The way Yvon Chouinard, founder, owner and CEO, runs Patagonia Inc. may sound more like a small start-up than a 35-year-old, multi-million dollar retailer. If the surfing is good, his employees can hit the waves. If an employee’s child is sick, the worker can stay home. If a material pollutes, the company finds an eco-friendly alternative. And at the core of it all is innovation.

In fact, the company began with a small rock climbing innovation: the reusable piton (a spike with a loop at one end for rope). In 1957, the only piton available was made of soft iron, placed once and left in the rock. On heavily used mountains, this created quite an eyesore. So at 19, Chouinard, an avid climber, decided to forge his own piton that could be hammered into the rock, removed and used again. Word got out, and a company was born, Chouinard Equipment. Over time, the business grew by redesigning almost every climbing tool.

Then in 1970, the company made a bold decision—one that could have undercut the foundation of its earnings. Because pitons damage rock faces, Chouinard Equipment decided to phase out the product in favor of an alternative that could be wedged in the rock and removed. As it turned out, the new product was a hit. This was the first major environmental decision the company made, and it proved profitable.

Along the way, Chouinard developed Patagonia, a clothing company for rock and mountain climbing, trail running, paddling, fly fishing and, most recently, surfing. It grew organically out of Chouinard’s discovery of rugby shirts in 1970. Their rugged construction survived the rigors of climbing. Once again, Chouinard’s company answered the demand of his fellow climbers. By 1972, it offered clothing options not available elsewhere to the outdoor enthusiast.

Patagonia is dedicated to producing high-quality products while minimizing the company’s negative environmental impact. Early on, the company adopted leading-edge, technical fibers to withstand the demands of climbing and protect climbers from the elements, constantly searching for better materials. But after assessing the environmental impact of its fabrics, Chouinard decided to switch entirely to organic cotton, look for eco-friendly fibers and research ways to recycle clothing. After the change to organic cotton in 1996, revenues from cotton products increased by 25 percent. In addition, Patagonia catalogs have been printed on recycled paper since the mid-1980s, and its facilities are designed with the environment in mind. This pioneering attitude has influenced other retailers to follow suit, including Wal-Mart.

But Chouinard’s vision is not limited to the company’s practices. Almost from the beginning, Patagonia has taken an activist role for the environment. In the early 1970s, after seeing how one person could help protect a surf break and river, Chouinard learned that grassroots efforts can make a difference. He decided to contribute to small groups working to save or restore habitats rather than large nongovernment organizations. Since 1985, the company has given $27 million to grassroots organizations. Now the company dedicates 1 percent to such groups each year. This idea led Chouinard to co-found 1% for the Planet, a group of businesses pledging to give 1 percent of net revenue to environmental efforts.

In 1988, Patagonia began annually sponsoring national education campaigns on environmental issues, which have included dam removal, preservation of wild lands, creation of wildlife corridors and sustainable global trade practices.

Chouinard is obviously not the typical capitalist and has some reservations about being a businessman. But he acknowledges that by owning Patagonia he can affect change. He sees the financial success of his company as a means to an end, rather than the ultimate goal. Patagonia’s statement clearly reflects this perspective: “To use business to inspire and implement solutions to the environmental crisis.” But Chouinard does not just focus on environmental issues. From the beginning, the business has been a way for him to fund his personal climbing, kayaking and fishing habits. So for his employees, he has created policies that allow them to balance work and life. Patagonia was one of the first companies to provide onsite daycare, maternity and paternity leave, and flextime.

As with his environmental efforts, Chouinard is not content to keep his workplace practices to himself. In 2005, he published Let My People Go Surfing, a book that recounts Patagonia’s history, as well as its philosophy and business practices. His goal is to persuade other capitalists to become responsible with all aspects of their enterprises. Incidentally, proceeds from the book go to 1% for the Planet.

Considering how profitable the company is—raking in $270 million in 2006—and the loyal following of its customers, Chouinard receives offers to buy the company or to take it public. But he refuses to sell for fear that it would destroy what he has created, a company he sees in business 100 years from now, leading the way for responsible capitalism.

RW: You grew up in Maine and California—two very different places, but in many ways alike. How did those geographic and sociological areas affect your attitude?

