Acts of Leadership: Yvon Chouinard, Patagonia

Yvon Chouinard is the Founder of Patagonia, the outdoor clothing giant. In this episode of Acts of Leadership, our regular podcast, Jordan Greenaway and Sam Patchett look at Yvon’s recent decision to give the business to a charitable trust. What impact will his decision have on the wider business landscape, and what role will businesses play in the climate crisis over the next few years?

About Yvon Chouinard

In the early 1970s, Chouinard founded Patagonia after returning from a trip to Scotland with rugby shirts that prevented hardware from digging into his neck when climbing. Fast forward to today, Patagonia is one of the most popular outdoor clothing brands worldwide. Chouinard has always put the environment at the heart of the business, such as in 2002 when Patagonia became the first company to commit 1% of annual sales to the environment.

Transcript

Jordan Greenaway: Welcome back to Acts of Leadership. In each episode, we discuss a new story that is making headlines for the right reasons, whether it's a CEO leading the way, an investor rethinking how to make an impact, or a brand bucking the trends.

I'm Jordan Greenaway, Managing Director of Transmission Private. Let's get started.

In this episode, we are talking about outdoor clothing giant, Patagonia. And today, like usual, I'm joined by Sam Patchett, our head of PR at TP. So can you give us a bit of background on who Yvon is and what the company has done in the past?

Sam Patchett: Yeah, sure. Thanks Jordan. So, Chouinard founded Patagonia in the early 1970s. He's always been interested in outdoor pursuits such as rock climbing, and since he founded the company Patagonia has been very heavily environmentally focused.

In 2002, 20 years ago, Patagonia became the first company to commit 1% of annual sales to the environment. So Chouinard, he's got a very established media presence, he's built himself as a leader on the environment and climate action, and the company have also run some marketing stunts in this light in the past as well.

You might remember, Jordan, a particular advertising campaign they ran once where they had a photo of a jacket saying "don't buy this jacket", and that was aimed at reducing waste and being more sustainable.

So the story we're talking about today is one that picked up a lot of traction across the news and also on social media in the last few weeks.

Jordan, can you give us a bit of background on this?

J: I think, or hope, everyone that's listening to this podcast might have seen this story. It literally went around the world: New York Times, BBC, Al Jazeera, it went absolutely everywhere. And the copy of the story I've got in front of me is from the BBC.

And the headline of the story basically tells you what the story is. Billionaire boss – that's Yvonne by the way – gives fashion firm away to fight climate change. The essentials of the story is, I think he's 86 now, and he's starting to think about his legacy, starting to think about the future of the firm.

And most billionaires, although he doesn't actually like being called a billionaire, he prefers being called a dirt bag apparently. But most billionaires would at this point give their company to the next generation, or even sometimes give it to their employees or a proportion to their employees. Yvon Chouinard has come out and said, that's not enough.

He's not happy with these solutions. So he's gonna give the whole of the business, Patagonia, to charity, to a trust. And number one, all the decisions that are made by the firm will be aligned with the objectives of that charity, which is fighting climate change.

And secondly, any profits that the company makes in the future will again be focused or funneled towards fighting climate change. So as you said, Sam, in your introduction, they were one of the first companies to become a B Corp, which is about creating business that has a purpose, is trying to do something more than financial profit.

This is Yvon Chouinard, taking that a step forward again. Not only having a business that has a purpose and has a devoted mission, but actually saying: in many ways, my business is now a non-profit and all of the money is going to go towards impact, and in this case, fighting climate change. That's the story Sam.

S: Thanks for that background, Jordan. And before we go on, I just wanna kind of tap into that, what you said about him being a billionaire, but not wanting to be called a billionaire. He's in fact, in the past he said he's horrified to be a billionaire. He never wanted to be a businessman at all in fact and his team have obviously been quite hard at work behind the scenes trying to position him as anything but a businessman.

If you google his name, the first description that comes up is an American rock climber. The first sentence on Wikipedia is rock climber, environmentalist, philanthropist and outdoor industry businessman. There's no reference to billionaire, there's not even a reference to entrepreneur.

So, the Patagonia website has him sitting there in a wooden cabin, wearing a chequered shirt, ceremoniously writing on a blank statement of paper. It says: Earth is now our only shareholder.

So he really is trying to be Mr. Planet Earth. It's all a little bit cheesy and perhaps a little bit pretentious, but that's how he wants to be seen – not only as the founder of Patagonia, but as the caretaker of the environment. And as you said, Jordan, he's kind of really taken that to the next level by making this decision.

