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In 1991 Patagonia hovered on the brink of financial disaster. Buoyed by double-digit growth, the maker of rugged clothing for serious outdoor enthusiasts had placed massive product orders that hit its warehouses just in time for the recession-and a sharp reduction in its credit line by financially troubled Security Pacific Bank. The Ventura, Calif.-based company took the painful step of laying off 120 of its 620 employees as it restructured its way back to financial health. But amid all the financial strife, Patagonia didn't touch two expensive cost centers: the R&D department and the grants program that funds environmental activists. Tough times really bring home what's important to a company. The company's mission statement declares, "Patagonia exists to use business to inspire and implement solutions to the environmental crisis," and Patagonia succeeds as few companies do in imbuing the entire culture and organisation with this singular purpose. Patagonia employees clearly know what the company stands for, and as a result nearly every action is predicated on the company's core values (see "Words to Live By").

Although a green sensibility may not sound like a sure-fire revenue rocket, Patagonia's environmental mission lies at the heart of the company's enduring success, says Jim Collins, coauthor of Built to Last: Successful Habits of Visionary Companies (HarperCollins Publishers , 1994). He says that a company with a social agenda is more likely to succeed far into the new millennium than one that's purely revenue-driven. As Collins discovered in the course of his book research, companies that consistently outperform the Dow see themselves as being much more than just about making money, he says. For example, Merck & Co. has always seen its mission as improving human health through medicine.

For Patagonia, the agenda is the environment.

Earnest Money

Collins emphasises that these visionary organisations carefully balance social conscience and profits. "To be a truly great company, you have to be a social vehicle with a very powerful economic engine," he notes. That's where Patagonia, which sells through dealers, company-owned stores, mail-order catalogs and the Web, stands out. Collins says that company founder YvonChouinard, a self-described "fun hog" given to demanding sports such as climbing and surfing, is the force behind the dual emphasis on profit and environmentalism. After all, a profitless Patagonia would wield no environmental influence whatsoever. So while the company donates1 per cent of sales revenues or 10 per cent of pretax profits (whichever is greater) to grass-roots environmental groups, Chouinard is equally insistent that his company meet its overall annual profit plan. "Not to hit our profit goal is as big a problem as failing in our social mission," he says.

Yoking capitalism to something as traditionally left-leaning as environmentalism provokes a lot of employee discussion, says Karyn Barsa, director of operations at Patagonia. "We understand that [financial] success is necessary to achieving our purpose," she says, "and we talk a lot about how to achieve that while limiting our [physical] impact on the environment." Privately held Patagonia does not talk freely about its numbers, but author Collins, who has studied the company extensively, says it is very profitable.

(Company sources estimate that it will gross about $180 million in 1999, up from $165 million the previous year.) The reasons are twofold: Its products are extraordinarily well made, and they often boast innovations not found in other technical garments and gear. For example, Patagonia revolutionized outdoor clothing when it first introduced pile garments in the early 1980s. Working with Lowell, Mass.-based Malden Mills Industries , it codeveloped fleece as we know it today. The uniqueness of its products allows Patagonia to charge a premium and guarantees it an elite niche among outfitters.

Despite hefty price tags that have earned the company the nickname "Patagucci," Patagonia's twofold focus has netted fiercely loyal customers. Customers such as Leslie Barnes, an avid skier from Natick, Mass., who bought her first FACT In 1989 the Salt Lake City Patagonia retail store opened, in its parking lot, the first public recycling station in the entire state of Utah.

Patagonia pullover in 1984. She says, "There may be a difference in price, but there's also a huge difference in quality. My husband has a jacket that's 10 years old. I just sent it back to have the zipper fixed, which Patagonia repaired for free. After 10 years you'd expect to buy another coat, but once the zipper was replaced, this parka was ready to go another decade." Garments that last a decade have the added bonus of lessening the environmental toll of manufacturing, observes Barsa, since they need to be replaced less often. Yes, it does reduce profit opportunities from built-in obsolescence. But Barsa says Patagonia wants to grow at a slow but sustainable rate, a lesson it learned from its fiscal debacle of the early 1990s.

"We talk a lot about consumerism and business growth and how to integrate that with our core values," she says. "If you need a pair of pants, we'd like them to come from Patagonia, and we want them to be the pair you wear all the time.

