Yvon Chouinard: A $3 billion giveaway

23:06But it's safe to say for Yvonne Chouinard that in his mid-40s, and without seeming to try very hard at this, Yvonne is a millionaire. but not always smooth sailing. He's about to hit not one, but two major crises. In his route from a million to a billion.

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26:50So while Patagonia is doing well, the climbing equipment company side of things to Renau Equipment is not doing so great. It was actually hit by lawsuits. Several of them complained the company provided improper safety warnings with its gear. Now, these were settled out of court, but the company's insurance premiums went up 2 ,000 % in one year. Yvonne worried that this could negatively affect the profits of Patagonia, so Schwinnar Equipment filed for Chapter 11 bankruptcy in 1989. And that's a form of bankruptcy which you can elect to put the company in to protect you from its creditors. A lot of companies come out of Chapter 11 bankruptcy once they've put their affairs in order, but Schwinnar Equipment did not.

27:31the staff bought the company's assets, moved it to Salt Lake City and rebranded that company's Black Diamond Equipment, which still trades today. So now Patagonia is Yvonne's sole business and it is ready to go on a massive expansion programme. It opened lots of new US stores and started expanding internationally, opening stores in Chamonix, in France, very famous kind of skiing, rock climbing place, and also Tokyo. And they were growing their product line well beyond rock climbing into more and more sports. So the catalogue now featured 375 different styles, maybe some unnecessarily specific.

28:07I mean, they sold volleyball shorts, which at the time probably seems slightly unnecessary. You can't play volleyball. You haven't got your volleyball shorts on. You don't really hear that very often at the Olympics, do you? No. But to encourage an entrepreneurial spirit, they divided this big product line into eight divisions and hired eight people or czars, if you like, to run each division. Each czar was responsible for the product development, marketing, quality control, etc. Now, this reminds me of one of our French billionaires. Yes, LVMH's head honcho, Bernard Arnault. Because he basically had a sprawling empire and he wanted to give people ownership of their own divisions of it and had exactly that kind of setup, right?

28:46Yeah. So every single fashion brand under the LVMH umbrella is basically run sort of like how it sounds like Patagonia was run by as a kind of fiefdom onto its own. Yeah. And it worked. By 1990, it was predicting 40 % growth. And that is, you know, for a mature business, that's pretty amazing. So he set about hiring another 100 people and expanded into another part of their, still their offices, the old slaughterhouse. I like how they're remaining loyal to the slaughterhouse. No fancy campus. Slaughterhouse Five is now Slaughterhouse Hundreds. Yvonne said, had we kept growing at that rate, we would have been a$1 billion company in no time at all.

29:22But the staff were starting to feel the strain of this quick expansion. Happens a lot in business. Companies grow very, very quickly. And you either get burnt out or you start losing control of the business a little bit. The staff felt the strain. One former manager said, one day we'd be learning how to do business the Japanese way. Six months later, we'd be on to something entirely different. And it ended up confusing the employees. Yvonne actually later admitted that organisational charts looked like a Sunday crossword puzzle and were issued almost as frequently. Yeah, and like I say, this is not unusual.

29:52When businesses are growing very quickly, people are just saying, do this and do that, and you lose a sense of strategy. So in 1991, something else happened. The US entered recession, and this had a huge impact on Patagonia. Yeah, the 40 % growth they had planned and expected didn't happen. They managed 20 % growth in the middle of a recession. That's pretty good. But the shortfall left them with a lot of inventory in the warehouse and too many staff. Then the bank cut Patagonia's credit line. A credit line is basically an overdraft facility that you can draw upon when you like or loans. And in a recession, sometimes banks will make things worse by de-risking their loan portfolio and cutting credit lines.

30:35But that can have the effect of exacerbating and making the problem worse. And that actually caused huge cash flow problems in Patagonia, which all came to a head in July of that year when the company had to come up with$2.5 million to meet a loan payment. So they had a fire sale. They sold clothes below cost to claw back some cash. Staff were calling friends, family, acquaintances to try anything they could to raise some extra cash. They shut down offices and sales showrooms to save cash. But ultimately, it was the large staff overheads that could have the biggest impact. So for the first time in the company's history, they started laying off staff, 120 people, at that time 20 % of the workforce.

31:14And Yvonne described that moment as the darkest day in the company's history. But Yvonne also saw a silver lining to that dark day. He felt that this was the perfect opportunity to approach the business a little differently. Yeah, months before the recession hit, Yvonne and his managers had flown out to Miami to meet with a business consultant called Dr. Michael Cammie on his yacht. So Dr. Michael Cammie was kind of a legendary figure. He was the chief strategic planner for IBM, a huge tech company, and he turned around Harley Davidson's fortunes when it was a failing motorcycle brand. Yeah, they were seeking advice on how to manage the various divisions, but Cammie asked Yvonne why he was in business at all.

