Just two cheers for Patagonia's Chouinard: why ignore an ESOP?

As a business advisor and outdoor enthusiast, I have long admired Yvon Chouinard. Protecting nature is one of the four core values ​​of Patagonia, the global outdoor apparel and equipment company he founded half a century ago. Chouinard is also concerned about the well-being of its employees, and Fortune even named it "the coolest company on the planet".

So I read with great interest Chouinard's bold move to transfer family ownership of the $3 billion gear maker to an environmental nonprofit and invest his shares with right vote in a trust. "Earth is now our sole shareholder," headlined Patagonia's press release.

I applaud the way Chouinard and his family have structured the sale to continue Patagonia's environmental focus. They transferred all of their voting shares - about 2% of total shares - into the Patagonia Purpose Trust. It will be overseen by family members and their closest advisors to ensure that the company honors its commitment to run a socially responsible business and distributes its profits to a newly created not-for-profit organization, Holdfast Collective, which will hold the ordinary shares without voting rights and will use the profits on climate initiatives.

At the same time, is this a missed opportunity? Over the past 20 years, I have advised hundreds of private and family businesses on the benefits of employee stock ownership, or ESOP, in the context of a change of ownership. So I wonder why Chouinard and his advisers haven't at least considered a partial ESOP structure - a plan that gives, say, 20% to 30% ownership in Patagonia to its more than 2,000 loyal and dedicated employees. p>

This omission is baffling, especially since employee morale and engagement are synonymous with Patagonia, and an ESOP could provide retirement security for employees in perpetuity. Chouinard has demonstrated time and time again that he cares about his employees. The Ventura, Calif. company was the first for-profit California company to become a B Corp measured by its social and environmental performance. Its head office has no enclosed workspaces and Chouinard has no office. It was among the first companies to establish an on-site daycare.

Furthermore, his philosophical employee handbook (which became the 2005 book Let My People Go Surfing: The Education of a Reluctant Businessman) essentially urges employees to reduce their work to ride the waves when the surf is up. President Obama even recognized the company as a "Champion of Change" for its commitment to working families.

Granted, Chouinard has addressed employee stock options and employee ownership in the past — and dismissed them. In another book he published in 2012, The Responsible Company, he shared his concerns about employee and public ownership.

He expressed concern that "with more widely distributed actions, the company would become too cautious about taking risks in pursuit of its environmental goals." He added that he was "willing to take risks that could give pause to wider ownership, even from employees committed to reducing environmental impact".

Furthermore, I would be rude if I did not acknowledge the generosity of Chouinard and his family. The structure of the transaction, in which the family donates their non-voting Patagonia common stock to the Holdfast Collective, means the family will receive no tax benefit for their donation. That's because Holdfast is a 501(c)(4), capable of making unlimited political contributions, making donations non-tax deductible.

So why did Chouinard neglect to create an ESOP, which could have been done at no extra cost to him? To be honest, as is still often the case today, it may be because Chouinard or his advisers did not fully grasp the tax, financial and other benefits that a partial or full ESOP can bring. to the future growth and success of a business, including a certified B Corp.

ESOPs and B Corps share many similar core values. No wonder an article in ESOP Builders, a Canadian consulting firm,