Southern Californian Scott Robinson had quite a résumé when he returned from studying in France last Christmas. The 26-year-old had an undergraduate degree from Bucknell University, two MBAs, and internships at two of Europe's most respected corporations, Nestlé (NSYRG ) and Unilever Group. Yet, when it came time to take the next career step, he chose a job as a stock handler in a surf shop in Cardiff-by-the-Sea, Calif. Actually, he begged for the job. What gives? Simple, he says: "I wanted to work for a company that's driven by values."
The company is Patagonia Inc., a Ventura (Calif.) seller of outdoor clothing and equipment that has a reputation as an enlightened employer and champion of the environment. On his return from France, Robinson read Let My People Go Surfing, a memoir and manifesto of sustainable business practices by Patagonia founder and Chairman Yvon Chouinard. The company's goal is as simple as it is challenging: to produce the highest-quality products while doing the least possible harm to the environment.
That mission is a daily inspiration for Patagonia's 1,275 employees, from Chouinard to the flip-flop-wearing guy who answers the phone in the headquarters lobby. Most corporate mission statements are empty platitudes. This one guides every decision. And it's the centerpiece of a set of management practices that have helped Patagonia grow at a healthy rate and retain what is arguably the best reputation in its industry even while it faces increasing competition from much larger companies.
Patagonia's philosophy is the handiwork of Chouinard, a gruff yet funny outdoorsman who, despite his 67 years and arthritic hands, hasn't slowed down much. He helped pioneer modern rock-climbing techniques in his youth and now prowls the globe in search of outdoor adventures and product ideas. That is, when he's not shaking up his 33-year-old company, helping to preserve the environment, or advocating radical changes in the way Americans do business. "Most people want to do good things, but don't. At Patagonia, it's an essential part of your life," says Chouinard.
At a time when companies must adapt to an ever-quickening competitive pace, a highly motivated workforce can provide a crucial edge. Until now, there have been two primary approaches to keeping employees at the top of their game. At the high-stress workplace, bosses rule by fear, kicking ass and taking names. At feel-good places, managers try to motivate employees with kind words and generous benefits. Neither approach is optimal. In a recent Gallup Poll, only one-third of Americans considered themselves passionate about their jobs.
A few companies have found a better way. "There are companies that stress continuous improvement and being way better than the competition but also make people feel comfortable," says Stanford University professor Jeffrey Pfeffer. These companies range from publicly traded giants such as FedEx (FDX ) and Southwest Airlines (LUV ) to small fry like Patagonia. They are meritocracies with ambitious goals that trust their employees to do the right thing -- and give them the tools and time they need to do it.
Patagonia, with 39 stores in seven countries, works hard at achieving that delicate balance. It offers an on-site day-care center at its headquarters and full medical benefits to all employees, including part-timers. When the surf's up, Chouinard himself urges people to hit the beach. At the same time, the company demands hard work, creativity, collaboration, and results. Management isn't shy about axing employees who aren't up to snuff.
Patagonia enjoys an unrivaled reputation among outdoor aficionados, and its green philosophy is gaining broader appeal as more Americans embrace sustainable consumption. Chouinard's goal for Patagonia's own sustainability: "I look at this company as an experiment to see if we can run it so it's here 100 years from now and always makes the best-quality stuff," he says. That means keeping growth relatively slow but steady, at about 5% per year. Revenues were up a healthy 7% last year, to $260 million. Operating margins typically come in at the high end of the 12% to 15% industry average, according to people who have seen the numbers, and that's after it donates 1% of revenues to environmental groups. Patagonia, which declined to comment on its financials, is owned by a Chouinard family trust.
Chouinard calls himself a reluctant businessman. He disdains cell phones and laptops as much as he does quarterly-earnings-obsessed executives. (As you might imagine, he's as likely to take the company public as he is to club baby seals.) Yet he finds that concern for quality and sustainability doesn't pose a conflict with running a highly successful business. "Every time we do the right thing, our profits go up," he says.
