Whole Foods' John Mackey Champions Conscious Capitalism


Whole Foods (NAS: WFM) CEO John Mackey was a keynote speaker at UBS' recent "Q-Series Inflection Points Towards Sustainability" conference. At the conference, Mackey delivered an impassioned speech to financial executives, championing capitalism as a driver for social progress. Mackey serves as a powerful example of how business leaders can and should use their vaunted positions to improve more than just short-term earnings.

Capitalism breeds prosperity
Laying the foundation for his talk, Mackey said that there is an erroneous belief that there are different types of capitalism. According to Mackey, there are different economic systems, but no country practices pure capitalism without any constraints. For centuries, capitalism was criticized as exploitative, but that view changed with the explosive economic development of the Asian Tigers period, the growth of Latin America, the fall of the Berlin Wall, prosperity gains in the former U.S.S.R., and now the tremendous growth in India and China.

Two hundred years ago, Mackey pointed out, 85% of people lived on less than $1 a day in today's dollars. Considering the world's astonishing progress since then, he thinks abject poverty will end in our lifetimes, thanks to free-enterprise capitalism.

Mackey asserted that capitalism is not a zero-sum game, and that is the magic in it: Business can create value for society as a whole. "The problem is not inequality of wealth distribution, but inequality of capitalism distribution."

Capitalism's branding problem
Mackey believes that modern capitalism has a serious branding problem: All too often, corporations have been described as "sociopathic" institutions. In fact, according to a recent Gallup poll, big business is the societal institution least trusted by Americans, even beating out Congress. Defenders of capitalism have adopted the "greed is good" message to the point of ignoring ethics. Mackey thinks business leaders need to reconfigure capitalism on new ethical grounds; he believes it's time for "conscious capitalism."

The purpose-driven business
"Purpose is more important than strategy: Strategy follows purpose," says Mackey. As he sees it, business leaders' responsibility is to maximize purpose, not profits. However, Mackey believes this approach also results in making more money, because integrating stakeholders and creating value for them creates value for investors in the long run.

Mackey cited Southwest Airlines (NYS: LUV) as an example of purpose maximization. "They democratized the skies," he said, by following their purpose of giving people at all economic levels the freedom to fly. Mackey points out that Google (NAS: GOOG) didn't even exist 15 years ago, and now the company is a global force because it followed its purpose to organize the world's information and make it easily accessible.

Mackey puts purpose at the center of everything Whole Foods does, and it radiates to every other aspect of the business like spokes on a wheel. "The limiting thought is that business is all about trade-offs," he said. "The genius of business is that it's win-win for everyone."

Stakeholder value
Mackey laid out an elegant case for taking care of stakeholders -- and not just shareholders. He began with customers, without whom, of course, there would be no business. Employees also must be taken care of, he noted, as they serve the customers, and they need to be happy to do that well. (On a side note, Mackey pointed out that a good strategy if you want to beat the indexes is to buy stock in Fortune magazine's 100 best companies to work for and rebalance every year.)

"Suppliers are the forgotten stakeholder," Mackey said. Squeezing suppliers is companies' typical game, but Mackey sees suppliers as the best-kept secret to competitive advantage. "You have to think of your suppliers as part of your family."

Furthermore, Mackey believes companies should see themselves as a citizen of the communities in which they operate, and that instead of pursuing philanthropy for the sake of public image, corporate leaders should view community investment as a process that creates value for the business and its stakeholders. Mackey says the result is an increase in shareholder value.

Mackey also strongly believes that companies should be sensitive to their effects on the environment. "The environment is the silent stakeholder. It's the only one that can't complain," Mackey explained. "Most environmental harm is done inadvertently as a consequence of creating value. The question is: How can we be a force for environmental healing, rather than a force for environmental depletion?"

Mackey points out that even Wal-Mart (NYSE: WMT) has started to become more sensitive to its effects on the environment. Wal-Mart's purpose is to provide low prices for everybody, but Mackey observed that this has led to a poor environmental track record. Wal-Mart is finally realizing that those low prices cannot come at the expense of the planet, he said.

Of all stakeholders in a business, the investor as stakeholder has deviated the most from its core purpose, according to Mackey. He stated that the financial sector has become "a cancer on business," and that the sector needs to remember why it exists: to furnish capital for the growth of value-creating enterprise.

What's coming out of the closet?
Mackey believes that the days of the militaristic business leader are gone. He stated that the conscious enterprise requires the exact opposite of the old Jack Welch philosophy: Today's leaders need to be purpose-driven, authentic, and emotionally intelligent. He pointed out that women are beginning to take over the workforce, and he believes that the future belongs to women. "Corporations are beginning to massively benefit from the feminization of business. Love is finally coming out of the closet!" Sure, Mackey may be drinking the organic Kool-Aid, but it's hard to resist his enthusiasm.

"The secret sauce of Whole Foods is that we're highly innovative, in a food industry that is not very innovative at all. We just keep innovating more quickly than we can be imitated." Mackey views this as part of Whole Foods' conscious capitalism approach. "The 21st century is going to belong to conscious businesses because they win in the marketplace." These companies can outperform their competitors by a factor of 10, Mackey said.

Mackey expanded on his view of business leaders:

We are the heroes, we are the value creators. Our task is to move from conflicts of interest to harmonies of interest. Free-enterprise capitalism is the most powerful system for social cooperation and human progress ever conceived. We have the opportunity to lead the most meaningful lives that have ever been lived. Our challenges are great, but so are our consciousness and ability to change things. We have all the tools we need; we just need to fully unleash business and social entrepreneurs.

If more business leaders saw their role the way John Mackey does, I believe the world would be a much better place. I hope he continues to create value for society and for investors' portfolios for a very long time.

Whole Foods' purpose-driven approach has yielded a nearly seven-bagger stock since this time three years ago, and the future looks just as promising. To learn more about Whole Foods' game-changing business model, click here for our premium report. It comes with a year of free updates, and will give you a lot of great insight into Whole Foods. Click here now to get your copy.

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