How Patagonia’s ownership bombshell changes the game for American business

When the news hit earlier this week that Yvon Chouinard and his family had given up ownership of Patagonia, it was met with waves of mixed emotions from fans and the broader business community: inspiring, incredible, optimistic, cynical—and sometimes all at once.

In moving all ownership of the company to the Patagonia Purpose Trust and Holdfast Collective, the Chouinards have once again forced other companies and their leaders to confront just how they will reconcile their own company structures with their stated goals of addressing the climate catastrophe. And guess what? No matter what they do, their customers are going to confront them on it. Just as Patagonia has helped move the goalposts on sustainability in the supply chain, and speaking out on social and environmental issues, it has now established a new standard for how a company can truly walk the walk on its values far beyond an ESG or CSR strategy.

There has been, and will continue to be, plenty of admiration and praise from afar, including from within major global corporations. But just as with its sustainability influence, many will simply look at Patagonia’s move as a luxury of being a privately owned company, without the handcuffs of, and obligation to, public shareholders. Others, conveniently ignoring the precedent and arc of founder Yvon Chouinard’s 50-year career, will see it, dubiously, as creative legal maneuvering to avoid a massive tax bill.

One can’t really expect Exxon or Amazon to look at the Patagonia news and be immediately inspired to follow suit. Even Patagonia’s peer group in outdoor apparel is often nested within larger conglomerates in which this specific structure will be difficult to emulate. But Chouinard is thinking about the future—not only for Patagonia, but also for the next generation of entrepreneurs and the companies they’ll build.

“There isn’t any question that this is an inspiration,” says former Patagonia CEO Rose Marcario, who led the company from 2014 to 2020 and is now a partner at ReGen Ventures, which invests exclusively in companies working on regenerative technologies. She also sits on the board of directors for both the electric vehicle company Rivian and plant-based meat startup Meati. “I’m also seeing a new generation of founders who grew up with the climate crisis and the social justice crisis right in front of them,” she says. “It’s in their DNA. They see the problems in a unique way, and they’re building purpose and philanthropy into their IPOs, like [Rivian CEO] RJ [Scaringe] did, like Melanie Perkins did at Canva.”

I wrote in 2018 about Patagonia’s righteous flywheel, and how the more it invests in its beliefs and its products, the better the company performs, develops creative solutions, and maps out a blueprint for other businesses to follow. This latest news is no exception. Patagonia board member Charles Conn wrote in an opinion piece this week that the point is for companies to make transparent the purpose commitments that make sense for their business and to be held accountable by their communities, which will ultimately attract more investment, better employees, and deeper customer loyalty. “This is not ‘woke’ capitalism,” wrote Conn. “It’s the future of business if we want to build a better world for our children and all other creatures.”

Dan Fitzgerald, managing partner at ReGen Ventures, has been talking to his partner companies since the news broke, and says that Patagonia and the Chouinard family have given people permission to get creative and innovate in order to align their structure with their mission. “It’s going to open people’s eyes to the possibilities of creating perpetual funding structures to fund the most existential challenges facing humanity,” says Fitzgerald. “It’s a case study to demonstrate what happens when an iconoclastic founder of a generationally iconic company passes the baton.”

The thing about Patagonia, and in particular its status as an until-now private company, is that it was always seen as an outlier. A company that, because of its past and lack of shareholder accountability, could push the envelope in ways other companies weren’t free to do. In his seven years at Patagonia, former VP of business development Phil Graves found these imagined shackles to be a mirage. Graves originally joined Patagonia from Deloitte to help steer its investment arm, Tin Shed Ventures, and is now CEO of an early Tin Shed investment, the bison-meat purveyor Wild Idea Buffalo Company.

“I’d always compare Patagonia’s growth, profitability, and key financial metrics to our competition,” says Graves, whose company supplies jerky to Patagonia Provisions, and leather for the company’s work boots. “We were almost always in the upper quartile of key financial metrics, and we were doing this while also doing all the work going into reinventing supply chains, pulling through recycled materials like the Bureo fishing nets into hat brims, and now into textiles with puffer jackets and board shorts. It was always fascinating to me that you could do these things and still have a financial bottom line that is as good as or better than competitors who weren’t doing these things.”

We’ve heard the refrain before, “Oh it’s easier because they’re Patagonia,” when the company transformed its supply chain and when it called out politicians whose policies were killing the planet; so, of course, they’re repeating the same tired line with the news of its new ownership structure. Lorna Davis, a Seventh Generation social mission board member, former B Lab board member, and former CEO of Danone North America (formerly DanoneWave), predicts a huge consumer reaction that other companies will certainly take notice of. Back in 2016, when Patagonia announced it would be giving away all of its Black Friday sales to grassroots environmental organizations, it sold $10 million that day—a record—and signed up 24,000 new customers.

Now, for many Patagonia customers, every day is going to feel like Black Friday. “Anybody who wants to buy a jacket is going to think, ‘Wow, I can buy a jacket and all of the profit is going to a cause I care about,’” says Davis. “The values are completely aligned; it’s completely consistent with [Chouinard’s] history, and it’s consistent with amazing product quality. It’s a beautiful move, and I hope it’s going to influence a lot of people. I’d personally like to see the Amazon board and Jeff Bezos, dedicate the profits of that company to the protection of the forest they stole their name from.”

I wouldn’t hold my breath on that one. Still, maybe like the response to Patagonia’s other initiatives, it will take its continued success in the market to motivate others to act. As Patagonia stepped up its sustainable materials supply chain, so have such competitors as The North Face. Years after Patagonia invested heavily in regenerative agriculture through Patagonia Provisions, some of the largest food and beverage companies in the world—think Walmart, General Mills, and Anheuser-Busch—have stepped up their own interest and investment in the space. This is where the biggest impact can be found.

“We need large-scale change now,” says Marcario. “These legacy, extractive industries that are fear-mongering about ESG and woke capitalism, they’re really blind to the fact that the workforce, the customers, the world has changed. We want climate action now. This is a new game, and they need to get on the bus. This move from Patagonia belies that urgency we’re facing.”

Source: How Patagonia’s ownership bombshell changes the game for American business

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