Blueprint for green business (cont.)

By Susan Casey, Fortune

Surf's up

"This is our sweatshop," Chouinard says, and the roomful of workers sitting behind sewing machines bursts out laughing. The place is idyllic. Rolls of fabric are stacked like a psychedelic patch of giant flowers; sunlight and bird song stream through open windows that look onto a playground of the company's day-care facility. Walking around headquarters with Chouinard is like going on a sprawling house tour: Here is the Infant Room, the day-care annex for newborns; here, in a onetime slaughterhouse, is the first Patagonia store; here is the original blacksmith shop where Chouinard Equipment was born. "I still come out here and make fireplace tools," Chouinard says.

He greets employees by name, and they light up when they see him. But the laidback ambience is misleading. Competition to be here is stiff; Patagonia receives more than 900 applications for every job opening. The people who get hired are anything but slackers, and Chouinard is an unrepentant perfectionist. "He has an easygoing persona, and he's a California guy," says Casey Sheahan, Patagonia's 51-year-old CEO. (He got the job in March 2006.) "But he does demand excellence. People in this company would run through walls for him."

That would be a shame. The walls are gorgeous, filled with nature photographs and paintings, including many of Mount Fitzroy, the South American peak that inspired Patagonia's logo. The images evoke the solidity and timelessness that Chouinard has tried to instill in his brand, which makes it startling to hear what he has to say next: "We're in the middle of a revolution. Every ten years we have to blow this place up."

The reason for the upheaval? Climate change. "We're getting into the surf market, because it's never going to snow again, and the waves are going to get bigger and bigger," Chouinard says. "I see an opportunity." In response, he is opening Patagonia watersports shops along the coasts and in Hawaii. The first, in Cardiff-by-the-Sea, Calif., opened in June 2006.

Like his stand on organic cotton, Chouinard's vision of a stormier, more aquatic world caused some heels to dig in. No midsized, well-established company has ever broken into the surf industry, his skeptics remind him; it's all edgy startups or billion-dollar juggernauts like Billabong. "People just do not like change," he says. "You've got all these people hired to create a mountain-sports company, and now you're telling them to go 50 percent watersports." He sighs. "Now it's accepted. But there's still grumbling."

This "Ocean Initiative" has its roots in a Quonset hut across the parking lot, where his son Fletcher, 31, is crafting a line of surfboards made with nontoxic materials that Patagonia claims are stronger, lighter and more eco-friendly than its competitors'. Surf legend Gerry Lopez has signed on to the effort, as have Chris, Keith and Dan Malloy, professional surfer siblings who have serious industry clout.

Another watersports product Chouinard shows off with pride is a new wetsuit. Anyone who has spent time encased in neoprene knows that it can be stiff, uncomfortable, and smelly. Chouinard, who surfs about 200 days a year, was determined to improve on this. "He told me he wanted to make the perfect wetsuit material," says Tetsuya O'Hara, 44, Patagonia's manager of raw material sourcing and development. O'Hara, who previously developed sailcloth technologies for the America's Cup, began with a new, nonpetroleum neoprene made from crushed limestone and then added a lining of recycled polyester and, of all things, organic wool. The Patagonia suit is pricey ($470), but in-house testing showed it to be 90 percent warmer than other wetsuits, as well as stretchier, stronger and naturally odor resistant.

Compared with fleece, surf gear may seem like a sideline, but this is classic Chouinard - activism mixed with reluctant capitalism. If anything, he's more concerned with Patagonia's growing too fast. (Typical revenue growth is a modest 3 to 8 percent a year. And a fair chunk of the company's haul is given away - $26 million donated to grass-roots organizations since 1985.) That kind of attitude can get you fired in corporate America. But as the guy who owns 100 percent of the company - he gets calls regularly from would-be buyers - he can do what he wants.

"Everybody tells me it's an undervalued company," he says, "that we could grow this business like crazy and then go public, make a killing." He shakes his head. "But that would be the end of everything I've wanted to do. It would destroy everything that I believe in." Chouinard's good friend and fellow environmentalist Tom Brokaw has heard him put it far more succinctly: "He says, 'I don't want a Wall Street greaseball running my company.' That is a direct quote." '

The revolution has started'

Could it be that the world is finally catching up to Yvon Chouinard? These days he's a standing-room-only ticket at Stanford and Harvard business schools. Yale, which awarded him an honorary doctorate in humane letters in 1995, recently offered him a fellowship to teach courses merging business with environmental studies. "I mean, can you imagine that?" he says, laughing. "I got a degree in auto mechanics at John Burroughs High School. But there's no surf in New Haven."

The appeal of his message has gone way beyond students - other companies are paying attention too. In 2001 he created One Percent for the Planet, an alliance of businesses that pledge to donate 1 percent of gross revenues to environmental causes. To date, 500 organizations have signed on.

Wal-Mart is not among them, but Chouinard's greatest cause for optimism nevertheless comes from Bentonville, Ark. "The revolution really has started," he says with a slow, curling and just slightly subversive smile. "I'm blown away by Wal-Mart. If Wal-Mart does one-tenth of what they say they're going to do, it will be incredible. And hopefully America will get a government that we need rather than one we deserve, that will put pressure on business to clean up its act. But the most powerful pressure will come from the consumer. Oh, my God, it's going to be really powerful."

As Chouinard sees it, there's only one downside to this good news: It's probably too late. "There's a race between running out of water, topsoil or petroleum. I don't know what's going to be first. Or maybe it will all happen at once."

Locusts, high water, whatever; you can bet that Chouinard will be out there, on a Patagonia surfboard. "I'm a very happy person," he says. "I never get depressed, even though I know that everything's going to hell."

__________________

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.