Odd as it may sound, Chouinard gets a lot of business done standing waist-deep in water. He has coined a term -- MBA, or managing by absence -- that sums up his leadership philosophy. At the office, he's totally plugged in. But he spends much of his time traveling around the world doing outdoor things and talking to outdoor people about their likes and dislikes. Sometimes the best way for new CEO Casey Sheahan to get face time with Chouinard is to meet him on the water. Last year, the two were fishing for steelhead in British Columbia when they noticed that their feet were cold. Clearly their Patagonia waders weren't up to the job. They decided to launch a series of quality meetings to review and improve the company's products.
Chouinard and Sheahan are hardly the only Patagonia employees to enjoy "Eureka!" moments in the great outdoors. Getting away from the office regularly is a job requirement -- considered essential for dreaming up the next generation of products. Whenever employees play outdoors, they're testing the newest gear or coming up with improvements. Regularly, teams of 20 to 30 people, including outdoor professionals Patagonia calls its ambassadors, go on excursions where they climb, fish, ski, or surf.
During such an outing at Yosemite National Park two years ago, mountaineer Dean Potter snipped the legs off of a pair of climbing pants at mid-calf so he could see his feet as he climbed. The next year, Patagonia offered a successful line of pants based on his ideas. "We spend a lot of the time climbing and cooking and drinking excessively," says designer Carey Mullett. "It's hard for people who are used to a fixed itinerary to understand, but it's this kind of deconstruction that leads to the most creative work."
Patagonians like to say they don't have a corporate culture, they have an unconventional culture. That goes not just for product innovations but for new business ventures. You can see the effect of this philosophy in the company's major new strategic initiative, surf shops. It signed up three professional surfer brothers, Chris, Keith, and Dan Malloy, who had sponsorship contracts with larger surf outfitters, to help come up with a vision of what Patagonia surfing should be.
The Malloys, with their deep tans and unruly sun-bleached hair, are far from the usual corporate stiffs. Chris, 34, explains how they bonded with Chouinard, a crack surfer himself, during a trip to Chile in 2004. They discovered they shared concerns about water pollution and wastefulness. (Chouinard, Chris notes, wore the same shorts eight days straight. Now that's conservation!)
Ultimately, given the freedom to try something different, the Malloys and Patagonia's strategists came up with a new concept for a surf store. Rather than copying rivals and selling loud clothing and boards that break easily, it sells durable boards and wet suits, and simple, long-lasting clothing. The focus is on "authenticity" and building a solid community -- one that will, they hope, give their shops a sustainable edge. Every store will have a space set aside for surfers and environmental groups to gather.
The strategy is off to a strong start. Sales at the first store, opened in June in Cardiff-by-the-Sea, have been running 50% higher then expected, says Chouinard. The Malloys are now scouting locations in Ventura and Santa Cruz, Calif., and in Hawaii. Patagonia plans on operating 10 surf stores within the next several years. "We took some big pay cuts to work for Patagonia, but we're not regretting it," says Keith Malloy, 31.
Few Patagonians are in it just for the money. The company recently raised salaries to adjust for the cost of living, and everybody gets an annual bonus based on profits, but, overall, Patagonia pays at, or just slightly above, the market rate. However, the most significant rewards aren't monetary. One popular perk is a program that allows employees to take off up to two months at full pay and work for environmental groups. Lisa Myers, who works on the company's giving programs, tracked wolves in Yellowstone National Park during her sabbatical. The company also pays 50% of her college expenses as she pursues a wildlife biology degree. "It's easy to go to work when you get paid to do what you love to do," she says.
Patagonia's culture makes it a magnet for talented people. The company receives an average of 900 résumés for every job opening, so it can afford to be picky. Top outdoor industry executives want to work there, too. Sheahan just lured Damien Huang from much larger rival North Face to run Patagonia's product development group.
Can others capture some of Patagonia's magic? Most companies -- especially ones with demanding public shareholders -- simply can't let employees take a surfing break. They can, however, foster creativity and provide a sense of purpose. Perhaps the most valuable and easily applied lesson from Patagonia's experience is this: To think outside the box, sometimes you need to get out of the cubicle.
By Steve Hamm