Teamistry Season 2 Episode 06

Patagonia’s Demand for Ethical Supply

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Patagonia has long been known as a company that wears its values on its sleeve. The work culture is based on hiring for values fit over job experience. Work-life balance is strongly supported, including now-famous surfing breaks. And their commitment to the environment, through policies of using recycled or low impact materials, encouraging customers to buy fewer items, and generous return policies or free repairs, is unequally in the industry. Before corporate social responsibility was a popular concept, Patagonia declared their commitment to better outcomes for their workers, and the planet. But that commitment came with the added pressures of remaining profitable.

In trying to create a balance between ethics and profits, they discovered issues of exploitation and poor working conditions in their own supply chain – the very issues they sought to avoid. This was exacerbated by the birth of internet shopping. They lost track of their supply chain and realized they could no longer live up to their fair labor commitments. To regain their status, they began a process of enshrining their values and principles in all aspects of their teams, how they function and work together. This involved three key strategies: empowering employees to embody the values; openly evaluating company decisions and actions; and a steadfast commitment to holding themselves accountable. When this evaluation and accountability uncovered another crisis in their supply chain, Patagonia partnered with third-party organizations like Fair Trade USA and the MIT Sloan Sustainability Initiative. Through this action they ensured (as much as possible), that their entire supply chain was consistent with their core values. And it seems that the more Patagonia doubles down on its values, the better it performs. In this episode, we hear from Craig Wilson, former lead strategist for consumer marketing at Patagonia; Bethany Patten, Senior Associate Director for MIT Sloan Sustainability Initiative and Maya Spaull, Vice President of apparel and home goods at Fair Trade USA. We also speak with Andrew Kenney, a journalist who got insider access to see how Patagonia is redefining its business processes.

Teamistry is an original podcast from Atlassian.

Transcript

It began with a small fire in a bin full of cotton rags. Maybe someone had dropped a lit cigarette by mistake. A manager ran to the firehose to try to put it out, but the hose was rotted and the valve so rusted it wouldn’t turn. The fire quickly spread. Within minutes, panic spread through the hundreds of seamstresses in the building, mostly young women. They rushed to the elevators, but three out of four didn’t work. The fourth only held twelve people at a time. They rushed to the stairs, but the door at the bottom of the stairwell was locked from the outside. They rushed to the fire escape, which wasn’t nearly big enough. It collapsed under their weight. In desperation, women flung themselves down the elevator shaft or from the building’s windows.

Eighteen minutes later, it was over. One hundred and forty six workers had died. Until September 11, 2001, it was the deadliest workplace disaster in New York history.

That’s right, that scene didn’t play out recently in a developing country. This was the Triangle Shirtwaist Factory Fire, which happened in Manhattan on March 25, 1911. It was followed by such an outcry of protest, it laid the groundwork for state and national workplace safety codes. And because of those changes, nothing like the Triangle Factory Fire happened again. In the United States.

But in other parts of the world, disasters like this keep happening. Exactly a century later, the Rana Plaza collapse in Bangladesh killed more than eleven hundred workers and raised new calls for international reform. While these disasters might be rare, poor working conditions are not.

Maya Spaull:
The fashion industry employs roughly 75 million people globally, and we know that a tiny fraction of those people actually earn a living wage.

But some companies are leading a charge to change that. Including Patagonia.

Bethany Patten:
Patagonia has this mission to use business to inspire change. Specifically use business to inspire solutions to global challenges was one of the core pieces of their mission.

Before corporate social responsibility was a popular concept, Patagonia declared their commitment to better outcomes for their workers and the planet. Despite that commitment, and with the added pressure of remaining profitable, they’ve struggled with issues of exploitation and poor working conditions in their own supply chain. To fight that, they are enshrining their values and principles in all aspects of how their teams function and work together. Specifically, by empowering their staff to be the standard bearers of the company’s values.

Craig Wilson:
The company operates, which is probably my primary lesson learned in my lifetime at Patagonia, is that it's a 100% principles driven business. There's clarity of what they stand for, what they believe in, and what they're willing to do and not do. That's always been steadfast.

