How journalism turned on Patagonia
How journalism turned on Patagonia
How and why a donation that many journalists initially praised as good took a narrative turn in the days that followed.
Sometimes there’s good in corporate America: naked, uncomplicated, unambiguous good. While my experience is that this is more common than many believe, few cases are as beautiful as that of Patagonia founder Yvon Chouinard and his recent decision to forgo all claims to his company’s future profits, which will now instead support a nonprofit “dedicated to fighting the environmental crisis and defending nature”.
Giving away billions to fight climate change is good, actually. If you accept what 100% of research scientists now do, we are in a bad way with global warming, and throwing more money at the problem with a bit of strategy can absolutely help.
Yet, yet, yet:
This line of attack from Bloomberg was then pushed further by Business Insider:
Sounds bad!
Now of course most of this straddles between misleading and spectacularly wrong. But what it isn’t is unimportant. As we celebrate Climate Week, we need to take stock of just how much further we have to go—and what we need to change to get there.
My suggestion: maybe less misinformation from journalists who should know better?
But these two outlets weren’t alone in this. They didn’t break this story, nor were they the first to arrive at these misunderstandings. So in this piece I want to track back the game of Telephone that got us here—starting with the New York Times.
We reward corrections. See something wrong, misleading, or unfair? Use our anonymous Typeform or drop a comment in this post’s dispute doc.
Bias disclosure: I do client work in the climate space. But never with/for Patagonia, and my only connection with them is a jacket I won years ago—which I love.
Subject zero: Barre Seid
To set some context, here’s a tweet from a ProPublica senior editor / reporter:
Now Jesse is right in this: the NYT wouldn’t do that. And they didn’t!
Here’s the lede the NYT went with about a month ago when they covered a conservative billionaire who made a similar donation:1
Then, later in the piece, in reference to the recipient non-profit:
This highlighted detail about spending is crucial. While the NYT journalists here qualified this a bit in their final paragraph (ie. 26 paragraphs later!), we see the germ of an idea here: that billionaires can give away money—while somehow “skirting taxes”—to a non-profit that can “spend unlimited sums on politics”.
The obvious question: can they actually?
Fun with tax rules!
Seid and Chouinard both donated corporate shares to a specific type of non-profit designated by the IRS as a 501(c)(4). Formally referred to as “social welfare organizations”, they’re essentially vehicles for issue-specific public advocacy.
The gist:
They can spend as much as they want on lobbying related to their charter causes—ie. educating voters, pushing for legislation, mass public rhetoric.
They can also engage in what the IRS terms “political activities”, ie. supporting or opposing candidates. But there are limitations here, including: (1) this must make up less than half their spending, (2) any such spending is taxable.
The key thing here is that these two types of spending are legally distinct. While you can lobby as much as you want for causes “germane to” your charter, if you want to influence an election in a more direct way then you gotta pay Uncle Sam.
With these rules in mind, is saying that a 501(c)(4) can “spend unlimited sums on politics” true? At minimum, it fails on vagueness. Lobbying is indeed a political activity, and these non-profits can do any amount of it. But there are key political activities they can’t spend their money on—or only in restricted ways.
Let’s put a pin in that for a minute though and switch to the tax logic here.
Fun with tax logic!
So let’s say you’re a rich donor with strong political beliefs:
If you give cash directly to a 501(c)(4), you don’t get a tax deduction of any kind. You’ve given your money away as if you spent it yourself.
If the 501(c)(4) uses any of that money towards the second category of political spending (eg. campaign contributions), they pay tax on it.
While this might not seem super favorable, there are two less obvious upsides:
The (c)(4) might pay a slightly lower tax rate (in this case about $2.80 less per $1002), thus giving you more influence per dollar vs direct spending.
In general, these donations don’t have to be disclosed, allowing you to preserve fairly strong anonymity.
And then there’s one more tax quirk:
If instead of donating cash, you donate company shares, neither you nor the recipient need to pay any capital gains taxes when those shares are cashed in.
“Ah!”, you might be saying, “here’s the loophole!” But let’s explore the logic a bit, first from the donor’s financial POV:
You have $1B in stock. You give it all away to a (c)(4). You now have $0. And the non-profit has $1B in stock it can sell tax-free (again, except for any amount it spends on political activities from that second category above).
Your alternate option: selling the stock first—costing you ~$238M3 in taxes— then giving the remaining ~$762M to the 501(c)(4). You'd still have $0 left after, while the non-profit would get ~$762M instead of $1B.
Uncle Sam would get either $0 or ~$238M.
