Is the Patagonia experience replicable?*

In September of last year, the founder of mountaineering sporting goods manufacturer Patagonia announced that control of the company would pass to a structure of funds and trusts responsible for keeping the company's core values alive and profits would all go towards protecting the environment and the fight against climate change .

The new governance model designed by Yvon Chouinard provoked a global frenzy and raised some questions. Is it possible to replicate and scale this model? The concept of "steward-ownership " would be sustained in traditional markets and in the current global situation, while a migration from an economy based on shareholders (shareholder economy) to a model that takes into account all interested parties is discussed within the ESG agenda ( stakeholder economy)?

The answer is yes, but with some important caveats. The solution found by Patagonia is innovative, but not entirely new, as we will see, and depends on a profound transformation that goes beyond what we understand today by governance.

But even more important than a "one size fits all" model for reforming capitalism, the Patagonia experience has brought into the global conversation the discussion about viable alternatives to shareholder-principled ownership – in this case, an established company that earns US$ 1 billion.

By addressing structural deficiencies of the market economy, Chouinard's journey shows that it is possible to reshape the goals and incentives that guide decision-making in companies in the corporate DNA.

A centenary experience

One of the oldest examples of this type of design is nearly 150 years old. This is the example of manufacturer of optical equipment ZEISS Group , founded in 1846 in the city of Jena, in eastern Germany.

In 1888, after the death of its founder, Carl Zeiss, Ernst Abbe – a fellow researcher – created the Carl Zeiss Foundation, which has owned the company ever since. Abbe had been a professor of physics at the University of Jena, where he developed the mathematical foundation behind many of Zeiss' successes.

Abbe concluded that his successes did not belong to him alone, as much of the work benefited from research and support from other scholars. This was one of the reasons for establishing the foundation, which protects the rights of workers, guaranteeing them health care and retirement insurance, paid vacations and an eight-hour workday.

Abbe also mandated that the highest salary of any Zeiss employee should not exceed more than 12 times the salary the lowest-paid worker earns after being with the company for two years.

To this day, Zeiss is one of the world's most innovative and respected companies in its field, with over €7 billion in annual revenue.

It's not charity

Patagonia and Zeiss are just two examples of companies that take advantage of the power and characteristics of for-profit companies, preserving the essential purpose of a business, which is to create products and services for profit.

The difference is that the performance of these companies provides social value, with guarantees against extractive and speculative capital. Each in their own way, and separated by more than a hundred years, these pioneers found innovative ways to compromise their business using two fundamental principles:

- Self-governance or self-management — Control remains within the company, with the appointment of persons with a fiduciary duty and directly linked to the management of its operation and mission. With control of the company in a trust fund, it can no longer be bought or sold by third parties through hostile bids or based on speculative capital.

- Profits serve a purpose — The results generated by these businesses cannot be distributed. Instead, profits will serve the company's mission and be reinvested in the company itself, stakeholders, or donated. Investors and founders are fairly compensated with limited dividends.

The human factor

It makes perfect sense in theory, but practice, as we know, is quite different.

In the second week of March, I had the opportunity to listen to Charles Conn at an event in London, coordinated by the Global Alliance of Impact Lawyers (GAIL) . Conn is chairman of Patagonia's board of directors, essentially the person who effectively coordinated the efforts and implemented the ideas of Chouinard and his family.

With a simplicity characteristic of those who perfectly understand what they are saying, and without using any elaborate presentation, he spoke about how governance (within the #ESG tripod) is a dynamic factor, in addition to being deeply human, therefore it challenges ratings and analyzes quantitative: conflict between generations; lifestyles of heirs; individual priorities; emotional relationships with the company's products and its mission; fear of disruption of plans in future generations, are some examples.

Establishing the relevance of this agenda invariably encounters an obstacle, which is a kind of "corporate therapy". We're talking about rewriting the psychology of companies, changing the deep structures that shape their behavior.

It is not about doing #charity or #philanthropy (which is where many get stuck in this reflection), but rather recognizing that profit and shareholder interest can only exist if the planetary and deep ecology limits of human well-being are primarily respected.

We are also not talking about just implementing income distribution under a socialist aspect, but instead developing the feeling that it will no longer be possible for corporations to exist consuming #human and #natural resources and distributing astronomical profits without having a holistic view of their citizenship roles. corporate.

In this "corporate psychoanalysis" session, news such as the Chouinard family's donation force us to face the fifty-year-old debate head-on on the objectives of companies, especially the ideas of Milton Friedman (as well as Peter Drucker and Jack Welch), preaching that the only responsibility of a company is to generate return for the shareholder.

If we are talking about “legal persons”, and we are seeking to give corporations legal protections previously reserved for individuals such as the right to life, health, “leisure” and others, it is difficult to resist a question: if companies are people, of what kind of person are we talking about?

The darkest answer – and one that would be widely supported by recent examples in Brazil and in the world – is that we are facing cases of psychopathy.

Fortunately, in the times we live in, a relevant portion of the business world believes that companies have responsibilities that go beyond their shareholders. More than ever, employees choose their careers and consumers, what they are going to buy, seeking some alignment of principles.

Shareholder-based capitalism has historically brought us reductions in absolute poverty, longer lives through medical innovation, and many other improvements. It will not be possible to use the same map that brought us here to move forward.

They were won at enormous cost, including increased inequality and environmental damage that will not be compensated for on a large scale or by buying carbon credits. The fabric of our societies has been torn apart as we consume the planet we live on.

Solutions like the one created by the founders of Patagonia are perhaps too radical to be considered a model that serves any business (and it is good to remember that the company has always been private).

But they show that semantics and pompous sustainability reports (but with little content) are no longer enough. We are creditors of a loan that we make by existing on this planet.

According to Bill Mollison, the creator of permaculture: “in search of the specialty we distance ourselves from the whole”.

And the “whole”, today, is fundamentally the most relevant ethical component to be considered in decisions by those who hold some power.

*article originally published in Portuguese at Capital Reset