Patagonia founder gives away company to climate nonprofit
When Patagonia founder Yvon Chouinard was listed in Forbes Magazine as a billionaire, Chouinard says "it really, really pissed me off." Now, founder Yvon Chouinard has given away the company in a move that he hopes "will influence a new form of capitalism." On Sept. 14, The New York Times broke the news that Patagonia has been mostly donated to a newly founded nonprofit called The Holdfast Collective that will donate Patagonia's profits to "fighting the environmental crisis and defending nature.". As stated on Patagonia's website, "Earth is now our only shareholder."
Patagonia, a fashion company primarily selling clothes for the outdoors, has a history of climate activism, donating one percent of its profits to environmental nonprofits every year and changing how they make their materials, such as cotton and fleece, to have less of a carbon footprint. They have participated in environmental politics as well: In 2016, they sued former President Donald Trump and the U.S. government in 2016 over reducing protected land. Patagonia has also historically been open about issues in their workplace and combating them; In 2011, when they discovered that migrant workers were paying thousands of dollars in fees to get a job with their suppliers (which Patagonia representatives described as "modern slavery"), they investigated, modified their supply chain and even presented in front of a relevant White House Forum. Fox News describes Chouinard's latest move as putting "his money where his mouth is."
In the Patagonia donation, the nonvoting stock, which is 98 percent of shares, will go to The Holdfast Collective. This means the collective will have no influence on how Patagonia will be run, but will receive Patagonia's profits, minus any money "reinvested into the business," to support environmental causes, such as preserving wild land, donating to grassroots organizations, and lobbying for related policies. The voting stock, the other two percent of shares, will go to the Patagonia Purpose Trust. The trust, overseen by the Chouinard family and their advisors, will have decision-making power over Patagonia, and is meant to ensure that Patagonia continues to fulfill its mission, which includes prioritizing worker well-being and supporting environmental activism. This setup means that while Chouinard's children remain on payroll, the family will not receive a cut of Patagonia's profits, as they are no longer shareholders.
While press of Patagonia's transfer has mostly been positive, some are scrutinizing it as a way to avoid paying taxes. Depending on what type of nonprofit you donate to, you can reduce up to 50 percent of your taxable income by donating to charities, and making donations to charities a popular option for those in higher tax brackets. This motivates some of the wealthy to carefully set up donations to organizations that promote their interests and simultaneously avoid taxes on either side.
To be clear, Chouinard's move does not fall under this category: The Holdfast Collective that he is giving the company to is a 501(c)(4), so his donation does not count for income-tax deductions and Chouinard must pay $17.5 million in gift taxes. However, reporters for Bloomberg highlight that had Chouinard sold Patagonia, which is worth $3 billion, he would have paid $700 million in capital gains taxes. So by choosing not to sell the company but instead donating, Chouinard is effectively saving hundreds of millions of dollars in taxes.
It is unclear if Patagonia's donation was really out of tax-avoidance, or whether this truly will inspire a "new form of capitalism" that Chouinard speaks of. However, it does open another possibility for companies that truly want to partake in corporate activism.