YC: Well I didn’t live for very long in Maine, but I always had a life in nature, whether it was in Maine or California. In Maine I would walk a long way to school. I was always down in the creeks; I was fishing at 7 years old and sledding in the winter. When I got to California, I couldn’t speak English. I was the shortest kid in school, so I pretty much took a different path [than others]. I lived in Burbank and I spent time in Hollywood Hills, you know, there was this park, and I was down in the L.A. River. I always had a life in nature, which is kind of opposite of the way kids are raised these days. They are so divorced from nature, they are just sitting I don’t know how many hours a day watching television or playing with GameBoy’s or something.

RW: I understand you had some adventurous experiences in your youth.

YC: Yeah, well I used to hop freights when I was in high school a lot. I’d go up and down from L.A. to San Francisco. Once I was hitchhiking across the country and hopped a freight and got caught by some railroad bulls. I was thrown in jail for 18 days in Winslow, Arizona.

I used to have a Model A Ford, they are very simple cars. In fact they don’t even have a fuel pump; they just drip gas into the carburetor. You can basically fix everything in the car. I remember making it back from Wyoming, where I ran out of money. I basically made it back by gathering soda pop bottles along the road and cashing them in for a refund and buying gasoline a gallon at a time.

My father was a tradesman and worked with his hands, and he taught me his skill. I always thought it was natural to work with your hands. When you needed a washer in your faucet, you didn’t call the plumber, you fixed it. You never called anybody. I think what that does is give you a lot of confidence that you can affect change. I saw a study once about really successful CEOs, and they had one thing in common; they all worked on their cars when they were young or they worked with their hands. And I think these days, a lot of kids are trying to live their lives out through celebrities. They have no confidence. They have to buy the same surfboard that the world champion rides because they don’t have any confidence that they’ll be able to ride any other board. Or they have to have the same tennis racket that Roddick uses. I think having the confidence that you can change things makes you an effective leader.

RW: That’s fascinating to me. CEOs do have the sense that if they get in there and start fiddling around, they’ll figure out a way to fix something. I guess that’s sort of what we do with our companies, isn’t it?

YC: Yeah, the way I tackle problems is that I immediately do something. I take the first step and see how that feels, and if it doesn’t feel right then I back off. Or if it feels good, I take another step and another step. In other words, I don’t study something to death before I make a move. I’ve watched scientists and politicians. We’re involved in trying to kick out obsolete dams around the country and once the scientists get in there and study, it goes on forever and ever and ever. For instance, there is a dam here that we’ve been lobbying to take out. It’s completely filled up and they are spending years on a study on how to do it. Meanwhile, we presented the problem to a grammar school. We talked about taking dams down and how the steelhead [fish] are going to come back and how it’s going to add 30-feet of sand to the beaches. Then we presented all of these different scenarios that these scientists have come up with on how to do it, and a little girl put up her hand—this is a 6- or 7-year old girl—and she said, “Why don’t you take a little bitty bite out of that dam over here?” Which was the most logical solution, of course!

RW: The concept of your slow company—it’s pretty much the antithesis of what most big business people are going to do. Most business people will try to grow as quickly as they can, get to the next level, the next stock dividend, the opportunity for an IPO, or now, the reverse of that is getting a leverage buyout from public status. Why do you think a slow company is a sustainable company and one that is healthy for the economy?

YC: I just gave a talk this year at Inc. Magazine’s 25th anniversary, and they had 500 businessmen there from the fastest-growing companies in America. I got up and said, “I don’t know what I’m doing here! I’m one of the smallest-growing companies in America.” But back in the early ’80s, I was on Inc. Magazine’s list of fastest-growing companies. And looking back at those companies, I would say three-quarters of them are no longer in business. I might be exaggerating, but definitely half of them are no longer in business.

What I’m trying to do here, since the late ’80s, is to run this company as if it’s going to be here a 100 years from now. And we’re interested in making the very best product, not by being the largest company, but by being the best company. I don’t think you can be the best company and be a large company. I don’t think you can grow 15-20 percent every year without exceeding what the company is about.

People ask me “why are you on a slow growth?” I tell them for the same reason that Chez Panisse is not a franchise. The whole reason is to be the best little restaurant in Berkeley. In fact, their footprint, as far as their influence on other restaurants, is enormous for a tiny little restaurant. A lot of the great chefs in America all worked at Chez Panisse. I’m interested in having the best company and that has nothing to do with how big you are.

