B Lab Forces For Good Podcast — Episode 7: What does it mean to “go purpose?” With Patagonia.

When Patagonia made headlines in 2022 for “donating itself to the planet,”, it challenged the way we think about business governance, bringing forth important questions about who really owns a business, and what happens when we shift power and control. 

In this episode of Forces For Good, we dive into those questions and more with Greg Curtis, Executive Director of the Holdfast Collective, the organization now stewarding Patagonia’s purpose now and into the future. We also hear from Mark Hand, a researcher exploring how alternative ownership structures – like employee ownership and cooperatives – are transforming businesses from the inside out. 

Listen now to explore:

• Why ownership structures like employee ownership and cooperatives are reshaping the future of work 

• What shifting power to communities means for building a fairer, more inclusive economy 

Tune in to Forces For Good to reimagine what the future of work can look like: https://lnk.to/go-purpose-patagonia

TRANSCRIPT: Season 3 — Episode 7: What does it mean to “go purpose?” With Patagonia.  This is Forces For Good, a podcast from B Lab, the nonprofit network powering the global B Corp movement. I’m your host, Irving Chan-Gomez.

Forces For Good takes a hard look at how businesses are helping to solve the biggest social and environmental challenges of our time. 

We're excited to be back with season 3 to dive deep into what makes a good job. In 2022, Patagonia donated itself to Planet Earth. Many of us (including myself) saw that news story and thought... you can do that? 

Greg Curtis: When we were making an ownership choice for. Patagonia, we weren't, we were trying to evolve it into something new and increase impact around the world, consistent with all the grassroots environmental activism that we've been doing for 50 years. 

That's Greg Curtis. He's the executive director of the Holdfast Collective. Holdfast is the charity to which Patagonia has donated all of its future profits. Turns out, donating your business to a cause you believe in isn't as easy as writing a check. 

But before we get into all of that, a little bit about Patagonia. They're a B Corp that designs outdoor clothing and gear. They've become known for their commitment to saving the planet. Yvon Choinard understood that without nature, there could be no outdoor clothing business. So when he wanted to exit, he was left searching for options that would keep his pursuit of purpose intact. 

He considered going public. He considered selling the company. But none of the options preserved Patagonia's purpose and business. Greg remembers that search for an alternative ownership model well. 

Greg: Many different types of alternative ownership structures have existed for a long time. Um, but when you are an entrepreneur and you go to business school or you're talking to your lawyer when you're trying to create something, they aren't top of mind for a lot of these service providers.

There are many different alternative ownership models. We'll get to those soon, but the one Patagonia chose is a Perpetual Purpose Trust. 

Greg: The idea of using a purpose trust is that perpetually disconnected from the natural life span of any individual or family. That sort of perpetual shareholder would be the steward and conscience of the business perpetually. And so that got attractive, where was this idea for us, being the environment being the top priority in terms of where the proceeds from the business are, sort of going, that can be released. And meanwhile, the business internally is still, you know, fair wages, delivering resources back to our suppliers, innovating in our supply chain. And so we could protect all of those core activities that made Patagonia what it is, including grassroots giving, and then amplify it with this, this release of value, this tax-efficient release of value from the business.

The trust works like this...

The company's voting stock – the decision-making power – is in the hands of the Patagonia Purpose Trust. Their job is to protect both the long-term value and values of the company. Patagonia's nonvoting stock belongs to the Holdfast Collective. They take Patagonia's profits and use them to fight the climate crisis. When Yvon Choinard announced the decision, he wrote "Earth is now our only shareholder." 

Greg: I think overall, a lot of excitement when we shared the idea or we shared the decision, um, with, uh, our employees, it was our first all-hands gathering since sort of we all came back from the pandemic. So it was exciting. It was a very exciting moment. To see everybody in person and exciting news to share that we've been sort of working on in the background for a long time, and that we felt like was the culmination of half a century of work with the business.

