be mutually beneficial, and the customers have gotten good value for their 8(a) expenditures.

Diversity supply is another way that ANCSA corporations can partner with outside businesses. Companies are increasingly seeking diversity solutions in their workforce and supply chain. The growth of minority populations and minority businesses in the United States continues at a staggering pace, profoundly changing the customer bases of companies and creating opportunities for financially strong, well-run minority enterprises. Many customers are constantly studying the needs and product preferences of distinct ethnic and cultural markets, developing unique products to serve them, and matching their diversity supply programs to these growing markets in an effort to capture increasing market share and separate themselves from their competition. Companies that stress "workforce diversity" and "diversity supply" as part of their strategic business and community commitment initiatives attract more loyal employees and customers who appreciate being acknowledged and valued for their cultural uniqueness. ANCSA corporations are 100 percent minority-owned businesses—that is, virtually all of their shareholder-owners are Alaska Natives/Native Americans. Diversity spending has become a priority for many major companies. Diversity supply is a natural extension of a company's commitment to do business in a socially responsible manner.

A. G. Lafley, chairman and CEO of Procter & Gamble, says, "A diverse organization will out-think, out-innovate, and out-perform a homogeneous organization every single time." By way of example, Sealaska's customer base has included Fortune 500 companies in the electronics, telecommunications, consumer, health care, and government agency industry sectors. Companies like these expect quality in products and services they purchase, and ANCSA corporation suppliers have a track record of providing what their customers need.

Conclusion

ANCs are well-capitalized, professionally managed businesses that pre-sent some unique opportunities as 100 percent minority-owned institutions. The many examples of successful partnering with established stateside and international companies prove the value of doing business with Alaskan corporations. This short article cannot do justice to the wide variety of business opportunities available through ANCs. Nor does it go into detail regarding the legal and competitive advantages of those businesses. Companies interested in developing business partnering opportunities through the unique capabilities of ANCSA corporations can learn more about them through the Web contact information listed in the sidebar.

The 12 Regional Native Corporations

Simpson is a partner at Simpson, Tillinghast & Sorensen, P.C. in Juneau, Alaska. His e-mail is bsimpson@stsl.com.

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