It is not often we see company heads put their philanthropic values over their financial priorities, but Patagonia founder and majority owner Yvon Chouinard would likely argue that his multi-billion-dollar business would be worth nothing if it folded on its mission to save the planet. In a now viral September letter published to Patagonia’s website, Chouinard wrote that ownership of the $3 billion company had been transferred to a trust and a non-profit, both dedicated to fighting environmental crises.
People from around the world applauded Chouinard for his commitment to the environment. Others wondered how it’s possible to give an entire company away and, in his words, make Earth its only shareholder. The move has undoubtedly inspired others to become more socially responsible themselves.
The Structure of Patagonia’s Donation
Chouinard had several options when it came to deciding how to give away his $3 billion activewear brand to climate change causes. One option would have been selling Patagonia and donating all the money. However, Chouinard said that this would not guarantee that a new owner would maintain the company’s values or keep his global team employed. He said that while he could have taken the company public by selling shares of stock to the public, the company would be under “too much pressure to create short-term gain at the expense of long-term vitality and responsibility.”
In the end, Chouinard chose to give 100% of the company’s voting stock to the Patagonia Purpose Trust, which was created to maintain the company’s value of protecting nature while also the keeping the for-profit business operational. Meanwhile, 100% of the company’s nonvoting stock had been given to the Holdfast Collective, a non-profit dedicated to fighting environmental crises.
What is a Purpose Trust?
A purpose trust is a trust established to carry out a specific purpose, as opposed to a traditional trust, which exists to benefit one or more individual beneficiaries. Section 409 of the Uniform Trust Act (UTA) provides guidance on how to establish a purpose trust, and most states have adopted their own version of the UTA. A common example of a trust for a specific noncharitable purpose is a trust for the care of a cemetery plot. In Patagonia’s case, the Patagonia Purpose Trust – which owns 2% of the company’s total stock – will be overseen by family and close advisors to ensure the for-profit company continues to reinvest in the business and make good on its promise to protect the planet.
How Do I Create a Purpose-Driven Business Model?
Corporate social responsibility (CSR) is a management concept whereby companies make business decisions that consider the environmental and social impact of their operations. There are several ways to create a more socially responsible business entity:
- Non-Profit
As mentioned, 98% of Patagonia’s voting stock will be owned by the Holdfast Collective, which will use every dollar received from the company to protect nature and biodiversity. Non-profit organizations – often referred to as 501(c)(3) organizations – are groups organized to further a social cause and provide a public benefit. Non-profits do not generate a profit and are typically tax-exempt. Non-profit organizations further religious, scientific, charitable, educational, literary, public safety or cruelty-prevention causes or purposes. They are formed under state law and can be organized as corporations, unincorporated associations, trusts and under some circumstances as limited liability companies (LLCs).
- Benefit Corporations
A benefit corporation is a traditional for-profit corporation that incorporates a commitment to creating a public benefit. The certificate of incorporation of a benefit corporation will typically identify one or more specific public benefits that are named, in addition to its general corporate purposes. Benefit corporations operate for the interests of all stakeholders, not just the shareholders.
- B corporations
A B corporation is an extension of the traditional benefit corporation concept. The main difference is that it is a for-profit business that, for a fee, has been privately certified by B Lab. A B Corp Certification is a specific designation that is given to businesses that demonstrate high social and environmental performance. The businesses must apply for B Corp status and are required – through B Lab – to make a legal commitment to all stakeholders and be transparent in their social responsibility performance information.
Conclusion
Patagonia’s founder demonstrated a creative way to commit to corporate social responsibility. Attorneys can provide guidance on which corporate form would be best for your business, as well as prepare and file formation documents required by state law. Contact the team at Romano Law for more information.
Carlianna Dengel is admitted to practice law in New York and California.
