Earth is our only shareholder: Patagonia founder gives his company away

Sascha: [00:00:02] From Equity Mates media. This is the dive. I'm your host, Sascha Kelly. Most people would be familiar with Patagonia. The outdoor clothing company was founded in 1973 in California and has expanded to hundreds of stores globally. Last week, Patagonia was in the news after its founder, Yvon Chouinard, gave away the company. 

Audio clip: [00:00:24] The stunning announcement from the founder of Patagonia sharing that he's giving away giving away the $3 billion company to help fight climate change. 

Sascha: [00:00:33] That's right. He didn't sell it. He didn't listed on the share market. He just gave it away and pledged its profits to help fight climate change. In a world of billionaires fighting for that extra, they are building bigger boats or going to space. This was a refreshing story. It's Monday, the 19th of September. And today I want to know what's the story behind Evonne Chouinard and what happens next for Patagonia? To do this, I'm joined by my colleague here at Equity Mates Darcy Cordell. Welcome to the dive. 

Darcy: [00:01:04] Thanks, Sascha. When this story came across last week, I was stunned. So looking forward to talking about it.

Sascha: [00:01:09] Let's dig into it. So, Darcy, the headline was that Yvon Chouinard is giving away his company. It's valued at $3 billion to charities to help fight climate change. How exactly does one give away a multi-billion dollar company? 

Darcy: [00:01:25] That's the golden question. But basically he's set up a trust to hold the shares in Patagonia. Sociedad earned the majority of shares in Patagonia, and he's now giving them away. Much like when you and I buy shares in a company through the stock market, people that own those shares can also give them away. So that's what he's doing. And Patagonia is profits. They'll be taken by a trust every year and donated to help fight climate change and protect undeveloped land around the world. 

Sascha: [00:01:52] So their profits are pretty sizeable. They are $100 million a year. That's a significant amount of money being donated. But in doing the research, we found out that Patagonia has always been focussed on environmental activism. 

Darcy: [00:02:06] They have. They've been a leader in this space. So since 1985, Patagonia has donated either 1% of its total sales or 10% of its profits, whichever is the higher number to environmental groups. And in 2016, the company donated all of its Black Friday sales to environmental organisations in 2018. This was a huge move. The company took the $10 million it received from President Trump's tax cuts and donated that all to environmental groups. [00:02:35][28.7]

Sascha: [00:02:35] Okay. So, Darcy, tell me about the man behind this decision. Yvon Chouinard. [00:02:40][4.6]

Audio clip: [00:02:41] Behind the world renowned company famous for outdoor clothing and gear, is 83 year old Yvonne Chouinard, a climber, surfer and lifelong environmentalists who just gave away his estimated $3 billion business born from blacksmithing in a shed. [00:02:55][14.6]

Darcy: [00:02:56] CHOUINARD He's a very good rock climber. He's actually one of the leading climbers of what's called the golden age of Yosemite climbing. He's done a bunch of climbs in the Yosemite National Park. And in 2002, Chouinard founded 1% for the planet, and Patagonia became the first business to commit 1% of annual sales to the environment. [00:03:17][20.9]

Audio clip: [00:03:18] Since we were founded in 2000 to our network of member companies has given about $150 million to 2000 nonprofits. [00:03:25][7.2]

Sascha: [00:03:26] All over the world. [00:03:26][0.4]

Darcy: [00:03:27] As we've touched on, he's a strong environmental activist and he's actually said that billionaires are policy failures. He's got a long history of philanthropy. [00:03:35][8.0]

Audio clip: [00:03:36] The reluctant billionaire has never been swayed by business norms, even encouraging consumers to limit their spending at his company. [00:03:42][6.6]

Audio clip: [00:03:43] You know, you've heard of recycled and reused, stuff like that. You also had to consider refuse, refuse to buy something just because, you know, if you don't need it, don't buy it. [00:03:54][10.8]

Darcy: [00:03:54] His wife and two children have all been really strongly on board with giving the company away. [00:03:58][4.3]

Audio clip: [00:03:59] Not a lot of people understand how serious we are about saving this planet. I'm dead serious. [00:04:05][6.0]

Darcy: [00:04:06] But Patagonia, the company, it started with very humble beginnings. On a trip to Scotland in 1970, Sanford purchased some rugby shirts and then managed to sell them on with a lot of success. [00:04:16][10.0]

Sascha: [00:04:16] And from selling those first rugby jerseys, one of the world's premier outdoor apparel retailers was born. [00:04:22][6.0]

Darcy: [00:04:23] Yes, from that very small start. And they just went on to develop a big selection of this technical clothing. So they moved into surf wear, hiking, wear, basically clothing for the outdoors. Patagonia's first store opened in 1973, but it was under a different name back then. And so for the next half a century or so, they've expanded globally and become this massive powerhouse that we're seeing today that's now been given away. [00:04:48][25.1]

Sascha: [00:04:49] The clothing item that I think really sums up, Ivan Chouinard and Patagonia is the iconic vests, which is the uniform of choice for, it seems, men in the finance industry. The. [00:05:00][11.5]