I’m Gabriela Cowperthwaite and this is Teamistry — an original podcast from Atlassian. This show is all about the chemistry of teams – proving that when teams work together, and teams of teams work together, they can achieve more than they ever thought possible.

The clothing that you’re wearing right now: do you know exactly what it’s made of? Who made it? And under what conditions? Honestly, these questions can be really hard to answer because international supply chains and labour codes are complex and hard to nail down. And that’s a particularly difficult challenge for Patagonia, because their mission includes building the best product; causing no unnecessary harm; using business to inspire; and implementing solutions to the environmental crisis. And they're known for opposing over-consumption. Just look at their Black Friday ad a few years ago, you know, the one that said “Don’t Buy This Jacket.” When Patagonia promised to make clothes that will last, that they’ll repair them, and that they’ll even take them back and reuse or recycle them.

Craig Wilson:
I think the founders of Patagonia and the leadership of Patagonia have been historically, really, really good at self-awareness and self-assessment, and being introspective about who they are and what they're doing and they revisit that on a regular basis.

Craig Wilson is an author and brand and loyalty consultant. He was also the lead strategist for consumer marketing at Patagonia from 1998 to 2006.

Craig Wilson:
It's a hard thing to... craft a set of values and belief systems and principles in such a way that they are translated well. And then it's another thing to actually put a mechanism in place so that the populace has that embodiment. And it truly is an embodiment.

One way that Patagonia has always tried to embody their values in their company is by hiring people not necessarily based on their work experience but on unconventional lifestyles.

Craig Wilson:
So it was more important that they hired a cultural fit and a belief system fit, and someone that had lived that "dirt bag life" and then they would help them understand the job on the job.

So they fill their teams with people who may have backpacked across the country, climbed mountains or simply refused to live a conventional life. People who also care deeply about sustainability. That way, the Patagonia leadership can, in their own words, “leave them alone and let them do their jobs.” You might have heard about this work culture based on ethics.

Bethany Patten:
Sustainability is woven into every single piece of their culture, whether it's the cafeteria on campus or the onsite childcare. The fact that you can go out and have a surf during the day if it's a good surf day, because they really value that we need our free time and exercise in order to be more healthy employees.

Bethany Patten is a lecturer and Senior Associate Director for MIT Sloan Sustainability Initiative. Her group works closely with Patagonia and she’s seen that they really do follow their principle that “We’re in business to save our home planet.”

Bethany Patten:
I think at the core, they care more about doing the right thing than they really do about profits.

That’s the real crux of this issue and where our story about Patagonia really begins. Can a company be ethical in the way it treats its employees - whether that’s child care or a living wage for contractors - and be sustainable in the way it operates, all while remaining profitable? It’s a challenge that has been dogging the clothing industry from that factory fire in New York to working conditions in Asia and Central America.

Charles Kernaghan
This was a factory in Nicaragua which produced clothing for Walmart. The workers would go in at six o'clock, six fifteen, six forty five in the morning and leave at seven fifteen at night. They were locked into the factories. They got one half an hour break during the day and they had to race to the exits, to the fence, which was locked. And that they had to reach through the barbed wire to purchase a little bit of water or whatever food they could get on credit.

That’s a clip of Charles Kernaghan in 1998 when he was Director of the National Labor Committee, now known as the Institute for Global Labour and Human Rights. You might remember what he’s talking about. It was the controversy that arose when a human-rights organization discovered Kathie Lee Gifford branded clothing was being made in Central American sweatshops. By 13 and 14 year old girls. An excuse that was given at the time, and has been given by numerous companies when these kinds of labour violations are discovered, is that they were unaware of the supply chain, especially when it comes to subcontractors.

Maya Spaull:
It's not a defendable excuse, especially in this day and age. Companies have to know where their products come from and be directly involved in the sourcing of those goods. It's definitely a big commitment to work on these issues and to build trust within your supply chain and have a willingness to innovate around transparency.

