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I'VE BEEN A BUSINESSMAN for almost 50 years. It's as difficult for me to say those words as it is for someone to admit to being an alcoholic or a lawyer.

I've never respected the profession. It's business that has to take the majority of the blame for being the enemy of nature, for destroying native cultures, for taking from the poor and giving to the rich, and for poisoning the earth with the effluent from its factories. Yet business can produce food, cure disease, control population, employ people, and generally enrich our lives. And it can do these good things and make a profit without losing its soul.

My company, Ventura, California–based Patagonia Inc., maker of technical outdoor apparel and gear, is an ongoing experiment. Founded in 1973, it exists to challenge conventional wisdom and present a new style of responsible enterprise. We believe the accepted model of capitalism, which necessitates endless growth and deserves the blame for the destruction of nature, must be displaced. Patagonia and its thousand employees have the means and the will to prove to the rest of the corporate world that doing the right thing makes for good, financially sound business.

One of my favorite sayings about entrepreneurship is "If you want to understand the entrepreneur, study the juvenile delinquent." The delinquent is saying with his actions, "This sucks. I'm going to do my own thing." Since I had never wanted to be a businessman, I needed a few good reasons to be one. One thing I did not want to change, even if we got serious: Work had to be enjoyable on a daily basis. We all had to come to work on the balls of our feet and go up the stairs two steps at a time. We needed to be surrounded by friends who could dress whatever way they wanted, even be barefoot. We all needed flextime to surf the waves when they were good or ski the powder after a big snowstorm or stay home and take care of a sick child. We needed to blur the distinction between work and play and family.

Breaking the rules and making my own system work is the creative part of management that's particularly satisfying for me. But I don't jump into things without doing my homework. In the late seventies, when Patagonia was really starting to grow some legs, I read every business book I could find, searching for a philosophy that would work for us. I was especially interested in books on Japanese and Scandinavian styles of management, because I wanted to find a role model for the company; the American way of doing business offered only one of many possible routes.

In growing our young company, however, we still used many traditional practices—increasing the number of products, opening new dealers and new stores of our own, developing new foreign markets—and soon we were in serious danger of outgrowing our breeches. By the late eighties we were expanding at a rate that, if sustained, would have made us a billion-dollar company in another decade. To reach that theoretical mark, we would have to begin selling to mass merchants or department stores. This challenged the fundamental design principles we had established for ourselves as the makers of the best products, compromised our commitment to the environment, and began to raise serious questions about the future. Can a company that wants to make the best outdoor clothing in the world be the size of Nike? Can we meet the bottom line without giving up our goals of good stewardship and long-term sustainability? Can we have it all?

It would take 20 years, and the near collapse of our company, to find the answers.

My lifelong adventure in business took root in Southern California. My family had moved from Lisbon, Maine, to Burbank, California, in 1946, when I was eight, because my mother, the real adventurer among us, thought the drier climate would help my father's asthma. My father was a tough French Canadian who worked as a journeyman plasterer, carpenter, electrician, and plumber, and I had an older brother and two older sisters.

It was in California that I would discover climbing, at age 15, in the outskirts of Los Angeles, after helping found the Southern California Falconry Club in the early fifties. One of the adult members, Don Prentice, taught us how to rappel down to the falcon aeries on cliffs, showing us how to wrap manila rope (stolen from the telephone company) around our hips and over our shoulders to control the descent. Through high school and into my years as a student at Valley Junior College, in Valley Glen, California, I started hanging with young members of the Sierra Club—a group that included Royal Robbins, who would go on to start his own successful clothing company, and Tom Frost, an aeronautical engineer who would become my business partner from 1966 to 1975—and climbing the sandstone cliffs of Stoney Point, at the west end of the San Fernando Valley, and at Tahquitz Rock, near Palm Springs.

