When Worlds Collide: Founder Chouinard Gives Away Patagonia

Outdoor apparel maker Patagonia has a long history of trying to do the right thing. At least doing the right thing so far as founder Yvon Chouinard and his family are concerned. Late Wednesday, Chouinard announced that he was giving away his company to a nonprofit entity that would be responsible for distributing Patagonia’s approximately $100 million annual profit to combatting what Chouinard called the “environmental crisis and defending nature.”

According to the announcement, Chouinard and his family are transferring 98% of Patagonia stock to a new group called the Holdfast Collective. The remaining 2%, representing 100% of the voting stock, was moved to the Patagonia Purpose Trust, which will remain under family control for now. As Chouinard put it in a letter to customers, “Each year, the money we make after reinvesting in the business will be distributed as a dividend to help fight the crisis.”

Bloomberg headlined a story on the transfer as a move by Chouinard to “skirt” $700 million in taxes. That was enough to set Twitter, well, atwitter. Here’s how one side sees the deal:

The other side is more indulgent:

Chouinard himself told the New York Times that he was “pissed off” at being called a billionaire by Forbes: “I don’t have $1 billion in the bank. I don’t drive Lexuses.”

Bloomberg Opinion columnist Matt Levine points out in his daily newsletter to subscribers that the transfer of Patagonia to a nonprofit group is a straightforward solution to the problem of being a billionaire. Holdfast Collective is a 501 (c)(4) tax-exempt organization that can use Patagonia’s profits to advance Chouinard’s goals. He does not have to pay taxes on something that is worth $3 billion only if he sells it. That way, all the value goes where he wants it to go. He also has protected the empire he built from being ransacked by an errant heir (which seems highly unlikely but not impossible).

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Levine’s more nuanced explanation runs to more than 240 characters and thus may be too complex for some, but this paragraph sums up the situation pretty well:

[Chouinard’s move] strikes me mostly as a fairly simple bit of financial planning to achieve an unusual but understandable set of goals. (Stop owning a company without letting anyone else own it, turn a for-profit company into a vehicle for philanthropy without some of the restrictions of becoming a nonprofit company, [and] avoid flowing corporate-to-charity money through personal income.)

One can disagree with or even laugh at Chouinard’s motives for shedding Patagonia, or one can praise his selflessness. But it does not seem right to claim he only took this step to avoid taxes.

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