Annual profits

Clothing company Patagonia will donate annual profits of…

“If you want to die the richest man, then stay alert. Keep investing, spend nothing. Do not eat anything from the capital. Don’t have a good time. Don’t get to know yourself. Give nothing. Keep all. Die as rich as possible.

“But you know what? I’ve heard an expression that says it all: There’s no pocket on that last shirt.

It’s a Susie Tompkins Buell quote that Yvon Chouinard, Founder, Former Owner and Current Patagonia Board Member Included in His Book Let My People Go Surfing: The Education of a Reluctant Businessman.

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

In an unprecedented move that has celebrated environmentalists and some skeptical business moguls, outdoor apparel retailer Patagonia has announced that “the Earth is now our sole shareholder” in the $3 billion company – meaning that instead of taking the company public, profits not reinvested in the company will be distributed as dividends to protect the planet.

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

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

In a letter published on the Patagonia website on Wednesday, September 14, the day the new ownership structure was announced, Chouinard said, “I never wanted to be a businessman. I started out as a craftsman, making climbing gear for my friends and myself, then moved into clothing. As we began to see the scale of global warming and ecological destruction, and our own contribution to it, Patagonia pledged to use our company to change the way business was done.

“If we could do the right thing and still earn 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 considered a pioneer in retail for its unorthodox sustainable business practices. It was one of the first clothing companies to switch to organic cotton, which it did in 1996, and is committed to donate 1% of sales to local non-profit environmental organizations every year since 1985 – donating more than $100 million to preservation and restoration of the natural environment.

But, Chouinard said, “Although we are doing our best to deal with the environmental crisis, it is not enough.”

Yvon Chouinard
Yvon Chouinard, ‘The Chief’, models a full rack of handmade gear in Tahquitz Rock, California. (Photo: Tom Frost)

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

And Chouinard felt 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 accountability. term.”

So Patagonia, which started as a “responsible corporate experiment”, once again started something new.

Patagonia said, “instead of ‘going public’, you could say we ‘go goal'”, with its new ownership structure.

Ownership was transferred to two new entities. All of the non-voting shares, which represent 98% of the total stock, were donated to a newly created non-profit organization, the Holdfast Collective, which the company says “will use every dollar received from Patagonia to protect nature. and biodiversity, supporting thriving communities and tackling the environmental crisis”.

Basically, this collective will receive all profits from the company that are not reinvested in the company and use them to fight the climate crisis.

Patagonia expects to pay an annual dividend of around $100 million, depending on the health of the business.

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The remaining 2% — all voting shares — went to the Patagonia Purpose Trust, which Chouinard said was created solely to protect the company’s values ​​and mission. As the trust owns all the voting shares, it has the right to approve key business decisions.

While many were blown away by Chouinard’s decision, some were skeptical. Bloomberg reported that the move was structured in such a way as to allow Chez Chouinard family to keep control of the business while avoiding taxes estimated at $700 million.

patagonia beacons
Patagonia clothing labels. (Photo: provided)

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

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

While Chouinard may have found a clever way to avoid taxes, he no longer enjoys the $100 million annual profits of a company he built from scratch — a move most companies or billionaires wouldn’t dream of taking.

“Turn capitalism on its head”

Chouinard Told The New York Times: “Let’s hope it influences a new form of capitalism that doesn’t end up with a few rich and a bunch of poor.”

He writes in his book: “Before we have the right to encourage other companies to act responsibly, we must do it ourselves.

(Picture: provided)

“We must realize that most of the damage we cause to the planet is the result of our own ignorance and that we cannot afford to blindly do unnecessary damage just 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 inspire other billionaires and fashion retailers to use their economic power for good.

Patagonia President Charles Conn said, “The current system of capitalism has achieved its gains at enormous cost, including increasing inequality and uncompensated environmental damage on a massive scale.

“The world is literally on fire. Companies that create the next model of capitalism through a deep commitment to purpose will attract more investment, better employees, and greater 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 couldn’t be higher. If we want to protect nature and support communities, companies cannot continue to adhere to the dominant economic model.

“Patagonia broke the mold for decades, and now they broke it.

“Now I want to know which companies will be next in line?” DM/OBP