In 1953, Paul Newman was an up-and-coming actor who had served in World War II and studied at Yale Drama School and the Actors Studio in New York to hone his craft. That year, he would make his Broadway debut. The following year, he co-starred with Frank Sinatra and Eva Marie Saint in a live color TV broadcast and nearly won a part opposite James Dean in East of Eden.
Meanwhile, across the country, a 14-year-old boy named Yvon Chouinard began climbing with the Southern California Falconry Club in 1953. A simple lesson in how to rappel down cliffs sparked a lifelong interest in rock climbing. Chouinard soon began to teach himself how to blacksmith, a skill he used to make his own climbers tools and sell tools to other climbers.
In 1965, Chouinard went into business with a climbing partner to sell equipment that was stronger, lighter, simpler, and more functional than competing products. Chouinard Equipment soon became the largest climbing equipment supplier in the United States. However, its equipment was damaging rock faces, so the company became reviled as an environment villain.
This inspired a shift in business practices toward more environmentally friendly equipment that soon sold faster than it could be made. And it evolved into one of the world’s preeminent outdoor clothing brands: Patagonia.
Patagonia has long been associated with corporate social responsibility. But the climate crisis inspired the Chouinard family, which owns Patagonia, to take a page from Paul Newman’s philanthropy.
What Patagonia Is Doing
In 1982, Newman co-founded a food company called Newman’s Own. But rather than pocket the profits for himself, he opted to donate 100% of the company’s after-tax profits ($550 million since inception) to the Newman’s Own Foundation, a private nonprofit foundation which in turn supports various educational and other charitable organizations.
After operating Patagonia as a for-profit business for half a century, the Chouinard family recently relinquished control of the $3 billion company. Voting shares (which only constitute about 2% of total shares) will go to the Patagonia Purpose Trust, while the remainder of the company will go to a new nonprofit group called Holdfast Collective that will assume all profits that are not reinvested in the business.
Holdfast Collective, which the Chouinards elected to register as a 501c4 organization, will now have about $100 million in annual funding at its disposal to fight the climate crisis. In an open letter published on Patagonia’s website, Yvon Chouinard expressed the motivation behind his decision to, in his words, make Earth Patagonia’s only shareholder:
Instead of “going public,” you could say we’re “going purpose.” Instead of extracting value from nature and transforming it into wealth for investors, we’ll use the wealth Patagonia creates to protect the source of all wealth. If we have any hope of a thriving planet—much less a thriving business—50 years from now, it is going to take all of us doing what we can with the resources we have.
It may seem novel for control of a company to lie with a trust rather than a family and/or outside investors. But trust-controlled firms are nothing new and have been successful for a long time. Many large Scandinavian firms, from Ikea to Heineken, have done well for generations under a trust-controlled arrangement similar to Patagonia’s new model. A quarter of Denmark’s 100 largest companies are foundation-owned, making up half of Denmark’s total market capitalization.
All annual earnings not reinvested in these companies are channeled to their respective foundations, whose independent boards ensure that the original founder's wishes are upheld. Research has shown that this business model is compatible with generating profits. In fact, foundation-owned firms are as profitable as an investor or family-owned firms.
If Patagonia’s philanthropic contributions to date are any indication, the annual profits it will contribute to the climate crisis will certainly make waves. It remains to be seen how exactly that money will be spent, but $100 million a year can go a long way to protect the Planet. And one of the most insightful aspects of this move is that the more profitable Patagonia is, the more the firm will directly contribute to the climate crisis. The more ski jackets and beanies Patagonia customers buy, the more money Patagonia will invest in protecting the source of all of our wealth.