Clothing company Patagonia to donate annual profits of $100m to its ‘only shareholder’ — the Earth

‘If you want to die the richest man, then just stay sharp. Keep investing, don’t spend anything. Don’t eat any of the capital. Don’t have a good time. Don’t get to know yourself. Don’t give anything away. Keep it all. Die as rich as you can.

“But you know what? I heard an expression that puts it well: There’s no pocket on that last shirt.”

This is a quote from Susie Tompkins Buell that Yvon Chouinard, founder, former owner, and current board member of Patagonia included in his book Let My People Go Surfing: The Education of a Reluctant Businessman.

Patagonia corporate headquarters in Ventura, California on 19 January 2016. (Photo: Supplied)

In an unprecedented move that had environmentalists celebrating and some business moguls sceptical, outdoor clothing retailer Patagonia announced that “Earth is now our only shareholder” of the $3-billion company — meaning that instead of making the company public, profits not reinvested back into the business will be distributed as dividends to protect the planet.

Chouinard has often stated he has never wanted to be a businessman, and recently told The New York Times that Forbes magazine listing him as a billionaire “really, really pissed me off”.

As Buell’s quote implies, once we’re gone, we can’t take anything with us — but we definitely can leave something behind.

In a letter published on Patagonia’s website on Wednesday, 14 September, the day the new ownership structure was announced, Chouinard stated: “I never wanted to be a businessman. I started as a craftsman, making climbing gear for my friends and myself, then got into apparel. As we began to witness the extent of global warming and ecological destruction, and our own contribution to it, Patagonia committed to using our company to change the way business was done.  

“If we could do the right thing while making enough to pay the bills, we could influence customers and other businesses, and maybe change the system along the way.”

‘It’s not enough’ 

Patagonia has always been seen as a pioneer in the retail space for its unorthodox sustainable business practices. It was one of the first apparel companies to switch to organic cotton, which it did in 1996, and committed to giving away 1% of sales to grassroots environmental nonprofit organisations every year since 1985 — donating more than $100-million towards the preservation and restoration of the natural environment. 

But, Chouinard said, “While we’re doing our best to address the environmental crisis, it’s not enough.”

Yvon Chouinard, ‘The Chief’, models a full rack of hand-made gear at Tahquitz Rock, California. (Photo: Tom Frost)

Now 83, Chouinard considered selling the company and donating all the money to causes that fight the climate crisis, but said they couldn’t be sure future owners would have the same ideals.

And Chouinard believed that taking the company public would be a “disaster”, saying: “Even public companies with good intentions are under too much pressure to create short-term gain at the expense of long-term vitality and responsibility.”

So Patagonia, which started as an “experiment in responsible business”, once again started something new.

Instead of “going public,” you could say we’re “going purpose.” Instead of extracting value from nature and transforming it into wealth for investors, we’ll use the wealth Patagonia creates to protect the source of all wealth.

Read Yvon's letter at https://t.co/TolGLfHEGG

— Patagonia (@patagonia) September 14, 2022

Patagonia has said, “instead of ‘going public’, you could say we are ‘going purpose’ ”, with its new ownership structure.  

Ownership has been transferred into two new entities. All the nonvoting stock, which is 98% of the total stock, has been donated to a newly established nonprofit organisation, the Holdfast Collective, which the company says, “will use every dollar received from Patagonia to protect nature and biodiversity, support thriving communities and fight the environmental crisis”.

Basically, this collective will receive all the company’s profits that are not reinvested back into the business and use them to combat the climate crisis. 

Patagonia projects that it will pay out an annual dividend of roughly $100-million, depending on the health of the business.

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The remaining 2% — all the voting stock — has gone to the Patagonia Purpose Trust, which Chouinard says was created only to protect the company’s values and mission. As the trust owns all of the voting stock, it has the right to approve key company decisions.

While many were blown away by Chouinard’s decision, some were sceptical. Bloomberg reported that the move was structured in a way that allows Chouinard’s family to keep control of the company while avoiding an estimated $700-million in taxes.

Patagonia clothing tags. (Photo: Supplied)

The Holdfast Collective is classified as a 501(c)(4) nonprofit organisation, which allows it to make unlimited political contributions and means it isn’t eligible for income tax deductions.

Patagonia founder Yvon Chouinard has described his decision to give away the company as his last-ditch effort to do all he could to protect the planet, however, it’s also helping him skirt around $700 million of tax bills. Funny that!#CostOfNetZero

? https://t.co/HRZbhO6ZGB pic.twitter.com/FVhFlZ4yyG

— Net Zero Watch (@NetZeroWatch) September 16, 2022

Bloomberg reported that while Chouinard will owe $17.5-million in gift taxes for the shares he transferred to the trust, he won’t have to pay the federal capital gains taxes he would have owed had he sold the company, and many have taken to social media to speculate that this was the main motive behind this move.

While Chouinard might have figured out a smart way to avoid taxes, he is no longer benefiting from the $100-million annual profits from a company he built from the ground up — a decision most businesses or billionaires wouldn’t dream of making.

‘Turning capitalism on its head’ 

Chouinard told The New York Times: “Hopefully, this will influence a new form of capitalism that doesn’t end up with a few rich people and a bunch of poor people.”

He wrote in his book: “Before we are entitled to encourage other companies to act responsibly, we have to do so ourselves. 

(Image: Supplied)

“We need to realise that most of the damage we cause to the planet is a result of our own ignorance and that we cannot afford to go about blindly doing unnecessary damage simply because we lack curiosity.”

One of Patagonia’s mission statements is to “use business to inspire and implement solutions to the environmental crisis,” and, hopefully, its new ownership structure will spur other billionaires and fashion retailers to use their economic power for good.

Thank you, Patagonia.

If only all eco companies actually cared about the planet.

cc: @elonmusk

— Nathan Mackenzie Brown ?? (@NathanMackBrown) September 14, 2022

Patagonia chair Charles Conn said: “The current system of capitalism has made its gains at an enormous cost, including increasing inequality and wide-scale uncompensated environmental damage.

“The world is literally on fire. Companies that create the next model of capitalism through deep commitment to purpose will attract more investment, better employees, and deeper customer loyalty. They are the future of business if we want to build a better world, and that future starts with what Yvon is doing now.”

Patagonia board member Dr Ayana Elizabeth Johnson said: “The stakes could not be higher. If we want to protect nature and support communities, businesses can’t continue to adhere to the prevailing economic model.

“Patagonia has been breaking the mould for decades, and now they have shattered it.

“Now I want to know, which companies will be next to step up?” DM/OBP