Obviously the underlying fundamental purpose of this announcement is to donate more money to good causes; climate causes, environmental causes. Do you think there's another motive behind that? What's the why behind this decision?

Yvon Chouinard: Why did he give Patagonia to a trust?

J: Really interesting question and just to kind of start my answer, I would flag that there is lots of money involved here.

This is not only about positioning how he wants to look. There is a lot of money here.

Now, over and above, making sure that the climate crisis has enough funding to go forward and change the world. Do I think that there's a second ulterior motive here? Yes I do, and that is actually, this is more than just about giving money to a particular cause.

At the same time, the Chairman of Patagonia published a very interesting op-ed in Fortune magazine and the headline of that article was: we are turning capitalism on its head by making Earth our only shareholder.

I also think this is about triggering an industrywide discussion about what is the purpose of a business. Does the traditional model where there are shareholders who are getting a financial return, and that's the only sole objective of a business; to deliver a financial return – does that need to be tweaked or changed?

Now, that said, Sam, I think there's a third objective too, and that's around positioning Yvon.

It sounds like he's probably quite hurt by this term, billionaire, I think. I can understand why, because he probably never intended to become a billionaire, he just wanted to create a business that did good things for his customers, and he hates being pigeonholed by this term. And it's definitely going to sit well with the customers of Patagonia. And that's not to take away from how big a deal this is and how selfless this act is.

He didn't want to get to the end of his career, which had been very successful, and be seen in that way.

Do you think there's a secondary motive or further different factors that are playing into this decision, Sam?

S: It's interesting, Jordan, that you asked the question, what's it gonna trigger? And one thing you just said that kind of really stood out to me is: how can we structure capitalism to better support climate causes?

The main question that comes up in my mind is: from here on how do they kind of perform as a business? Because let's not forget that the main reason they're so well established as a brand isn't because their philanthropic causes, although that's obviously helped kind of form their position as a kind of mouthpiece for the environment.

It's because they make good clothing that people like wearing and people like buying. So, their success has always been fuelled by kind of consumerism and capitalism, and now they're not reinvesting their profits back into their core business, their operational business. Do they actually have a robust business case now?

But going back to the decision and the why, Also, let's think about the timing. Do you think there's any real underlying reason why he's chosen now to come out?

Is it because he's getting old? Is it because he's considering retirement? Or do you think now is just the opportune time to make a bold statement like that?

Yvon Chouinard: Why did he wait until now to do this?

J: Thanks for that, Sam. I think it's definitely tied to his age. Would he be doing this if he was 25 or 30 or 35 or 40? Probably not, but I think there is a broader public discussion underway at the moment, which you hinted at there, which is around the role of capitalism, the role of businesses in the economy.

If you've been scrolling down LinkedIn over the last month, there are thousands of, well, hundreds of people in my feed, millions of people worldwide, who have been talking about this story – who've been saying: oh, you know, every business needs to learn from Yvon and Patagonia. And I worry, now, that people are just going to read the headline of this story, which is: very rich man, although he doesn't really wanna be called a rich man – very rich man gives a lot of money away. And the lesson that businesses learn from this is they call up the CSR department and say, Christ, this Patagonia company's got a lot of coverage, can we just write a big check to someone? Or can we just give away some of our shares? Or can we do this?

And I think that is the wrong lesson. The whole story in my mind has been too simplified by both the media and the broader people discussing it.

S: I'd like to agree with pretty much everything you say, and the context of the wider public discussion about the climate crisis and what role businesses have to play.

You know, it's a conversation that, it evolves every day almost and this is a completely different way of approaching it. Every company out there is very quick to point out about how they're decarbonising or how they're making their operations more sustainable – as you said before, how much they're donating to charity.

But this is about how they're actually investing their profits and he's the first person to do this, at least the first person to do it at such a big, massive scale. And that in itself does certainly make businesses out there rethink their commitment to the planet, to the environment, to the climate crisis.

Whether or not they'll follow them and make a similar decision themselves, that's yet to be seen.

But I just wanna tap into what you said before, Jordan, about how this could teach a lesson to businesses about having a very clear, focused purpose.

In this case, Patagonia's clear purpose is reinvesting all of their profits into climate action. I still think your purpose as a company needs to be in some way, shape, or form connected to your core business operations. At the end of the day, Patagonia produces, manufactures clothing garments that they then sell to the market.