I think the fact that we want to be here 100 years from now really keeps us honest. We make long-term decisions. It’s no different than why [Warren] Buffet is such a good investor. He’s in it for the long term, not the short term.

RW: He also has some very important values that add to that long-term view. It appears you certainly share some of those values, maybe in different ways. I was impressed to hear that Patagonia was one of the first to have a childcare center right in the company. And that makes such enormous sense, especially if you are trying to hire and keep the very, very best. To keep employees and keep them happy and productive, you have to give them superlative treatment. You have to give them the best opportunity to perform well.

YC: When we started writing down what our values were, one of our values was that we wanted to work with friends, and we wanted to blur the distinction between work and play and family. We didn’t want to drag our asses to work every day and not take them home, or not bring home into work. We wanted our kids around us while we were working, so for example, if you are breast-feeding, you can continue doing that at work. It also gives the kids a realistic idea of what life is. Their parents just don’t disappear for most of the day and then reappear. The children see themselves in the childcare center as working there. Their parents work over there, and they work here. In fact, I look at the kids coming out of our childcare center as the best product that we have. When they go to school, they’re always the best kids in school—the most polite, the smartest, gregarious. They are being raised by the entire village. One of our values is the fact that we want to blur the distinction between work and play. That’s why my book is called Let My People Go Surfing. In fact I’m going surfing right after this.

RW: Good surf today?

YC: Yeah.

RW: One of the things that I’ve discovered in shopping and looking at various items is that quite often, it seems that the clothing, shoes and even socks are a better quality in Europe than we can get in the U.S. It’s like they really spend some time thinking about products, trying to improve on them to make them last. I really like that similar concept of your business. Tell us about your approach.

YC: I got one of these books on the end of oil, and I passed it around to all of our management here. I said read this. It’s kind of an eye-opener in that we are going to run out of oil a lot sooner than what the oil companies have been saying and what Saudi Arabia is saying. The reserves are way less than what are down on the books. It’s going to happen very quickly. We already see it. The price of transportation for our product is probably going to be the highest costs in the future. I sent this book out and everyone asked, well, what are we going to do? Are we going to just sit back and be like General Motors and Ford and wait for the economy to hit us over the head, or are we going to be proactive about this.

We sell a lot of ski clothing, and when I see climate change, it may not snow again. It’s desperate. They’ve got no snow at all in Europe this year. The ski business is on the rocks. I’m saying, OK, this is an opportunity. We’ve got to get away from being dependent on making all of this cold weather stuff and get into the surf business, because the waves are going to get bigger, the storms are going to get bigger and people are going to go to tropical areas.

I had one guy, who is head of our fabric lab, come to me and say, “Here’s my response about what we should do about running out of petroleum. By 2010, we are going to make all of our products out of recycled and recyclable fibers.” In other words, I’m doing the same thing BMW did years ago when they looked at their car and said we have to make our cars so they’re recyclable. There were 19 different plastics on the dashboard that were non-compatible, and they started designing their cars so that they can be recycled. By 2010, which is three years from now, we hope to have 100 percent of our products made out of recycled materials and also recyclable.

We’ve already started that with polyester. We’re asking our customers to send back their worn-out Capilene underwear, which is polyester, their fleece jackets and anything made out of polyester from us, and we’re going to melt them. We send it to Japan on a ship, which is very low-cost since the ships are empty going back to Japan. Our partner in recycling, Teijin, spent $100 million on a recycling plant that melts polyester down into its original polymer and makes more fiber and more cloth out of it. We’re also in partnership with a company that’s doing that in Japan with nylon 6. And we’re recycling cotton and making sweatshirts with our recycled cotton. What people are doing with aluminum cans and steal, we’re the first ones to do that with clothing.

RW: BMW, as well as Mercedes, actually charge on the front end for recycling, so the original consumer is paying for the cost for that car to be recycled later. It would be interesting if you could apply that same concept to your clothing, that there would be a slight surcharge.

YC: We don’t charge, but what we do is accept the responsibility of the product from birth to birth. For example, Apple Computers or Apple iPods—they don’t give a shit what happens to [the devices] after they sell them. They take no responsibility for them whatsoever. I think that’s wrong. I think business has to be responsible for not only how it makes a product but for the product itself. From birth to birth again. Not birth to death, because we have to get away from this consume and discard society.