Your base belief here as the donor is likely that the non-profit will do a better job than the government at driving changes you care about. So while you end up with $0 either way, you prefer option 1 because it gives 100% to the non-profit instead of a ~75/25 split.
Now, if you’re a US citizen who isn’t the donor, you might object here! Especially if your political beliefs are orthogonal to theirs. Why should the donor be allowed to have this extra political influence instead of giving Uncle Sam its cut?
The logic, roughly:
The US tax code is premised on a notion that all advocacy work is socially good on the balance. While this ideology is, ah, increasingly controversial, do we really benefit from disallowing structures like (c)(4)s altogether?
If you look at a list of popular (c)(4)s, you’ll likely see some you love and some you abhor. Are you ok with abolishing this structure for all of them?
This same premise is true of taxes generally. Sometimes your team wins and they authorize spending on causes you love. Sometimes it goes the other way. You don’t have granular control over that spending. It’s all or nothing. 4
But the real question isn’t whether a (c)(4) can spend ~$238M more effectively than the government can. It’s whether they can spend $1B more effectively than the government can spend ~$238M. 5
This last point is crucial. In a case where a billionaire sells $1B in stock and pays ~$238M in taxes, we have no guarantee that they’ll spend the remainder on something that produces civic good (however we define that). Whereas if they give $1B in stock to a non-profit, 100% of it must support causes related to the non-profit’s charter. 6
Putting it more simply: when a billionaire parts with $1 in stock, would you rather the US government get $0.25 or a non-profit get $1?
Even if you favor the first scenario, there’s one thing here that’s not subjective though: someone who donates $1B in stock doesn’t save ~$238M in taxes themselves. The non-profit does. If you give away $1B, you are out $1B. You saved nothing. All that changed in this structure is that the non-profit ended up with a higher dollar amount.
Anyway, back to Chouinard.
Failed NYT Correction #1
Chouinard and his team apparently chose the NYT to break the story of their big donation. And the resulting piece was actually quite good overall.
That is, except for this stray detail:
Thinking back to what we covered above, “political contributions” map to that second category of spending (what the IRS terms “political activities”). 501(c)(4)s very much cannot make unlimited contributions. They can make some contributions, within certain restrictions, if they pay tax on that spending.
This misstatement had very real impact (which we’ll cover in a minute). While the NYT’s sister statement from their piece on Seid (“unlimited sums on politics”) was wrong in its vagueness, this one was wrong in fact. “Political contributions” do not = the type of lobbying that (c)(4)s can do in unlimited amounts.
So I flagged this to the NYT—which “decided against a correction or update”, adding that it’s “an area where there is a lot of confusion and disagreement”.
While I genuinely appreciate that they at least engaged with me, I found this baffling. The “confusion and disagreement” came from them…not understanding the tax code? The NYT is among the wealthiest news orgs in the world, and can trivially afford to bring in people who grok this stuff. That they haven’t concerns me.
But let’s look now at why I flagged it. It wasn’t just about disputing a tiny technicality. The NYT’s early coverage—as it very often does—influenced how later outlets covered it, and this particular detail quickly found a life of its own.
Follow-on framing
Note that I included most of these examples in my appeal to the NYT.
Holdfast [the entity Chouinard donated 98% of Patagonia to] is a 501(c)(4), a nonprofit that can make unlimited political donations…
A CNN reporter (in direct reference to a thread quoting the NYT):
…the ability to make unlimited political contributions..
…can make unlimited political contributions…
And what’s the natural consequence as this type of coverage spreads? People start to believe it! Here’s a representative reader tweet (I’ve stripped their personal info, as they’re just one of many, and only bear so much fault for believing what they’ve read):
“Shouldn’t be celebrated.” Does that sting? It should.
Failed NYT Correction #2
As I re-read the NYT’s piece on Chouinard, I noticed something else. Look how it frames their own Seid story:
But as their own reporting confirms, Seid took essentially the same approach!7 Both he and Chouinard gave their shares to a (c)(4). And crucially, neither received a personal tax windfall for doing so. As we covered above, the beneficiaries here were the non-profits, who ended up with more than they would have had the two men sold the same shares and donated the post-tax remainders.
Now, to be clear, my politics are vastly more aligned with Chouinard on this issue. And it’s entirely reasonable for the NYT to share this sympathy. I’ve argued before that journalists should chuck their whole faux neutrality bit and just say what they really mean—so long as they’re clear on facts and explicit about biases.
But even if we hate what Seid’s beneficiaries are going to do with the money, that doesn’t give us the right to print that (1) Seid “reap[ed] an enormous personal tax windfall” while (2) Chouinard and family “received no tax benefit for [their] donation”.
(I asked the NYT to correct this too. They discussed it, and again opted against it.)
