The Weekly (9/23)

Friday, Sep 23rd 2022


A few thoughts on giving

Welcome to The Weekly, where our team shares a few thoughts to take you into the weekend. The September 23rd weekly is brought to you by Jared Schepis, one of our investment writers.

Titan's Takeaway: Yvon Chouinard’s decision to give Patagonia away to fight against climate change is more than just another charitable endeavor by a billionaire. The move has the potential to reshape how businesses look and participate in philanthropy.

There is an episode of "Friends" in which one character – Phoebe Buffay – frantically searches for a "selfless good deed." She runs around New York City, giving money away, raking leaves, and even allowing a bee to sting her… only to ultimately conclude that there is no such thing as a selfless good deed after all. Every act of benevolence or charity is followed by at least an inkling of self-fulfillment. The episode was a social commentary on the irony of what it means to give. 

It's a bit cynical to look at life as simply a series of exchanges or transactions, and to believe a truly altruistic act is impossible. Agree to disagree with humanity's ability for selflessness; in business, these interests are fundamentally misaligned. It’s profit at all cost and philanthropic endeavors are not only futile but abrogating. 

But then last week Yvon Chouinard, the founder of Patagonia, threw it all haywire when he announced plans to give away his company as a way to protect the planet. Chouinard will gift Patagonia, valued at roughly $3 billion, to the non-profit Holdfast Collective,  which will, in turn, distribute approximately $100 million in annual company profits to "fighting the environmental crisis". This move sent shockwaves through both the business and environmental communities – Chouinard was taking a historic stand. Holdfast Collective is registered as a 501(c)(4), permitting the organization to make unlimited political donations, unlike its non-profit counterpart, the 501(c)(3). 

This was hardly a random act of charity for Patagonia or Chouinard. For several decades Patagonia has attempted to thread the fine line of operating as a company that could do both: give and profit. For years, the company gave away 1% of its sales to environmental causes and famously ran an ad in the New York Times which read, "Don't buy this jacket." People bought the jacket.

Overnight, Chouinard became one of the most charitable billionaires on the planet and was quickly revered as a reflection of a new attitude for the ultra-wealthy, one willing to put profits aside for values and causes. And it was fair. Chouinard's gift was unprecedented in the scale of his generosity. As one article aptly proclaimed, Chouinard quite literally "gave Patagonia back to Earth" 

But just as quickly as he was championed, people began questioning his interests. What were his motivations? What did he get? What was his prize?

In truth, the move wasn't completely altruistic. Chouinard and his family stand to save hundreds of millions in federal capital gain taxes. By one estimate, a sale of $3 billion would have racked up a tax bill of nearly $700 million. More, Chouinard can evade the 40% U.S. estate and gift tax if and when he passes his riches to his descendants. 

Is it fair to punish Chouinard for his indisputable windfall, given his generous gift? Probably not. Even with a sizable tax break, Chouinard's gift is extraordinary in magnitude. But it's a part of the story, and leaving it out would be, at best careless and, at worst, untruthful.

The story here is less of a criticism of Chouinard's donation, and more of an indictment of current tax law, which allows the affluent to sidestep many of the United States' archaic tax policies, often levying a heavier tax burden on those less fortunate instead. 

But it's just too hard to balance each give and take of a person, company, or organization's decisions. It may very well be impossible. 

There is no such thing as a selfless good deed. 

For now, let's just appreciate Chouinard for who he is: the rock climber, kayaker, fisherman, businessman, and philanthropist. Because they aren’t mutually exclusive. And Chouinard's contribution to the planet is of tectonic proportions. 

Thee Things

1) Tesla recalls 1.1 million cars: Elon Musk's company recalled approximately 1.1 million electric vehicles over worries that a window could pinch a passenger. The recall affects some Model 3 cars from 2017-2022, Model Y vehicles from 2020-2021, and Model Xs' from 2021-2022. This recall is just the latest after May's announcement of 130,000 Teslas and April's recall of nearly 600,000. 

Titan's Takeaway: The automobile industry is notoriously laced with bureaucratic red tape, so it isn't uncommon for recalls from major automobile manufacturers. But with Tesla attempting to break down the resistance for autonomous driving, any product safety complaint carries much more weight. 

2) Activist investor targets Kohl's CEO: The activist investor Ancora Holdings, which owns 2.5% of Kohls, is targeting the CEO of Kohl's, citing the retailer's declining profits and the company's decision not to sell to Franchise Group. Ancora ushered in three new board members last year, and this latest push advocates for the removal of the chief executive, Michelle Gass, who has been the CEO since 2018. 

Titan's Takeaway: Retailers and department stores rocked by bottled-necked supply chains last year now face a new threat: excess inventory. Kohl's rejected a $9 billion takeover offer this year because it was a lowball number… but now, we're not too sure they will get another offer that high again. 

3) SoftBank mulls partnership with Samsung: SoftBank's CEO, Masayoshi Son, is set to meet with Samsung's leader next month to discuss a chip partnership between the two semiconductor conglomerates. The terms of a potential deal are still ambiguous. Still, if an accord is struck, it would combine Samsung – the largest semiconductor company by revenue – with SoftBank's Arm, a major leader in chip design. 

Titan's Takeaway: This new deal could serve as a ballast for both Arm and Samsung as the global semiconductor industry maneuvers amidst some turbulence. However, Arm is already dealing with steep competition from RISC-V, which is likely the future of semiconductor design and IP. 

In case you missed it

  • Clay sits down with Cathie Wood on Titans of Industry

  • Merge Mania

  • A closer look: Uber Technologies (UBER)

  • Porsche tests the IPO market

As of this writing, UBER, ETH were a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.

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