Patagonia’s purposeful transition
“Earth is now our only shareholder,” wrote Yvon Chouinard.
You’ve likely read the letter by now. Last week, Patagonia’s founder made an unconventional move, giving away his $3B company. In order to preserve its core values—protecting the planet over prioritizing profits—Patagonia’s voting stock will be transferred to the Patagonia Purpose Trust, a trust dedicated to battling the ongoing environmental crisis.
A purpose trust is a trust established to carry out a specific purpose. Instead of having individual beneficiaries, it may benefit an entity—a business, a family property, or in this case, Planet Earth. From now on, each year, the money Patagonia makes after reinvesting in the business will be distributed to help protect the environment.
Chouinard considered other options, including selling the business and donating the profits or taking the company public. But giving the company to a purpose trust ensures its future will remain dedicated to the core environmental mission. “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,” he explains in the letter.
Sustainability and strategy
Many companies are making changes to counter that statement. B Lab, a nonprofit dedicated to turning business into a force for good, has certified over 5,000 companies as b-corporations over the last decade. These companies (Patagonia included) have met exceptionally high standards for social responsibility, environmental consciousness, and transparency.
These are not only well-known environmentally friendly companies like Patagonia; the list of b-corps now includes companies in food (e.g., Ben & Jerry’s), consumer products (e.g., TOMS, Warby Parker), technology (e.g., Box), education (e.g., Coursera), and entertainment (e.g., Redbox), among others.
Outthinker research on the evolving role of the chief strategy officer (CSO) shows more companies are moving sustainability under the remit of the CSO. This is logical for two reasons. First, sustainability is being increasingly recognized not as a “nice to have” but as essential to a firm’s long-term sustainability.
Second, since a commitment to sustainability demands a long-term perspective, the CSO is a sensible choice to support purpose over profits—the role and its unique inhabitants are responsible for making sure their company looks beyond this year’s profits and this quarter’s results toward a long-term future that aligns with its “north star.”
Evolution of ownership
B-corp certification and CSOs leading sustainability are high-impact near-term steps companies can take to stand up to a rapidly evolving environmental crisis. But can they last long enough? Chouinard didn’t think so.
Locking in a long-term commitment to sustainability requires aligning your ownership structure, too.
Traditional ownership models of publicly held corporations perpetuate the fact that a company owned by individual shareholders are ultimately beholden to the desires of those individuals. Chouinard made his decision to preempt that dilemma.
Paul Newman made a similar choice in 1982 when he decided to donate all profits from the sale of Newman’s Own products to the Newman’s Own Foundation, an organization that supports nonprofits to help children facing adversity. Mastercard made a similar decision when it decided to set aside some funds from its IPO to fund an independent Mastercard Foundation in 2006 (now worth $4.4B) to increase financial inclusion.
The Patagonia Purpose Trust replaces individual self-interest around decision-making with collective purpose. New organizational models are springing up that indicate this may be the way more organizations will operate in the future. For example, consider decentralized autonomous organizations (DAOs.)
A DAO is a cooperative that uses blockchain technology, cryptocurrency tokens, and smart contracts to carry out its purpose. Lacking a hierarchical leadership model, the DAO is “regulated by a set of automatically enforceable rules on a public blockchain.” Smart contracts set the rules, and similar to a purpose trust, DAOs are said to be “incorruptible” and self-managed “without any human involvement.”
Contrary to a purpose trust, DAOs benefit shareholders and distribute profits in the form of tokens or coins, but smart contracts are established to guarantee that the DAO acts according to its values and cannot be subject to human greed. Some DAOs are using purpose trusts in which no individual members benefit, but the trust itself represents the DAO community’s objectives, regulations, and voting mechanisms.
Long-term strategic trends suggest organizations of the future will align their long-term motivation to social purpose. Embracing models like the b-corp or moving sustainability efforts to the center of your strategy are powerful first steps. But locking-in a long-term commitment to sustainability or any social mission is better assured by shifting ownership to a value-driven entity like Patagonia did or embracing decentralized organizational models that supplant individual motivations with the collective.