What we don't want is to sell you five pairs of pants in addition to the five pairs you already have in your closet." Walking the Walk Building clothes that could survive the next ice age is only one way Patagonia tackles its environmental pledge. The company recycles nearly everything, including glass bottles, FedEx boxes and fleece scraps from the cutting-room floor. Cafeteria workers at headquarters compost kitchen waste and use organic food whenever possible. Staff at the company's Customer Service Center in Reno, Nev., tend a community vegetable garden. The company provides a shed at headquarters campus rent-free to one employee who runs a program to FACT The company devotes an entire morning of its three-day orientation program for new hires to a voluntary surfing lesson. Surfboards are provided, but bring your own wet suit. rehabilitate injured birds of prey. Every 18 months or so, Patagonia hosts "Tools for Grassroots Activists," an invitation-only conference that teaches organisational, business and marketing skills to grass-roots environmental activists, and sends some of its own employees to the program as well.

Patagonia offers a civil disobedience training course to all interested employees and will post bail for workers who use that training in actions consistent with company values. Two full spreads in each mail-order catalog are devoted to environmental essays, such as one about Patagonia's 1996 decision to switch completely to organic cotton for its clothing. (Cotton crops alone account for 25 per cent of the pesticides used worldwide.) Customer Service Center staff volunteer during slow periods to make phone calls to voters urging support of proposed environmental legislation. Employees can apply to take up to two months' paid leave of absence to work as full-time volunteers for nonprofit environmental groups, a program that's been used by more than 150 of the company's 900 employees.

All these things are part of everyday life at Patagonia, like the children who cavort in the onsite day-care center or the rack of surfboards tucked into one entryway. But they're frolicky shore waves compared with the big offshore roller of the company's grants program, funded by that 1 per cent revenue donation.

John Sterling, an associate at Patagonia's environmental programs group, eases his feet out of his sandals and tilts his chair back as he enthusiastically explains the program. "We receive about 1,000 requests for grants every year, and we fund about 230 of them," he says. "Our pool of money averages $1.3 million a year, although it varies based on sales." He says the company concentrates on small, grass-roots organisations with relatively low overhead because it wants to put its money where it will make the biggest difference. In the 13 years of its existence, the program has given a total of about $14 million.

His group also brainstorms ways to involve Patagonia employees more fully in the company's green ethos. For example, the graphics design folks donate their services (on company time) to groups that might need, say, a membership brochure or logo. The retail stores frequently sell issue-oriented T-shirts, like the one urging a ban on development in Yosemite Valley that recently raised $25,000. "All that money went to the Friends of Yosemite Valley," reports Sterling.

He adds that the goal is to get employees involved in environmental activism at whatever level works for them. "For some, it might mean recycling. For others, it's chaining themselves to bulldozers to prevent a logging road from being built," he says. Sterling's department makes sure that about 15 Patagonians attend each "Tools" environmental activist conference the company hosts. Why? "It really helps [employees] understand just how close our ties are to environmental activism," he says. "One person who just went came back saying, 'I finally understand that our company is about more than just making clothes.'" Talking the Talk Sterling and his cohorts proselytise for Patagonia's environmental programs, both inside and outside the company. But theirs is just part of a constant companywide conversation designed to integrate Patagonia's mission into every business decision. It's how Patagonians best harness those twin engines of environmentalism and profitability, says Terri Wolfe, director of human resources. "People here are committed to our product, but they're also committed to the environmental, moral, ethical and philosophical reasons for being in business," she says.

Patagonia's core values evolved from the early gut-reaction tactics practiced by Chouinard and his first employees, who were mostly back-country climbing buddies. Unsullied by exposure to corporate rules and expectations, Patagonia workers blithely combined worklife with their personal life and values. For example, Wolfe says, "We had a lot of [couples with both] spouses working for us. They brought along their kids. When it got disruptive, we found somebody to take care of them, and lo and behold, our onsite child care was born." But as Patagonia grew, Chouinard and his wife, who co-owns the company, and then-CEO Dave Olsen realized that they needed to codify the values that had previously been assumed. Patagonia has nearly a thousand employees scattered worldwide, Wolfe points out, which makes it difficult to personally articulate a consistent direction. So the Chouinards and their management team kick-started a brainstorming effort, asking themselves, "Why are we in business? Why do we want to be here?" They created a draft statement and took it to all their employees for modification and input. Together, the company hammered out what is now Patagonia's statement of purpose and core values.

The company also works to keep the mission at the forefront of business discussions, says Barsa. "We regularly go back in small groups and talk about how the core values relate to the day-to-day business of Patagonia," she says.

Generally led by folks from company headquarters, small groups of about 20 people gather every four months or so to figure out how to create an environmentally responsible business. This happens worldwide, from retail executives in Japan to distribution center workers in Reno. "The conversations can get very heated," laughs Barsa. "We are a group of highly opinionated and passionate people." Lifelong Learning And passion is what turns words into action. For example, in 1996 Patagonia's children's designer developed a plan for using fleece scraps left over from cutting out adult clothing to create patchwork clothes for kids. The "Seedlings" line, which came to market late last year, will keep at least some cloth scraps out of landfills.