Maya Spaull is Vice President of apparel and home goods at Fair Trade USA, another group Patagonia works with. But to give credit where it’s due, back in the late 90s, Kathie Lee Gifford joined the anti-sweatshop movement called the “No Sweat Initiative.” Patagonia was also invited to take part, even though they were not accused of these kinds of abuses within their supply chain. They even became founding members of the Fair Labour Association, which demanded no forced or child labour, fair compensation and a safe working environment. Unfortunately, Patagonia’s spotless record was about to be tarnished.

Craig Wilson:
I think in the early 2000s, there was a lot going on in terms of change inside the organization

Here’s Craig Wilson again, Patagonia’s former lead strategist.

Craig Wilson:
When the internet happened in the late nineties and early two thousands, Patagonia became a rather complex company. It was one of the first companies to sell products via its own retail stores, its own wholesale channel. It had a direct to consumer catalog. It had eCommerce happening. It had a pro purchase channel.

In other words, around the year 2000, Patagonia was expanding quickly, in ways they’d never done before. Much like the overall globalization push that was happening in many industries, they began sourcing products from overseas factories that could make more of them and at lower cost. They began working with a much larger number of factories and many of them subcontracted the work to factories Patagonia knew nothing about. They could no longer guarantee that there wasn’t forced labour or other violations of their own principles in their supply chain. They had wavered on living their values and the result was that Patagonia dropped out of the Fair Labour Association, because they couldn’t be held to its standards.

This is when the real challenge began. How could they reset the company and this time, not just state their values, but actually embed them in every part of their organization, inside and out? Especially because they had established themselves so well in the minds of consumers as an ethical company. So poor working conditions at their suppliers, even if it meant lower prices, would actually mean losing business.

Patagonia’s game plan involved three key strategies: continuing to empower employees to embody their values; to begin evaluating company decisions and actions; and lastly, holding themselves accountable to make sure they lived up to their promises.

Patagonia began their rebuilding process in 2002 by hiring a Social Responsibility manager - a position that would eventually grow to an entire team. That person’s job was to monitor the supply chain to make sure it complied with Patagonia’s values. But this wasn’t just an external move. The company’s employees were educated about factory labour issues so they could understand how their actions could potentially impact people on the other side of the world. How certain decisions could lead to longer shifts, pressure and stress on the supply chain. This renewed focus on values meant the company rejoined the Fair Labour Association.

This was the time when strategist Craig Wilson was working at Patagonia. He feels that this strategy of embedding the company’s values in everything they did worked because it was embodied by their employees.

Craig Wilson:
I think the culture is a result of the strategy. The strategy is the result of the principles. And I think having an individual understand and embody what that is, then allows them to be executing against whatever their domain expertise is. So if I'm a product developer or I'm a web developer, I get the big picture. I understand what the cause is. I understand what the business stands for and how it operates. And so from my perspective, my job responsibility, I can execute against that because I'm an expert at what I do. I also understand the purpose and the strategy of the organization. And so I can start making decisions from there.

One way Patagonia worked to make sure everyone inside the company understood their values, Craig says, was to hold monthly seminars with artists or athletes or social and environmental activists. These seminars were mandatory, so even if someone was busy...

Craig Wilson:
and you were sitting at your desk, was sweating away to get your thing done, and that meeting was going on, somebody from leadership would come around and grab you by the ear and say, "You know what? That can wait. This is what's important."

But Patagonia wasn’t just broadcasting their values, they wanted to empower their teams to bring those values to life. For example, teams that monitored the company’s social and environmental responsibility, or worked on quality control or product sourcing, had equal say on which factories Patagonia did or didn’t work with. And this empowerment didn’t just apply to decisions around the supply chain. At the time, the company was split up along areas of expertise, like surfing, fishing or alpine trekking. Business Unit Directors from each of those areas, Product Line Managers or designers themselves were able to champion new technologies and materials that were in line with the company’s values. Like organic cotton for all their shirts or replacing non-renewable neoprene in their wetsuits with natural rubber.

However, Patagonia’s structure itself was changing during this period of self-reassessment. Whereas the company used to have a steep hierarchy, with up to eight levels between an individual employee and CEO Yvon Chouinard, it developed a flat chain of command. The point was to allow employees to work more collaboratively and creatively, thanks to more efficient communication.