That doesn't necessarily align with saving the planet and addressing environmental problems and tackling the climate crisis. In fact, that there's a lot of traction between those two things. They're almost moving in opposite directions. So as well and good as it is to come out and say that your core business as a business is to save the environment, unless your business is actually achieving that, it's hard to see how that's gonna see much success, true success in the long run.

J: That's actually a really, really good point, Sam, and I wonder if you think it's, he's in fashion, not fast fashion, I don't think you'd call it fast fashion, but he's in fashion – in creating things. Do you think it's ever possible to square that circle then? Has he picked the best possible option for the future of the business?

Because I guess he doesn't want to close the business down because of course it is making profits, it employs people, it's a well-loved brand. Do you think this is the best of a limited number of options for him if his personal focus and mission is to tackle the climate crisis and yet he's producing goods that people buy, that creates waste, et cetera. Do you think it's possible to square that circle?

S: Well, first and foremost, I just wanna kind of make crystal clear that giving away a business that you've built up over 50 years to a charity and donating all your profits to a climate cause is an admirable move.

By no means am I suggesting that's problematic. But you raise a good question, Jordan. There's his personal positioning as a climate warrior and then there's Patagonia as a company. And I don't know how you do square that. I don't have the answer to that question actually, Jordan.

At the end of the day, you could look at it and go, well, there's still gonna be $1 billion extra each year being donated to climate causes – that can only be a good thing. Absolutely. But in the long run, as I said before, does Patagonia continue to operate at such success and make such big profits in the future when the shareholder is the environment or is the planet. How do you see the next 10, 20 years planning out for Patagonia?

Patagonia: the future of the outdoor clothing giant

J: Actually my initial thoughts have probably evolved after hearing your arguments. I think if they've got a high quality, purpose driven management team and a loyal and passionate customer base. I think this could be a launchpad for them getting even bigger, actually.

But one of the biggest drivers to remain innovative as a company is having a financial goal. Maybe if internal to their company, they accidentally lose focus on that – there is a risk that they stop innovating.

That said, this is one of the biggest problems with metrics. You want to have one core metric that evaluates your financial performance, your social performance, your governance performance, your environmental performance.

The risk here is that the focus on the finances and the focus on the environment, the focus kind of fractures. And so it doesn't become as clear what you're gunning for. Or, you only gun for environmental performance and you stop innovating. But I'm sure they would say internally: you know, our secondary motive is financial performance because we wanna make more money for the environment.

I'm sure they would say that. It's just difficult to know how this will play out in practice until we see in 5 or 10 years – are they still at the top of the food chain when it comes to garment brands. That's a good thing. I'm a strong believer in experimentation, and I believe lots of the solutions that we're facing today from the climate to everything else can be solved by independent, creative entrepreneurs saying, I'm gonna do that a different way, because that tests it.

But as you've been speaking, as you've been arguing, Sam, I probably think you're onto something too. They need to keep their eye on the financial numbers as well, and ensure they're continuing to innovate as a business to capture more consumers rather than to keep innovating as a business solely in terms of environmental return.

S: You talking about performance and finances and metrics earlier, Jordan, just kind of brings one last question I want to ask you. How successful the business is in the next 5 to 10 years, you said it comes down to how strong their leadership is. The question I have is: who replaces – in terms of the actual running of the company and the operation of the business, who replaces the shareholders? Because a company is obviously accountable, answerable to its shareholders that the earth can't actually provide any feedback. Who kind of fills that void?

J: From a very kind of practical perspective, I think the shares are being handed to a trust, and the trust is going to have a board of trustees.

I guess members of the family will be included in that and other people. And the trustees at the end of the year will call in the management of the business that they now own and hold them to account on how much profit they've delivered. But if you are a trustee and your focus is doing good in the world, there is maybe a question around how good they will be at holding the business to account.

S: So I think it's gonna be really interesting to see just what impact this announcement has, not just in terms of Patagonia as a company, but also the wider business landscape and what role businesses have to play in the climate crisis, and environmental causes, and just wider kind of corporate social responsibility as well.

On that note, thank you for joining us for this episode of Acts of Leadership. Tune in next time for more discussions on how the leaders of today are making waves. To find out more about Transmission Private and our work supporting entrepreneurs, CEOs, executives and investors with their personal profiles, go to www.transmission-private.com. See you next time.