How to transfer company ownership to a charity

When a company transfers ownership to charity, it can mean several different things. We look at how Patagonia is leading by example, distributing all of its profits to tackling the climate crisis.  

 

 

Patagonia and the gift of predictable, long-term climate funding

 

On 14 September 2022, Patagonia founder Yvon Chouinard transferred ownership of his company to charity to help efforts to tackle climate change. The climber-turned-entrepreneur wrote in a public statement: “If we have any hope of a thriving planet…it is going to take all of us doing what we can with the resources we have. This is what we can do.”

 

If you’re interested in the process that the US-based company is going through to transfer ownership, it works like this:

• Patagonia will still be a private, for-profit company but will no longer be owned by the Chouinard family
• 98% of the company and all nonvoting stock will go to a new non-profit social welfare group called the Holdfast Collective
• The Holdfast Collective will distribute Patagonia’s profits to “protect nature and biodiversity, support thriving communities and fight the environmental crisis”
• The Patagonia Purpose Trust is a new entity created by the Chouinard family. It owns 2% of the company, and all of the company’s voting stock, meaning that those running the trust will have the right to vote for matters brought up during shareholder meetings
• The trust will be overseen by members of the family and their closest advisors, and is intended to make sure that Patagonia keeps its promise to run a socially responsible business and give away its profits
• Each year, the money the company makes after reinvesting in the business will be distributed as a dividend to help fight the crisis
• Patagonia will remain a B Corp (meaning that it has to meet “high standards of social and environmental performance, transparency and accountability”), and will continue to give 1% of sales each year to grassroots activists

“We are going to give away the maximum amount of money to people who are actively working on saving this planet,” Chouinard told the New York Times.

 

This transferral of ownership sets a positive precedent. Philanthropy towards climate change has historically been insufficient, with contributions to the cause found to be less than one percent of total giving in the United States between the years 2009 and 2020. 

 

Ash Enrici, an Indiana University scholar of philanthropy and the environment, says, “I think it’s a great example for other business owners and very wealthy people to follow”, particularly as the structure of the gift means that there will be a “predictable form of support for work on climate issues – an estimated $100 million each year from Patagonia’s profits”.

 

Enrici emphasises, however, that more change on this scale is needed: “No matter how frequently these donations occur, it’s important to keep in mind that the cost of meeting the world’s environmental challenges is enormous and will cost trillions of dollars. So, while all of these gifts are certainly significant in their scale, donors and governments will need to do and spend much more.”

 

 

Different agendas and impacts

 

It should also be noted that, in the US context at least, transferral of ownership from a company to a charity can involve vastly different agendas and impacts than in the case of Patagonia. This is seen in Barre Seid’s transferral of ownership of his company Tripp Lite to “dark money” non-profit organisation Marble Freedom Trust in August 2022.

 

 

Similar structures

 

 

Foundation-owned companies

 

A similar structure of ownership is common in Northern Europe: there are nearly 1,000 foundation-owned companies in Germany, 1,000 in Sweden, and 1,350 in Denmark. In these cases, companies are owned by foundations, which can be used to ensure that the founder’s wishes are upheld, as well as serve a philanthropic purpose.

 

For example, the Carlsberg Foundation was established to “develop the art of making beer to the greatest possible degree of perfection”. It also had the function of supporting research, maintaining and developing The Museum of National History at Frederiksborg Castle, and granting funds for socially beneficial purposes, especially in support of Danish trade and industry.

 

Other examples of foundation-owned companies include Heineken (the Netherlands), Ikea (Sweden), Rolex (Switzerland), and Danish companies Maersk, and Novo-Nordisk.

 

In the UK, it is less common for companies to be owned by foundations. Some of those that do exist include The Cadbury Foundation, Boots Charitable Trust, and The Scott Trust which owns the Guardian newspaper.

 

One reason why foundation ownership is less common in the UK could be because of a lack of awareness of this as an option.

 

Like Patagonia, these companies are owned by charitable bodies. But not all foundation-owned companies are solely owned by foundations, and many foundation-owned companies present their philanthropy as somewhat separate to their for-profit operations – or it can be unclear what the exact relationship is between the two.

 

Patagonia on the other hand has been in clear in setting up its profits as inseparable from its philanthropy: “We’ll use the wealth Patagonia creates to protect the source of all wealth.”

 

 

Social enterprises

 

This is a more integrated approach to combining business and charity: social enterprises are businesses whose primary purpose is addressing a social or environmental challenge rather than creating profit for owners or shareholders. The UK has over 100,000 social enterprises, and there could be around 11 million around the world.

 

Like in Patagonia’s new model, all profits made in a social enterprise are directed towards their cause.

 

Some examples include Grassmarket Community Project, Divine Chocolate, From Babies with Love, State Bags, and Toms.

 

 

Leading by example

 

Philanthropy is sometimes criticised when the wealth donated to charity has been made through means that contribute to the problems their gifts are supposed to be solving. In these cases, donations can seem more like a public relations effort than genuine support for a cause – which might instead need to involve more structural change.

 

In dedicating the company’s profits to fighting the climate crisis, Patagonia is making such a structural change, setting a precedent for others who truly want to make a difference.

 

The values of the company have also shined through, with Chouinard speaking with humility and emphasising the importance of responsibility in business. This carries through to other elements of the company, with the brand transparently addressing its own relationship to reducing plastic pollution and fostering less damaging labour practices.

 

All of this is refreshing to see. Companies should consider how they can follow Patagonia’s lead when it comes to taking responsibility in our shared world.