Alternative Ownership models flip existing power dynamics on their head. Mark Hand is Assistant Professor of Political Science at the University of Texas at Arlington. He's a bit of an expert in democratization. 

Mark Hand: Traditionally, ownership has meant that decision-making power and profit-making in companies have been aligned. And that on balance, that decision-making power and the profit that comes from those companies, um, flows to investors, to people that have put capital at risk in those companies. And so if we start to ask questions about how that could be different now, we're in the realm of what I would call alternative ownership. 

Alternative or shared ownership is an opportunity for wealth and power distribution.  It helps both a business and its stakeholders thrive - employees, communities, shareholders, of course, and even sometimes the earth itself. A purpose trust isn't the only alternative ownership model out there. (take 1 or 3)

Mark: When I think about alternative or shared ownership, I'd start by thinking about benefit corporations and L3Cs, which emerged out of the B Lab movement, and these were, to me, early efforts at asking this question of how these organizations should be structured.

Not just how should they operate, but what should the governance of these organizations look like? And so, to me, those are kind of the beginning. And what has also occurred separately, almost entirely from the B Lab movement and from, um, the impact, World Impact Investing, is the growth of employee ownership. And so there's another group of people, a whole other universe of people out there. that with a focus on workers are thinking about how should we organize these companies.. And so there are things called employee stock ownership plans, which are, uh, basically retirement accounts that companies can set up for their workers to build assets, which might be one of the reasons that people are coming to this question of ownership. 

Employee stock ownership plans are also known as ESOPs. 

Mark: So, New Belgium Brewing Company was ESOP-owned for a long time. King Arthur Baking Company is another one that's owned by an ESOP. There's 50 years of data, and the data is pretty magical, that companies that are owned by employees. Their employees they're in ESOP, and they have internal cultural systems for helping turn those employees into owners culturally, so that they last longer, perform better, help generate wealth for their employees, and generate higher profits for their other owners and benefit the communities that they're around.

So, one of the things in employee owned companies that are owned through, in ESOP, the research has shown is that, um, the benefits of being owned by the employee are really tied to whether or not you're able to help train employees into thinking as owners, and then incorporate them as you would another owner. Do they have the ability to generate an idea? Um, or try to solve a problem, raise that, have it flow into company decision-making. Do they have some control over how their work gets done and what their days look like? Those sorts of things, this, as employees shift from thinking of their work as a paycheck to being an owner of the place that they work, that's really where the magic seems to happen. 

Despite all the benefits, alternative ownership models are not common. When Patagonia decided to go all in on purpose, they had to search the globe to figure out how. 

Greg: There were examples in Europe, where Carlsberg in Denmark, Novo Nordisk, I was just in Copenhagen, there's 300 plus foundation owned businesses in Denmark, many of whom have been for multi generations. Owned or controlled by enterprise foundations. And so they've been doing a lot of philanthropic work for a long time. That's been impactful. And so, and in looking at those examples and in looking for something for Patagonia to evolve into, we knew that they were successful. We knew that they grew, we knew that they could innovate, they could out compete their traditionally structured competitors and they could expand.

Our professor, Mark, says this is an exciting time of innovation for alternative ownership models. Patagonia has helped a lot of people realize that shareholders and corporate boards aren't the only way to go! 

Mark: Employee ownership trusts or perpetual purpose trusts is where a trust owns a company and make sure that it's fit for purpose and is pursuing a purpose. And so there are actually a ton of different legal structures and models that people can come to depending on what they're after. And so sometimes it is about wealth inequality and asset building. And then for others, it's about environmental protection and making sure that this company that you built together, um, serves that purpose going forward. We don't have a lot of research yet on how it is that the use of purpose trusts for ownership is gonna play out. But what I would expect to see is that, in organizations that put themselves in trust, that we'll see something similar where the more people who are affected by the company are able to benefit from and be involved in decision making about that company, then the better that company will run. The more people you have, the more stakeholders you have, they're able to spot problems or opportunities, um, and then bring them to the table, um, knowing that they're actually going to benefit from making the company bigger, better, stronger, 

Outside of the classroom, Mark is also a researcher. He searches for more data on employee ownership trusts. Recently he made a discovery while researching right in his own backyard of Arlington, Texas. 