Audio clip: [00:05:01] Zip vest has cemented its place in finance and tech offices from New York to San Francisco. The company says that at its height, it was fielding 60 requests for co-branded vests a day. [00:05:12][10.8]

Sascha: [00:05:12] So much so that in 2019, Patagonia decided to no longer allow finance companies to add their corporate logos to their vests. [00:05:20][8.0]

Darcy: [00:05:21] Yeah, it was a pretty amazing move, the company said in a statement. They didn't want to market to companies they deemed, quote, ecologically damaging. Just Assad Equity Mates. We don't wear varsity. [00:05:32][10.7]

Sascha: [00:05:33] We certainly don't. So that's a good summary of of on Chouinard and Patagonia. Let's take a quick break and then look ahead and ask what's next for the company? [00:05:41][7.9]

Audio clip: [00:05:51] The founder of Patagonia is now giving away his entire company. The apparel maker, started half a century ago, is now worth about $3 billion. The privately held company stock is going to be owned by a trust and a group of non-profit organisations which will then use all the profits not reinvested into the business to protect the planet. [00:06:10][19.0]

Sascha: [00:06:10] Welcome back to The Dive. Today we're talking about Ivan Chouinard giving away his company to support environmental causes. Before the break, we talked about Chouinard and Patagonia history. Now the question becomes, what next? [00:06:22][11.6]

Darcy: [00:06:22] Well, nothing really changes for Patagonia. The company will continue operating as it has. The same people will be employed and the factories will make the same clothes and the stores will really operate the same as they have been. The big thing that changes is who owns the company and where these profits are going. So over time, the new owners might make changes. They may change the board or the CEO, but that's pretty unlikely to happen any time soon. Right now, what you need to know is that the people holding the company will change and where the profits are going will change. [00:06:53][30.8]

Sascha: [00:06:54] So let's stay on that then. Where will the money actually be going? [00:06:58][3.5]

Darcy: [00:06:59] All the stock in Patagonia is now going to be owned by two groups for the Patagonia Purpose Trust and the Hold Fast Collective. The first is a climate focussed trust, and the second is a group of not for profits. So the Patagonia Purpose Trust was actually formed specifically for this decision from Chouinard. He thought about taking the company public or selling it, even going through a SPAC, but thought in the end the best option would be to form this trust. So through this purpose trust they'll be able to oversee the succession of the management of the company and hopefully its profitable existence for decades to come. [00:07:35][36.6]

Audio clip: [00:07:36] The job of the nonprofits are is to invest this money into environmentally friendly initiatives and into political candidates. [00:07:45][9.0]

Sascha: [00:07:46] We know old saying Earth is now our. [00:07:48][2.7]

Audio clip: [00:07:49] Only shareholder. [00:07:49][0.5]

Darcy: [00:07:50] And through the Hold Fast Collective, all the profits will go to those group of not for profits and now be making the decisions on where to use the money and also environmental causes. [00:07:59][8.9]

Sascha: [00:08:00] So a question I still have, though, is do you think this move will actually impact the amount of revenue Patagonia makes? [00:08:05][5.7]

Darcy: [00:08:06] This is the big question, and what I can use is my personal anecdote. As soon as I heard this news, I actually went straight to their website and it really made me want to support the company. I can't say that I was overly interested in Patagonia before this news, but I can say my dad is a big fan. We don't know quite yet, Sascha, what's going to happen, but I think it could have a big impact on the company. [00:08:29][22.7]

Sascha: [00:08:30] Okay, final question, D'Arcy. Is this the start of something new? Are we going to see more billionaires giving their companies away. [00:08:37][7.1]

Darcy: [00:08:38] Billionaires giving away their wealth? It's not something new. Andrew Carnegie in the early 1900s wrote The Man Who Dies Thus Rich dies disgraced, and he gave away more than $350 million in his lifetime. [00:08:51][13.1]

Sascha: [00:08:52] That's a lot of money for back then. [00:08:53][1.2]

Darcy: [00:08:54] I know. Think about that. With inflation, that's probably close to a billion. And more recently, we've seen billionaires like Warren Buffett and Bill Gates sign up to the Giving pledge. And that's a commitment by billionaires to voluntarily give most of their wealth to charitable causes, either during their lifetimes or in their wills as bequest to be made after death. But in these examples, the billionaires are giving away their personal wealth. We don't really see them giving away their companies like Chouinard has done here. So this could be the start of something. Who knows? But I guess it depends on what happens to Patagonia from here on. [00:09:32][38.2]

Sascha: [00:09:33] I, for one, am hoping that this is the start of a trend. If you enjoyed this episode, please tell a friend about it. It really is the best way for the podcast to go. And if you've just joined us, welcome. Go check out our back catalogue. And today we're launching something new. Alongside this episode, we're releasing a short headlines, companion to keep you up to date with the news of the Day. You can find that in your podcast feed. Remember, you can follow us on Instagram at the Dive Dot Business News. You can contact us by email, the dive at Equity Mates dot com and you can subscribe wherever you're listening right now so you never miss an episode. Thank you so much for joining me today, Darcy. [00:10:09][36.6]

Darcy: [00:10:10] Thanks, Sascha.