Over the next 20 years, an estimated $84 trillion will change hands in the U.S.; some call this the Great Wealth Transfer, others the Silver Tsunami. This wealth is held in cash and assets, but also in the estimated 2.9 million private U.S. businesses that are owned by those over 55. Many retiring business owners will look to sell their company to private equity or larger conglomerates, while others will pass their businesses on to their heirs.
A few are considering something more radical: giving their company away to good causes, like Paul Newman who gave his eponymous food company to Newman’s Own Foundation when he passed away in 2008. This idea remains radical enough that when 83-year-old Yvon Chouinard and his family announced that all of Patagonia’s future profits would go to fight climate change in September 2022, the New York Times devoted a full-page spread to the move. Now, there’s even a book dedicated to Patagonia and its transition.
100% for Purpose companies like Newman’s Own and Patagonia are still the exception, but there are more of us than you think: ticketing platform Humanitix, search engine Ecosia, browser Mozilla, consumer brands like The Good Store and Thankyou, and more. Former New York mayor Michael Bloomberg also announced plans to donate a controlling stake of his company to a trust that will continue to fund Bloomberg Philanthropies after his death.
As President and CEO of a 100% for Purpose organization, I’ve begun to hear more and more from businesses that are looking to follow in our footsteps.
Why this move?
You may ask: Why would philanthropically minded business owners and founders give their company away versus just selling the business later on, and creating a foundation with the proceeds?
The short answer: It’s a great way to cement your legacy, preserve the company, and maximize giving.
Let’s imagine your business makes $10M in profits and you sell it for $50M—congrats! You can then choose to manage a foundation endowment and give away $2.5M a year (5% as per the minimum distribution rule). Or you spend it down, giving away $10M a year for five years.
Compare these options to giving your company away to a foundation (like Newman’s Own Foundation) or a trust (like Patagonia). The company and its employees stay in place, and continue to generate $10M annual profits, which can then be given away to good causes year after year.
You have created a philanthropic annuity. But more than that, you have given your business, employees, and customers a gift as well. Every product they make, sell, or buy is now a product whose profits go to support good causes.
And for those starting new business, it may not be a fair comparison today, but Paul Newman and A.E. Hotchner put in $40,000 of their own funds to get Newman’s Own started back in 1982. That could have been a one-time gift but instead, Paul and Newman’s Own have since given away over $600 million—a 15,000x philanthropic return!
A range of models
How do you get started on the 100% for Purpose journey? Here are a few models to consider, from simple to more advanced:
- Give Your Profits Away Today: You can do so with an existing corporate structure. Paul Newman did this at first with Newman’s Own as the Foundation was established years later. That’s also how Cummings Properties and The Good Store got started. Depending on your jurisdiction, there are more or less tax-friendly ways to go about this, and if you don’t already have an existing foundation, you might find a Donor-Advised Fund an easy way to get started.
- Donate your Business to an Existing Foundation or Non-Profit: Why re-create the wheel when there are already close to two million 5013(c) organizations in the U.S.? I’d venture to say there’s at least one among these that aligns to your value and your giving priorities, and that they would welcome a profit-fueled philanthropic annuity.
- Establish your own Foundation and Donate your Business to it: You want to be more hands on? Establish your own foundation. When Paul Newman died in 2008, he gifted the food company to Newman’s Own Foundation, but that was actually not legal at the time. The IRS granted us an exception to be able to continue operating until the Philanthropic Enterprise Act was passed in 2018. This new law allows foundations to own profitable companies outright, versus in the past, being limited to no more than 20% equity stakes.
- Split Voting Rights and Economic / Profit Rights via a Perpetual Purpose Trust: Perpetual Purpose Trusts are also relatively new in the U.S.: the first on record dates back to just 2018, but their European equivalent, steward foundations, including Novo Nordisk, Ikea, and Rolex, have been around for decades. Purpose Trusts offer flexibility, for example allowing you to keep some or all voting rights of the company while giving away the economic rights to your foundation, a non-profit, your employees, or a mix of all these. This is what Patagonia chose to do, with a HBR case study on the details for the legal aficionados among you.
Giving Tuesday is almost upon us, and while I don’t expect people to make such a decision in one day, I want to invite current business owners and future founders to think about joining the 100% Purpose movement.
Giving a business away is still considered a radical move, but it offers business owners, their employees, and their customers something a traditional sale never can: legacy.