This is the tagline for Patagonia’s incredible move to transfer full ownership of the company from the Chouinard family to a nonprofit that will dedicate all of Patagonia’s profits to fighting climate change.
“Hopefully this will affect a new form of capitalism that doesn’t just end up with some rich and some poor,” Yvon Chouinard, founder of Patagonia, said in an interview with The New York Times on the date of publication.
Chouinard has seen his net worth skyrocket over the years as sales in Patagonia soar, but has frequently noted that he hates excessive wealth and is looking for ways to reduce his wealth. produce in any way possible.
Under the new model, Patagonia will – like a typical business – continue to find ways to maximize its profits and compete with other outdoor clothing retailers. But the move distinguishes Patagonia from other businesses because its profits will go to a nonprofit and trust rather than to shareholders who own shares in the company.
This has rarely been done before — and never on this scale. “Truth be told, there are no good options. So we created our own,” Chouinard said in a statement.
So how does it work and what are the other options?
How does the new model work?
The Chouinard family decided to take their shares and sell them to two start-ups: a nonprofit and a trust.
All of Patagonia’s voting shares, once held by the Chouinard family and representing only about 2% of the total shares, have been placed in a newly formed organization called the Patagonia Purpose Trust. The entity will be overseen by family members and closest advisors and will be responsible for passing important corporate decisions, such as appointments to the board of directors and changes to the board of directors. company’s legal regulations.
Meanwhile, the remaining 98% of the company’s shares, worth about $3 billion, will go to the Holdfast Collective, whose sole responsibility is to protect the planet. Holdfast Collective will distribute annual dividends from any cash that is not reinvested in Patagonia to combat the environmental crisis, protect undeveloped lands around the world, and support causes political personalities and candidates.
Patagonia will continue to operate in a similar fashion — selling about $1 billion a year in famous financier coats, hats, and vests made with 100% recycled polyester — but $100 million in profits. Profits that previously went to the Chouinard family each year will now go to the newly established nonprofit.
“We will give the maximum amount of money to those who are actively working to save the planet,” Chouinard said. The New York Times.
Why not just sell the company and donate the proceeds to charity?
“One option is to sell Patagonia and donate all the money,” Chouinard wrote in a statement. However, he said, the move would put Patagonia’s future at risk.
“We cannot be certain that a new owner will uphold our values or keep our worldwide staff employed,” Chouinard writes.
By selling off the company, Patagonia could fall into the hands of a private equity firm or a large fashion conglomerate, which could compromise Patagonia’s vision of how it treats workers and the planet. their own respectfully.
Why not make it public?
Chouinard wrote: “What a disaster. The public listing would still allow Chouinard to sell some of its shares and donate the proceeds to charity, but it would make the company public.
“Even well-intentioned public companies are under too much pressure to generate short-term profits with long-term vigor and accountability,” Chouinard writes.
Who is Yvon Chouinard?
The financial engineering of a deal of this scale is unparalleled ingenuity, and who could be more successful than Yvon Chouinard?
As a pioneer mountaineer in Yosemite Valley in the 1960s, Chouinard was not the typical unicorn company founder. In his youth, he is said to have lived outside of his car and eaten broken cans of cat food. Today, he can be seen in his modest homes in Ventura and Jackson Wyoming, wearing ragged old clothes, driving Subaruand do not use mobile phones or computers.
Chouinard began his career making hardened steel pistons for use in Yosemite Valley in 1957. Around 1970 he became aware of the use of steel pistons manufactured by his company. , which accounts for 70% of his income, has caused significant damage to the Yosemite fissures. In response, he introduced new aluminum grinding wheels, called Hexentrics and Stoppers, that could eat away at piton sales and lead to further success for his business.
He founded Patagonia in 1973 to reflect his idealistic priorities and was the first to promote sustainability and stakeholder capitalism. In 2002, Patagonia began donating 1% of its revenue each year to grassroots environmental movements. (This will remain part of the business model even with new ownership changes, Patagonia said in a statement.)
Then, in 2012, Patagonia became the first company in California to become a Certified Benefit Company, or B Corp, which is the separate certification of for-profit companies for “social activism and philanthropy.” their environment”.
Have others donated their possessions?
Follow New York Times, the only person to do something of this scale is Barre Seid, a Republican donor who donated his $1.6 billion electronics company Tripp Lite to a nonprofit run by Leonard Leo, who co-chairs the conservative federal law group.
The recipient in that case was a conservative political advocacy group that has been one of the main architects of conservative efforts to reshape the US justice system, including by appoint conservative justices to the Supreme Court and ramp up funding efforts to stop action on climate change, according to ProPublica.
How does this change capitalism?
The move goes against traditional Milton Friedman economic theory that the sole responsibility of businesses is to generate profits for shareholders. Economists of this school believe that without an incentive to maximize shareholder returns, businesses will not succeed and can lose focus.
But according to Charles Conn, president of Patagonia, “surveys show that most investors believe the goals of ESG will outweigh short-term returns and more than ever, employees and consumers are choose companies based on what they represent.”
In an OpEd for LuckConn argues that while shareholder capitalism has brought a lot of good, in the form of reduced absolute poverty rates and longer lives through health innovation, “let’s be honest: it has generate profits at a huge cost, including widening inequality and uncompensated environmental damage.”
He notes that shareholder capitalism assumes that goals other than profit will confuse investors. “Nonsense,” he wrote, adding that “over time, markets will continue to function and responsible purpose companies will attract more investment, better employees, and greater loyalty.” deeper customer loyalty.”
This is not ‘waking up’ capitalism, he wrote. “It is the future of business if we want to build a better world for children and all other creatures.”