But swinging the pendulum so far reached a point that wasn't always productive. Doug Freeman, Patagonia’s current COO, has said that sometimes it was too democratic, too transparent, and it left people afraid to make decisions. Or there were just too many people involved and projects took too long. At that point, Freeman says, it was up to him and the vice presidents to step forward and make a decision.

So it wasn’t always smooth sailing, but Craig Wilson maintains that through these challenging times in the 2000s, the company remained committed to its values.

Craig Wilson:
The thing that I think that Patagonia probably is one of the very, very best examples of is operating from its principles, and then examining things, asking questions. If those questions result in some sort of a supply chain change, or a unique product development, or a political issue, or an environmental issue, the organization would adopt those things as much as possible per that examination.

That examination, though, led to another serious crisis at Patagonia.

The company had spent the 2000s enshrining their values in how the company functioned day to day. Part of that was questioning everything they did, including looking closely at their supply chain. Well, in 2011 their own internal audits found troubling and disturbing evidence of exploitation, forced labour and even human trafficking.

These issues weren’t at Patagonia’s first-tier suppliers, the ones they dealt directly with, but with the companies that produced the raw materials that would then become shirts, backpacks and puffy vests. Patagonia found that the majority of the mills, based in Taiwan, used labour brokers who abused and exploited migrant workers. The entire episode made it clear to Patagonia that despite their best intentions, if they were to continue using an international supply chain, they would have to work even harder to ensure their products lived up to their values, from start to finish. After all, their success, both metaphorically and financially, was founded on an image of ethics and corporate responsibility.

And so, in 2012, Patagonia doubled down on their values on the business level as well. One of the first steps they took was to become a “benefit corporation.”

Andrew Kenney:
So it's a for-profit company that has wrapped itself in some of the concepts that you might see in a nonprofit where it has a declared mission and it has certain reporting that it's going to do on itself about fulfilling that mission.

Andrew Kenney is a journalist who, a couple of years ago, got insider access to Patagonia’s processes as part of a case study he wrote. He found that Patagonia...

Andrew Kenney:
...were translating their core values, their public missions into really specific actions. And Patagonia has kind of been in the forefront of doing that.

They started to put their values into action by using their annual benefit corporation reports as a tool...

Andrew Kenney:
...to really ask a lot of questions of people throughout the company itself about how they're fulfilling that mission. And it seems as if basically every year, almost like journalism, they send a team of people roving through the company asking kind of annoying questions.

So, try to picture that: Patagonia empowered a team of thirteen people as sort of internal quality inspectors to ensure they are living up to their own standards.

Andrew Kenney:
They go to the different units and they say, "Okay, what are you doing that matches up with this particular goal?" And it's going to be tempting at that point for the supply chain guy or... the marketing person, to say, "Oh, we're doing plenty of things." But then they ask these follow-up questions where it sounds like they challenge each other to say, "Well, what have you got to back that up? Do you have metrics? Do you have data?" So by roving through the company and having these kind of cross-functional conversations, they end up coming up with pretty good ways to measure what they're actually doing. It seems like that's something that could really carry over to a lot of teams is this ability to give somebody the authority to go and question, in a friendly manner, other members of the team, other members of the company, and you're giving them a rubric to question it against. So it's not just asking people, "Go do this mission." It's empowering someone to go throughout the team and ask if the mission is being done.

And remember how Patagonia had empowered teams to call them out if a supplier wasn’t up to standard? Now, they took that empowerment one step further.

Andrew Kenney:
There are assorted specialists, they all work in the company and they might be a product design expert, or they might have a specialty in labor. And each one of them is assessing different supply chain decisions. Who are we buying from? How are we producing this? And the way they put it, they are given a veto. Now, does that mean in a meeting that that person can just totally kill a contract with their one thing? That's what they made it seem like.

And this dedication to their values wasn’t just applied internally, Andrew found.

Andrew Kenney:
They challenged their suppliers and their vendors, first of all, to meet new standards. So they have their core mission and they've decided on things that they think are worth doing, like providing childcare, providing organic food. And they are now trying to spread that to other organizations by encouraging vendors and suppliers to promise childcare when they bid on a Patagonia contract.

