Patagonia founder gives company away to environmental trusts

Outdoor gear company Patagonia says “the earth is now our only shareholder” after transferring the company's ownership from founder Yvon Chouinard and his family to two nonprofits established 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 values of the company long known for its environmental activism. All of its nonvoting stock will go to the Holdfast Collective, a nonprofit “dedicated to fighting the environmental crisis and defending nature.”

“While we’re doing our best to address the environmental crisis, it’s not enough,” Chouinard wrote. “We needed to find a way to put more money into fighting the crisis while keeping the company’s values intact.”

Patagonia estimates that after reinvesting some profits back into the company, about $100 million annually will be distributed to the Holdfast Collective as a dividend, depending on the health of the business.

Grace Chiang Nicolette, The Center for Effective Philanthropy's vice president of programming and external relations, said this unusual move by the Chouinard family may become a blueprint for company founders looking to donate their businesses to causes important to them.

“Business owners are often faced with fraught decisions on the future of their company when it’s time to sell,” said Nicolette, who also co-hosts the “Giving Done Right” podcast. “The very wealthy are also faced with the fact that their net worths are growing faster than they can conceive of giving it away. This plan makes the company’s social impact its guiding principle and I think we’re going to see more donors pursuing this approach.”

Chouinard said other options for the Ventura, California, 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 transforming it into wealth for investors, we’ll use the wealth Patagonia creates to protect the source of all wealth,” Chouinard wrote.

Chuck Collins, the Institute for Policy Studies director of the Program on Inequality and the Common Good, said Chouinard's actions reflect a personal connection to the environmental crisis and a desire to back up his beliefs with his wealth.

“It shows that somebody who has substantial wealth is responding with the kind of scale needed to address the problem,” he said. “He's working with the tools that he's got. And it's a pretty good response.”

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 both protect the purpose of the business and immediately and perpetually 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 planet first.”

Brian Mittendorf, a professor of accounting at Ohio State University who focuses on nonprofit organizations and their financial statements, said the new Patagonia structure is similar to the one Paul Newman created for his salad dressing company, Newman's Own. The profits from the business go into the Newman's Own Foundation, which donates to nonprofits supporting children facing adversity.

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 ownership change. That allows it to lobby politicians, which a public benefit charity like Newman's Own Foundation is not allowed to do.

“What I don't think is getting enough attention here is that the tax advantages of choosing a donation to a charity over a social welfare organization just aren't that pronounced in this particular case,” said Mittendorf. He noted that the gift tax the Chouinards will pay is on their initial investment in Patagonia, not on its current worth, estimated at $3 billion.

“I kind of just view it as a desire to retain control over the company while ensuring that the resources that the company generates are used for a particular 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 donations, including donating 1% of its sales each year to grassroots activists and remaining 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.