#90: Why Would Anyone give away their $3-billion company?

🧗The motivations of Patagonia's founder

Did you hear?! The owners of Patagonia announced they’ve given away their company, ring-fencing future profits to fight the environmental crisis. Yvon Chouinard, who in 1973 founded the US outdoor clothing and gear company now valued at $3 billion, wrote on Wednesday:

One option was to sell Patagonia and donate all the money. But we couldn’t be sure a new owner would maintain our values or keep our team of people around the world employed.

Another path was to take the company public. What a disaster that would have been. Even public companies with good intentions are under too much pressure to create short-term gain at the expense of long-term vitality and responsibility. Truth be told, there were no good options available. So, we created our own.

Photo: Campbell Brewer

Yvon Chouinard, Malinda Pennoyer Chouinard and their two adult children¹ irrevocably transferred ownership to two new entities², pledging that “every dollar that is not reinvested back into Patagonia will be distributed as dividends to protect the planet”. (This press release describes the new structure. The company expects to contribute about $100 million a year, depending on the health of the business. As a comparison, Patagonia donated $79 million in cash or in kind between 1985 and 2016.)

Why would anyone relinquish their thriving business?³ This is a big deal, but not a surprise if you understand the company’s origins and its founders’ motivation. Chouinard is a diehard nature lover who started out in the 1960s, handcrafting climbing gear that wouldn’t damage the mountain as much as the typical kit of the time. He says that business was not an end in itself—“just a way to pay the bills so we could go off on climbing trips.”

He opens his 2005 book Let My People Go Surfing: The Education of a Reluctant Businessman by saying that describing himself as a businessman is as difficult “as it is for someone to admit being an alcoholic or a lawyer.” Once he leaned into his accidental business streak, though, he set out to do it as a “contrarian” and a “misfit”, finding satisfaction in “breaking the rules and making my own system work”, and priding himself in pioneering greener practices and products.

In short, Chouinard cares more about saving the planet and smashing the mould than about amassing personal wealth. “I was in Forbes⁴ magazine listed as a billionaire, which really, really pissed me off,” he told the New York Times. [Quotes marked with an * come from that same article.] He views his company as an experiment that can inspire other businesses. “If we wish to lead corporate America by example, we have to be profitable,” he writes in his book. “It’s okay to be eccentric, as long as you are rich; otherwise, you’re just crazy.”

This man* doesn’t seem to get it:

“What makes capitalism so successful is that there’s motivation to succeed,” said Ted Clark, executive director of the Northeastern University Center for Family Business. “If you take all the financial incentives away, the family will have essentially no more interest in it except a longing for the good old days.”

Okay, where do I start?

1. Define successful? Chouinard actually wants to subvert traditional measures of success and “influence a new form of capitalism that doesn’t end up with a few rich people and a bunch of poor people.”*

2. If you already have a lot of money, just making more of it is probably not that motivating on an individual level.

3. Patagonia’s paradoxical anti-consumerist stance has been known to boost sales. It’s reasonable to expect that this decision will have a similar effect among its usually well-off⁵, environmentally-conscious clientele. (For instance, Michelle from the gushy NYT comments* section says: “My hero! I know where I am buying all my Christmas gifts this year.”)

4. The Chouinard family has been open about the tension (critics call it hypocrisy) between growing their company and trying to protect the planet and its resources. It’s easy to see how this new setup brings them some peace of mind in their old age (in Chouinard’s own words*: “I feel a big relief that I’ve put my life in order”) and that they’ll also enjoy steering future philanthropic work.

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Looking at pictures of 83-year-old Chouinard (“Even today, he wears raggedy old clothes, drives a beat up Subaru and splits his time between modest homes in Ventura and Jackson, Wyo. Mr. Chouinard does not own a computer or a cellphone.” *), I couldn’t help but think about another anti-consumerist elder: Pepe Mujica, who served as Uruguay’s president between 2010 and 2015.

Screenshot: The New York Times

Mujica—a farmer and former leftist guerrillero who was jailed for 14 years under Uruguay’s military dictatorship—declined to move into the presidential residence at the time, choosing instead to stay in a modest farmhouse outside Montevideo. Back in 2012, the BBC wrote:

This austere lifestyle - and the fact that Mujica donates about 90% of his monthly salary, equivalent to $12,000 (£7,500), to charity - has led him to be labelled the poorest president in the world.

“I’m called ‘the poorest president’ but I don’t feel poor. Poor people are those who only work to try to keep an expensive lifestyle, and always want more and more,” he says.

In the 2014 interview above, Mujica spoke to journalist Jordi Évole on Spanish channel La Sexta:

Mujica — What I’m talking about is sobriety so that you have time, the largest possible amount of time, to live life according to the things that motivate you, which are not necessarily about work.

Évole — But there are people who think freely that they want to spend more time at work to earn more money and have a better car, a bigger house?

Mujica — Yes, yes. Let them work, and work a lot if they want to. It’s a free decision. But are we truly free when we’ve been imposed a culture of spending and spending, and changing mobile phones every month, and your car won’t last two years…? This makes the economy grow, but it doesn’t make your life grow.

(I wish Mujica’s beige fleece jacket had a Patagonia logo so I could round this up with a little joke.)

I’m curious to know how much tangible influence such public renouncements can have. Have any other elected official relinquished significant chunks of their salaries after Mujica did? Will other businesses follow the Chouinard family’s footsteps?

1. Claire is a creative director at Patagonia. Fletcher has a surfboard company. This 2016 article said they would eventually get ownership of the company, but this week the New York Times said they didn’t want it.

2. According to the company’s website:

Patagonia’s new owners are the Holdfast Collective and the Patagonia Purpose Trust. The Holdfast Collective owns 98% of the company and all of the nonvoting stock. The Patagonia Purpose Trust owns 2% of the company and all of the voting stock. Nonvoting stock carries economic value but not decision-making authority. Voting stock has both economic value and decision-making authority.

3. In case you were wondering: “There is no tax benefit here whatsoever,” according to Dan Mosley, a banker who helped Patagonia design the new structure, quoted by The New York Times. The Chouinards paid tax on the transfer funds and didn’t get a charitable deduction for it.

4. On Wednesday, Forbes wrote: “We estimated Chouinard to be worth $1.2 billion before he relinquished control of the company. He is no longer a billionaire.”

5. The brand is sometimes nicknamed Patagucci, which the Urban Dictionary defines as an “(arguably) overpriced clothing brand that is meant for outdoor activities, and is very useful and effective for such. Although many people still wear it for camping, hiking, and such, it has been largely taken over by people in Finance/Medicine/Computer Science who have recently landed high-paying jobs.”