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Patagonia and the case for stakeholder capitalism

|October 13, 2022
Patagonia and the case for stakeholder capitalism

Photo credit: Patagonia

Photo credit: Patagonia

Last month, the clothing company, Patagonia, dominated the news when it was announced via open letter that its founder, Yvon Chouinard, and his family were “giving away the company.” Beyond being a masterclass in branding and storytelling—statements such as “Patagonia now belongs to the planet” and “100% of Patagonia is now owned by a charitable foundation” dominated major outlets—Patagonia's restructuring serves as a case study for the shift towards responsible stakeholder capitalism.

Did Patagonia actually give the company away?

While headlines such as “Patagonia founder donates company to charity” are catchy, they don’t necessarily reflect the whole story. On September 15, Patagonia’s founder announced that 100% of the company’s voting stock would be transferred to the Patagonia Purpose Trust and 100% of their non-voting stock would be transferred to the Holdfast Collective. These entities were created to preserve the company’s independence and ensure that company profits are dedicated to fighting the environmental crisis. Within the new structure, value cannot be liquidated by the company and does not influence the distribution of dividends or voting rights.

The Patagonia Purpose Trust was established to protect the company’s independence and values. The Trust holds all voting rights, but no rights to receive dividends. By contrast, the second arm of the structure, The Holdfast Collective, holds no voting rights. When Patagonia distributes profits that are not needed for reinvestment in the company, they are paid out to the Holdfast Collective to support its charitable initiatives.

Although the headlines may indicate otherwise, Patagonia will remain a for-profit business. Patagonia’s management and employees are ultimately responsible for running and growing the business. Moreover, the Chouinard family will remain at the centre of these new entities: they will elect and oversee the Trust’s leadership, and guide the philanthropic work performed by the Holdfast Collective.

Brave new world?

While the new company structure sounds extreme to some, several highly successful companies, including Bertelsmann, Heineken, Ikea, Bosch, Novo-Nordisk, Rolex, and Carlsberg are run by foundations. The foundations that own these companies are not-for-profit institutions that typically combine business ownership and philanthropy. This structure is particularly popular in Denmark, with 25% of the country’s 100 largest companies and 70% of its total market capitalization made up of foundation-owned firms.

It is also worth noting that Patagonia restructured to become a benefit corporation, or B Corp, in 2012. Certified B Corps are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. To become a B Corp, a company must amend its articles of incorporation to adopt a commitment to sustainability and workers’ wellbeing. When Patagonia first certified, there were only 500 B Corps. Today, there are over 5,834 B Corps in more than 85 countries.

In retrospect, Patagonia becoming an early adaptor of the B Corp movement can be seen as a precursor to becoming a foundation run company. Certified B Corporations are legally required to consider the impact of their decisions on all their stakeholders. The B Corp legal framework allows companies to protect their mission and ensures that the company will continue to practice stakeholder governance even after capital raises and leadership changes, not unlike Patagonia’s new governance structure.

From shareholder capitalism to stakeholder capitalism

Today, consumers and markets are increasingly asking more from companies—to create positive change while also delivering value to shareholders. We have previously discussed where companies should start their environmental, social and governance (ESG) journey, and Patagonia is a company that has helped write the playbook on how to authentically incorporate sustainability into purpose and strategy.

Patagonia’s purpose is to create quality clothing while doing no harm to the environment. They are a respected brand for not just their product, but for their values and commitments to their communities. In their latest move, they have continued to champion stakeholder capitalism over shareholder capitalism. It represents a deeper shift that supports sustained success for not only business owners, but also society as a whole.

While Patagonia did not invent the concept of a foundation run company, they have continuously demonstrated that they are able to think outside of the box when presented with a complex issue. In this case governance, the often-overlooked ESG pillar, and succession planning. Chouinard and his team have found a way to keep Patagonia a profitable business, maintain control of the company and remain authentic to their values.

——— Yonatan Belete is a former Consultant at NATIONAL Public Relations


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