By the time I was 18, my climbing buddies and I had migrated to the big walls of Yosemite. Because we were pioneering long routes requiring hundreds of piton placements, I bought an old forge and taught myself blacksmithing so I could make my own hard-steel pitons. (The softer European kind didn't work well in Yosemite's uneven granite cracks.) During the sixties, I worked on my equipment in the winter months, spent April through July on the walls of Yosemite, and during the heat of summer headed out for the Alps and the high mountains of Wyoming and Canada—all interspersed with surf trips down to Baja and mainland Mexico. I supported myself by selling homemade gear out of the back of my car, supplementing my meager income by diving into trash cans and redeeming bottles for cash.

By 1971, two important things had happened: I'd met and married Malinda Pennoyer, an art student at Fresno State who spent summers working as a cabin maid in Yosemite and who would go on to become my partner in all aspects of the Patagonia business; and I had produced my first clothing: knickers and double-seated climbing shorts made from superheavy corduroy produced by an old mill in Lancashire, England. Back then, "active sportswear" consisted of your basic gray sweatshirt and pants, and standard issue for Yosemite climbing was tan cutoff chinos and white dress shirts bought from the thrift store. Though I just wanted more durable and comfortable climbing clothes for myself and my friends, I soon realized I had stumbled onto an entirely untapped market.

In the early seventies, my company, Chouinard Equipment, took over an abandoned meatpacking plant in Ventura and began to renovate its old offices as a retail store. Customers were responding to our "hand-forged" clothing, and we sold more and more items, including Chamonix guide sweaters, classic Mediterranean sailor shirts, canvas pants and shirts, and a technical line of rainwear—a predecessor of Gore-Tex—called Foamback. The apparel was such a success we decided it needed its own name to distinguish it from Chouinard Equipment's hardware line.

A few years earlier, in 1968, several friends (including Doug Tompkins, founder of The North Face) and I had taken a six-month road trip to the tip of South America, surfing the west coast of the Americas down to Lima, Peru, skiing volcanoes in Chile, and climbing 11,073-foot Fitz Roy, in Argentina's Patagonia. To most people, especially then, Patagonia was a name like Timbuktu or Shangri-La—far off, interesting, not quite on the map. It seemed like just the right idea for our clothing. To reinforce the tie to the real Patagonia, in 1973 we created a logo with a stormy sky, jagged peaks based on the Fitz Roy skyline, and a blue Southern Ocean.

We debuted our pile sweater—the precursor to our Synchilla fleece—in 1973; it was made from a polyester fabric intended for toilet-seat covers. Then we launched our first polypropylene underwear, in 1980, and became the first company to preach the virtues of layering. This new type of high-performance "system" amounted to blockbuster success: From the mid-eighties to 1990, sales skyrocketed from $20 million to $100 million. Most companies would relish such rapid growth, but for us it was nearly disastrous.

By 1991, I had transformed from a modest smithy and adventurer in business with a few friends—including Kris McDivitt (now Kris Tompkins), our CEO and general manager on and off for 15 years, between 1979 and 1994—into the guy in charge of a multi-million-dollar corporation with 650 employees. But with a big company came big problems.

In the late eighties, Chouinard Equipment became the target of several lawsuits. None involved faulty equipment or climbers. We were sued by a window washer, a plumber, a stagehand, and someone who broke his ankle in a tug-of-war contest using our climbing rope. The basis of each suit was improper warning—that we had failed to properly warn these customers about the dangers inherent in using our equipment for uses we could not predict. Then came a more serious suit, from the family of a lawyer who was killed when he incorrectly tied into one of our harnesses in a beginner climbing class.

The litigators thought that Chouinard Equipment and Patagonia were the same company and that, since Patagonia was doing so well, they could milk the corporation. Our insurance company refused to fight any of the suits, because of the costs involved, and settled out of court. Our premiums went up 2,000 percent in one year. Eventually, Chouinard Equipment filed for Chapter 11, a move that gave the employees time to gather capital for a buyout. They successfully purchased the assets, moved the company to Salt Lake City, and built their own company, Black Diamond Equipment Ltd., which to this day continues to make the world's best climbing and backcountry-ski gear.