Sadly, though, this is easier said than done. Despite having the best intentions, Patagonia had seen in their own experiences that applying their standards to their entire supply chain is a monumental task. So they began to partner with more outside organizations to get help.

Maya Spaull:
They officially joined Fair Trade USA as a partner in 2013.

That’s Maya Spaull again, Fair Trade’s Vice President of apparel and home goods

Maya Spaull:
And I have to say, they have been instrumental to the success of this program. We started with them in just one factory in India. And just seven years later, we work with the majority of their suppliers and over 75% of products that Patagonia sells are made in Fair Trade Certified factories.

And what does that certification mean?

Maya Spaull:
every fair trade factory undergoes a very rigorous audit where we look at health and safety, we look at wages, we look at working hours and then we are standing behind the claims that a brand makes

So now, by working with Fair Trade USA, Patagonia is able to do even more than ensure better working conditions in their supply chain.

Maya Spaull:
When you purchase a Fair Trade Certified garment, like a Patagonia fleece, they directly pay money into an employee run bank account at the factory and then the employees there work together to decide how to use these funds, often for things like education, healthcare and housing projects. With Patagonia, we're measuring the year over year impact of the program. So how is it improving lives? Is it supporting their families and communities? What is really the difference that together this project makes?

Even with these steps, Patagonia is working to continue improving working conditions around the world. Because the unfortunate truth is that despite what they and other organizations are doing, it is barely making a dent. As we heard off the top, a tiny fraction of garment workers in developing countries earn a living wage. That is, the minimum income necessary for someone to meet their basic needs, like food, housing, clothing and transportation. Patagonia was left with a dilemma, outlined by Bethany Patten of MIT who we heard from earlier.

Bethany Patten:
How does Patagonia leverage an existing commitment that they had made to the Fair Labor Association to record and understand and be transparent about what they were paying their workers, and then from there figure out how to increase the wages of those who were really at the bottom to a level that could be considered a living wage.

The way Patagonia started investigating wages was to partner, starting in 2017, with the MIT Sloan Sustainable Business Lab. For the past three years, MIT students have dug into Patagonia’s supply chain to discover that for garment workers, there is a serious gap between current wages and a living wage.

Bethany Patten:
This is what the students uncovered when they started to notice that there were some gaps and that it was hard to get an aggregate amount of data that you could really do any in-depth analysis on. The way that they found that out was through interviews with the suppliers.

Over the past three years, Patagonia and the Sustainability Business Lab have developed a model for streamlining the collection and analysis of that data. All towards the goal of ensuring the supply chain is actually living up to the promise Patagonia has made to its customers, and itself.

From day one, Patagonia has tried to balance their values with the realities of business and profitability. And not by trying one-off experiments, but through systematic change through the entire company: by empowering employees; constanting evaluating decisions; and holding themselves accountable. But the past two decades of that work has exposed cracks in the system. Yet they’ve not only weathered the storm, they are thriving because they fight for those values. Maya Spaull.

Maya Spaull:
I think when responsibility and sustainable sourcing and commitment to people and planet is in a company's DNA, it's just so authentic that you can feel that. So for true transformation, it's most successful when it's really embedded in the culture. And when a company can really make responsible sourcing a part of their business goals and performance measurement, that's when it's a win for everyone.

Andrew Kenney certainly found that even unprofitable programs - like how Patagonia will repair pretty much anything they make for free - pay off in the long term.

Andrew Kenney:
You don't have to justify giving up a little bit of your bottom line to pursue these missions. And then maybe it ends up paying off actually, as people really fall in love with the brand as a result.

And it seems that the more Patagonia doubles down on its values, the better it performs. Over the past ten years, their revenues have quadrupled. But Craig warns that it isn’t as simple as declaring that your company is based on aspirational values.

Craig Wilson:
It breaks down very, very quickly because few companies are willing to do the work to build that into the organization in an absolute way. And it's never done. I mean, Patagonia is not an absolute solution. It's not doing everything perfect according to its principles, but it's always trying to get as close as possible. And that endeavor is ongoing.