Sunday, January 22, 2023
Beck Groff (University of Oregon School of Law) and Susan N. Gary (Professor of Law Emerita, University of Oregon School of Law) recently published an article, Patagonia, Purpose Trusts, and Stewardship Trusts—Business with a Purpose, ABA Probate & Property, Jan/Feb 2023. Provided below is an introduction to the article:
On September 16, 2022, news media reported that Yvon Chouinard and his family had transferred voting control of Patagonia to a purpose trust and their nonvoting interests in the company to a 501(c)(4) nonprofit organization. The purpose trust will manage Patagonia as a for-profit company, continuing Chouinard’s emphasis on employee well-being. Profits from the company will be distributed to the nonprofit, which will support efforts to address climate change and work to protect undeveloped land.
The noncharitable perpetual purpose trust used by Patagonia is referred to as a stewardship trust in Oregon, Or. Rev. Stat. § 130.193 (2019). This strategy for business ownership is finding increasing interest among founders who want to protect their businesses’ missions into the future. A purpose trust ownership structure can hold a business accountable to a business’s founding purpose, such as protecting the environment or promoting education. The purpose can also include providing employee control of the business and an emphasis on benefits for employees. The purpose is integral to the trust, with all decisions being made in furtherance of the trust and, therefore, in furtherance of the purpose. The trust operates without beneficiaries and may seek both economic benefits, like profit, and noneconomic benefits, like the ones described in this paragraph.
Although this structure seems to resemble a charitable trust because of the lack of ascertainable beneficiaries, the trust has a noncharitable purpose. The business held by the trust generates profits and uses these profits in furtherance of the purpose. Instead of generating profits for shareholders, the trust is held accountable to its purpose above all else. Therefore, organizations that follow this structure are able to stay true to the purposes of the trust and operate into the future. The structure allows firms to maintain profitability and operate outside of the nonprofit realm while still being socially responsible and carrying on the central purpose the founders envisioned. The structure can be particularly helpful for family businesses with owners who want to retire but who do not have family members to take over the business. If the family business owners care about their employees, the community, or other noneconomic purposes, they may be able to use the stewardship trust model as a way to preserve the business for posterity.