Outdoor gear company Patagonia says “the world is now our only shareholder” after transferring ownership of the company from founder Yvon Chouinard and his family to two non-profits founded to fight climate change.
In a letter posted on the 50-year-old company’s website Wednesday night, Chouinard said Patagonia would transfer 100% of its voting stock to the Patagonia Purpose Trust, created to uphold the company’s long-recognized values as because of his environmental activism. All of his non-voting stock will go to the Holdfast Collective, a non-profit company “committed to fighting the environmental crisis and protecting nature.”
“While we are doing our best to tackle the environmental crisis, it is not enough,” Chouinard wrote. “We needed to find a way to spend more money to fight the crisis and keep the company’s values intact.”
Patagonia, after reinvesting some profits in the company, estimates that approximately $100 million per year will be distributed to the Holdfast Collective as a dividend, depending on the health of the business.
Grace Chiang Nicolette, Vice President of Programs and External Relations of the Center for Effective Philanthropy, said this unusual move by the Chouinard family could be a blueprint for company founders who want to donate their businesses to important causes.
“Business owners are often faced with difficult decisions about the future of their company when it’s time to sell,” said Nicolette, co-host of the “Giving Done Right” podcast. “Very wealthy people are also faced with the fact that their net worth is growing faster than they can think about giving it away. This plan establishes the company’s social impact as a guiding principle and I think we will see more donors follow this approach.”
Chouinard said other options for the Ventura, California, company to dedicate itself to the protection of the planet – sell the company and donate the proceeds; or taking the company public — were not viable for Patagonia’s ultimate goals.
“Instead of extracting value from nature and transforming it into wealth for investors, we will use the wealth that Patagonia creates to protect the source of all wealth,” wrote Chouinard.
Chuck Collins, director of the Institute for Policy Studies’ Program on Inequality and the Common Good, said Chouinard’s actions show a personal connection to the environmental crisis and a desire to support his beliefs with his wealth.
“It shows that someone with substantial wealth is responding with the kind of scale that is needed to tackle the problem,” he said. “He’s working with the tools he has. And it’s a pretty good answer.”
Patagonia CEO Ryan Gellert said in a statement that the Chouinards challenged him and others in the company to develop a new ownership structure.
“They wanted us to protect the purpose of the business and immediately and permanently release more funding to fight the environmental crisis,” Gellert wrote. “We believe this new structure delivers on both and we hope it will inspire a new way of doing business that puts people and the planet first.”
Brian Mittendorf, an accounting professor at Ohio State University who focuses on nonprofit organizations and their financial statements, said Patagonia’s new structure is similar to the one Paul Newman created for his salad dressing company, Newman’s Own. Profits from the business go to the Newman’s Own Foundation, which donates to non-profits that support at-risk children.
The difference is that the Holdfast Collective is organized as a 501(c)4 corporation, according to the New York Times, which first reported the change in ownership. That allows it to lobby politicians, which a public interest charity like Newman’s Own Foundation is not allowed to do.
“What I don’t think I’m getting enough attention here is that the tax advantages of choosing to donate to a charity over a social welfare organization are not that clear in this particular case,” Mittendorf said. He noted that the gift tax the Chouinards will pay on their initial investment in Patagonia, not its current value, is estimated at $3 billion.
“I see it as a desire to maintain control over the company and at the same time ensure that the resources generated by the company are used for a specific goal,” he said.
Patagonia makes outerwear, gear and accessories for everything from skiing to climbing and camping. The company said it will continue its previous charitable donations, including donating 1% of its sales each year to grassroots activists and remain a B Corp, a designation for companies that prioritize social and environmental standards. as well as profits.
Chouinard said he never wanted to be a businessman and started Patagonia as a craftsman, making climbing gear for himself and his friends.