Has Patagonia Defined A New Gold Standard For Business Respo...| MENAFN.COM

Monday, 05 December 2022 11:44 GMT

Has Patagonia Defined A New Gold Standard For Business Responsibility?


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(MENAFN- The Conversation)

Patagonia's founder with the decision to give his family's $3 billion company, and its future profits, to the fight against climate change. In his words,“ .”

Climate policy advocates . Each year, $100 million in company profits , a U.S. nonprofit working for climate action and policy advocacy. Its legal status as a allows it to directly lobby on U.S. climate policy.

Patagonia has always been a pathbreaker. Since 1985, the outdoor clothing company has . In 2002, it helped found the business alliance to inspire other companies to follow suit.

Patagonia has also shared product innovations, like its , with its competitors in hopes of accelerating more sustainable practices. Other initiatives include its , certifying Patagonia as a company that is committed to the common good, and its used apparel marketplace .

But its recent decision is on another scale entirely. Could it help redefine the gold standard of business responsibility?

Profit vs. sustainability

Tensions between profits and the planet abound in business. has focused on identifying win-win scenarios , including and saving costs by making operations more resource efficient.

In many instances, however, a win-win scenario is not an option. Companies then about between profit and sustainability.

Patagonia has long grappled with this trade-off, often in public and eye-catching ways. Its 2011 Black Friday ad implored customers not to buy its best-selling jacket due to its environmental impacts. (Ironically, ). Patagonia continued this pattern in 2020 when it ran an ad in the New York Times about the need to tackle the climate crisis.

Chouinard mused in a that“making things in a more responsible way is a good start, but in the end we will not have a 'sustainable economy' unless we consume less.” He also expressed the hope that“Patagonia can find a way to make decisions about growth based on being here for the next 200 years — and not damaging the planet further in the process.”

Foundation-owned companies

A major barrier for sustainable companies is the — that managers must maximize profits on behalf of the company's owners. Shareholder primacy is particularly pronounced in publicly listed corporations. This is a and put a purpose trust in charge instead.

A trust or foundation running a for-profit company is . In Denmark, and other Northern European countries, foundation-owned companies like and are much more common. Studies show that the performance of foundation-owned companies is often .

Foundation-owned firms are rare in the U.S. Regulations introduced in 1969 to imposed a of a for-profit company. But in 2018, the removed these obstacles under specific conditions.

These legal changes set the stage for Patagonia's model. Ownership of the company is divided to give the voting stock to the , while the non-voting stock (which receives the company's annual profits) goes to the Holdfast Collective.

The perils of philanthro-capitalism

But this new model comes with potential risks. If it becomes widely adopted, it could be used as much to oppose progressive climate policy as to advance it. Dedicating profits to an organization that can advocate for political causes and candidates may be viewed as a new version of where ultra-rich individuals donate money to advance the causes they care about.

The growing influence of and in U.S. politics could undermine democratic processes.


Sen. Sheldon Whitehouse discusses how nonprofits can influence politics through undisclosed donations during Ketanji Brown Jackson's Supreme Court nomination hearing in March 2022. (AP Photo/Jacquelyn Martin)

The influence of private money on U.S. politics has only accelerated since the 2010 that struck down bans on private funding of election campaigns. It in recent U.S. elections.

Companies purely dedicated to advocating for their political cause might further accelerate this arms race on both sides of the political spectrum.

A new model for responsibility?

Can Patagonia's model truly solve the tension between profit and the planet? Could it become a new gold standard for business responsibility? This will depend on the balance between its environmental impacts and the social good created via its products and advocacy.

Patagonia's next moves will determine the actual impact of Chouinard's decision. Will Patagonia experience pressure to grow its profits to further fund the Holdfast Collective? How will the Purpose Trust interpret the company's stated purpose of being“in business to save our home planet?”

“is not an excuse to ignore the real tension we'll continue to face between growth and the environmental impact of our operations.” For now, this recognition and transparency positions it as a clear model that raises the standard for how to think, talk and act about business responsibility.


The Conversation

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