31:52And Yvonne replied he was in business to give money to environmental causes. And that was a founding principle for him because Yvonne's respect for environmentalism, he had this kind of leave no trace attitude, like leave somewhere exactly as you found it before. And this has been part of his business since he was replacing the pitons in the 1960s. Yeah, remember that clean climbing manifesto? Yvonne made this commitment to be more than just about, you know, words. Back in 1984, Patagonia actually pledged to tithe 10 % of their pre-tax profits to grassroots environmental organisations. And he took it pretty seriously.

32:28He hired three business managers to help the company achieve more growth. The theory being the more money they made, the more you could give away to help save the planet. And this actually has echoes of one of our previous billionaires, the FTX founder, Sam Bankman-Fried. Yeah, who basically was the poster child for something called effective altruism, which is the more money you make, the more money you can funnel. It was really in vogue. Peak effective altruism was around the time when Sam Bankman-Fried was conquering all before him. Yeah, riding high. Of course, now he's currently in jail on charges of fraud.

33:00Let's get back to that yacht in Miami. Yes. So on that yacht, when Yvonne said he was in business to give money to the environment, Dr. Cami actually called him out on this and swore at him and said, you could sell the company, start a foundation and give away a lot more money than you do now. So after the recession and all those layoffs, Yvonne had a rethink and went back to that moment. He took his managers. I mean, these managers get to go to some crazy places. He took them on a trip to the mountains of the real Patagonia to try to answer the question, why were they, or more specifically, he in business?

33:29So they decided to form the first board of directors. They got this trailblazing ecological activist, Gerry Mander. The New York Times called him the patriarch of the anti-globalisation movement to write a mission statement for the company. And it opened with the words, all decisions of the company are made in the context of the environmental crisis. Yvonne now had the answer to Dr. Cami's question. He explained, true, I wanted to give money to environmental causes, but even more, I wanted to create in Patagonia a model for other businesses that they could look to in their own searches for environmental stewardship and sustainability.

34:04And he put money behind this commitment. So back in 1984, Patagonia pledged to tithe 10 % of their pre-tax profits to grassroots environmental organisations. Yeah, tithing originally a kind of religious kind of thing where the congregation would tithe 10 % of their earnings towards the church back in the Middle Ages. It wasn't as if people weren't debating about climate, but applying that lens to corporate activity had not quite matured at that point. So do you think that at the time Patagonia came up with all this stuff, people in the business mode was up and looking at it and thinking, God, you guys are insane?

34:40Well, I think they would have been sceptical about it, but I think it's quite a good fit for a brand like Patagonia. In a way, they were the poster child for this. They were the trailblazers. And fortunately for them, ESG, as we know today, fits quite well with Patagonia's general brand and the stuff that they do. So the company started bringing that kind of ethos into its product. So in 1993, for instance, they were the first outdoor company to produce a fleece made from 80 % recycled bottles. In 1994, they moved to 100 % organic cotton. And that was a big gamble because at that point, organic cotton was 50 % to 100 % more expensive.

35:16And a fifth of Patagonia's line was made from cotton. So it's going to be a big increase in the materials they're using. And Yvonne could be hardline about it. He actually gave staff 18 months to make the switchover or they'd never use cotton again. But customers responded well and the sales went up 25%. In fact, Patagonia established an organic cotton industry for other companies. Patagonia buyers coach Gap, for example, Nike, on how to make the switch. And so as the demand for organic cotton grew, the price fell, which led to more demand and so on. Nike was soon the biggest buyer of organic cotton and continues to be one of the top five buyers in the world.

35:52And Yvonne said, I have to show corporations that they can make more money being responsible and efficient. And it wasn't just through the product that he was trying to influence other brands. because by the early 2000s, Yvonne encouraged other businesses to join the idea of this tithing thing. Yeah, along with friend and an angling businessman, Craig Matthews, he set up the 1 % for the Planet scheme to encourage businesses to give 1 % of gross sales to support environmental awareness and work. As of 2024, over 5 ,200 businesses have actually signed up to this scheme and$635 million has gone to environmental causes.