Mark: So there's a company here called ACP International, which manufactures road signs and other kinds of signage. And when that owner was considering retiring, he was trying to figure out, um, how to do it in a way that might actually benefit his employees in his community. And so one of the challenges for him was to figure out how to do that in a way that would be perpetual.

So he eventually ended up settling on an employee ownership trust. And I got to go to one of his, one of their board meetings recently. It started out feeling more like a Boy Scouts meeting, right, with a, with a, with a set of mantras at the beginning of the board meeting, reminding everyone what this company was committed to, right, to the benefit of the employees, to the benefit of Arlington, to the benefit of Texas, And so at each board meeting, they center this purpose, and then the challenge becomes, how do we figure out how to make sure that that purpose flows into all of those purposes flow into all of the operations of our businesses? So they were, when in the board meeting that I was in. They were talking about how to structure a revolving loan fund for employees that it hits some kind of medical emergency or something like that, which is the sort of thing that at maybe a normal corporate board meeting might not come up or maybe, you know, maybe some employee is struggling and it happens.

But if you start every meeting at the board level, reminding yourself why we are here, then it makes it much more obvious that this might be something that we would do to the benefit of employees.

A company can change its ownership model at any point. It's never too late. These trusts are meant to create better workplaces. To balance the hierarchies and decision-making power for the better of the employees and communities in which the companies are based. Empowered employees and communities are simply better for business. 

Greg: Kind of to what Mark was saying, our hypothesis, which we didn't think was very risky, was that. Purpose would motivate the business to perform and the employees to perform in our ecosystem of partners to perform more than pure profit and just financial return so that and I think that has that has because we've been outperforming some of our competitors in the period since under difficult economic circumstances since I think there was a lot of confusion, I think, too, because, you know, Patagonia is we've already been doing this grassroots giving within it.

Now we were talking about, you know, This Holdfast Collective shareholder, you know, it was, it, it's a complicated corporate structuring story to communicate that is not, um, You know, it just doesn't land as well as other stories that you might share, which, um, which was funny because we're not a very corporatish company. And so there were a lot of new things happening in our ecosystem, which was intentional because the problems of the climate crisis and the biodiversity crisis are getting bigger. And so we were making all of these decisions to deliver more resources to that. So conceptually, there was a lot of enthusiasm from the employees worldwide for that, um, for showing up in that way. So it's been, it's been an experiment just like everything else that we've done.

I think we're continually trying to improve it and finding opportunities for employees to provide impact or input rather.

The theme in this series is 'What makes a good job?' Increasing input from employees is a huge thing that makes a job 'good.' They're the ones doing the labor to keep the business moving. 

They're the ones on the frontlines, seeing the nitty gritty things that a board member may not see on the day-to-day. These alternative ownership models can be a revolutionary business strategy that can also improve everyday life. 

Greg: One really exciting thing is that we've got an international footprint. And so I've got colleagues within the business on the ground in different countries where we do business that are working with grantees locally. So I have this. incredible ecosystem of partners that I can leverage and they can leverage Holdfast to kind of find the right way to shape impact in their political geographies, which is a really exciting evolution for the entire model. One challenge is that, you know, we had this Patagonia is going purpose. It was this really exciting moment.

A lot of a lot of a lot of fanfare. Part of the challenge of that is I think we set high expectations for other people, like there had to be this complete commitment to purpose, trust, voting ownership, and a nonprofit getting all of its economic benefits. That's, you don't, we went to one end of the spectrum and we talked about our story, what was important to us, but there's a lot of, there's a whole diversity of other, of other choices.

