For a long time, outdoor clothing firm Patagonia has been a leader in terms of purpose and environmentalism. Its founder, Yvon Chouinard, says he never wanted to be a businessman – he was a keen climber who started out making equipment for himself and his friends in 1973, then got into clothing from there. But he has built a business with revenues of around $1 billion annually, profits of some $100 million and a valuation (if the business was sold) of at least $2 billion. And he has done that whilst supporting a range of environment-related initiatives and causes, demonstrating true leadership in the purposeful business movement.
But now Chouinard, who is 83, is giving away the business he created. His aim is to funnel more money to fighting climate change whilst preserving the independence and values of the business he built. As the Times reported last week;
“On a beautiful morning on the south Californian coast, the lifelong environmentalist, 83, took to a stage on the lawn outside Patagonia’s headquarters and explained to 600 or so current and former employees that he and his family were transferring all their shares in the company to a newly formed environmental trust and non-profit organisation”.
The family transferred their voting shares irrevocably to the Patagonia Purpose Trust, a newly formed vehicle which guarantees Patagonia stays true to its values of environmental and social responsibility. Other shares have been passed to the Holdfast Collective, a non-profit organisation that will channel Patagonia’s profits into the fight against climate change.
Some cynical observers have suggested this is all about avoiding inheritance and other taxes, but Chouinard has a long record of behaviour which is not typically that of capitalist business owners. He has consistently donated a share of revenue or profits to environmental causes, and there is nothing to suggest his beliefs are anything but genuine and deeply held. Others have suggested he might have just sold the business and used the billions raised to fund good causes. But that would have risked the new owners following a different track for the business, which clearly he does not want to see.
Yet despite Patagonia’s success as a beacon for good business, few other firms copied its approach for many years, although in the last decade we have seen more firms embracing ESG and purpose issues. But even fewer owners have handed over power and wealth in this way by “giving away” their business.
One who did many years ago was John Spedan Lewis. He took control of the London Oxford Street store on his father's death in 1928, and formed the John Lewis Partnership. He began distribution of profits among employees (known as "partners") in 1929, giving shares to staff and completing the move to employee-ownership in 1950, with the transfer of control to employees.
Ten years ago, Francis Maude, the UK Cabinet Office Minister in the Tory government wanted to see more staff-owned businesses. He suggested they would make good suppliers to the public sector, holding retailer John Lewis up as a successful example. Although there are other large firms such as engineers Mott McDonald who operate under similar employee ownership models, and share a strong sense of purpose and social value, very few have made it to any size. We certainly haven’t seen a major trend for more start-ups to go that way. Giving your key early employees some equity or options is a well-accepted practice; but becoming an employee-owned business seems a step too far for most entrepreneurs and business owners.
However, Patagonia has shown that it is possible to build a very successful business whilst following strong environmental principles. Their products are high-quality but expensive, yet the firm has grown steadily for 40 years. Patagonia has been a leader in areas such as the materials it uses (100% of the virgin cotton in its clothes is grown organically), the transparency of its supply chain, following principles of social responsibility with its suppliers, and pursuing “circular” or low waste approaches with materials and products, such as the repair service it offers to buyers of its products.
“Earth is now our only shareholder”, Chouinard says of his bold move to transfer ownership. We congratulate and salute him.