By Ray Lu
In September 2022, outdoor apparel company Patagonia captured national attention when it announced that a specially designed trust and nonprofit would own and oversee the private for-profit corporation. Patagonia’s novel structure, rooted in the concept of steward-ownership, uses a trust to create a mechanism for direct stakeholder governance. A longstanding proponent of business as a means for social good, Patagonia and its new configuration represent the latest structural development in the world of “social enterprises”—defined as companies that aim to achieve positive social or environmental impact along with financial sustainability or gain. Social enterprises were traditionally organized as conventional for-profit entities before the introduction of new hybrid structures such as low-profit liability companies and public benefit corporations. Even these newer options, however, have limitations to integrating the perspectives of non-shareholder stakeholders, leading to skepticism that these entities would pursue or meet their social impact goals.
This Note examines the steward-ownership model in the context of Patagonia and the social enterprise movement more broadly, identifying a trend in using business structures to legitimize social impact goals and foster credibility. The trust and nonprofit structure help separate economic incentives from decision-making authority and legally codifies an avenue for non-shareholder stakeholders to influence the operations of a social enterprise. Part I introduces social enterprises, including the different business structures available to impact-oriented companies. Part II discusses steward-ownership and the use of trusts in social enterprise business structures, comparing Patagonia’s new structure to existing options. Part III examines the implications of steward-ownership, highlighting concerns but finding that the model provides a strong form of stakeholder governance while maintaining the flexibility to incorporate other dimensions of social enterprise innovation. The analysis concludes that steward-ownership models are a definitive, sequential improvement in the use of business structures by social enterprises to reshape business into a force for positive social change.