Organizational Audit of Recreational Equipment, Inc.

Jacob Hetu
12/10/2021
 Company History – Who we are
REI was founded in 1938 when a group of 23 climbing
friends, united by their love for the outdoors, decided to
source quality and affordable gear for their adventures.

In 1935 Lloyd and Mary Anderson made a conscious

decision: They needed a better way to purchase gear. It all
started with an Axe. Quality ice axes were available for $20
from middle men at local ski shops.

Lloyd began ordering quality ice axes directly from Austria

for 3.50 relying on Mary’s German skills to translate the
catalogs. Friends and colleagues quickly caught word of
what the Andersons were up to…

Fig 1 In 1938, with the help of a lawyer friend, Lloyd, Mary and
21 other Seattle-area adventures officially formed the co-
op, each joining for a 1$ lifetime membership fee.
 What are Firms of Endearments?

A Firm of Endearment is a company that endears itself to stake holders by bringing the interests of
all stakeholder groups into strategic alignment.1

Firm of Endearments (FOEs), strive for a share of heart – They want emotional bonds and
interconnectedness instead of purely profit drive data management

Compared to others, FOEs often have better employee compensation and benefits, lower CEO
salaries, lower turnover, better training programs, lower marketing costs, and better environmental
protections
 What are Firms of Endearments? Cont.

FOEs can be said to self actuate

Self actuation in psychology is the pinnacle of human development

When applied in the business world, it when an organization focuses on virtues as well as typical
business goals. For example, giving back to all stakeholders, not just share holders

Einstein said “A problem cannot be solved by the same consciousness in which it arose.” 2
 FOEs use Emotional Intelligence to solve problems from an outside vantage point
The SPICE stakeholder model
 Stakeholder 1: Employees
Firms of Endearment invest in their employees as much as they invest in the organization as a whole

FOEs recognize that Employees are their greatest resource and are their best investment

Studies suggest that despite higher pay, lower turn over leads to higher profits

REI engages employees by only issuing grants to community organizations nominated by their
employees - $4 million in 2012 3

Every year, co-op employees receive two paid “Yay Days” that allow them to enjoy their favorite
outdoor activity, learn a new skill or help to maintain outdoor spaces through a stewardship project.

REI employees gets 6 weeks paid leave when welcoming a new child into the family

Starting in 2015, REI began closing all of its 143 retail locations, headquarters, and two distribution
centers on Black Friday so that employees can do what they love most, #OptOutside and spend time
with family. All with full pay!4

In 2016 shared $57 million with employees through retirement and incentive programs
 Stakeholder 2: Customers

Firms of Endearment embrace the New Marketing Paradigm – Seeing

consumers as humans by promoting a culture of love and healing 5

REI offers a $20 lifetime membership to the Co-op in a callback to the

original $1 membership fee in 1938
 Offers discounts, gear trade in, and insider tips

In 2016 REI Co-op invested $9.3 million in nonprofits and gave back
nearly 70% of profits to the Outdoor Community

$193.7 million in annual dividends and credit card rebates back to

customers 6
Fig. 2

REI’s focus on giving back to customers lead to a $2.75 Billion in co-op

sales during 2020, which is especially impressive with the Covid-19
restrictions
 Stakeholder 3: Investors

Since REI is a Co-op it does not have traditional investors such as stock holders.

20 million members plus almost 15,000 employees are part of the co-op

As mentioned before, employees receive greater benefits and incentives ($57M) instead of shareholders

Todays investors are no longer just the rich and wealthy. Individual investors bring their personally held
morals and interests into investing. Now some wish to use their money to work in a way more closely
aligned with their personal values and social priorities.7

Customers receive dividends from the profits each year in reward instead of stock holders

The co-op members are more likely to support and buy products from REI because of the incentives, but
also due to aligning ideologies
 Stakeholder 4: Partners

Firms of Endearment view all stakeholders as partners and partners as stakeholders.

FOE’s do not exploit partners, but collaborate with them in moving their companies forward 8

FOEs recognize that partners are essential to their growth and strive to help them grow
symbiotically

REI scours the world to bring the best outdoor gear and apparel to our members. In the context of
those global supply chains, the co-op is relatively small. But through strategic partnerships with
leading organizations, they are able to create positive impacts beyond their size 14

During the covid-19 pandemic REI remained dedicated to philanthropy making donations worth
more than 6 million to over 450 nonprofit partners. They generated addition support, asking their
members and the broader community tto support non-profits in need via the Outdoor Emergency
fund14
 Stakeholder 5: Society
Firms of Endearment’s ultimate stakeholder is Society. Society’s viewpoint controls
consumers willingness to support them.