36:29Tithe was originally 10 % and they're only giving 1%, Just a little detail. Just a little nitpick. But anyway, Patagonia became synonymous with environmentalism. It actually contributed to their success. On Black Friday, that's traditionally a huge day for sales shopping in the US. It's that Friday after Thanksgiving when everyone's got a day of holiday, but the shops are all open. Patagonia famously printed a full page out of the New York Times, encouraging customers to not buy its products. Funnily enough, the ad actually boosted sales. The company still saw it as a win in educating customers, but the bottom line still benefited.

37:04Their ad actually said, don't buy this jacket. Casey Sheehan said customers were willing to pay high prices for their clothing because they knew Patagonia inflicted less damage on the environment than other clothing makers. So basically, by wearing Patagonia, you are doing a major bit of virtue signalling. And interestingly, you talk about virtue signalling. Rather ironically, the Patagonia vest has become a kind of staple for tech bros in Silicon Valley. Yeah, who are experts at virtue signalling. Yvonne had learned from his previous mistakes after the 2008 financial crash happened, they actually weathered the storm without any layoffs.

37:37So they're obviously running a leaner, more organised ship. And in fact, the financial crisis might have actually helped Patagonia because experts said that many Americans turned to outdoor recreation as a cheaper alternative to foreign travel. I do remember this period sometime between the 90s and the noughties, when the idea of fulfilling vacation was to sort of go up a mountain and what have you. That was something that changed in people's idea of what they wanted to do with their leisure time. Yeah, outdoorsiness rather than just lying by a pool drinking cocktails. Yeah. All this meant that Patagonia was doing great.

38:10So it tripled its profit between 2008 and 2012. It continued through the 2010s. And in 2017, revenues hit$800 million. All this meant that in that same year, age 78, Yvonne made the Forbes billionaire list with a net worth of$1 billion. And this is because Forbes had valued Patagonia at a multiple of revenues. And that is how publicly traded competitors like Columbia Sportswear, for example, they used that, you know, how much is Columbia worth on those revenues? This got revenues of$800 million. Let's apply the same multiple to it to come up with the value for the whole company. Right. So it's at this point that Yvonne is officially a billionaire.

38:49However, Forbes describes him as being a reluctant member of the club, with one spokeswoman for Patagonia saying, we strongly oppose being included on this list. In fact, Yvonne himself later said, I was in Forbes magazine listed as a billionaire. And this made him very angry. He said, I don't have a billion dollars in the bank. I don't drive Lexuses. It's funny that his idea of a billionaire car is a Lexus. Yeah, really? That's actually pretty cheap for a billionaire, I would say. It's actually quite telling. Because I think some people would hear what Yvonne is saying and say, oh, if this guy doesn't have a billion dollars in his bank account, why do we call him a billionaire in the first place?

39:22Yeah, I hear that argument, but I think it's wrong. I think that you wouldn't say that Elon Musk, for example, is worth only as much as he's got in his current account. You would say he's worth how much of a company that he actually owns, and that's in the tens of billions. So I think that he may not like it, Yvonne, but I'm afraid his net worth does include his stake in the company, whether it's in his bank account or not. So too bad. You are a billionaire, or you were then.

40:02But the inclusion on this billionaire list actually made Yvonne have another rethink about the future of his company. So in 2022, he gave it away. I mean, this is incredible, right? In a message to staff and customers, he said, instead of going public, you could say we're going purpose. So rather than selling shares in the company, doing the IPO, which we've come across so often in this series, he said, we're not going public, we're going purpose. So he gave it all away and split it up in kind of an interesting way. So all its voting stock, the votes that actually have control of the company, which is about 2 % of the total, going to a charitable trust, the Patagonia Purpose Trust, which would be overseen by the family, and the other 98%, or the non-voting stock, to a newly established non-profit called the Hold Fast Collective, which would get Patagonia's profits and then use the funds to fight climate change.

40:52He says that the profits donated to the climate causes will amount to around$100 million a year, depending on the health of the company. Interestingly, the brand's website states, Earth is now our only shareholder. So quite a story. I think that the fact he's given it all away means when he said I'm a reluctant billionaire, I think we have to take him at his word. Yeah, I think he has proven that he is very reluctant. So reluctant, in fact, that he gave away the company. Yeah, but wanted to harness its earning potential for the causes that were so important to him. So we now have to judge him.

41:24And we do this on a number of categories, wealth, villainy, and we rate them between zero and ten. and we always start with wealth. So hard to know how much money he has left. Forbes says that he maybe has just under 100 million, but he's definitely off the list. When questioned by a journalist whether he could be a dirtbag, remember that, he wanted to be a dirtbag existentially and a multi-millionaire, he replied, being a dirtbag is a matter of philosophy, not personal wealth. I'm an existential dirtbag. I mean, I'd love to hear the song written about that. He also, it's important to say, doesn't flash to cash.