The moral here: if we wish to convert people to our political positions, this isn’t how to do it! If we want to lionize or demonize either man for their cause, let’s make fair and careful arguments for readers to judge. But what we got here was ultimately the worst of both worlds: Seid was maligned for a windfall he never received (thus arming his supporters in their anti-media claims), and Chouinard was grouped as someone trying to “opt out of taxes” altogether.
We can, and must, do better.
A PS on company control
One criticism we haven’t covered here yet: that the structure Chouinard used allows his family to remain in control of Patagonia forever. While this bit is true, whether it’s a good or bad thing is…trickier, and worth thinking clearly about.
Let’s start with how Chouinard himself explained his motivations:
One option was to sell Patagonia and donate all the money. But we couldn’t be sure a new owner would maintain our values or keep our team of people around the world employed.
Another path was to take the company public. What a disaster that would have been. Even public companies with good intentions are under too much pressure to create short-term gain at the expense of long-term vitality and responsibility. …
Here’s how it works: 100% of the company’s voting stock transfers to the Patagonia Purpose Trust, created to protect the company’s values…
From an economic perspective, these voting shares are only worth 2% of the company. But by giving them all to their own trust, the family will indeed retain long-term corporate control—including being able to appoint and fire the CEO.
In weighing the appropriateness of all this, let’s consider the main three upsides to owning a company: prestige, income, and control.
From a prestige POV, “we agreed as a family to give away all our economic interests to fight climate change” is a much better cocktail story in the social circles they run in than “ah yeah we inherited Patagonia”.
From an income POV, they went from having some $3B worth of stock (less taxes) to having $0. 8
From a control POV, who better to run the brand exactly? Like if you had a magic wand and could award this control to anyone you wanted, would the Chouinards and their chosen successors not be at the top of your list?
Patagonia doesn’t make money on superior logistics or retailing, but on brand value. They’re a vibe, basically. And that’s something this trust has strong incentives to uphold from a legacy POV—and something they’re naturally well suited for.
As someone who cares a lot about climate change activism, I want to see Patagonia run in such a way that maximizes the long-term value and impact of those donated royalties (currently ~$100M a year). Betting on the family that built the company in the first place seems pretty reasonable to me!
A little different, in that Seid seems to have donated 100% of his company to a (c)(4), where Chouinard donated 98% of his—leaving the remainder (all voting shares) to a trust. But also see footnote 7.
While it’s slightly different for years wherein the (c)(4) chooses to liquidate less in $ value than they spend on “political activities”, for our purposes the donor would pay ~23.8% and the 501(c)(4) would pay 21%. So it’s very close, which is by design!
I’m basing this on the current max capital gains tax (20%) plus the net investment income tax (3.8%). Though to say 23.8% isn’t totally precise because both taxes allow a relatively tiny amount of this income to be exempt. Hence the ~ here.
Yes, yes, sure, there are levers that citizens can pull to tilt spending in their preferred directions. But again sometimes your team loses. And sometimes even your own team doesn’t share your view of a given cause. And the bulk of those funds will support mandatory government spending anyway—which includes wars etc.
This point trips a lot of people up, including a lot of journalists. The naive way of looking it is that both the non-profit and the government have the same amount to spend. But that’s not how it works! If a billionaire sells $1B in stock and pays their ~23.8% in capital gains, they very well might spend the rest on a megayacht! The only way they “skirt” taxes here is by giving away 100% of said shares, which means roughly 4x as much going to social good as would happen via them paying the capital gains tax. While the odd billionaire may then donate the other ~$762M, we can’t assume they will—and most often they don’t!
Or again they can spend it on more direct political intervention. But then they have to pay tax on those dollars, which gets us more or less back where we started.
Except again that detail from footnote 1—ie. Seid gave away 100% to a (c)(4), and Chouinard only 98%. In Seid’s case, it seems his (c)(4) immediately liquidated the shares. But that’s neither here nor there, as the tax implications are mostly identical*. One (c)(4) just got all the cash right away, while Chouinard’s opted to take dividend income over time. (*Per footnote 2, I suppose Seid’s non-profit could get away with spending more on political contributions tax-free. They’d just have to do all that spending in a future tax year in which they don’t generate much investment income from liquidating donated shares. But 2022 is an election year, so it’s difficult to imagine them not spending a huge chunk of this particular gift now. And they’d still have the 50% cap anyway, so I’m not sure this is all that relevant here.)
It’s unclear to me if the voting shares come with the same dividend rights as the common ones. Usually they would. But by trust rules this income (eg $2M a year) wouldn’t go to the family anyway. Presumably it would pay for the trust’s operational expenses.