Patagonia must remain competitive for climate donations to work: CEO
A Patagonia store sign is seen on Green Street on September 14, 2022 in New York City. Yvon Chouinard, founder of Patagonia, his wife and two adult children have announced that they will be giving up ownership of their nearly $3 billion company. The company’s private equity will now be owned by a climate-focused trust and a group of nonprofit organizations, called the Patagonia Purpose Trust and Holdfast Collective, and all profits not invested in the business will be used to combat climate change.
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Patagonia’s founder, Yvonne Chouinard, and his family are ceding their ownership of the outerwear maker they started five decades ago in favor of climate change. But this does not mean that the company will become less competitive or aggressive in achieving its business objectives.
“I think what people fail to understand about Patagonia, whether past, present or future, is that we are a for-profit company with no apologies,” CEO Ryan Gilert told CNBC’s “Squawk Box” on Wednesday.
“We are very competitive. Chouinards is very competitive in terms of business. We focus on making quality products, standing behind this product for a usable life. We compete with every other company in our area, aggressively. I don’t think we’ve lost that instinct, Gilbert said.
This also means that employees’ salaries and compensation will not be affected, he said.
“I think this whole thing is going to fail if we don’t continue to run a competitive business and including it in that is taking care of our employees,” Gellert told CNBC.
Ryan Gellert, current CEO of Patagonia, speaking at the Copenhagen Fashion Conference 2019 at DR Koncerthuset on May 16, 2019 in Copenhagen, Denmark.
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The talks that led to the decision began internally two years ago.
If Patagonia decided to go public or sell a majority or minority stake in the company, Gilbert said, “we had little confidence in meeting with a good number of potential investors that the integrity of the company would be protected.”
Instead, Patagonia chose to place the company’s shares in two trusts, the Patagonia Purpose Trust, which owns all voting shares (2% of the total), and Holdfast Collective, which owns the remaining non-voting shares. The Patagonia Purpose Trust is dedicated to preserving the company’s values, and the Holdfast Collective is “a non-profit organization dedicated to combating the environmental crisis and defending nature,” Chouinard wrote in a statement describing the decision.
By turning the vast majority of the company into a social interests trust, Patagonia avoids paying a large tax bill – an issue that was promptly and loudly debated in the wake of the announcement that the Chouinard family was abandoning the company.
Gilert said Patagonia’s leadership had expected to discuss the tax benefit of its new structure, but that tax evasion was “never” part of the decision to abandon the company.
“With the family, it’s never been a conversation in two years,” said the Patagonian CEO. “We have not lost tax benefits to us with 501c-4,” a designation of an organization that “must be operated exclusively to promote welfare” and is therefore tax exempt, according to the Internal Revenue Service.
Yvon Chouinard, founder and owner of Patagonia, in front of a tin shed in Ventura, California, where he once forged mountain climbers.
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“But with the family, it was very clear from the start,” Gilbert said. “There were two goals that were focused: creating a structure that could ensure the safety and values of Patagonia and the flow of money into the environment in ways that are more meaningful now.” .
Gelert noted that the Patagonian founding family paid $17.5 million on the 2 percent of the stock that went to the Patagonia Purpose Fund.
Patagonia “has a history of always paying our taxes,” Gilert said. “We are a company that believes very much in that. We are a company that has avoided the complex structures of both the US and globally of tax avoidance. We are actually one of the few companies that have consistently and publicly lobbied for higher taxes especially in support of climate legislation.”
Patagonia’s decision to donate the majority of the company’s profits, which it expects to be around $100 million annually, comes amid fierce debate about how businesses and entrepreneurs should be politically and socially active.
Nevertheless, Patagonia managed to maintain its popularity between both sides of the political divide. Her jackets are the uniform of many an investment and venture capital group. In the annual Axios Brand Reputation Survey, Patagonia does well on both sides of the political divide, “which, frankly, is really encouraging and a bit surprising, because we take positions with the environment at the center consistently and loudly,” he said. “What I take away from that is that people respect that we are very consistent.”
“In this world, it’s getting more and more difficult to fake,” Gilert said. “And so I think companies that don’t have a deep commitment to the things that they embrace, I think, fall apart very quickly.”