41:58Today, he still drives a beaten up Subaru with a surfboard strapped to the roof. And he only has two homes, one in Ventura, California, the surf town where he's lived since the 1960s. This is one of the few things I've ever had in common with one of our billionaires. I also have a beaten up Subaru. There you go. So much in common. You're almost on the billionaire's list. He's in a pod. So on wealth, I mean, he's rich in other ways. I'm sure that's how he'd look at it. He's not a billionaire. He's got under$100 million. But when we've done this and we've had other ones like Whitney Wolf Heard, who's also less than a billion.

42:32So we have to judge them at their richest, I think. At his richest, he owned most of a company worth about$3 billion. But that is still pretty entry-level billionaire, certainly not the top of the tree as the ones we discussed. And I think he gets points knocked off for the beaten up Subaru. And I find it very telling that his idea of a billionaire car is a Lexus. Yeah, OK. It's a one on wealth for me. I think it's a one for me. I think he's pleased with that. That's cool. He would like it. Definitely. Rags to riches. How far has he come in his journey? He's come really far when you think about it.

43:04He's come a long way and then gone straight back again in a way, hasn't he? It's been a kind of round trip from being an outdoor nerdy kid who was unpopular at school but found community and a bunch of climbing friends, doing jobs just as long as he could until he got enough money to go off climbing. In a way, he hasn't strayed too far from that ethos. In terms of riches, clearly he's gone from having next to nothing. Dad was a labourer, right? And he was not a great student to being worth the best part of$3 billion. So it's a big journey. I do keep thinking about the fact that at one point he was living off cat food.

43:41So I have to rate him quite highly for this, I think, even though he's sort of gone back to his beginnings. Okay, yeah. I'm going to give him a four for rags to riches. I would give him, I'd give him double that. I'd give him an eight out of ten. Okay. For me, maybe it's the cat food that's so symbolic of where he started off, but it really reminds me of Oprah's rag doll made from rags. For all we know, he still eats cat food. And maybe he just likes the taste. Well, so eight from you, four from me. That is the biggest differing of minds we've had, I think, in the entire series. No, that goes on for a new record, I think.

44:17Villainy. So, I mean, he looks like one of the nicest guys we've ever covered here. He's given it all to a non-profit organisation to work in environmental causes. But as a brand, there have been some questions over Patagonia's ethical credentials. Yeah, in 2011, they actually discovered modern slavery in their supply chain. But then they partnered with an NGO to implement changes in its supply chain to secure fairer working conditions. This didn't quite take though because in 2023, a report by an investigative website called Follow the Money stated that Patagonia produces some of its clothing in a Sri Lankan factory where the clothing of other fast fashion brands are made, which potentially means that employees are working under the same bad conditions.

44:58It's an interesting one, this, because supply chains are so global these days and so diverse that quite a lot of companies, either knowingly or not knowingly, have found themselves caught up in the modern slavery debate. A lot of people say when you've got lots of different suppliers, it's quite difficult to audit your entire supply chain to make sure nothing's creeping in like that. Others saying that's nonsense. You should be visiting your factories all the time to see what's going on there. And you should be putting investment into doing that, especially if it's part of your brand. And Patagonia said, we are working with suppliers and labour experts to devise and test strategies that will allow the plant to pay its workers more.

45:38This is complex work we are trying to figure out together with our suppliers. Yeah, this is all part of a phenomenon that some people call greenwashing. People applying environmental credentials to their products. In 2015, Greenpeace accused Patagonia, along with some other brands, of using toxic chemicals in their materials. Patagonia now says it's switched to materials whose byproducts, in their words, break down faster with less potential toxicity, but hasn't acknowledged this is a temporary solution that is not good enough, but it's the best option we've found so far. Yeah. And as we've discussed, can you make a billion reluctantly?

46:10Is there not a single ruthless bone in his body? Remember when push came to shove in 1991, he made some huge layoffs. He did say it was the worst day in his life, though. Yeah. And, you know, from what people like Chris McDivitt, the CEO, and the financial manager, Steve Peterson, said all Yvonne wanted to do was actually climb and left them to run the company. So in a way, he's going to wash the sands of it. Yeah. And also with charitable stuff, you often get some tax breaks along with that. When he gave his company away in 2022, it was reported that he got no tax benefits. But a few months later, Bloomberg reported that the deal is structured in ways that let him and his family keep control of Patagonia while shielding them from tax bills that could have totaled hundreds of millions of A Patagonia spokeswoman said there was never an ask from the Schwinnah family that we avoid taxes when structuring the transaction.

