Home Team apparel Why Patagonia’s goal-driven business model is unlikely to catch on

Why Patagonia’s goal-driven business model is unlikely to catch on

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(THE CONVERSATION) Patagonia founder Yvon Chouinard, his wife, Malinda, and their two adult children no longer own the outdoor gear and apparel company. But based on my experience as a former executive who is now an advisor and speaker focused on sustainability, I don’t expect many other US-based companies to follow their lead.

Going forward, all of Patagonia’s profits, or some $100 million a year, will fund efforts to combat climate change and advance wilderness preservation, the company announced on September 14, 2022.

In a letter posted on the company’s website, Yvon Chouinard noted that “instead of going public” by selling Patagonia stock to investors, “you could say we’re ‘goin’.” The family has permanently transferred its ownership to a non-profit trust and association.

By “raison d’être”, Chouinard means that the profits of the company will be used to protect the planet, rather than to enrich the shareholders. I see this choice as a valiant extension of Patagonia’s years of struggle to make capitalism more compatible with planetary sustainability. He also acknowledges the difficulty of trying to balance the interests of employees, customers and shareholders with the precarious state of the planet.

Encourage customers to buy less

Chouinard stumbled into entrepreneurship as a “dirty” mountaineer. Dissatisfied with the damage done to mountains by climbing equipment, he began to forge his own equipment, first doing all the work himself, then employing others. He remained a reluctant capitalist even when he founded Patagonia in 1973.

An example of this reluctance was a famous full-page ad his company ran in The New York Times on Black Friday in November 2011. Rather than luring shoppers with door-to-door sales and hours of opening early, Patagonia implored its customers not to buy the company’s signature synthetic. fleece jacket and “buy less” of everything.

The ad lamented “the culture of consumerism… [that] puts the economy of the natural systems that support all life firmly in the red.

Although Patagonia’s announcement caused quite a stir, I didn’t find it surprising. Several years earlier, I had visited Chouinard at Patagonia’s headquarters in Ventura, California.

At the time, I remember being enamored with the on-site daycare, the company’s commitment to donate 1% of its turnover to “the preservation and restoration of the natural environment ” and the employees I saw leaving surfing in the middle of the day. In person, Chouinard struck me as even more strident and less commercial than I had imagined.

Perhaps ironically, given Patagonia’s seemingly anti-commercial stance, the company’s sales have continued to grow, reaching over $1 billion a year.

Seeing his name appear in Forbes’ exclusive list of the richest people made Chouinard recoil, saying “it really pissed me off.”

Timberland’s approach

At the time of this visit to California, I was COO of Timberland, an outdoor footwear, apparel and accessories company. Like Patagonia, it was privately owned at the time – it has since become part of VF Corporation, a publicly traded, outward-focused conglomerate.

Timberland’s model blended “trade and justice” by combining the pursuit of profit with respect for human rights around the world, support for community service and a commitment to environmental stewardship.

Timberland was one of the first companies in the world to release a corporate social responsibility report, paid for all employees to complete 40 hours of community service, and was one of the last companies to continue making millions shoes and boots in its own factories.

Both Patagonia and Timberland have won acclaim and awards for their creative attempts to demonstrate that companies can serve not only shareholders but also employees, local communities and other stakeholders.

Business Roundtable

Chouinard’s choice to “move forward” appears to be a more dramatic version of a historic statement issued by the Business Roundtable in August 2019.

The group represents nearly 200 CEOs, including the heads of JPMorgan Chase, Apple, BlackRock and Walmart. Seeming to abandon his longstanding commitment to shareholder primacy, he recast the purpose of a corporation.

“We share a fundamental commitment to all of our stakeholders, including suppliers, employees, communities and the environment,” the group said in what many observers saw as a shift to a more form of capitalism. balanced and responsible.

In my opinion, however, the current systems, structures and incentives ensure that revenue and profit growth remain sacrosanct for businesses. As a result, calls from well-meaning advocates for more attention to social or environmental issues do not fit a pattern driven by pressure to deliver short-term results.

So far, the status quo remains the norm.

Unlike Chouinard’s decision to allocate 100% of Patagonia’s profits to environmental causes, the 2019 Business Roundtable statement is non-binding and does not require companies to do anything differently.

Research published in 2020 appears to confirm that the roundtable’s new statement of intent was primarily performative. Since its publication, nearly 100 of the group’s companies have updated their rules of governance, but very few have “modified their declaration of corporate purpose”.

In addition, the researchers reviewed 26 proposals that shareholders had submitted in an attempt to implement the Roundtable Declaration. “Each company consistently opposed these proposals,” the study observes.

Rational frameworks

Chouinard’s overhaul of Patagonia’s governance recognizes an important reality.

When faced with a situation in which social welfare and private profits align, companies will act sustainably. However, when circumstances pit public welfare against a company’s bottom line, managers typically side with their shareholders.

That doesn’t make most frames mean; it makes them rational. They react to the rules and incentives of the current system of capitalism.

That is why I find Chouinard’s imaginative act of moral courage uplifting.

At the same time, I believe it would be naïve and even harmful to expect many others to follow his example by voluntarily choosing a goal other than the pursuit of profit.

To expect companies to do so would absolve the government of its responsibility to set different rules to protect the environment and fight climate change. I also agree with David Gelles, the New York Times reporter who published the story of Patagonia’s new governance structure. As Gelles noted in an interview with Vox, Chouinard’s family is “one of one.”

This article is republished from The Conversation under a Creative Commons license. Read the original article here: https://theconversation.com/why-patagonias-purpose-driven-business-model-is-unlikely-to-spread-190889.