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End Game

Illustration by James Steinberg
In the 1960s and 1970s, as the environmental movement dawned in the United States, a new generation of activist-minded entrepreneurs appeared. Among them were companies like Body Shop, Aveda, Tom’s of Maine, and Whole Foods—all founded by idealists who were passionate about the notion that business could be a force for good. Within a few decades, many of the success stories were acquired by large corporations (L’Oréal, Estée Lauder, Colgate-Palmolive, and Amazon, in the case of the companies above), whereupon the predictable happened: Growing a firm’s social impact became incompatible with growing the company, as Professor Geoffrey Jones writes in the book Deeply Responsible Business: A Global History of Values-Driven Leadership.
“It’s one of the challenges of our time,” Jones explains. “In order to grow, you need capital; but once you let outside capital in, it’s really hard to maintain any values that aren’t focused on earning profits for outside investors.” It’s especially difficult in the absence of the charismatic leader, once they retire or hand over ownership. Part of the problem is that there has been no road map for these leaders to follow, Jones says, in seeing their sustainable goals survive the second generation of ownership.
Patagonia’s Yvon Chouinard is hoping to be an exception—as he often is. As a young rock climber in the 1950s, he bought an anvil from a junkyard and taught himself blacksmithing. His plan was to make better tools and sell them out of his car to support his climbing and surfing habits. Business was good for Chouinard Equipment, and soon it was the biggest supplier of climbing hardware in the country. Eventually, Chouinard realized that hammering steel spikes into place was disfiguring the rock face; the equipment had to be redesigned. “That was the beginning of Yvon’s enlightenment,” observes Charles Conn (MBA 1990), an investor, environmentalist, entrepreneur, and cofounder of the life sciences venture firm Monograph; he also is board chair at Patagonia.
“Once you’re public, nothing can lock in your mission forever.”
This concern for environmental impact has been front and center since Patagonia’s founding in 1973. When the young company expanded into clothing, Chouinard inquired about where and how the cotton was grown. That mindset was embedded throughout the company, helping it to grow and expand its share of the market. Patagonia held to its mission—making the best gear, doing no harm, and using capitalism to fight the environmental crisis—until 2002. Then the company took it up a notch and pledged to give away 1 percent of sales or 10 percent of profits every year to fight the environmental crisis. As he approached age 80, “Yvon wanted to up the ante even more,” Conn says. The result was a new mission statement: We are in business to save the home planet.
How exactly does a business save the planet? “I’m not sure Yvon knew what it meant at the time,” Conn admits. Ultimately, the founder tasked a small group of board members with the job of figuring that out. Given the name Project Chacabuco, after a conservation area in Chile, the group was charged with three goals: figure out how to release significant funds to fight the climate crisis immediately; provide stewardship for the company into the future; and reduce the burden of stewardship on the Chouinard family. “Yvon told us to look at everything,” Conn recalls.
It took two years but the Chacabuco team crossed every available corporate structure off the list. They could sell the company and donate all the money, for example, but then there would be no way to guarantee a new owner would maintain its core values. They could sell a minority stake to a like-minded private equity firm but eventually they would want to exit. “And they didn’t need an exit. Yvon drives a Toyota Corolla. No one wanted a Porsche,” Conn says.
The idea of a publicly traded benefit corporation fell short, too: “Once you’re public, nothing can lock in your mission forever. And the family felt there could be a corrosive effect, like Gollum and the Ring, where a good thing could become bad,” says Conn. Gradually, Project Chacabuco concluded that they needed to give the company to a foundation that would give the company’s cash flow away in perpetuity. “You’re not allowed to do that in the United States, so we had to figure out a way,” he adds.
In Patagonia’s 50th year of business, the company announced that the family was giving away all of their equity (worth somewhere in the billions) to a new entity called the Patagonia Purpose Trust and a new nonprofit, the Holdfast Collective. The 501(c)(4) will channel about $100 million a year in profits to fund efforts to combat climate change.
“So many parts of this are absolutely applicable to any other kind of company.”
Beyond securing the company after his tenure, Chouinard hopes their unconventional solution might be a new model for capitalism, despite the fact that the family gave away every single share, voting and non-voting, and paid $17.5 million in taxes to set up the purpose trust. “But you don’t have to give all of the equity of a company away like the Chouinards did, to do something good,” Conn observes. “So many parts of this are absolutely applicable to any other kind of company.” He offers the example of Mastercard, whose foundation (in Canada) owns 9 percent of the company and gives away 5 percent of its value a year. “That’s still incredible. You don’t have to be perfect to be good,” Conn concludes.
Jones points to other successes like the employee-owned department store John Lewis, in the United Kingdom, or Bosch, which has been a steward-owned company since the 1960s. For these models to become mainstream, Jones says more experimentation in alternative ownership structures is needed, where social or environmental responsibilities are embedded in a company’s fiduciary duties. Naive as it may sound, the evidence is there, says Jones: “Business has this amazing ability to innovate, to come up with creative solutions. It employs huge numbers of people and can transform lives. We just need more companies to be like that. We need 20,000 Patagonias, not one Patagonia.”
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