This article originally published on September 19, 2022.
Is Yvon Chouinard’s Patagonia giveaway an outlier, a last-ditch effort by a reluctant billionaire to relinquish a fortune he claims he never set out to make? Or is it a prescient move, a deft power play that foreshadows the coming era of mega-donor-led philanthropy? Maybe a bit of both.
Since the New York Times broke the news that the Patagonia founder and his family have transferred their stake in the company to two entities, the Patagonia Purpose Trust and the 501(c)(4) Holdfast Collective, multiple narratives have emerged about this unorthodox arrangement. As usual when it comes to philanthropy, most of the critiques and celebrations alike are a bit overblown, but there are plenty of reasons both to applaud and be skeptical of the setup.
On the one hand, the Chouinards’ move has been praised as an elegant way to orient the clothing brand’s proceeds wholly toward environmental causes (via the Holdfast Collective) while retaining family oversight regarding the direction of the business (via the Purpose Trust). On the other, critics have pointed out that the restructuring avoids potentially hefty capital gains, gift or estate tax bills that would have been owed had Chouinard sold the company outright or transferred it to his heirs.
Additionally, while it’s still unclear how the Holdfast Collective will use its expected annual haul of $100 million in Patagonia profits, the new organization’s 501(c)(4) designation holds fewer restrictions on political activity and advocacy spending. That raises questions and possibilities of its own, both positive and negative. As with any high-dollar giving, with big generosity comes big influence. An influx of hundreds of millions into the environmental arena will make serious waves, but we’ve been left to speculate for now exactly what kind of philanthropic and lobbying activity this money will boost.
As the philanthrosphere parses what this latest big development might mean for environmental philanthropy and billionaire giving, we thought we’d run through a few reasons that Patagonia’s effort to “make the Earth its only shareholder” represents both good and bad news for philanthropy.
Reasons to celebrate
Let’s start with some positives. After all, there is a lot to like about what Yvon Chouinard and his family are doing here. For one, they’re relinquishing ownership of the majority of their fortune. It seems an obvious point, but by giving away roughly $3 billion of company stock, the Chouinards have achieved what many billionaires claim to strive for but very few actually accomplish — taking themselves off the billionaire list.
As we point out time and again, efforts to encourage the world’s richest to give away their money — the Giving Pledge being the most prominent — continue to fall far short of their goals. Even most of the billionaires lauded for their giving, including Giving Pledge founders Bill Gates and Warren Buffett, have so far failed to relinquish the bulk of their fortunes. The vast majority of the super-rich only give away a negligible fraction of their net worths. So when someone like Chuck Feeney (and now Yvon Chouinard) comes along and gives away practically everything, it’s worth giving them credit. It almost never happens.
The other major good news is where the money’s going, at least broadly speaking. Again, it’s still unclear how the Holdfast Collective will commit its resources, but we do know that Chouinard’s broad intention with this arrangement is to give “the maximum amount of money to people who are actively working on saving this planet,” as he told the New York Times.
The fact is that the climate crisis and related environmental challenges are pretty much the paramount global problem of our times. Climate change is also a crisis with a time limit — more action and more funding now will mean less pain later on. With that in mind, it’s disturbing how few philanthropic resources make it to the climate fight. Holdfast’s $100 million a year actually isn’t much in the grand scheme of things, but it’ll make a dent. Patagonia also has a pretty solid record of environmental giving to date, tending to support grassroots organizations rather than dumping money into big, corporate-friendly NGOs.
Another positive is Holdfast’s flexibility. As a 501(c)(4) social welfare organization, it will be able to fund lobbying efforts that are mostly not on the table for 501(c)(3) organizations. Holdfast could even devote a portion of its resources to political campaign activities. Chouinard’s move here mirrors other big donors who’ve eschewed traditional foundations for more flexible giving vehicles — typically LLCs, as we’ve seen with the Chan Zuckerberg Initiative, the Emerson Collective, Arnold Ventures and the like. And where climate is concerned, policy and politics is a key battleground, so it makes a lot of sense to keep more funding options open with a 501(c)(4) or LLC.
Reasons to worry
There is, however, a major flip side to the strategic flexibility that comes with this increased use of 501(c)(4) giving, and that is, well, the strategic flexibility that comes with 501(c)(4) giving. As others have noted, current tax law leaves a back door open for erstwhile billionaires like Chouinard to transfer ownership of companies over to a c4 without paying a dime in capital gains taxes on the appreciated assets — which, in Patagonia’s case, could have resulted in a $700 million tax bill had Chouinard simply sold the company.
Many have compared Chouinard’s use of a 501(c)(4) to former Tripp Lite owner Barre Seid’s transfer of his billion-plus-dollar company to another c4, the conservative-oriented Marble Freedom Trust. There are substantial distinctions between the two cases, not least the fact that the Holdfast Collective is on the right side of history when it comes to the environment. But it is true that in both cases, the billionaire donors sidestepped massive tax bills by giving their companies to 501(c)(4)s.
As Rhodri Davies recently discussed in the context of the Patagonia transfer, the Tax Reform Act of 1969 made it difficult for private foundations in the U.S. to own companies outright by restricting their holdings of any single company’s stock to under 20%. A 501(c)(4) organization, however, isn’t subject to that rule. The Holdfast Collective’s c4 designation also exempts it from the 5% annual foundation payout minimum (which is also courtesy of the Tax Reform Act of 1969), as well as the transparency requirements associated with c3 giving.
At the same time, c4 giving doesn’t bring with it the charitable deduction that c3 giving does, and the fact remains that the family is giving up far more than any tax benefit it will receive in the short term, so it remains a stretch to frame this as some kind of cash grab. It is, however, a shrewd way to give your company to charity. Whether or not all of these factors were considerations for Chouinard’s team, they are worth noting in the wider context of escalating mega-donor influence. One has to wonder if this is going to be a more common arrangement in the future, and whether, as Chouinard suggests, it’s a beneficial recalibration of capitalism run amok — or simply a novel way for wealthy individuals to play an outsized role in world affairs.
Critically, although Chouinard gave away his fortune in an irrevocable way, he didn’t necessarily give up his power. One could argue that by priming his fortune for use in policy fights — noble as Holdfast’s positions in those fights may be — Chouinard has reinforced and cemented his influence to the tune of $100 million a year. Is it possible to give away this kind of money in a way that does give away power? Maybe, and there are certainly steps that can be taken to do so. We’ll see if the family takes them.
We’re entering an era in which more and more figures like Chouinard and Seid will seek to thrust their fortunes into the policy realm, often at cross purposes. Even if we agree with what some of these super-citizens are trying to accomplish, their outsized influence remains a sticky question in a society founded on democratic values. It will, and should, prompt additional debate over existing nonprofit tax law and to what extent it’s still fulfilling its intended purposes, if at all.
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In the meantime, we’ll be keeping tabs on how the Holdfast Collective pursues its environmental goals, as well as on how Patagonia — already a B corporation with an impressive corporate philanthropy record — evolves now that social responsibility is formally enshrined in the company’s mission via the Patagonia Purpose Trust. If nothing else, this whole episode is a fascinating case of how an up-market clothing retailer has come to embody a critique of wealth — and how giving that wealth away may end up enhancing its power, not diluting it.