Still other issues loomed. The general interest in outdoor sports and adventure was exploding in the U.S. and overseas, and we were riding the growth. We expanded internationally, opening retail stores in Chamonix and Tokyo. At the beginning of the nineties, we added another 100 employees, and projected continued annual growth of 40 percent, a rate we'd been experiencing for the past several years. But we made some classic mistakes. We failed to provide the proper training for the new company leaders, and the strain of managing a company with eight autonomous product divisions and three channels of distribution exceeded management's skills. We never developed the mechanisms to encourage them to work together in ways that kept the overall business objectives in sight.

Several planning efforts had to be aborted; no one could solve the Rubik's Cube of matching market-specific product development with such a complex distribution mix. Organization charts looked like the Sunday crossword puzzle and were issued almost as frequently. The company was restructured five times in five years; no plan worked better than the last one. I personally love change, but I was driving everyone crazy by constantly trying new ideas without a clear direction for where we were trying to go.

We desperately needed some help, so in early 1990 Malinda and I, along with our CEO, Pat O'Donnell, and CFO, Bill Bussiere, made arrangements to meet with Michael Kami, a well-regarded consultant who had run strategic planning for IBM and helped turn Harley-Davidson around in the eighties. The next thing we knew, we were boarding a Florida-bound plane to see him.

Kami was a small man in his late sixties with a squeaky, Swiss-German-accented voice, a full beard, and a lot of restless energy. We met on his enormous yacht, and he wore a captain's cap and an open shirt with epaulets.

Before he could help us, he said, he wanted to know why we were in business. I told him I'd always had a dream that when I had enough money, I'd sail off to the South Seas looking for the perfect wave and the ultimate bonefish flat. We told him the reason we hadn't sold out and retired was that we were pessimistic about the fate of the world and felt a responsibility to use our resources to do something about it. We told him about our tithing program—our pledge to donate 10 percent of our profits to environmental causes—and how we had given away a million dollars just in the past year to more than 200 organizations, and that our bottom-line reason for staying in the business was to make money we could give away.

Kami thought for a while and then said, "I think that's bullshit. If you're really serious about giving money away, you'd sell the company for a hundred million or so, keep a couple million for yourselves, and put the rest in a foundation. That way you could invest the principal and give away six or eight million dollars every year. And, if you sold to the right buyer, they would probably continue your tithing program because it's good advertising."

My managers protested.

"What are you worried about?" Kami said, turning to them. "You're young. You'll find other jobs!"

I said I was worried about what would happen to the company if I sold out.

"So maybe you're kidding yourself," he said, "about why you're in business."

It was as if the Zen master had hit us over the head with a stick, but instead of finding enlightenment, we walked away more confused than ever.

I was still wondering why I was really in business when, in 1991, after all those years of 30 to 50 percent compound annual growth, Patagonia hit the wall. The country had entered a recession, and the growth we had always planned on, and bought inventory for, stopped.

Our sales crunch actually came not from a decline from the previous year but from a "mere" 20 percent increase; still, it nearly did us in. Dealers canceled orders, and inventory began to build. Neither the mail-order nor the international division could meet its forecasts, and both returned inventory as well. We cut back production as much as we could for spring and fall. We froze hiring and nonessential travel. We dropped new products and discontinued marginal sellers. On July 31, 1991, Black Wednesday, we let 120 employees go—20 percent of the workforce. That was certainly the darkest day of Patagonia's history.

Our own company had exceeded its resources and limitations; we had become dependent, like the world's economy, on growth we could not sustain. We were forced to rethink our priorities and institute new practices. First step: I took a dozen of my top managers to Argentina, to the windswept mountains of Patagonia, for a walkabout. In the course of roaming around those wildlands, we asked ourselves, once again, why we were in business and what kind of business we wanted to build.

When we returned, we put together our first board of directors, made up of trusted friends and advisers, including author and deep ecologist Jerry Mander. At one of our board meetings, when we were struggling to put our mission into words, Jerry skipped lunch and went off by himself. He returned with a perfectly crafted article that outlined "an ‘ecology' of values that can mitigate the environmental and social crisis of our time." Those words became the basis for Patagonia's philosophies, clear and specific principles that expressed our thinking as it applied to different parts of the company: design, production, distribution, images, human resources, finance, management, and the environment.

