The Patagonia Family are giving away all their money - sort-of. Well yes, but they are still in control. Is that giving it away? I think not. And, while there's a big tax bill it's no way near as big as it could have been without giving it away in the way they have. At minimum why a charitable board that is the family versus and independent board that knows about the focus: the environment. Well, here's what will be happening according to Bloomberg Opinion.
But they still control it, more or less:
In August, the family irrevocably transferred all the company’s voting stock, equivalent to 2 percent of the overall shares, into a newly established entity known as the Patagonia Purpose Trust.
The trust, which will be overseen by members of the family and their closest advisers, is intended to ensure that Patagonia makes good on its commitment to run a socially responsible business and give away its profits. … The Chouinards then donated the other 98 percent of Patagonia, its common shares, to a newly established nonprofit organization called the Holdfast Collective, which will now be the recipient of all the company’s profits and use the funds to combat climate change. …
“I don’t respect the stock market at all,” he said. “Once you’re public, you’ve lost control over the company, and you have to maximize profits for the shareholder, and then you become one of these irresponsible companies.”
Instead of the control being in the hands of the family, it is in the hands of a trust controlled by the family. For now those are close to the same thing — Yvon Chouinard just tells the company what to do — but in expectation, 100 years from now, those things will probably produce different outcomes. The way you pick your successors at a Purpose Trust is probably different from how you pick your heirs.
And instead of the profits going to the family, which then donates them to a nonprofit, they go directly to the nonprofit. Which is tax-efficient and, again, removes the possibility of future heirs redirecting the profits to their own yachts. Also it allows Chouinard to say that he “no longer owns the company” and have a New York Times headline saying “Billionaire No More,” which seems to have been an important goal:
“I was in Forbes magazine listed as a billionaire, which really, really pissed me off,” he said. “I don’t have $1 billion in the bank. I don’t drive Lexuses.”
Right, he didn’t have $1 billion in the bank; he had stock in a corporation worth $3 billion. Now he technically does not.
This strikes me mostly as a fairly simple bit of financial planning to achieve an unusual but understandable set of goals. (Stop owning a company without letting anyone else own it, turn a for-profit company into a vehicle for philanthropy without some of the restrictions of becoming a nonprofit company, avoid flowing corporate-to-charity money through personal income.)
Also, though, it is an interesting form of corporate governance. The ordinary rule is that a company is owned by its shareholders, and the shareholders have a claim on its profits, and the shareholders have ultimate authority to hire and fire the company’s board and managers. In public companies with dispersed anonymous shareholders, the board and managers mostly run the company without too much shareholder interference, and they assume that the shareholders just want them to maximize profits. In companies with controlling shareholders, the controlling shareholders tend to have real authority over the managers, and can tell them what they want to maximize, which may or may not be profits. (In public companies with lots of environmental, social and governance-minded investors, the ESG investors can also lobby the managers to maximize something other than profits.) The shareholders’ residual claim on the company’s profits and their ability to tell the managers what to do are related, but they don’t absolutely have to go together. The shareholders could come to the managers and say “as shareholders, we control the company, and we instruct you to stop giving us the profits and start giving them to charity instead.” That’s more or less what happened here.