Patagonia Maintains Mission Through a Purpose Trust
The Passion of Patagonia:
In 1957 Yvon Chouinard, a world-class mountain climber, wanted better equipment for himself and his friends, so he started making climbing pitons with his own forge. By 1970, Chouinard Equipment was the largest supplier of climbing hardware in the US. In 1973 Yvon started expanding his business into clothing designed for climbing and named the new clothing line “Patagonia” after the inspiring region of the Southern Andes.
In the ensuing decades, Patagonia grew rapidly but at a pace Chouinard understood to be incompatible with the company’s desire to limit its impact on the environment. In 1991, Patagonia issued its values statement, clearly telling the world it was in business to make the best products with the least impact on the planet. Patagonia also committed to grant 1% of gross sales or 10% of profits, whichever was greater, to community and environmental activism in order to inspire and implement solutions to the environmental crisis. In 2022, Yvon Chouinard transferred the voting stock of his company to a Purpose Trust. The Purpose Trust will serve as a vehicle and a legal structure to ensure Patagonia’s mission of “saving our home planet” lives on after him.
Business Value & Maintaining Mission:
As experienced transaction advisors, we understand the challenges CEOs and business owners face when contemplating the future of their company. The emergence of Purpose Trusts presents a transformative opportunity for companies to align their values and purpose with their ownership structure and preserve the company’s mission post-sale. Patagonia's pioneering step in creating a Purpose Trust for a worldwide brand serves as an inspiring example for other businesses seeking a sustainable and impactful legacy. Let's explore the context of Purpose Trusts, why Patagonia chose this path, and how it could work for other businesses.
Why Use a Purpose Trust:
Purpose Trusts are a legal structure that empower businesses to prioritize their mission, values, and social impact alongside financial success. This innovative approach separates ownership into voting and economic rights, allowing companies to prioritize their purpose instead of being solely driven by shareholder interests. Purpose Trusts ensure that profits serve the company's mission, stakeholders, and charitable causes, rather than being extracted by individual shareholders. This enables a company to maintain its mission even after selling or acquiring another business.
Why Patagonia Chose a Purpose Trust:
Patagonia's journey from a small craftsman enterprise to a global outdoor brand embodies its commitment to environmental responsibility and employee welfare. As the severity of global warming and ecological destruction became apparent, Patagonia recognized the importance of protecting its mission and ensuring continuity of its sustainable practices. CEO Yvon Chouinard worried that selling the company or going public might compromise their values and move the company toward less sustainable practices in a tradeoff for higher profits and shareholder value. The Purpose Trust structure provided a solution, securing the company's future and preserving its purpose, “saving our home planet.”
Purpose Trust Structure:
At a time when Patagonia would have been worth billions in an IPO, Patagonia's CEO, Yvon Chouinard, and his family transferred 2% of Patagonia's stock to the "Patagonia Purpose Trust," granting the trust full decision-making authority over the company. This move ensured the company's mission to run a socially responsible enterprise, and give back profits to the planet remains intact, even beyond the Chouinards' lifetimes. The remaining 98% of the company's stock was donated to the non-profit "Holdfast Collective," dedicated to fighting the environmental crisis and defending nature. Holdfast Collective is a 501(c)(4) charity which allows it to donate unlimited funds to political groups and education without the restrictions faced by 501(c)(3) charities. This also means that donations to Holdfast Collective are not tax-deductible. The Chouinards paid US gift tax on the shares transferred to the trust, but the tax is based on their initial investment and not the current worth of Patagonia, saving substantial taxes compared to a standard sale transaction.
Furthermore, this structure enables Patagonia to allocate funds to Holdfast Collective as dividends, providing ongoing financial support to primarily environmental causes. Overall, this Purpose Trust arrangement allows Patagonia to preserve its mission and core values while having a lasting impact on the environment and society. You can find out more about Patagonia’s Purpose Trust at www.patagonia/ownership/.
How Purpose Trusts Might Work for Your Business:
1. Aligning Purpose and Ownership: For CEOs and business owners seeking to preserve their company's mission and values, Purpose Trusts offer an ideal solution. By establishing a Purpose Trust as the buyer of the business, companies can legally bind their profits and wealth to serve their long-term purpose, rather than short-term profit maximization.
2. Stewardship and Long-Term Vision: Purpose Trusts promote self-governance by ensuring control remains with individuals closely connected to the company's mission and values. This fosters a long-term vision and commitment to the company's purpose, promoting continuity and sustainability of the business.
3. Transitioning Ownership: When contemplating mergers or acquisitions, business owners can utilize Purpose Trusts as a succession model. Rather than selling the company outright, transferring ownership to a Purpose Trust ensures that the company's values and mission endure through ownership and leadership transitions.
4. Inspiring Positive Change: Adopting a Purpose Trust not only impacts the individual company but also serves as a beacon for other businesses. CEOs who embrace purpose-oriented strategies inspire a movement for other companies to move towards responsible and sustainable business practices.
Conclusion:
As experienced transaction advisors, we recognize the weighty decisions CEOs and business owners face in navigating mergers and acquisitions and leadership transitions. Purpose Trusts provide a path for aligning values, mission, and ownership structure long term, as exemplified by Patagonia's pioneering journey. By creating a Purpose Trust, CEOs and owners can secure the future of their companies while preserving their mission-driven approach. We encourage business leaders to explore Purpose Trusts as a powerful tool in shaping a legacy of positive impact for generations to come. Let us support you in crafting a purpose-oriented strategy that fits your goals and empowers your company to thrive in a changing world.
Sources (all accessed August 1st, 2023)
https://www.clearestate.com/en-us/blog/patagonia-trust-analysis-values-driven-or-money-driven
https://www.patagonia.com/ownership/
Chouinard, Yvon, 1938-. 2016. Let My People Go Surfing: The Education of a Reluctant Businessman, Including 10 More Years of Business Unusual. New York, Penguin Books.