Outdoor apparel firm Patagonia has moved beyond corporate social responsibility, transforming into a social enterprise focused on fighting climate change.
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Patagonia was founded in 1973 by Yvon Chouinard, a nature-loving idealist. From the outset, corporate social responsibility has been integral to its culture as well as its business model. Its stance as an “activist company” and efforts to prioritize sustainability, fair trade and employee wellbeing have earned it a loyal customer base. The company sells over $1 billion in apparel each year, and has been donating 1% of its sales to environmental groups since 1985. In August the Chouinard family donated the entire $3 billion company.
Ownership of Ventura, California-based Patagonia has been transferred to a trust and a non-profit organization, both set up for the purpose of keeping the company independent and ensuring that all of its profits, about $100 million a year, go to fighting climate change and preserving undeveloped land. “We are going to give away the maximum amount of money to people who are actively working on saving this planet,” Chouinard said.
Patagonia remains a private, for-profit company; however all of its voting stock, equivalent to 2% of overall shares, has been donated to the newly formed Patagonia Purpose Trust. The trust is charged with ensuring that in addition to giving away its profits, Patagonia continues to be run in accordance with established principles of corporate social responsibility. The remaining 98% has gone to the Holdfast Collective, a non-profit organization which is to receive all of Patagonia’s profits in perpetuity.
Remarkably, there are no monetary rewards for the Chouinards in this arrangement. On the contrary, since they donated their shares to a trust, they will pay about $17.5 million in taxes on the gift. And because the Holdfast Collective is a 501(c)(4) and therefore allowed to make political contributions, the family receives no tax benefit for its donation, according to The New York Times. “There was a meaningful cost to them doing it,” said Dan Mosley, a partner at merchant bank BDT & Company. “And they didn’t get a charitable deduction for it. There is no tax benefit here whatsoever.”
From Chouinard’s perspective, the move that effectively transforms his successful apparel company into a social enterprise not only serves his and his family’s ideals, but also solves the matter of succession planning. “I didn’t know what to do with the company because I didn’t ever want a company,” he said. “I didn’t want to be a businessman. Now I could die tomorrow and the company is going to continue doing the right thing for the next 50 years, and I don’t have to be around.”
The Chouinards, along with Patagonia’s legal team and board members, had been exploring options for two years. The family’s two adult children, who share their parents’ pro-environment, anti-consumerism beliefs, did not want to inherit the business. Selling the company or taking it public would have yielded funds which could then go to conservation initiatives, but there would be no way to ensure Patagonia’s future direction. “Once you’re public, you’ve lost control over the company,” said Chouinard.
Patagonia’s environmental impact now depends on its sustained profitability. Some experts contend that the company cannot succeed without the financial incentives that drive traditional capitalism. But for Chouinard and his family, the prospect of making an outsized contribution to saving the planet is more compelling – and examples of profitable social enterprises abound. Chouinard is at peace with the decision. “I feel a big relief that I’ve put my life in order,” he said. “For us, this was the ideal solution.”
