GOOD NEWS: Capital Serves Purpose
Good News: An enewsletter for donors and nonprofits
on strategic planning, governance, fundraising, and executive leadership.
Capital Serves Purpose
Imagine a world where business leaders were driven not simply to maximize short-term profit for themselves or their shareholders, but to maximize the good their businesses generate for employees, communities, civilization, and the planet.
That may sound idealistic. But some remarkable and extraordinarily successful business owners are already building businesses this way.
The founders of Patagonia and Grady-White Boats, among others, have chosen to transfer ownership of their companies into perpetual purpose trusts—structures designed to keep a company aligned with a defined mission indefinitely, rather than ultimately benefiting individual owners.
A perpetual purpose trust is a non-charitable legal structure established to pursue a specific purpose or mission over the long term. There are no individual beneficiaries. Instead, trustees are accountable to the company’s stated purpose.
In other words, the business isn’t built to be sold to the highest bidder someday. It is built to keep doing what it was created to do.
That is a profoundly countercultural idea in an economy where the ultimate measure of a business is often its sale price.
Consider the familiar private-equity model. There are certainly responsible private-equity investors, and capital can be an important force for growth. But we’ve also seen what happens when maximizing financial returns becomes the overriding objective: employees can be downsized, debt can be loaded onto companies, services can be reduced, and assets can be sold off in pursuit of a quick return for only a few.
When capital becomes the end rather than the means, mission and purpose can suffer.
The perpetual-purpose model turns that relationship upside down.
Capital serves the purpose. The purpose does not serve the capital.
I’ve written before about one of my donor clients who invests 10% of their profits back into the community every year. I believe that practice is part of what makes the company successful. Its clients aren’t simply buying a service; they are choosing to trust and associate themselves with a business whose values they admire.
And the owners find genuine joy in giving.
That strikes me as an important lesson: doing good and doing well don’t have to be opposing goals.
Perhaps the most compelling thing about Patagonia, Grady-White, and other purpose-driven companies is what their founders have made possible for themselves.
They don’t have to wonder whether the business they built will eventually be stripped of the culture, values, and mission that made it special.
They’ve built something that can outlive them.
And perhaps that’s one of the most meaningful definitions of business success: not simply leaving behind a larger bank account, but leaving behind an institution that makes the world better than you found it.
Stuff Steve is Watching, Listening to, and Reading
Perpetual Purpose Trust (6 minute watch)
“I’ve seen so many of my friends in this industry sell their companies and then be very, very sorry about what happens to their companies after the sale, even though they had been promised that the culture would remain the same. It never ever does.” Eddie Smith, Owner, Grady-White Boats
Private Equity in Sports (36 minute listen)
“The Boston Red Sox, for instance, last season had a veteran player named Alex Bregman who was on a short-term deal, and it was going well. He was an all-star that season. He was wildly popular among the fans. Younger players regarded him as a coach in the clubhouse, and he wanted to stay. He wanted a long-term contract, and he wanted a no-trade clause so that he could veto a trade to any other team. And historically, this is a portrait of loyalty. But the Red Sox did not want to do it. To their private equity-ified mindset, this all read as a financial and actuarial risk. He was 31 years old, the equivalent of middle age in professional sports, and the Red Sox instead started the season with a bunch of lesser known players and with no Alex Bregman. And that, along with everything else, that a modern club is incentivized to do, all of the pricing differences, it has created something of a revolt among Red Sox fans.” Pablo Torre in conversation with Natalie Kitroeff on The Daily
Going Purpose (2 minute read)
“Instead of ‘going public,’ you could say we’re ‘going purpose.’ Instead of extracting value from nature and transforming it into wealth for investors, we’ll use the wealth Patagonia creates to protect the source of all wealth.” Yvon Chouinard, Founder of Patagonia
