Clothing and gear manufacturer Patagonia has always relished the challenge of a hard climb. Since its founding in 1975 by legendary outdoorsman and environmentalist Yvon Chouinard, the company has pursued a dual mission: to make a profit even as it “uses business to inspire solutions to the environmental crisis,” says Rose Marcario, the company’s chief operating officer and CFO.
A corporate-finance veteran who has held top positions at LA Gear, National Rectifier, and General Magic, Marcario, 46, says she initially entertained “a healthy skepticism” about Patagonia’s determination to succeed on its own terms. “I didn’t think it was possible to blend a social and environmental mission with profit targets, but now I am a total convert,” she says.
And why not? Privately held Patagonia (Chouinard refuses to take the company public) has been profitable for most of its existence, generating about $400 million in annual revenues. Indeed, the contrarian company has even managed to defy the recent economic downturn: Patagonia recorded its best two years in 2008 and 2009, in terms of revenue and net income, and is on firmer financial ground than ever.
Still, like finance chiefs — and COOs — of more-conventional companies, Marcario had tough choices to make during the recession, as she told CFO in a recent interview.
How do you reconcile being a COO who has to spend to develop products and a CFO who has to rein in spending?
I hate CFOs who always say no. I think the best CFOs are operationally oriented and know how to balance a responsible spending model with a strategic plan. You have to take risks and work hard at creating an environment of transparency. I’ve seen in my own career that it’s a mistake when finance chiefs are too proprietary about information — when they have an old-school paradigm where knowledge equals power and it’s best to hoard it. That’s never good for a company.
Focusing on your CFO role, what’s been most challenging in steering Patagonia through the recent crisis?
The toughest forward-looking decision was related to our inventory purchasing plan. I was looking very hard at style proliferation — Patagonia is known for being innovative and introducing a lot of new products every season. I was trying to trim back a little and balance our desire to offer new styles with our need to manage inventory based on weakening preseason orders.
Also, we decided to freeze hiring and salaries, and we stopped our 401(k) discretionary match. Everyone at the company went into belt-tightening mode, because it was a very uncertain time. Fortunately, when 2009 came to an end and we did a full assessment, we saw that we had fared well, and we gave back what we asked the company to sacrifice, by retroactively reinstating all the employee raises for the year, reinstating the 401(k) matching contributions, and lifting the hiring freeze.
What about external pressures, such as access to credit?
Our main operating line came up for renewal right in the middle of the financial crisis. I could have put off the renegotiation because we had a strong balance sheet, but I decided to just go for it, since I was operating from a position of strength — we were still thriving and growing. In the end, the crisis made our banking relationships stronger and more flexible because lenders viewed us as a good partner (see related story, “Take Control of Your Bankers“). At a time when many banks were slashing credit lines, we nearly doubled our capacity and got better terms. I wouldn’t have believed it if I hadn’t lived through it.