Yvon Chouinard transferred control of Patagonia to a trust and future profits to a non-profit organization. While trust-controlled firms are new in the US, this form of corporate governance has existed for centuries in the Scandinavian countries. The firms owned by their foundations have been very successful, surviving for generations and contributing to a better world.
Yvon Chouinard, the founder and majority owner of Patagonia, made headlines last week for doing what no other billionaire has done: donating almost his entire fortune at once. He donated his clothing company and its millions of annual profits to an environmental non-profit organization and placed its voting shares in a trust. For Chouinard, this was the only way to preserve the values of Patagonia, including the protection of nature.
While this approach may seem new in the United States, it has been used in Scandinavia for decades. It has been proven that billionaires can give away their companies and continue to make significant profits while making a significant contribution to social and environmental issues.
Chouinard not only made a world difference in the fight against climate change by donating Patagonia, but also set a precedent for other American leaders to follow suit.
Terms of a transaction
Chouinard donates the entire voting stake, which is exclusively owned by the family, to the newly created Patagonia Purpose Trust. While these voting shares represent only 2% of the company’s $3 billion value, the Trust will control the company, ensuring that Chouinard’s values are upheld in perpetuity.
The non-voting shares, which account for the remaining 98% of the value, will be transferred to Holdfast Collective. This non-profit organization will receive Patagonia’s annual income, which is about $100 million per year. According to The NonProfit Times, Holdfast Collective is committed to “fighting environmental crises, protecting nature and biodiversity, and supporting thriving communities.”
Learning from Scandinavia
You may recognize companies such as Carlsberg, Heineken, Ikea, Maersk, Novo-Nordisk and Rolex. These companies have prospered for generations under the same trust management as Patagonia. They are owned by funds, so their annual income goes to a fund run by an independent board that broadly oversees the company’s operations. The foundation ensures that the initial wishes of the founder are fulfilled.
Henry Hansmann of Yale Law School and Steen Thomsen of Copenhagen Business School have shown that these fund-owned firms are just as profitable as those owned by investors or families. Denmark has a particularly large number of such companies: 25% of the country’s top 100 companies and 50% of its total market capitalization are firms owned by funds. The Danish pharmaceutical company Novo-Nordisk contributes about 11% to medical research and development in Denmark, which is unheard of among commercial companies.
In many cases, the founders of a company may set up a foundation to help preserve their heritage and values. And in many more cases, the foundation provides an attractive alternative to the family’s internal struggle for succession. The Rogers family of Canada, for example, has been public about their family disputes. They have spent years in court challenging ownership and control of Rogers Communications, which is worth over $20 billion.
Setting a precedent
Chouinard and Patagonia have been mavericks in the business community since the company was founded in 1973. In fact, the patriarch would rather call himself a “dirtbag” than a billionaire.
In the 80s, Patagonia pledged to donate 1% of its profits or 10% of its sales to environmental promotions, whichever is greater. Chouinard co-founded 1% for Planet, which now has over 5,000 members. Ten years ago, Patagonia also became the first California company to be incorporated as B-Lab Benefit Corporation, legally required to make a “significant positive impact on society and the environment.” It also remains one of the few multinationals of its size to be B-Corp certified.
Chouinard once again blazed a new path for American companies. This next move could have a significant impact on other American business leaders.
Warren Buffett has pledged to give away 99% of his fortune to social causes, but at 92, he has given away only a fraction of that amount. While Buffett made money from companies that didn’t promote social causes, he can make his legacy more positive by following Chouinard’s lead.
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