RW: That’s a very good point. Do you think that’s something companies are going to do voluntarily or is that going to be forced on them with legislation?

YC: I don’t have much faith that the government is going to do anything, but I can tell you that there is a revolution in business going on right now. And it’s only been going on for the last two years, maybe the last year or six months. There’s company after company making big changes. I heard just a couple of weeks ago Rupert Murdock, one of the most conservative guys in America, told all of these people that they have to start greening their companies. Some of them are doing it because it’s the right thing to do, but others see it as a huge opportunity to make money. Would you rather own stock in Safeway or Whole Foods? Would you rather own stock in Toyota or General Motors? The ones that are ahead of the curve are the ones to invest in, because that’s the future. That’s why I consider my company an experiment. But so far, it’s proven to me over and over again that every time we make a decision because it’s the right thing to do, it also ends up making us more money.

RW: I saw a quote from you: “Every time I’ve done something right for the environment, I’ve made a profit.”

YC: Right, right. It’s amazing. Do you know Wal-Mart is discovering that? I had seven executives from Sam’s Club here recently. They’re saying that three years ago, they were throwing all of their plastic away, all their packaging and stuff like that, and now they’ve decided to bundle it up and there was so much of it, they said, “Let’s see if there is a market for this.” They are going to make a $110 million this year on recycling their plastic! And they’re going to take it further.

You’ve got to ask yourself, OK I can green my company, but how about all of my suppliers? Should I take it further than that? And Wal-Mart is taking it further. They have had a big conference where they’re bringing in hundreds of their packaging suppliers and [other] suppliers and having a huge packaging conference, trying to eliminate it as much as possible—you know when you buy a tube of toothpaste it comes in a box and you throw the box away, it’s totally uncecessary.

RW: Incidentally, we will begin building the first green building in our section of Iowa. I originally started my company there. It’s now spread all over the world, but the headquarters are currently in Chicago, and I want to move it back to Iowa because I like the values there. It’s interesting that the local governments are not equipped to really judge, as far as zoning and engineering go, what a green building is. We’re having to go through an enormous educational process just to get them up to speed so that they can properly administer the creation of this building. It is an odd experience.

YC: Well I know exactly what you are talking about. I built a house out of all recycled materials and used broken up sidewalks. It looks kind of like a stone house. My gosh, the planning department had no idea what to do about that. If you are trying to build a straw bale house where there has never been a straw bale house around, they have no idea how to deal with that.

Gunter Polly, for the last World’s Fair, tried to build a bamboo pavilion in Germany and they wouldn’t allow him to do it, because it’s completely out of their knowledge. They agreed to do it if he built it in Columbia and paid for the engineers to go to Columbia and put the stress test on it, and then he’d have to take it down and send it to Germany, which he did. The engineers went down to Columbia and they put the stress test on it and they said, “Oh, we have to send our measuring devices, or whatever they are, back to Germany because they aren’t working. It must be the humidity.” Well what’s the problem? Well, they were getting 10 times the strength that they expected to get out of this building. What you’re doing is exactly what I’m doing here—experimenting, taking the risk and showing that it’s good business. Then, the other businesses can have the confidence that they can do the same and then it’ll work for them.

RW: That’s so important. You have made the comment that you’re not an inventor, you’re an innovator. That’s so terribly important, because there is a very, very small number of innovators who are willing to take the risk, or the entrepreneurial risk, to try something. And if it succeeds the early adapters will come in and then the whole crowd gets involved. The innovators are a critical part of our nation’s economy. Do you like to take risk?

YC: What some people consider risk, I don’t consider risk. I’ve been a mountain climber all of my life. I do a lot of risk-type sports: whitewater kayaking, surfing and things like that. I don’t think there is risk whatsoever if you’ve done your homework. That’s the whole thing. It’s managed risk. I love living on the edge in some of these sports, but I never go over the edge. I think the biggest risk is just to be stupid, to not do your homework. That’s where I see a lot of businesses go under. That’s why I keep on trying to convince our employees here. I say, “OK, come out with that jacket, but do your homework. Show it around to a lot of people. See what they think and ask the right questions and just don’t come out with it and hope it sells.”

