The Patagonia Founder Just Donated His $3 Billion Company. Here's why it's not as crazy as it sounds

Yvon Chouinard, who founded Patagonia 52 years ago, has just made a startling announcement. The 83-year-old entrepreneur and his family have donated their $3 billion business - in full - to a special trust and foundation set up to fight climate change and protect nature. Chouinard always said he didn't particularly like being a billionaire. Now there is no longer one.

There is no doubt that Chouinard is an outlier. Most entrepreneurs have no objection to being billionaires. And most entrepreneurs would choose a more traditional way out for their business and themselves: sell it to another organization, go public, leave it to their family, or even give it to their employees.

But there are reasons why Chouinard chose neither of these routes. And - even if you don't want to do what he did - his reasons should resonate with every business founder and business leader.

"What a disaster that would have been."

Why not just sell Patagonia and donate the proceeds to environmental causes? "We couldn't be sure that a new owner would maintain our values ​​or maintain our team of people around the world," Chouinard explained in a statement posted on the company's website.

So how about choosing the other typical exit strategy and taking the company public? “What a disaster that would have been,” he wrote. "Even public companies with good intentions are under too much pressure to create short-term gains at the expense of long-term vitality and responsibility." Go public, and whatever your stated goal is, and whatever you want it to be, your shareholders will expect and demand that everything you do is aimed at helping them make money on their investment. Do anything else, and they might sue you. They may even try to snatch your business away from you.

In other words, Chouinard was faced with a simple and brutal equation. As soon as you accept money for your business, you begin to relinquish control of it. The more money you receive, the less control you have. Most successful founders who build successful businesses struggle to find ways to live with this equation. Sometimes it works for them; often this is not the case. Founders end up leaving the companies they created. Or worse, they get kicked out, as happened to Steve Jobs, who was fired from Apple in 1985 (and returned in 1997 after it turned out the company badly needed him) ).

For Chouinard, this equation has always had a simple solution. Control was more valuable to him than investment dollars, so he and his family retained absolute control of Patagonia. The problem is that now in his 80s, Chouinard knows he won't be able to run the company indefinitely. And although his children Fletcher and Claire are on the company's payroll and will help determine its direction, neither of them wants to own it.

So Chouinard, his family and his lawyers faced the cash for control equation one last time. And after looking at the problem carefully, they realized that if they gave up the money, they could retain control and a firm commitment to the fundamentals of Patagonia, practically forever.

"To save our home planet."

Here's how it works. The Chouinard family donated 100% of Patagonia's voting stock, or about 2% of its total stock, to the new Patagonia Purpose Trust. The Trust will be managed by the Chouinard family and their advisors, and their intention is to ensure that Patagonia stays true to its purpose: "saving our home planet".

The remaining 98% of the shares, which are non-voting shares, were donated to the Holdfast Collective, which Chouinard describes as "a non-profit organization dedicated to fighting the environmental crisis and defending nature". And from now on, all profits made by Patagonia will go to the Holdfast Collective as a dividend. This will make the no...