I had long practiced my M.B.A. theory of management—management by absence—while I wear-tested our clothing and equipment in the most extreme conditions of the Himalayas and South America. It fueled new and exciting ideas for products, new markets, or new materials, but it also fueled my growing awareness of the environmental and social devastation going on around the world. Rather than bailing out in disgust, I saw an opportunity to create an entirely new kind of company. I wanted to make sure every employee at Patagonia understood our business and environmental ethics, so I began to lead multi-day employee seminars in the philosophies, going by bus to Yosemite or the Marin Headlands, north of San Francisco, where we'd camp out and gather under the trees to talk.

I realize now that I was trying to instill in my company the lessons I'd already learned as an individual and a climber, surfer, kayaker, and fly-fisherman. I had always tried to live my own life fairly simply, and by 1991, knowing what I knew about the state of the environment, I had begun to eat lower on the food chain and reduce my consumption of material goods. Doing risk sports had taught me another important lesson: Never exceed your limits. You push the envelope, and you live for those moments when you're right on the edge, but you don't go over. You have to be true to yourself; you have to know your strengths and limitations and live within your means. The same is true for a business. The sooner a company tries to be what it is not—the sooner it tries to "have it all"—the sooner it will die.

having the philosophies in writing, and the shared cultural experiences of our classes, played a critical role in the company's turnaround, at the end of 1991. Within a few years we had eliminated several layers of management, consolidated inventories, and brought our sales channels under control—meaning that for the next decade and a half we would refocus on living up to our mission statement: "Make the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis."

But what good does having fixed philosophies do when everything in the business world is so dynamic? How does Patagonia follow its philosophies in light of the expanding Internet market, the effects of NAFTA and the WTO, dozens of technological leaps that significantly affect design and production, new and different employee demographics, and the ever-changing styles and lifestyles of customers?

The answer is that our philosophies aren't rules—they're guidelines. For example, our mission statement says nothing about making a profit. In fact, Malinda and I consider our bottom line the amount of good that a business has accomplished over one year. At Patagonia, profit is not the goal, because, as the Zen master would say, profits happen when "you do everything else right." In many companies, the tail (finance) wags the dog (corporate decisions). We strive to balance the funding of environmental activities with the desire to continue in business for the next 100 years.

Our financial decision-making reflected our environmental ethics. Back in the mid-nineties, to cite just one instance, we changed the packaging of our thermal underwear. We were using a thick, wraparound cardboard header inside a heavy Ziploc plastic bag. Instead, we decided to hang up the heavier long underwear like regular clothing and simply bundle our lighter underwear with a rubber band. The first year after the change, we saved 12 tons of material from winding up in a landfill, saved $150,000 in packaging, and boosted sales by 25 percent—largely because the product wasn't hidden in a wrapper and people could feel the material and appreciate its quality.

Because we are a privately held company, we could make these kinds of decisions without worrying about the demands of shareholders. This allowed us to grow at a natural rate. When our customers told us they were frustrated by not being able to buy our products because of constant out-of-stock situations, we made more. We have not created artificial demand for our goods by advertising in Vanity Fair or GQ, or on buses in inner cities, hoping to get kids to buy black down jackets from us instead of The North Face or Timberland. We want customers who need our product, not just desire it.

Of course, we also want—and need—to make money, but we believe that's best accomplished by remaining nimble and efficient. One of our goals has been to have no debt. A company with little debt, or with "cash in the kitty," can take advantage of opportunities as they come up or invest in a startup without having to go further in debt or find outside investors. One of our most recent examples is a Japanese fabric mill we're working with to help us switch all of our polyester items, like our Capilene underwear, to 100 percent recycled material—something we probably couldn't have done if we carried a lot of debt. Managing our finances this way helps the company remain in yarak, a falconry term derived from Persian and meaning "superalert, hungry but not weak, and ready to hunt."

