Good morning, Peter Vanham here, filling in for Alan.
Yvon Chouinard’s decision this week to transfer Patagonia’s stock into two nonprofit organizations hit a sensitive chord in the business and political community. Was it all about political advocacy?
NYU Tax law professor Daniel Hemel, in a much shared analysis, noted how the donation of 98% of Patagonia shares to a 501(c)(4) looked “almost exactly the same” as what Barre Seid, a conservative donor, had done only a year earlier. Seid also donated the shares of his company to a trust, and then sold the company for $1.6 billion, leaving the trust free to spend the proceeds on political causes.
The deals used the same structure, providing much the same tax benefits to Chouinard and Seid. But from a corporate governance perspective, the comparison misses the point. In contrast to Seid, Chouinard is not trying to sell his company, but to protect it. Indeed, all of Patagonia’s voting shares (2%) are going to a second trust, aptly named the “Patagonia Purpose Trust.” This nonprofit has to maintain the company’s responsibility and purpose after the founder leaves, and operates entirely separately from the trust which receives the 98% lion’s share of Patagonia profits or gains.
If the plan works, Chouinard will have solved a challenge that has eluded many visionary company founders before him. Enlightened capitalists from John Cash Penney to Levi Strauss to The Body Shop’s Anita Roddick tried but often failed to cement their company’s purpose, business ethics professor James O’Toole found. In the vast majority of the cases he studied, the companies either went under, got acquired, or otherwise lost sight of their initial purpose after their founder left or lost control. The culprit? Too few protections regarding the ownership and governance of the company.
Patagonia chairman Charles Conn, who wrote a Fortune opinion piece earlier this week, told us in an interview yesterday that the company and its founding family were well aware of this history, and said it was a crucial consideration for their own special setup.
“We realized that the biggest impact of Yvon and Patagonia wasn’t the money they had given away up to today, but the creation of an iconoclastic company that could act as an example to other companies about an alternative path. If we sold the business to give even a vast amount away, but the business then became like any other, we would have destroyed the lighthouse for doing capitalism differently.”
More news below.
The German government has taken control of Rosneft’s local subsidiaries, placing them under trusteeship as Germany prepares for a looming ban on Russian oil imports. The government said the move “counteracts the impending threat to the security of the energy supply and lays an important foundation for the preservation and future” of the Russian oil giant’s PCK refinery in eastern Germany. Berlin already did the same to Gazprom’s German natural-gas business back in April. Wall Street Journal
Ye vs. Gap
Ye/Kanye West is ending his long-term contract with Gap, on the basis that the company allegedly violated the agreement around the Yeezy brand. The rapper: “It’s fine. I made the companies money. The companies made me money. We created ideas that will change apparel forever... Now it’s time for Ye to make the new industry. No more companies standing in between me and the audience.” Fortune
Here’s a thought-provoking read about income inequality from the FT’s John Burn Murdoch, who looks at how the U.S. and U.K. actually compare with western peers when considering the average household rather than the highest earners. His conclusion? Both countries are actually “poor societies with pockets of rich people.” Financial Times
AROUND THE WATERCOOLER
Uber employees are being barraged with obscene images in a major hack, and they’re worried their financial data may have been compromised, by Kylie Robison
Legendary investor Stanley Druckenmiller warns there is a ‘high probability’ the stock market will be ‘flat’ for an entire decade, by Will Daniel
Google launches $25 million A.I. sustainability effort with UN as company exec says firing A.I. ethics researcher was ‘unfortunate’, by Jeremy Kahn
The death of Bed Bath & Beyond’s CFO is a wake-up call about mental health in the C-suite. But who’s looking out for leaders?, by Lila MacLellan
Let them eat (corporate office) cake: CEOs splurge on catering after Labor Day to get remote workers back, by Alena Botros
This edition of CEO Daily was edited by David Meyer.
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