Did you see the news about Patagonia? Why “doing good” can be controversial.

There are a variety of ways that companies can give back to the community — from employee volunteer days, donation matching programs, product donations, etc. — and then there is Patagonia, which recently announced it will be donating 100% of its profits (some $100mm per year) to combat climate change and protect land across the globe.

Patagonia will remain very much a private, for-profit company, but the company’s ownership will be transferred from the family into two entities: 98% of the company to the Holdfast Collective, a nonprofit entity, and the remaining 2% to the Patagonia Purpose Trust (basically the governing body of the Holdfast Collective).

What’s controversial about this move has to do with the tax structure of the Holdfast Collective, which is structured as a 501(c)4 vs. a 501(c)3. This means that the entity can make unlimited political contributions, and also doesn’t pay any taxes on the assets donated (similar to a 501(c)3).

However, in return, the family receives no tax benefit for its donation.

Some view this structure as a way for the Chouinard family to avoid paying taxes on the $3bn “gift” (about what Patagonia is worth) to the Holdfast Collective — up to $1.176 billion with a 40% federal gift tax; but the counter-argument is that they aren’t paying taxes because they simply don’t need to — this is the tax code and is applicable to all donors giving to both 501(c)3s and 501(c)4s. And although Patagonia as a corporation is not going to pay taxes on this move, the Chouinard family is also not reaping any tax deduction benefits (a decision that will allow them to stay a bit more in control and have the ability to use profits to donate to grass roots environmental activists and political campaigns).

This is not a political blog so I’m not going to go further than the facts — but what is undeniable is Patagonia’s influence and leadership within the realm of CSR. Giving back has been part of Patagonia’s DNA from day 1. Today, the company monitors and publishes its supply chain information; they donate 1% of profits to environmental organizations (well, now 100%); they have developed more sustainable materials to use in their products; and they have a side project called “Worn Wear” to resell used Patagonia clothing as a means of reducing waste. They have undeniably encouraged other private companies to use their clout or popularity to give back as well — Cotopaxi is a similar brand that immediately comes to mind.

Here is a fun fact that I’ll leave you with: Mr. Chouinard does not own a computer or a cellphone.