This kind of independent thinking applies to our management philosophy as well. In fact, our employees are so independent, we've been told by psychologists, that they would be considered unemployable in a typical company. We don't want drones who will simply follow directions. We want the kind of employees who will question the wisdom of something they regard as a bad decision but, once they buy into something, will work like demons to produce something of the highest possible quality—whether a shirt, a catalog, a store display, or a computer program. How you get these highly individualistic people to align and work for a common cause is the art of management at Patagonia.

Part of the key is strong communication. We have no private offices at our Ventura headquarters; everyone works in open rooms with no doors or separations. What we lose in "quiet thinking space" is more than made up for with better communication and an egalitarian atmosphere. Managers try to lead by example. We don't have special parking places; the best spots are reserved for fuel-efficient cars, no matter who owns them. Malinda and I pay for our own lunches in the cafeteria, so that we don't send a message that it's OK to take from the company. And we have an open-book policy; financial details are available with all employees to promote full transparency.

A familial company like ours runs on trust rather than authoritarian rule. Maybe a few people take advantage of our flextime and our "let my people go surfing" policy, but none of our best employees would want to work in a company that didn't have that trust. They understand that my M.B.A. style of management is as much a sign of my trust in them as my desire to be out of the office.

Because style is so important, I often use climbing mountains as an illustration. You can solo-climb Everest without using oxygen or you can pay guides and Sherpas to carry your loads, put ladders across crevasses, lay in 6,000 feet of fixed ropes, and have one Sherpa pulling you and another pushing you. Rich, high-powered plastic surgeons and CEOs who attempt to climb Everest this way are so fixated on the target—the summit—that they compromise on the process. The goal of climbing big, dangerous mountains should be to attain some sort of spiritual and personal growth, but this won't happen if you compromise away the entire process.

When it comes to the environment, it's probably no secret that I'm a total pessimist about the fate of the natural world. In my lifetime I've seen nothing but a constant deterioration of all of the processes that are essential to maintaining healthy life on Planet Earth. Most of the scientists and deep thinkers in the environmental field who I know personally are also pessimistic, and they believe that we are experiencing an extremely accelerated extinction of species—including, possibly, much of the human race.

In Edward O. Wilson's 2002 book The Future of Life, he describes the time we live in as "nature's last stand." His "living planet index," which measures the condition of the world's forests and freshwater and marine ecosystems, puts humanity at an environmental bottleneck of our own making. The 21st century must become the Century of the Environment, Wilson insists. If government, the private sector, and science don't begin to cooperate immediately to address issues of environmental degradation, the earth will lose its ability to regenerate. In other words, life as we know it is toast.

Thinking these dark thoughts doesn't depress me; in fact, I'm a happy person. I'm a Buddhist about it all. I've accepted the fact that there is a beginning and an end to everything. Maybe the human species has run its course and it's time for us to go away and leave room for other, one hopes, more intelligent and responsible life forms.

Then again, maybe there's something we can do about it. Patagonia's environmental efforts began in the seventies with simply trying to prevent physical damage to the rock walls of Yosemite. It was about clean climbing and making high-quality products that weren't disposable. Later we started looking at minimizing the environmental harm associated with manufacturing our products.

One of the hardest things for a business to do is to investigate the environmental effects of its most successful product and, if it's bad, change it or pull it off the shelves. We confronted this when we were looking into switching over to organic cotton, in the mid-nineties. Though we successfully made the transition, we still haven't completely solved the problem. Even when cotton is grown without toxic chemicals, it still uses an inordinate amount of water and cannot be grown year after year without permanently depleting the soil. When a cotton garment is worn out, it is usually thrown away. We have to dig deeper and try to make products that close the loop—clothing that can be recycled infinitely into similar or equal products, which is something we continue to strive for.

