How to turn corporate promises into corporate structure
View in browser
Business of Purpose

Purpose Embedded

 

As capitalism reaches an inflection point, purpose-driven businesses are departing from conventional models to ensure their commitments to people and the planet get one – or even the only – seat at the table. In this month's edition, we explore how brands are hacking the system and creating new legal structures to truly embed purpose into their organizations. Let's dive in!

patagonia-earth-shareholder

Purpose Embedded

How to turn corporate promises into corporate structure

While people grow suspicious of sustainability claims (rightfully!) and governments begin to crack down on bullshit ESG commitments, progressive companies are pushing the boundaries of their organizational models to ensure that their purpose will (literally) have a seat at the table.

 

The latest big brand to do so? No other than Patagonia – of course! 😜

 

In September last year, the company announced that Earth would become its only shareholder, with all its profits being directed to its mission of 'saving our home planet'. But how exactly does that work?


The legal construction was developed as an alternative succession model – opposed to ​​founder Yvon Chouinard passing the shares (valued at around USD 3 billion) directly to his children or selling the company – and is divided into two separate entities: The Patagonia Perpetual Purpose Trust and the non-profit Holdfast Collective.

Patagonia Purpose Trust

This Purpose Trust now holds 2% of the company's shares, which means it owns all the voting stock of the company. The Trust is responsible for keeping the company true to its purpose and values and to “demonstrate as a for-profit business that capitalism can work for the planet.” 

 

Such purpose trusts are not new, but are commonly associated with specific things, like a pet trust or trust for social purposes like social clubs. The trust's decisions are bound to the purpose it is dedicated to, which in Patagonia's case means "to benefit the environment, employees and the community." While the day-to-day operation of the company is still entrusted to CEO Ryan Schellert, the Board of Directors, and all Patagonia employees, the Purpose Trust – which is guided by members of the Chouinard family – is responsible for the company's long-term strategies by electing and overseeing the Board of Directors and setting agendas.

“[Patagonia] actually goes much further than transferring the entire company to non-profit ownership — or to 'only' dedicate profits to climate protection. They have fundamentally rethought the way Patagonia’s corporate ownership structure will be working from now on as well as the role that Patagonia will play in society going forward.”
Purpose Foundation, experts in steward-ownership structures

Holdfast Collective = Earth

The other 98% of the shares of Patagonia is now controlled by the Holdfast Collective, a 501(c)(4) social welfare organization – i.e. an organization not to be organized for profit and operated exclusively to promote social welfare.

 

Also led by the Chouinard family, the Collective does not have any voting power with their shares, but it receives 100% of the company's profits which currently amounts to around USD 100 million per year. The profits are to be used to finance initiatives to work on Holdfast’s mission to "fight the environmental crisis, protect nature and biodiversity, and support thriving communities, as quickly as possible". 

 

According to Patagonia's website, the Holdfast Collective can "advocate for causes and political candidates in addition to making grants and investments in our planet". Who and how exactly decisions will be made by the Collective are still unclear, but they are committed to not sit on assets and use the money received right away to finance different initiatives to fight climate change.

This new separate structure of Patagonia can be seen, in a way, like a checks and balances system. The Purpose Trust does not receive dividends, and its main goal is to make decisions that benefit the environment, employees, and the community. The Trust is, therefore, not able to access the value or profits of the company. This way, the Patagonia board, controlled by the Trust, is not financially incentivized to maximize shareholder value or profits. On the other hand, while the Holdfast Collective receives dividends, it does not hold decision power, preventing profit-oriented decisions that could go against the company's core values and purpose.

 

Even with several details yet to be clarified – for example, how succession in leadership will take place or who and how the Purpose Trust terms can be enforced – this structure set a new standard for corporate commitment to purpose as it turned good intentions into fully embedded and binding structures.

 

 “Another path was to take the company public. What a disaster that would have been. Even public companies with good intentions are under too much pressure to create short-term gain at the expense of long-term vitality and responsibility. … Truth be told, there were no good options available. So, we created our own.”

Yvon Chouinard

 

Cultural researcher, José Luis de Vicente, suggests that first one must think about the box in itself – how and why it was built in a particular way – so they can go on to create a more fitting one. While completely dividing business from profit may not be an option for every company, Patagonia's case is one example of how long-established structures can be repurposed for the collective good.

 

Some other ideas on how to do that?

 

1/ SHARE THE CREDIT

Musicians are crediting the planet as a collaborator on their songs to ensure that a percentage of royalties generated will be given in perpetuity to EarthPercent, a charity that raises money from the music industry to fund environmental activism.

 

2/ GIVE PURPOSE A SEAT

This UK-based brand made Nature a director of the company giving it voting powers on how the company is run.

 

3/ RETHINK YOUR INVESTORS

Startups are leveraging the power of Web3 to explore community-ownership options to build more equitable businesses.

 

4/ DEEP (LEGAL) DIVE

Countries have different legal systems and you need to know the box before creating yours. For example, some countries, like Canada and USA, offer companies the option to become a Benefit Corporation, a model that allows them to opt into a stakeholder governance structure and consider anyone that is materially affected by a company’s decision-making in the process.

 

In business, we tend to think about limits and constraints as something bad. In this newsletter, we tried to show that is not always true. As Patagonia demonstrates, embedding purpose and values into strict boundaries can be the way to ensure they'll be maintained for years to come.

 

If you wish to go deeper into the topic, here are some other articles that we recommend:

  • Patagonia: Earth is now our only shareholder
  • The Conversation: Has Patagonia defined a new gold standard for business responsibility?
  • Forbes: Yvon Chouinard and the Patagonia Purpose Trust — What is it and will it work?
  • The Guardian: Patagonia’s radical business move is great – but governments, not billionaires, should be saving the planet
  • Purpose Foundation: The Patagonia structure in the context of steward-ownership

This newsletter goes out to over 6,000 people

who are changing the way business is done.

SUBSCRIBE and join them!

INSIGHTS | From Around The Web

  • Barkley: State of Purpose 2023 Report
  • WEF: Let's talk about 'regenerative business' not sustainability
  • Nayture: The Green Brand Code of Patagonia Report
  • Ritual Design Lab: Human-Centered Culture Design - How to build better organizations
  • Bain & Company: Do ESG Efforts Create Value? (tl;dr: yes!!!)
  • GreenBiz: Moving from corporate responsibility to impact
  • Sustainable Brands: Social Sustainability is the next supply chain frontier
  • GreenBiz: Climate literacy training for every budget
  • Corporate Rebels: Women work for nothing six weeks of the year

COMMUNITY | News

  • Babak Behrad launched the Reimagine podcast and platform exploring the building blocks of tomorrow's economy
  • Katie Bailey is organizing a conference on "The purpose-driven organization: challenges, controversies and solutions" at the Kings College in London on May 10th 
  • Russel Vaughan with EcoSend launched on ProductHunt with their climate-conscious email marketing platform
  • Matt Thieleman published his book This is Coaching for coaches who want to unlock their full potential in supporting others
  • Claudia Guerreiro published an article on 3 sustainability marketing campaigns that made a difference

Want us to feature your project here in next month's newsletter? Reach out!

JOIN US

Not a Business of Purpose member yet?

Apply to join our online community and connect with over 1,600 purpose-driven business professionals from around the world.

That's it for this month.

Thank you!

🙏

 

Giulia

 

www.businessofpurpose.com

LinkedIn
Twitter
YouTube

TrendWatching BV, Wibautstraat 131D, Amsterdam, NH 1091GL, The Netherlands

Unsubscribe