Excerpted from Entrepreneurship: A Real-World Approach, 2nd Ed, now available
Most businesspeople can tell you the goal of a for-profit corporation is, well, profit. But many entrepreneurs have other goals as well, such as improving society, reducing poverty, or protecting the environment. While the term “social entrepreneurship” has become widely used recently, entrepreneurs have been driven by social and environmental goals for decades, if not centuries.
Yvon Chouinard, founder of the high-end outdoor clothing company Patagonia, based in Ventura, California, has certainly been one of those.
Chouinard, an avid mountain climber and self-described reluctant businessman, began Patagonia almost accidentally as an outgrowth of his small mountaineering equipment company. When he brought home a tough-fabric rugby shirt from Scotland to wear climbing, his climbing buddies wanted shirts just like it. He was soon importing and selling shirts, and then began manufacturing clothing. The company took off and kept growing.
But even while he built Patagonia, Chouinard always spent a large portion of each year in the outdoors, mountain climbing and surfing. Perhaps it comes as no surprise that such an avid outdoorsman would head a company guided by the following mission statement:
“Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”(1)
With this mission of sustainability in mind, Patagonia constantly examines every aspect of its business—from supply chain, to working conditions, to animal welfare—and not only addresses any of its shortcomings, but also airs them publicly on the company blog and website, in an example of refreshing corporate transparency.
In 2001, Chouinard had the company conduct a “360-degree” environmental impact of every fabric used in making Patagonia clothes. To their great surprise, they discovered that conventionally grown cotton was the most detrimental to the environment, due in large part to the chemicals used to produce cotton. Chouinard immediately decided to shift to organic cotton for every Patagonia product made of that material. But Patagonia needed a lot of the material at a time when there was little supply. So the company worked directly with farmers and spinners to increase production of the organic cotton it needed, thus helping to establish the organic cotton industry in the United States.
Chouinard wants clothes to be as reliable, and as long-lasting, as tools. To help educate consumers, Patagonia urges its customers to buy less stuff, including its own products.
In 2011, Patagonia ran a full-page ad in the New York Times featuring one of its best-selling clothing items, pleading “Don’t buy this jacket.” “The environmental cost of everything we make is astonishing,” the ad explained with bracing honesty. It went on to outline the huge amount of resources required to manufacture a jacket: “To make it required 135 liters of water, enough to meet the daily needs (three glasses a day) of 45 people. Its journey from its origin as 60% recycled polyester to our Reno warehouse generated nearly 20 pounds of carbon dioxide, 24 times the weight of the finished product. This jacket left behind, on its way to Reno, two-thirds its weight in waste.”(2)
For another company, this might have just been a publicity stunt. For Patagonia, it was an effort to make consumers more aware of the high environmental cost of every piece of clothing they bought—ideally making them think about the impact of buying “disposable” clothing.
Patagonia’s “Worn Wear” program also helps customers extend the life of their clothes, thus reducing the need to buy more. They inform customers on how to maintain and repair their clothes, and customers can even send Patagonia clothes back for repair. The company employs 45 full-time repair technicians in the largest garment repair facility in North America. If a garment has outlived its usefulness, Patagonia will recycle it into something new.
Since 1985, through the 1% for the Planet initiative, Patagonia has pledged 1 percent of its sales to grassroots environmental organizations.(3) That has added up to $70 million in cash and in-kind donations. Over the years it has also convinced 1,200 other companies worldwide to join it in this venture.
In 2012, driven by its concern for environmental protection and sustainability, Patagonia changed its corporate status, becoming the first benefit corporation, or “B” corporation, in the Golden State.
Until 2010, almost all for-profit corporations had a legal duty to put profits first, above social goals. Corporation executives and boards had the fiduciary responsibility to maximize shareholder value. That meant that making business decisions based on goals other than profits—such as concern for the environment—could potentially result in shareholder lawsuits.
Beginning in 2010, however, many states adopted a new type of corporate entity—the benefit corporation (commonly referred to as a B-corp). B corporations have an expanded fiduciary duty that actually requires them to serve other interests, such as concern for the environment or making a positive impact on society, in addition to financial interests. This enables corporate decision makers to sometimes put social and environmental goals ahead of profits. Yet it requires that its overall social and environmental performance be assessed against a third-party standard, not just its own internal goals.
Today Patagonia generates annual revenues of over $600 million.(4) However, as a privately held B-corp, Chouinard is able to stick to his unique vision, rather than that of shareholders. “Everybody tells me it’s an undervalued company, that we could grow this business like crazy and then go public, make a killing,” said Chouinard in a Fortune magazine interview. “But that would be the end of everything I’ve wanted to do. It would destroy everything that I believe in.”(5)