If Yvon Chouinard’s Patagonia giveaway plan works, he will have solved one of capitalism’s greatest challenges

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.

Peter Vanham
@petervanham
peter.vanham@fortune.com

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This edition of CEO Daily was edited by David Meyer.