There are other constituencies that you may want to reward or sort of compensate with your purpose trust or going purpose structure, which could include employee ownership is a huge and important sort of class of important value creators and beneficiaries. And so finding a way for them to participate, there's a lot of value in that. And others to like communities, cooperatives, like agricultural partners, if you're a food company. So I think a story that needs to be told about this tool is that it can be used in lots of different ways and tuned to the sort of facts and circumstances of different businesses in really important ways.

And that is in and of itself, there's, there's intrinsic value in all of these commitments that all of these businesses are making, and it doesn't have to be. Over here, I think we, you know, we need to open up the door and communicate. And I know Mark's doing a lot of work on that in that space to help educate and train and develop the research to, to prove the case, which I think we viscerally know is happening right now because we're both living in it,

Building a new ecosystem parallel to a traditional one is tough work. But it's not impossible, especially if you know what you're doing. Alternative and shared ownership is still a relatively new concept. But from the stories Mark and Greg shared, even though they look different, the results are almost aligned. 

Mark: I got to see one of these conversions in action, um, a few weeks ago, there's an adult living facility for people with traumatic brain injuries in about an hour south of Austin, in Texas. It's called Live Oak Living Community. And the owner, who is a little bit older, is about ready to retire, has a ton of employees that he loves, thinks do really good work and are all in their thirties and he wanted to figure out how to transition out of his business In a way that would keep those employees on that he wouldn't have to sell to a competitor and risk the company Being changed from what he had built Um, and so it took him about a year to to find employee ownership trusts and perpetual purpose trusts as an option for him.

And then it took him longer than that to find someone who could walk him through how to make it happen. But once he did, then he was able to start to communicate to his employees the benefit of the structure, which is that they would know that in perpetuity, this company would exist. Um, and that the operations of the company would benefit them individually in terms of profit sharing.

So all of that is written into the trust documents that then, that then determine how the company runs. And so that sort of story, I think, um, might be more approachable, uh, than Patagonia's story. Not every founder is in this position that Chouinard was in to be able to give away the company, but this, the owner of Live Oak Living Community, David Seaton, he was able to loan money to the trust to pay him back over time so that over time he becomes a zero percent owner and now the company is owned by a trust. to the benefit of his employees in perpetuity. And one of the things that Greg mentioned that we're working on is, um, there are a handful of service providers and consultants that do this kind of work.

So, Project Equity and Purpose Owned, and Lumo are a couple of them. And we're building a Purpose Trust Ownership Network to try to help publicize this ownership alternative and then provide people pathways to being able to do it more easily so that we could, you know, B Lab companies that want to align their purpose, uh, with their governance structures so that they have people that they can go to and ask for help.

Alternative ownership models can solve a problem for both founders and business owners, as well as employees. Founders who want to see their purpose-driven businesses continue to serve their vision, community, and workers can turn to these models when the time comes for them to exit. No matter who you are, feeling more connected to what you do can be a game-changer. Putting power in the hands of stakeholders is undoubtedly one of the things that makes a ‘good job.’

But diverting this flow of power is not easy within our current economic systems. Even purpose-minded companies don’t know all of their options, and even if they do, they struggle to convince investors. 

 If this series does one thing, I hope it raises awareness of system changes, big and small, that improve everyday life. The vast majority of us are workers, and we deserve respect, dignity, and power! We’ll have to advocate for it! 

If you’d like to learn more about B Corps and purpose-driven companies, visit BCorporation.net. Subscribe, rate, and review the podcast on Apple Podcasts, Spotify, or wherever you listen. Your support helps Forces for Good reach new audiences.

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The views and opinions expressed are those of the interviewees and do not reflect the positions or opinions of the producers or any affiliated organizations.

This podcast was brought to you by B Lab in partnership with The Gates Foundation. Special thanks to Sherri Jordan for coordination. Forces For Good is produced by Hueman Group Media.

I’m your host, Irving Chan-Gomez. Thanks for listening, and see you next time!