Unlike Seedlings, however, many of the company's environmental efforts aren't destined to become profit centers. For instance, each product line team sets annual goals to reduce the environmental impact of its creations. Eric Wilmanns, the coordinator of the environmental assessment program, works with each team to reach those targets. "We break things down in a couple of different ways," he says. "Teams set goals that they can effect, and we also set companywide targets on issues that run companywide." For example, the HardWater team (which is responsible for hard goods, luggage and fishing products) wanted to eliminate PVC-coated fabric, which has a high-pollutant manufacturing process and can break down into carcinogenic dioxins. Working with Patagonia's fabric lab, the team discovered that Words to Live By Patagonia's Statement of Purpose and Core Values Statement of Purpose Patagonia exists to use business to inspire and implement solutions to the environmental crisis.

Core Values

Quality: Pursuit of ever-greater quality in everything we do Integrity: Relationships built on integrity and respect Environmentalism: Serve as a catalyst for personal and corporate action Not Bound by Convention: Our success-and much of the fun-lies in developing innovative ways to do things industrial suppliers made a fabric for heavy-duty uses like truck tarps and oil derricks. It uses polyurethane, not PVCs, and is just as durable. The new material costs 40 per cent more, but team leader Gary Eckwortzel says he hopes to recoup that cost through design changes. Designing products, he says, "is always a dance between cost, quality and appeal. We want to throw in the environmental piece too." These innovations are just two of the ideas that have sprung from Patagonia's ongoing conversation about its core values, a dialogue that the company also takes public in hopes of inspiring other companies to add green values to their corporate culture. For example, Dave Abeloe, director of Patagonia's distribution facility at the Customer Service Center, says Patagonia provides information to visitors from companies interested in copying the center, which was built partly with recycled materials and features energy-efficient heating and lighting. "Trouble is, many of our innovations come with a higher initial cost, and the payback time is years, not months," he says. That's too long a wait for many public companies, which demand a measurable ROI in 18 months or less.

Still, the company's efforts toward inspiring change are starting to pay off.

After talking with Patagonia and environmental activists who fight overuse of FACT Patagonia's first pile garments were made from fabric intended for fake-fur toilet seat covers. pesticides in cotton farming, Nike and Levi Strauss & Co. have both committed to partial use of organic cotton, Barsa says, "which is a tremendous gain for the organic farming industry." Patagonia isn't quiet about its educational outreach, and customers like Barnes appreciate the effort. She uses the catalog, for example, to learn about environmental issues. "It makes me aware of what's going on," she explains.

"They ran an article about pesticides and cotton that I never would have known anything about if I hadn't read it here. Patagonia changes the way I think about things." And that's what the company hopes for. By talking about its own learning curve, it hopes other companies can perhaps avoid some of the blunders, says Barsa.

For example, Patagonia's mission-style headquarters screams green to the untrained eye: Sunlight spills through big windows onto stairs built of rough vertical-grain wood and outdoor-oriented artwork fills the roomy building. The ambiance would trigger envious yawps from most corporate denizens, but in many Patagonians' eyes, the structure is a lovely mistake.

That wood trim? Old-growth forests. The fixtures, carpet, paint, dry wall? Nothing recycled in the lot. Pretty embarrassing for a company that supports environmental activists striving to protect the very resources used to decorate rooms and stairwells in Ventura. But rather than viewing its headquarters as an FACT An environmental assessor annually rates Patagonia's product line for such environmental factors as materials utilization, green design, impact of raw materials manufacture, transportation issues and impacts of production. adobe albatross, Patagonia has turned the building into the catalyst for its self-education in green construction. The results show in the company's Reno Customer Service Center, which uses recycled or reclaimed steel, wood, gypsum board, insulation, glass, tiles and paint. Its landscaping is low maintenance, and storm-water runoff is used to irrigate gardens. Rooftop mirrors track the sun and reflect natural lighting into the building, and the building's radiant-heat system, with its 205 ceiling-mounted panels, uses far less fuel than would be required for a typical forced-air heating system.

Mistakes are part of the conversation for Patagonia. "There's a terrible burden in assuming perfection because it causes you to not take risks," Barsa says.

"We don't want to be like some great authority and say, 'We got it all dialed in.' We want learning to be an exciting process, and we hope others will join us in that learning process." That means customers, other companies and employees. And Patagonia hopes that the more people learn, the better it'll be for the planet.

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