A Patagonia store sign is seen on Greene Street on September 14, 2022 in New York City. Yvonne Chouinard, the founder of Patagonia, his wife and two grown children have announced that they will give up ownership of their company, which is worth about $3 billion. The company’s private shares will now be owned by a trust and a group of climate-focused nonprofits called Patagonia Purpose Trust and Holdfast Collective, and all profits not reinvested in the business will be used to fight climate change.
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Patagonia founder Yvon Chouinard and his family are giving up ownership of the outdoor apparel maker they founded five decades ago to benefit climate change. But this does not mean that the company will become less competitive or aggressive in achieving its business goals.
“What I think people don’t understand about Patagonia, past, present and future, is that we are unmistakably a for-profit business,” CEO Ryan Gellert told CNBC’s “Squawk Box” Wednesday.
“We’re extremely competitive. Chouinard is extremely competitive in business. We focus on producing high-quality products, championing that product throughout its life cycle. We compete aggressively with every other company in our space. I don’t I don’t think we’ve lost that instinct Gellert said.
It also means wages and employee compensation will not suffer, Gellert said.
“I think this whole thing is going to fail if we don’t continue to be a competitive business and include taking care of our people,” Gellert told CNBC.
Ryan Gellert, now CEO of Patagonia, speaks at the Copenhagen Fashion Summit 2019 at DR Koncerthuset on May 16, 2019 in Copenhagen, Denmark.
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The conversations that led to this decision began a couple of years ago within the company.
Had Patagonia taken the company public or sold a majority or minority stake in the company, “we had very little confidence in meeting with a large number of potential investors that the integrity of the company would be protected,” Gellert said.
Instead, Patagonia decided to place the company’s shares in two trusts: the Patagonia Purpose Trust, which owns all the voting shares (2% of the total), and the Holdfast Collective, which owns the remaining non-voting shares. The Patagonia Purpose Trust aims to preserve the company’s values, and the Holdfast Collective is a “non-profit organization dedicated to fighting the environmental crisis and protecting nature,” Chouinard wrote in a statement describing the decision.
By handing over a majority of the company to a welfare trust, Patagonia avoids paying heavy taxes, an issue that was immediately and loudly debated after the announcement that the Chouinard family was giving the company away.
Patagonia management expected to discuss tax benefits from their new structure, but tax evasion was “never” part of the decision to divest the company.
“There’s never been a conversation with the family in two years,” Gellert said. “We have not lost the tax benefits of being a 501c-4,” which is a designation for an organization that “must operate solely to promote social welfare” and is therefore exempt from taxes, according to the Internal Revenue Service.
Yvonne Chouinard, founder and owner of Patagonia, in front of the tin shed in Ventura, California, where he once forged crampons for climbers.
Al-Seib | Los Angeles Times | Getty Images
“But with the family, it was very clear from the beginning. There were two goals that we focused on: to create a structure that could ensure the integrity and values of Patagonia, and the flow of money into the environment now in more significant ways,” said Gellert. .
Gellert noted that Patagonia’s founders did pay $17.5 million for a 2 percent stake that went to the Patagonia Purpose Trust.
Patagonia “has always paid our taxes in the past,” Gellert said. “We are a company that strongly believes in this. We are a company that has avoided complex structures both in the US and around the world to avoid taxes. We’re actually one of the few companies that has consistently and publicly lobbied for tax increases specifically in support of climate legislation.”
Patagonia’s decision to donate most of the company’s profits, which it expects will be about $100 million a year, comes amid intense debate about how politically and socially active businesses and business leaders should be.
Still, Patagonia has managed to remain popular on both sides of the political divide. His vests are the de facto uniform of many investment and venture firms. In Axios’ annual brand reputation survey, Patagonia scores well on both sides of the political divide, “and that’s honestly really encouraging and a little bit surprising because we’re taking positions that are very environment-centric,” Gellert said. said. “What I take from it is that people respect that we are very consistent.”
“It’s getting harder and harder to fake it in this world,” Gellert said. “I think companies that don’t have a deep commitment to what they’re supporting, I think it falls apart pretty quickly.”