Stakeholder Capitalism: Yvon Chouinard’s Bold Play

Patagonia Inc. founder and avid climber Yvon Chouinard’s autobiography, Let My People Go Surfing, provides important insights into his background and recent decision to sell his company. In 1970, he lamented the damage caused to his beloved Yosemite by fellow climbers hammering pitons into the rock. For Chouinard, this issue was personal because his company was selling the pitons. Unable to stomach the environmental degradation, he transitioned from selling invasive pitons to smaller chocks that did not require hammering. He advertised the use of these chocks as “clean climbing.” They became a smashing success.

By the 1990s, Chouinard was struggling to reconcile being “in business to save the world” with profiting off the resource-intensive clothing industry. A hired consultant challenged Chouinard’s commitment to philanthropy, “I think that’s bullshit…if you’re really serious about giving money away, you’d sell the company.” Chouinard balked at the idea. He worried that new management would do away with his initiatives to use costly organic cotton and donate one percent of yearly revenue to environmental causes. Chouinard continued his activism for decades, all the while worrying that “it wasn’t enough.” 

In 2022, Chouinard found a solution. He transferred Patagonia’s voting shares to the Patagonia Purpose Trust and its non-voting shares to a 501(c)(4) called the Holdfast Collective. The trust, which will hold two percent of Patagonia’s total shares, will have sole authority to appoint members of the board and structure the company charter. This will allow Chouinard to keep control in the hands of family and trusted advisers who will uphold the company’s mission statement: “We’re in business to save our home planet.” The Holdfast Collective will receive the company’s yearly profits as a dividend, all of which will go to environmental causes. Chouinard  structured the Holdfast Collective as a 501(c)(4) so it can make political contributions. Because of this choice, he received no tax benefits for giving away his multi-billion dollar company. More than fifty years after building a company on the ethos of clean climbing, some hope that Chouinard just laid the foundation for an era of clean capitalism. 

Chouinard’s innovation is one of the bolder examples of stakeholder capitalism. This idea that businesses should pursue goals other than profits for shareholders recently gained support from the Business Roundtable, a yearly gathering of prominent CEOs. For decades the meeting promulgated the idea that corporations exist to serve their shareholders. However, in 2019, the CEOs issued a statement that corporations must start placing the interests of the environment, workers, and communities on equal footing with the quarterly earnings report. 

Reasonable minds differ as to the viability of stakeholder capitalism. In 1970, Milton Friedman published an article decrying the intrusion of social responsibility into boardrooms. He believed a corporation’s only responsibility is to “increase its profits so long as it stays within the rules.”  Vivek Ramswany, a healthcare entrepreneur and prominent critic of stakeholder capitalism, echoes Friedman’s concerns. Ramswany further argues that corporations entering the political sphere will give corporate executives the power to decide our social values, eventually causing “rampant and…irresolvable cultural discord.”

For now, Patagonia is popular on both sides of the aisle, despite its long history of political activism. But, some evidence supports Ramswany’s fears. Ron DeSantis, the governor of Florida, has been vocal in his opposition to socially responsible companies. After Disney criticized a controversial Florida education bill, DeSantis pulled their tax exemptions and lambasted them in the press. Conservative state treasurers are also entering the fray. The treasurers of Arkansas and Louisiana pulled over half a billion dollars from BlackRock, an investment manager, due to the firm’s commitment to environmental causes. It remains to be seen if Patagonia’s restructuring will result in a similar backlash.

Friedman saw stakeholder capitalism as an effort by citizens to “obtain through undemocratic procedures what they cannot attain by democratic procedures.” He is right, but this is not the searing indictment he believes it to be. The filibuster effectively makes the United States the only member of the OECD (a club of advanced economies) that requires a supermajority to pass simple legislation. With the public sector perpetually gridlocked, it is unsurprising that citizens look to the private sector to combat the seemingly inexorable march of climate change. Chouinard’s restructuring of Patagonia constitutes a welcome act of unfathomable generosity and a noteworthy innovation in corporate governance. Patagonia’s ability to continue thriving under this new structure will be a bellwether for those who wish to change the nature of corporate boardrooms. Friedman and Ramswany may yet be right that the private sector is fundamentally unsuited to solve our social ills. But, when confronted with warming oceans and a limp legislature, what else was Chouniard to do?