Guardian Professional, Tuesday 17 July 2012 11.21 EDT
When Patagonia became California’s first benefit corporation or B-Corp in January this year, it marked the pinnacle for a new corporate form that commits companies to include environmental and social factors in their business decisions.
But for Patagonia, its new articles of incorporation are just a waymarker on a long journey since its founder, pioneering rock climber Yvon Chouinard, started making equipment to replace pitons, the metal spikes that damaged rock walls in the 1950s.
Rick Ridgeway, Patagonia’s vice-president of environmental initiatives, is a long-time climbing partner of Chouinard’s. In 1980, he and Chouinard survived an avalanche in the Himalayas. A third friend died in Ridgeway’s arms.
Ridgeway said that his high-altitude experiences have informed his sea-level work for the company, which is based in Ventura simply so that Chouinard could stroll from his blacksmith’s workshop to a classic Californian beach break.
“Yvon and I both know how ephemeral life is and our time on this planet is limited,” said Ridgeway.
“Our mission statement is to make the best product, but do it with no unnecessary harm and use business to implement solutions to the environmental crisis.
“The pitons caused permanent damage to the rockwall. For climbers, it was like religion — like they were messing up their own church.
“The new style equipment protected the rock and increased sales. The big ‘a-ha’ was that you could do something good for the environment that was also good for your business. That was a seminal lesson for Yvon.”
In the mid-1990s, the company struggled as Chouinard insisted on sourcing 100% organic cotton at a time when there was not enough to supply even Patagonia’s demand, according to Ridgeway.
“Yvon’s answer was if we have to be in business using an evil product like traditionally grown cotton, we don’t deserve to be in business,” he said.
Patagonia now has $600m in annual revenues from sales of its outdoor sports apparel, making it the largest company so far to sign as a benefit corporation.
Ridgeway said that the company is “doing better than ever in its history” during the recession as consumers have tended towards quality, long-lasting purchases.
Last year, Patagonia launched the Common Threads Initiative to encourage the repair, recycling and resale of garments via eBay and took a full page advert in the New York Times with the tagline: don’t buy this jacket, unless you really need it.
Such contrariness matches Chouinard’s own unorthodoxy and sets the company apart from The North Face, founded by another of Chouinard’s climbing partners, Douglas Tompkins. Tompkins sold his business in 1969 and has since ploughed his money into large conservation projects in Chile.
Chouinard by contrast still owns Patagonia and ploughs 10% of its profits into smaller-scale environmental campaigns where $10,000-$15,000 can make a difference.
Ridgeway estimates donations to date total around $50m, including support for the controversial Restore Hetch Hetchy campaign to drain the reservoir next to Yosemite that supplies San Francisco with pristine Sierra Nevada snow melt.
At the end of this month, one of Ridgeway’s ideas comes to fruition with the launch of the Sustainable Apparel Coalition‘s “cradle to grave” online tracking tool which measures the impacts of materials, manufacturing, packaging, shipping, consumer use and end of life.
Patagonia began the coalition through a joint campaign with Walmart in 2010. It now has around 60 members, including Adidas, Gap, Levis, Marks & Spencer and covers an estimated one-third of the clothes and shoes made globally.
The company’s sustainability credentials are so well embedded that the decision to turn the company into a benefit corporation may seem superfluous. But Ridgeway said that Chouinard wants his values to outlive him and “survive any of the succession scenarios that we might envision as far out as we could see — even 100 years.”
Andrew Kassoy, co-founder of B-Lab, the non-profit that began advocating for benefit corporation legislation, said that the impact of Patagonia’s B-Corp status has been huge.
“It’s validating and a moment of great pride for a lot of companies that had joined the community before Patagonia. They felt like real leaders when a pioneer like Patagonia was joining them as opposed to leading them.”
Benefit corporation legislation was first introduced in Maryland in 2010, and there are now nine states that have enacted similar legislation that has attracted bipartisan support – a rarity in today’s extremely polarised US political environment. For states without benefit corporation legislation, certification is available through the B-Lab non-profit based in Pennsylvania.
Kassoy and two other Stanford graduates established B-Lab in 2007 and there are now some 560 companies certified across the US.
Kassoy previously had a successful career in private equity before realising that mainstream investments were “pretty unsatisfying”.
“They primarily create wealth for one group of people and don’t add a lot of other value to society,” he said.
“If we want to solve a lot of our big social and environmental problems, we need the private sector to play a role because it dominates our economy and [fixing] those problems requires scale.”
Kassoy and his co-founders had originally planned to build a business that “should be a guiding light for how a business can behave”.
But they soon realised that the social entrepreneurial space was crowded with 100,000 “mission-driven” businesses in the US.
They identified loosely worded statutes in corporate law designed to provide some protection against the hostile takeovers of the 1980s. B-Lab then developed draft legislation along with its certification programme and a “declaration of interdependence”.
“In most places, the fiduciary duty of the directors of a company is to maximise value for shareholders at the expense of any other considerations.
“So as soon as entrepreneurs have to raise third party capital or think about succession planning, liquidity or going public, most of the mission stuff goes out the door.”
Unilever’s purchase of Ben & Jerry’s ice cream in 2000 is the most high-profile example, he said. “But there are endless stories of brands that get to a certain size and don’t really have a choice but to be sold to a mainstream strategic investor or go public. At worst they compromise their mission; at best you don’t know as a consumer.”
B-Lab certification and benefit corporation legislation is growing in popularity in the US, driven by social and economic trends, said Kassoy, adding that B-Lab has had “early conversations” to expand the concept in the UK.
“There have been some dramatic changes to the kinds of problems that exist and the ability of government to solve them. As government budgets shrink, business can step up to solve some of those problems.”
“There’s also a new generation of workers and entrepreneurs and investors who don’t just go to work each day and leave their values at the door. That generation thinks about work as a way of expressing what they believe.
“At the same time, the financial crisis highlighted that the reigning idea of financial value maximisation at the expense of everything else led to the loss of several trillion dollars not at the maximisation of anything other than making misery.”
Ridgeway said that a real watershed moment will come when a publicly listed company adopts B-Corp status.
“The B-Corp effort is one of the first to challenge the existing model of capitalism,” he said. “To find a new way to do business and still stay in business but reduce the harm that business does to the planet.”