Patagonia: Life Imitates Theory

“Patagonia: Life Imitates Theory,” Econospeak

by Peter Dorman

 When Yvon Chouinard, the founder of Patagonia, completed the transfer of that company’s ownership to an environmental trust fund, it was front-page news across the country.  It came as something less than a shock to me, however, because I had described a very similar structure in a paper I wrote a few years ago about “pluralist social ownership”.

First, it’s interesting what Chouinard decided not to do.  He didn’t donate the company to a government agency, although that option is not quite as weird as it sounds.  Environmentally conscious landowners often donate parcels to park administrations or other government units, expressing their faith in the ability of the public sector to safeguard this type of resource and make it available for study and recreation.  If you don’t see the same sort of donations of companies like Patagonia, it’s because the track record of government in most other functions is much less impressive.

Chouinard also chose not to give Patagonia to its workforce.  This deserves a bit more attention, since many entrepreneurs have taken this course; some of the largest worker-owned firms were begun as normal, for-profit enterprises until the decision was made to put the workers in charge.  It’s a reasonable choice if the main motive of the private owner looking to divest is to benefit the workforce, but there is no reason why this has to be the dominant one, even for very socially conscious owners.  Chouinard is an example: he has earned a reputation for treating his employees very well, but his primary interest is environmental.

So instead he gave away the company to two environmental entities, one that holds all the voting shares (about 2% of equity) and another that will profit from the remainder.  This is perfectly reasonable, so long as these groups can be entrusted to adhere to this commitment.

Of course, if he had some other motive he could still have used the same general approach, but partnering with different organizations that shared his priorities.  If he were interested above all in gender equity, he could have donated to gender equity trusts.  If the most important thing for him was to safeguard an indigenous culture, that type of trust could be endowed.  Or protecting the interest of a particular region, or promoting international cooperation, or, well, you name it.  Transferring ownership to a trust with a steadfast mission is an extremely adaptable approach, one that can accommodate a wide range of political and social values.

This is why I described what I called a “social equity fund” model in my paper.  The problem I was addressing was the form social ownership could take in a truly pluralist society, one with a mosaic of values and interests and not just one, however democratic the process for selecting it.  (I had reasons to doubt that a framework based on a monolithic conception of social interest would be compatible with democracy, but that’s a topic for another day.)  Investing ownership in a range of funds representing distinct groups and their values seemed to be the right approach.  Unlike state or even worker ownership, social funds could embrace a range of commitments as diverse as those found in society—truly a pluralist vision of social ownership.

The biggest problem with the Patagonia example, however, is that it was the work of a single individual, the firm’s founder and leader.  Chouinard is an exceptionally enlightened capitalist, but we can hardly count on the tender mercies of his peers.  This is why the indispensable step forward is to democratize the ownership shares of funds reflecting significant social interests.  This is the “socialist” part of the vision, in which most equity is progressively transferred from a minority of wealthy individuals to the funding system as a whole, and a mechanism for periodically allocating ownership to funds on a one-person, one-vote basis is established.

The paper discusses all this in some detail, including the regulatory framework such a system would require.

I hope Chouinard’s inventive solution to the problem of dedicating Patagonia to environmental values is recognized beyond environmentalist circles.  This points the way to a basic rethinking of how an economy can be owned and organized to advance social interests in a world in which such interests will inevitably be diverse and even sometimes in friction with one another.

Link to a business report on Patagonia; “Patagonia’s ownership bombshell changes the game . . .,” Angry Bear