RW: What’s been your biggest mistake?

YC: Biggest single mistake? Well I’ve got a lot of answers! I think the biggest mistake is probably hiring the wrong person for the job. And that really hurts in a family-style business, and it hurts even worse when you hire close friends or something like that and they don’t work out. That’s where you’ve got to really do your homework, because it not only hurts business. I’m not like Jack Welch, [CEO of GE], who takes 10 percent of the work force and fires them every year! You can’t do that in a family-style business, you have to be really careful in who you hire.

RW: I’ve encountered that same experience, but the difficulty is knowing in advance who can handle the kind of environment you are putting them into. Your office is not a typical office situation. People have free time and can go surfing. It takes a special type of person to go out and enjoy that and to come back and put their nose to the grindstone.

YC: To be self-motivated.

RW: How do you determine that?

YC: I can’t interview people to tell you the truth. I can’t sit across a desk from somebody and interview them. I get nothing out of it. I’m too gullible; they could tell me anything, especially a woman! I tell you one thing, if I go and do one of the sports I do with them, I can size them up really, really well. My wife is a lot better at interviewing. I think women are much better at interviewing than men. They cut through the bullshit, and they’ve got that intuition. I’m terrible at it. But once I do go surfing, climbing or some outdoor sport with them, I can immediately size them up.

RW: Does your wife work in the company?

YC: Oh yeah.

RW: Has that ever been a problem?

YC: No, no. It’s really a good partnership. She’s interested in HR issues, the architecture of our retail stores, that kind of stuff. Things that I’m not interested in.

RW: As a financial firm, I probably have more female employees than any other of my peers.

YC: Well we’ve got like 79 percent here.

RW: I think we’re pretty close to that. I don’t think it’s because women are better workers or anything like that, I think that they’re probably on the leading edge of what we’re trying to accomplish. The business school boys who have gone through traditional business probably are a little behind the curve.

YC: Oh way behind—absolutely way behind. As far as I’m concerned, they’re unemployable.

RW: What’s your best success?

YC: I think starting 1% for the Planet. That’s my proudest achievement. It’s an alliance of 540 companies now, all pledging to give 1 percent of their sales to environmental causes. That’s a big deal. And it’s growing like crazy. It’s all companies that recognize the government is not going to do it. We should be taxing ourselves for being polluters and using up non-renewable resources. If you believe that, then you do it, and that’s what 540 of these companies are doing. I’m pretty proud of that. There are no public companies [involved], by the way.

RW: No public companies?

YC: Not one. Which is saying something about why public companies exist. [The participants] are all little yoga studios, barber shops, small wineries—all small businesses where it really hurts to take 1 percent of sales and give it away. There’s a message there. Eventually public companies will join, when they concede there is a marketing advantage to belonging. I don’t see any of them joining, because it’s the right thing to do at all.

RW: Given some of the current riggors public companies have to go through, they could actually cause a shareholder uprising by doing it, which seems counterintuitive doesn’t it?

YC: Yeah, for the same reasons public companies are not held responsible, you can’t just do anything you want with other people’s money. Whereas a private business, you can just save up and say let’s do it.

RW: My company is trying to do it too, but my cause is slightly different from yours. We give close to 4 percent of sales to orphan diseases, children’s diseases that are underfunded for research. That’s kind of my thing, and I think all of us need to be socially conscious and make those kinds of efforts.

YC: I was just reading an article about how much money billionaires give away a year, and clear across the board, whether it’s Bill Gates or whoever, they are all giving less than 1 percent of their incomes. Less than 1 percent of their income a year; I mean the Mormons are tithing 10 percent! Your average middle-American is giving more than that usually. It’s amazing, people think of these great billionaire philanthropists, but as a percentage of their total yearly income, it’s very, very little.

RW: By the way, I want to thank you for the neat little chart that I got from your store that tells me which ­­­fish are sustainable and which aren’t. My wife and I use that constantly. It makes perfect sense, because some of the fish that people think are the most plentiful are on your endangered list.

YC: I write about that in my book, where I think more damage is caused to the environment unknowingly, just from people living an unexamined life, not asking the questions. I think most people will do the right thing if they know what the result is.

RW: Well that’s a great final statement. I think you are doing some very important work, and I congratulate you. Have a great day surfing.