Outdoor gear company Patagonia says “the earth is now our sole shareholder” after founder Yvon Chouinard and his family transferred ownership of the company to two nonprofits 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 percent of its voting shares to the Patagonia Purpose Trust, created to support the company’s values known for her environmental activism. All of its non-voting stock will go to the Holdfast Collective, a non-profit corporation “dedicated to fighting the environmental crisis and defending nature.”
“While we are doing our best to address the environmental crisis, it is not enough,” Chouinard wrote. “We needed to find a way to make more money available to fight the crisis while keeping the company’s values intact.”
Patagonia estimates that after reinvesting some profits back into the company, about $100 million a year will be distributed to Holdfast Collective as a dividend, depending on the health of the business.
Grace Chiang Nicolette, Vice President of Programming and External Relations at the Center for Effective Philanthropy, said this unusual move by the Chouinard family could become a blueprint for company founders who want to donate their businesses to causes important to them.
“Business owners often face difficult decisions about the future of their company when it comes time to sell,” said Nicolette, who also co-hosts the Giving Done Right podcast. “The very wealthy also face the fact that their net worth is growing faster than they can imagine giving it away. This plan makes the company’s social impact its guiding principle, and I think we’ll see more donors take this approach.”
Chouinard said other options for the Ventura, Calif., company to dedicate itself to protecting the planet — selling the company and donating the proceeds. or taking the company public — were not viable for Patagonia’s ultimate goals.
“Instead of extracting value from nature and turning it into wealth for investors, we will use the wealth Patagonia creates to protect the source of all wealth,” Chouinard wrote.
Chuck Collins, director of the Institute for Policy Studies of the Program on Inequality and the Common Good, said Swinard’s actions reflect a personal connection to the environmental crisis and a desire to support his beliefs with his wealth.
“It shows that someone with significant wealth is responding with the kind of scale needed to tackle the problem,” he said. “He works with the tools he has. And it’s a very good answer.”
Patagonia CEO Ryan Gellert said in a statement that the Chouinards challenged him and others at the company to develop a new ownership structure.
“They wanted us to protect the purpose of the business and immediately and continuously 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 nonprofits and their financial statements, said Patagonia’s new structure is similar to the one Paul Newman created for his Newman’s Own salad company. Profits from the business go to Newman’s Own Foundation, which donates to non-profit organizations that support children facing adversity.
The difference is that Holdfast Collective is organized as a 501(c)4 corporation, according to the New York Times, which first reported the change in ownership. This allows it to lobby politicians, which a public charity such as Newman’s Own Foundation is not allowed to do.
“What I think doesn’t get enough attention here is that the tax advantages of choosing a donation to a charity over a charitable organization just aren’t as pronounced in this particular case,” Mittendorf said. He noted that the gift tax the Chouinards will pay is on their initial investment in Patagonia, not its current value, which is estimated at $3 billion.
“I see it as a desire to maintain control of the company while ensuring that the resources the company generates are used for a specific goal,” he said.
Patagonia makes outdoor clothing, gear and accessories for everything from skiing to climbing and camping. The company said it will continue its previous charitable giving, including donating 1% of its sales each year to grassroots activists, and will 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 an entrepreneur and started Patagonia as a craftsman, making climbing gear for himself and his friends.