Patagonia must stay competitive for climate donations to work: CEO

A Patagonia store signage is seen on Greene 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 cede ownership of their company worth approximately $3 billion. The company’s private shares will now be owned by a climate-focused trust and group of nonprofits called the Patagonia Purpose Trust and Holdfast Collective, and any profits that are not plowed back into the company will be used. to combat climate change. .

Michael M. Santiago | Getty Images News | Getty Images

Patagonia founder Yvon Chouinard and his family are divesting their ownership of the outdoor clothing maker they started five decades ago to help climate change. But that doesn’t mean the company will become less competitive or aggressive in achieving its business goals.

“I think what people don’t understand about Patagonia, both the past, today and the future, is that we are unabashedly a for-profit company,” the CEO said Wednesday. Ryan Gellert at CNBC’s “Squawk Box.”

“We are extremely competitive. Les Chouinards are extremely competitive in the marketplace. We are focused on making high quality products, supporting this product for its entire useful life. We compete with every other company in our space, aggressively. I don’t think we’ve lost that instinct,” Gellert said.

It also means employee pay and compensation won’t suffer, Gellert said.

“I think this all fails if we don’t continue to run a competitive business and take care of our employees,” Gellert told CNBC.

Ryan Gellert, now CEO of Patagonia, speaking during the Copenhagen Fashion Summit 2019 at DR Koncerthuset on May 16, 2019 in Copenhagen, Denmark.

Lars Ronbog | Getty Images Entertainment | Getty Images

The conversations that led to the decision started a few years ago internally.

If Patagonia had taken the company public or sold a majority or minority of the company, “we had very little confidence in meeting with a number of potential investors that the integrity of the company would be protected,” Gellert said.

Instead, Patagonia chose to place the company’s shares in two trusts, the Patagonia Purpose Trust, which owns all the voting shares (2% of the total), and the Holdfast Collective, which owns the remaining shares. without voting rights. The Patagonia Purpose Trust is dedicated to upholding company values ​​and the Holdfast Collective is a “nonprofit organization dedicated to addressing the environmental crisis and defending nature,” Chouinard wrote in a statement describing decision.

By transferring the overwhelming majority of the business to a welfare trust, Patagonia avoids paying a hefty tax bill – an issue that was discussed immediately and loudly in the wake of the announcement that the Chouinard family was divesting the company.

Patagonia management expected the discussion of the tax advantage of their new structure, but tax evasion was “never” part of the decision to divest the company.

“With the family, it’s never been a conversation in two years,” Gellert said. “We have not lost the tax benefit through the 501c-4,” which is a designation for an organization that “must be operated exclusively to promote social 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, Calif., where he once forged pitons for mountain climbers.

Al Seib | Los Angeles Times | Getty Images

“But with the family, it was very clear from the beginning. There were two goals that we were focused on: creating a structure that could guarantee the integrity and values ​​of Patagonia and move the money more meaningfully. now,” Gellert said. .

Gellert pointed out that the Patagonia founders paid $17.5 million of the 2% equity that went to the Patagonia Purpose Trust.

Patagonia “has a habit of always paying our taxes,” Gellert said. “We are a company that strongly believes in this. We are a company that has avoided complex structures in the United States and around the world to circumvent taxes. We are in fact one of the few companies that have consistently lobbied and public for higher taxes, especially in favor of climate legislation.”

Patagonia’s decision to donate the majority of the company’s profits, which are expected to be around $100 million a year, comes amid fierce debate over how companies and business leaders should be politically and socially active.

Yet Patagonia has managed to remain popular with both sides of the political divide. His vests are the de facto uniform for many investment and venture capitalists. In the annual Axios brand reputation survey, Patagonia scores well on both sides of the political divide, “and that, frankly, is really encouraging and a bit surprising, as we take a stand with the environment at the center of cohesive and vocal manner,” Gellert said. “What I take away from that is that people respect the fact that we’re very consistent.”

“In this world, it’s getting harder and harder to pretend,” Gellert said. “And so I think companies that don’t have a deep commitment to the things that they espouse, I think it falls apart pretty quickly.”

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