FOE leaders see that their responsibilities extend far beyond our immediate worlds.
The larger the company, the greater reach, the greater impact it can make on the
world12

Operates 100% on renewable energy

Is committed to more than halving its carbon footprint by 2030 10
Fig. 3

In 2016 donated $9.3 in more than 300 nonprofit members

In 2020 donated $6.3M to 400+ nonprofit partners during the Covid-19 Pandemic
crisis

REI has been a member of the Sustainable Apparel Coalition (SAC) since its inception,
helping evolve tools created in the outdoor industry and scale them across the global
footwear and apparel markets. The centerpiece of the SAC is the Higg Index, a suite of
groundbreaking assessment tools that empower brands, retailers and manufacturers
to measure their environmental and social impacts at each stage of the value chain. Fig. 4
REI uses the Higg Index with our own brands and is encouraging its adoption across
our leading brand partners. 11
 Corporate Culture
Corporate culture is a Firm of Endearments strongest competitive difference. Business has a broader
purpose than profit. FOE recognize that their people and culture are their two most valuable assets. 16
Shaping corporate culture and catering to employee needs separates FOEs from others organizations in
terms of retention, engagement, and profit.

REI has made the Fortune 100 Best Companies to Work For list every year since the list started in 1998-23
years in a row

Raquel Karls, senior vice president of human resources at REI, states “REI’s culture is built around the
idea that a life outdoors is a life well lived, and our teams bring that to life every day for our millions of
members in the communities across the country.” 14

96% of employees fully support the co-ops values and believe REI has a great reputation for its products
and services.

REI remains committed to caring for the long-term health of the outdoors. The co-op continues to source
100 percent renewable energy for all REI locations and operates a LEED Platinum and Net Zero Energy
distribution center in Goodyear, Arizona. 15
 Recommendations

I would recommend REI to “continue on down the path”

How do you improve on a company that is always improving?

In 2021 REI has committed to becoming fully a fully inclusive, anti-racist, multicultural
organization

Invested $1 million in 19 organizations promoting justice, equitable and belonging in the

outdoors.

Continues the Black Friday closing #Optoutside

 In Conclusion

In conclusion, REI is an excellent example of a Firm of Endearment. REI works to satisfy all
stakeholders and continues to improve. Despite the global Cobid-19 Pandemic, REI has
continued to open stores and donate to non-profits.

REI ethically sources and provides fair trade options for their products as well

Their employees live their outdoor and recreational culture and benefit from the co-op, as do
customers and partners

REI, being a co-op is a perfect example of a culture of interdependence and interconnectedness

 Bibliography
1. Raj Sisodia, Jag Sheth, and David Wolfe, “Chapter 1” in Firms of Endearment: How World-Class Companies Profit from Passion and
Purpose (Upper Saddle River, NJ: Pearson, 2014), pp. 7
2. Ibid chapter 2, pp. 41
3. Ibid chapter 4, pp. 63
4. Rei, REI. “Rei Closing Its Doors on Black Friday – Invites Nation to OptOutside.” REI Co-op. REI, October 27, 2015.
https://www.rei.com/newsroom/article/rei-closing-its-doors-on-black-friday-invites-nation-to-optoutside.
5. Raj Sisodia, Jag Sheth, and David Wolfe, “Chapter 5” in Firms of Endearment: How World-Class Companies Profit from Passion and
Purpose (Upper Saddle River, NJ: Pearson, 2014), pp. 89
6. Rei, REI. “Rei Co-Op Gives Back Nearly 70 Percent of Profits to the Outdoor Community after Year of Record Revenues in 2016.” REI
Co-op. REI, March 15, 2017. https://www.rei.com/newsroom/article/rei-co-op-gives-back-nearly-70-percent-profits-to-outdoor-
community-after-year-record-revenues-in-2016.
7. Raj Sisodia, Jag Sheth, and David Wolfe, “Chapter 6” in Firms of Endearment: How World-Class Companies Profit from Passion and
Purpose (Upper Saddle River, NJ: Pearson, 2014), pp. 108
8. Ibid chapter 7, pp. 126
9. Rei. “Partners in Progress.” REI Co-op, 2021. https://www.rei.com/stewardship/outdoor-industry-collaboration.
10. Rei. “Rei Stewardship Report.” REI Co-op. Accessed December 11, 2021. https://www.rei.com/stewardship.
11. Rei. “Partners in Progress.” REI Co-op, 2021. https://www.rei.com/stewardship/outdoor-industry-collaboration.
12. Raj Sisodia, Jag Sheth, and David Wolfe, “Chapter 8” in Firms of Endearment: How World-Class Companies Profit from Passion and
Purpose (Upper Saddle River, NJ: Pearson, 2014), pp. 142
13. Rei. “Rei Co-Op Makes Fortune 100 Best Companies to Work for List for 21st Consecutive Year.” REI Co-op. REI, February 14, 2018.
https://www.rei.com/newsroom/article/rei-co-op-makes-fortune-100-best-companies-to-work-for-list-for-21st-consecutive-year.
15. Ibid
16. . Raj Sisodia, Jag Sheth, and David Wolfe, “Chapter 9” in Firms of Endearment: How World-Class Companies Profit from Passion and
Purpose (Upper Saddle River, NJ: Pearson, 2014), pp. 170
Fig.1 – Fig 4 taken from REI official website https://www.rei.com/stewardship