Patagonia: Doing Well While Doing Good
Like so many companies, Patagonia was founded because there was a problem to solve. Growing up in Ventura, California, Yvon Chouinard was a typical West Coast teen who spent much of his time outdoors. In the 1960s, his enthusiasm for rock climbing led him to Yosemite National Park, where he found that traditional European rock climbing equipment was unsuitable for the much bigger walls of North America. The upgraded equipment he invented to address this issue was first sold out of his car; his wife also sold clothing to support his fledgling business.
From this humble beginning, the multi-billion dollar brand of Patagonia was born--truly an American success story! One major distinction about Patagonia, though, is that from the start, its business decisions were based on the founder's personal ethics. There are many issues that Patagonia has addressed during its history, but we'll focus on three: being environmentally conscious, caring for employees, and being accountable and transparent.
As the source of the company's profits and because of Chouinard's personal commitment, Patagonia has always been focused on caring for the environment. From the beginning, Chouinard was determined that his values would shape the direction of Patagonia's business model, a stance that has sometimes come with substantial risk.
The first leap of faith was changing the material used in his company's equipment. At great risk to his profit margin, Chouinard changed from selling steel pitons to aluminum chocks, because the pitons were damaging the rock on which they were used. A second example was the switch Patagonia made from conventional to organic (and pricier) cotton when Chouinard discovered how damaging conventional planting and processing was to the soil and people's health. In each case, consumer education was key in not only converting people to the new product, but also in establishing a loyal following based on shared values.
Patagonia's commitment is apparent both in how it makes money and also in how it spends it. The company donates 1% of annual sales to caring for the environment and gave the $10 million tax refund it received in 2018 to environmental causes. In addition, the company is working toward being carbon neutral by 2025, an ambitious goal that is leading the way for companies worldwide.
As well as addressing environmental issues, Patagonia was an early leader in creating a mutually beneficial workplace for its employees. In the mid-1980s, the company founded both an on-site café and childcare center. Its current workforce enjoys a guaranteed fair wage, childcare benefits, and sustainably-focused retirement investment plans. The company gives all employees time off on Election Day and encourages other companies to do the same through the Time to Vote campaign, which now has over 2,000 members. With the great life/work balance provided, it is no wonder that Patagonia currently has 9,000 applicants per job opening.
Patagonia has made major strides in addressing issues on the supply side of its business as well. While there are still improvements to be made, such as ensuring a living wage for all suppliers' workers, the company has made great progress by requiring regular audits of supplier factories to assess their compliance with safety, social responsibility, and environmental care standards. The company is a founding member of the Fair Labor Association and offers Fair Trade Certification for factory workers. Through their Supplier Workplace Code of Conduct, efforts are being made to improve issues such as wages, safety, and healthcare.
Accountability & Transparency
Improvement can only come through measurement, assessment, and change. Patagonia is unique in that it welcomes constructive criticism from people outside the corporation. To this end, the company openly shares data in a way that many other businesses do not. More eyes ensures a better chance of spotting a problem, though, and thus the opportunity to fix it. In addition, Patagonia hires a range of consultants to help address issues such as pollution and factory conditions. The findings from these third-party audits are published for the public to see how the company is doing in these critical areas.
Patagonia has built its business on doing well while doing good, and this model has paid off. The privately held company is currently valued at around $3 billion, which Chouinard has recently transferred to a specially designed trust and non-profit organization. Employee satisfaction at Patagonia is incredibly high, with 91% of workers rating it a great place to work, compared with 57% at the average American company; the corresponding turnover rate is just 4%. When also factoring in their incredibly loyal customer base, it appears that an ethical, mutually beneficial business really is a win-win proposition. As Chouinard himself has said, Patagonia is "demonstrating that doing the right thing can help build your business." We at Partnership Economics couldn't agree more!
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