Despite the challenges involved, we've found that every time we've elected to do the right thing, even when it costs twice as much, it's turned out to be more profitable. This strengthens my confidence that we're headed in the right direction. Our Environmental Assessment Program educates us, and with education we have choices. When we act positively on solving problems instead of trying to find a way around them, we're farther along the path toward sustainability. Plus we're constantly discovering more things we can do, both internally and externally.

Back in the early eighties, one of the maintenance employees asked if I knew how much it cost to line every wastebasket with a plastic bag: $1,200 a year. I said get rid of them, but he returned the next day to report that the janitorial service refused to clean unlined baskets if people threw away wet garbage like coffee grounds or food. So we gave each employee a personal trash can for recyclable paper and made everyone responsible for disposing of wet garbage in separate containers scattered throughout the offices.

No matter how diligent we are at Patagonia, everything we make causes some waste and pollution. So our next step is to pay for our sins until such a time that we hope to stop sinning. Since the early eighties we have donated $22 million in cash and in-kind donations to activist groups committed to environmental causes. In 1996, we pledged to give 1 percent of our total sales to environmental causes, meaning that whether we turned a profit or not, whether we had a great year or a bad one, we had to give. Last year this meant donations of $2.4 million. In 2001, we helped start 1% for the Planet, an alliance of 148 companies committed to giving at least 1 percent of their sales to saving the planet.

Our efforts, and those of others who work toward similar goals, are making an impact. The organic-food industry is growing at a rate of more than 20 percent a year. Worldwide demand for organic cotton has tripled in the nine years since we changed over. As this drives costs down, large companies like Nike buy organic cotton to blend in with their industrial cotton as a way to support the cause but not price themselves out of the market. Some of the fiber mills we work with, at our prodding, are actively researching ways to eliminate toxic materials like antinomy and methyl bromide in polyester.

If Patagonia can continue to be successful operating under the constraints of our environmental philosophy, then perhaps we can convince other companies that green business is good business, and they can gain the confidence to take a few steps in the right direction.

When Malinda and I made the decision to stay in business, we faced a personal challenge: Could we run a company that does much good and very little harm? Could we turn the company into a model, capable of effecting reform that we as individuals would be unable to accomplish? Could we actually change the way others treat the natural world?

The Zen master would say if you want to change government, you have to aim at changing corporations, and if you want to change corporations, you first have to change the consumers. Whoa, wait a minute! The consumer? That's me. You mean I'm the one who has to change?

The original definition of consumer is "one who destroys or expends by use; devours, spends wastefully." It would take seven Earths to provide enough raw materials to allow the rest of the world to consume at the same rate Americans do. Ninety percent of what we buy in a mall ends up in the dump within 60 to 90 days. It's no wonder we're no longer called citizens but consumers. Our politicians and corporate leaders are fair reflections of who we've become.

When I look at my business, I realize one of the biggest challenges I have is combating complacency. If I say we're running Patagonia as if it's going to be here a hundred years from now, that doesn't mean we have a hundred years to get there! Our success and longevity lie in our ability to change quickly. Continuous innovation requires maintaining a sense of urgency—a tall order, especially in Patagonia's seemingly laid-back corporate culture. In fact, one of the biggest mandates I have for my managers is to instigate change. It's the only way we're going to survive in the long run.

The American dream is to own your own business and grow it as quickly as you can until you can cash out and retire to the golf courses of Leisure World. The business itself is really the product, and it doesn't matter whether you're selling shampoo or land mines. When the company becomes the fatted calf, it's sold for a profit, and its resources and holdings are often ravaged and broken apart, disrupting family ties and the long-term health of local economies. The notion of businesses as disposable entities carries over to all other elements of society.

When you get away from the idea that a company is disposable, all future decisions in the company are affected. The owners and the officers see that, since the company will outlive them, they have responsibilities beyond the bottom line. Perhaps they will even see themselves as stewards of the earth.

Patagonia will never be completely socially responsible. It will never make a totally sustainable, nondamaging product. But it is committed to trying. We simply don't have any other choice. As the late environmentalist David Brower once put it, "There's no business to be done on a dead planet."