On the release of his new book's release, SNEWS chats with Patagonia veteran and 'The Responsible Company' co-author (with Yvon Chouinard) Vincent Stanley:
When a company is booming, in an industry that’s growing, it can be easier to make decisions that transcend the bottom line. You and Yvon touch on Patagonia’s first layoffs in 1991, and how you held onto your ideals in that tough climate. What advice would you give a manufacturer or retailer struggling to stay afloat, who also wants to do right by their staff and environment?
Our worst day as an employer came in 1991, when we laid off 150 employees. For two years we had managed the company too carelessly, bought too much inventory, sold too little of it, hired too many people and salted away too little money to pay for an expansion that our bank cheerfully financed until they got into troubles of their own and pulled the plug. Costs had to go down and fast. After weeks of considering alternatives (like a shorter work week, combined with a cut in pay), we decided to let go of 20 percent of our people — and all on the same morning to reduce the duration of the toxic atmosphere that persists when layoffs are expected. A consultant advised us how to handle the logistics: All day long employees watched their colleagues get called out for a talk and return without a job. By 10 a.m., employees had started to recoil, to roll back in their chairs, at the sight of a manager re-entering the room to approach the desk of yet another fellow worker.
Our emergency plan for a downturn of any magnitude now is to cut the fat, freeze hiring, reduce travel and trim every type of expense except salaries and wages. We’ve done this for short periods several times — once right after 9/11. If things get worse, eliminate bonuses, which we once did. We paid them retroactively the following year, when the picture got brighter. Worse still, and decisions get tougher. Half of our expenses are labor. Before we would cut anyone else’s pay, we would reduce the salaries of managers, directors, vice-presidents and the top executives, including the owners. Then we would shorten the work week and reduce pay accordingly. Only as a last resort, if we were in the deepest sort of trouble, would we again downsize the company with a general layoff.
We should note the bracing fact that in 1991, after the layoffs, morale improved among the workers still with us. The hovering axe had fallen; those of us left still had our necks. We were a much soberer lot, absent the intoxication of growth, and more focused. We knew what we had to do to bring the business back to financial health, and we did.
Patagonia is privately held, which gives it flexibility in assessing risk and choosing culture over commerce. How can a public or employee-owned company — pressured to deliver strong financials every quarter — explain even short-term losses associated with long-term projects like addressing discrepancies in its supply chain?
Concentration on short-term performance is a problem for business — and a bit of a myth. Capitalizing expenses has always allowed companies to make long-term investments in their future. Aside from that, many publicly held companies do focus now on long-term performance as well as short-term. A Coca-Cola has to worry about the future of freshwater supplies and is willing to make investments to help safeguard them. LEED standards, for example, have revolutionized commercial construction practices (allowing for higher upfront costs and longer payback times to reflect potential savings over the lifetime of a building). Dow Chemical has now partnered with the Nature Conservancy to help evaluate the company’s triple bottom line (people, planet, profits). If we don’t value the services we get from the ecosystem, we stand to lose them.
Any business that loses deep knowledge of what the supply chain does in its name incurs risks when anything goes wrong. Adverse public opinion forms, and grows, much more quickly than in the past. No company can any longer ignore its social and environmental footprint.
In an interview on a website for Patagonia employees, the Cleanest Line, you note that the greatest challenge for the company will come when Yvon and Malinda Chouinard hand things over to the next generation. What steps can a company take to ensure cultural continuity through a change in leadership or ownership?
Patagonia has managed to keep the best elements of its early culture alive through four decades. That’s a plus. And we now have B-Corp status, so we can incorporate our social and environmental values in our by-laws. But doing business the way we do is still unusual and will take good shepherding by second-generation management in the decades ahead.
You note that even Patagonia hasn’t ticked all the boxes in the big checklist of goals at the back of the book. Which of those unticked boxes are your top priorities? And which companies do you consider role models, in the outdoor industry or elsewhere?
Excellent question, for which we don’t yet have an answer — we haven’t yet identified which unticked boxes the company should tackle first. That will be a topic of conversation within Patagonia over the next few months. We don’t have any role models per se, nor do we offer ourselves as one. Many companies — including Levi Strauss, Dow, Wal-Mart, Nike — have done and are doing impressive work. The deepest social and environmental change, if the standards stay high, could come out of the Eco Index developed by the Outdoor Industry Association or a similar index being developed by the Sustainable Apparel Coalition. In these groups companies work cooperatively for the greater good, and agree to compete on a cleaner and greener playing field.