A win for capitalism but a mixed bag for stakeholder governance
by Jason Wiener
This post was originally published at Jason Wiener | pc, a Colorado law firm that provides legal and business consulting services to entrepreneurs building social mission enterprises, including assisting companies that wish to democratize ownership and governance structures.
I, like most, was delighted to read the news that Patagonia’s shareholders decided to give away ownership of the company to benefit the climate and not private equity, a strategic buyer, or public capital markets. We’ve written extensively on mechanisms for mission protection in corporate entities.
It appears that the Chouinard family, which owned all of the outstanding voting stock of the company, facilitated a 100 percent exit transaction for all shareholders, by which:
- 2 percent of the total stock (the only voting class of stock) was placed in the Patagonia Purpose Trust (“PPT”), by all measures a special purpose trust set up to steward the leadership and direction of the company and continuing the company’s commitment to combating global warming. Since the PPT owns all of the voting stock it presumably controls the company’s board of directors. The Trust’s trustees will vote the shares of voting stock and thereby control the board of the company. The company will continue to be run as a B-Corp certified California Benefit Corporation and will be led by its current CEO. The PPT appears likely to keep the current Patagonia Board of Directors intact. The PPT will be stewarded via trustee roles by the Chouinard family.
- 98 percent of the remaining stock (all non-voting shares) has been transferred to a 501(c)(4) organization, which has unlimited provenance to make political contributions and to spend money on lobbying. These non-voting shares do have economic rights, and so dividends from the Patagonia company will flow through to this 501(c)(4), to be spent on climate action work; undoubtedly a positive win for the climate and humanity.
It appears there was no tax benefit or tax deduction for the grant of stock to either the PPT or to the 501(c)(4). Reports state that the gift to the PPT actually cost the family over $17 million in taxes. When was the last time we heard of a benevolent action by a billionaire that was not driven in whole or in part by some material tax or financial benefit? Well, the Chouinard family is cut from a different cloth from most billionaires.
Would the PPT trust document allow it to sell its shares to a buyer that is even better suited to steward Patagonia into the future (say, like a cooperative or an ESOP)?
Nonetheless, I’m sure many readers share my interest in putting eyes on the PPT trust documents themselves. If anyone has them, please reach out!
Now, I by no means intend to be a wet blanket, but I have long been vocal about my skepticism of purpose trusts as stewards of corporate mission, strategy, and control. The PPT presumably has codified the non-charitable purpose for which it was created, and through which it views any and all actions requiring consent of the stock it holds.
- How can the PPT trust document accommodate its trustees adapting to changes in corporate strategy, competitive landscape, risk, and opportunity?
- What might the PPT trust document allow in terms of major corporate pivots that may be required to keep Patagonia healthy, sustainable, and even profitable?
- Would the PPT trust document allow it to sell its shares to a buyer that is even better suited (ask me why) to steward Patagonia into the future (say, like a cooperative or an ESOP?)
- What will the PPT do if the Chouinard family members serving as its trustee lose interest, pass away, or butt heads with Patagonia’s corporate leadership?
- Who has the authority to enforce the PPT’s stated purpose if its trustees lose focus, resolve, or integrity?
I ask these questions not to criticize but to provoke healthy inquiry and create real accountability for the future. It does, after all, show the Chouinard’s family commitment to a level of advocacy that would otherwise be difficult or impossible through a more charitable model, and we hope to see that choice implemented through serious actions.
More importantly, the news raises important questions about corporate stewardship and stakeholder accountability.
We will be scheduling a webinar in the near future to discuss purpose trusts and other mission protection mechanisms for business concerns.
Editor’s note: If you’d like to find out more about future webinars, sign up for Jason Wiener | PC newsletter by going to the law firm’s website.