46:58So it looks like he's not making a ton of money out of this. So I'm going to say Villeney scores pretty low on this. I would say two. Even one, actually. I would actually say probably one out of ten for me. Yeah. OK, one out of ten on villainy. Philanthropy. In 2017, he said he'd given away over the years more than$80 million to environmental causes. And of course, he gave away his$3 billion company with all future profits helping fight climate change. Yeah. I mean, he also said, hopefully this will influence a new form of capitalism that doesn't end up with just a few rich people and a bunch of poor people.

47:33We are going to give away the maximum amount of money to people who are actively working on saving this planet. So pretty lofty aims. Yeah, and he's going to score high, isn't it? Remember Chuck Feeney, he gave away all his money for educational causes, various charities. I think we gave Chuck Feeney 10. This has got to be right up there because he's created something which is a philanthropic engine, theoretically, forever. The family keeps control, if you like, of the voting and what happens. But all the money goes into a non-profit organisation which dishes out money for environmental causes.

48:05This could go on for decades. So I'm going to give him a 10. I think I'm going to give him a 10 as well. I mean, assuming Patagonia will be around for a long time, that's a lot of money going to environmental causes. OK, one of our very rare 10s there. Power. We can measure this in a bunch of ways. Well, we often say if you picked up the phone to the president of the United States or, I don't know, a head of state of a big country, would they take the call? Not sure he passed this test. Interestingly, he has explicitly put money where his mouth is politically. He gave$750 ,000 to lobby Barack Obama's government to create protected nature areas.

48:38I think before that check was handed over, he would have probably taken the call. Oh, 100%. Yeah. So in power, he's clearly a very strong advocate for environmentalism, sustainability, and has put his money where his mouth is. and I think that being importantly inspirational figure for people in that movement so I don't think he's got much political power per se but I'm going to give him a five oh I think I would actually rate him slightly higher on this because when you think about the power and influence that a brand like Patagonia has had in fashion you know getting someone like Nike to switch to using more organic cotton creating that demand in the market I think if you know other brands especially, you know, outdoor brands, look to Patagonia and say, oh, Patagonia is doing this.

49:27Maybe we should think about doing that too. That is a form of power too. And also they basically established that you can actually make more money and be more successful by being more responsible and using things like organic cotton rather than cheaper materials. So yeah, you've got a good point. I'm sticking at five though. Okay. I'm going to give him a seven out of 10. Okay. And then legacy. What have they left behind? Maybe it's worth remembering that quote he gave when he announced he was giving money away. Hopefully this will influence a new form of capitalism and doesn't end up with a few rich people and a bunch of poor people.

50:01Wow. I mean, I feel like some people listening to this will immediately say, why does it have to be capitalism at all? Yeah. He's not a lone voice in doing this. Patagonia is not the only company that ever decided that we need a new form of capitalism. but you could argue they were in the vanguard of ESG, the mindset, and were a real exemplar in that. So I think legacy, I think they were a very important part of a movement which has gained strength over the last decades. Maybe it's like a fading just a tiny bit right now, but I would say legacy seven. I mean, you say it's fading, at least in corporate circles now, But I would think that in the long term, that legacy is going to be really secure because, if anything, the urgency of having to save the only home we've got, as he puts it, is only growing.

50:56So I would be more generous. So maybe an 8 out of 10. I think in the future, brands and companies will look at Patagonia as an example of a business that made the correct calls very early on when it came to ecological issues. Yeah, okay. Yeah, that's a good argument. So you're going what? Eight. Eight. Okay, I'm going seven. And then we've just got to decide, this one I think is pretty easy. Is he good, bad, or just another billionaire? I mean, if we said he was bad, we'd have lost our marbles, right? Yes, I think so. Everyone would be totally within their right to ignore anything we said ever again, and write off anything we've already said to date.

51:33He's a good billionaire. Hands down. Probably one of the easiest cases of a good billionaire we've covered on the show. OK, Yvonne Schwinnar, you are a good billionaire. And I hope wherever you are, you're still surfing and climbing. Yeah. So who do we have next episode? Someone called Ma Yun, better known as Alibaba founder Jack Ma. The guy who said open sesame to the Chinese marketplace. And a person who I met once before I knew who they were. And little did I know he was going to become the richest man in all of Asia. Good Bad Billionaire was produced by Hannah Hufford and Louise Morris. with additional production support from Tamsin Curry.

52:10James Cook is the editor, and it's a BBC Studios production for BBC World Service.

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