This interview with John Mackey, the co-founder and co-chief executive officer of Whole Foods Market is reprinted with permission from Rotman Management, the magazine of the University of Toronto's Rotman School of Management. It has been condensed and edited.
When you started out as an entrepreneur, you believed corporations were profit-obsessed and essentially evil. Just a few years later, almost everything you believed about business "was proven to be wrong." What changed your view?
Becoming an entrepreneur and building a company changed my life and everything I had thought was true about business. As we built our first store, Safer Way (a play on words of Safeway), I read every business book I could get my hands on. I didn't know anything about how to run a business, but I knew I wanted to offer really high quality natural and organic foods, create a fun working environment and maybe make a little money. I had always believed that businesses were greedy and that being profitable had to come at the expense of others; but I quickly began to see that business was based on cooperation and voluntary exchange, not coercion. Being profitable didn't have to come at the expense of any of your stakeholders–customers, team members, suppliers and investors can all win.
You have said that "the practitioners of capitalism created their own trap and fell into it."
Capitalism is the ultimate value creator and is inherently good, but its reputation has been distorted. Highly publicized corporate scandals, the financial fallout on Wall Street and stories of unfathomable greed have cast business in a very negative light. Companies are now seen as profit-driven machines that are out of control and cannot be trusted. The problem is, we've come to judge business by its worst characters, and that has got to change. There is nothing wrong with making a profit–all businesses need to be profitable–but making money shouldn't be the primary purpose of a business, and it shouldn't come at the expense of any of your stakeholders.
Traditional businesses often treat their stakeholders other than investors (employees, suppliers, the environment) as the means to achieving profit maximization. What is the smarter approach?
Investors play a crucial role by providing the capital needed to grow a business, but if you fail to recognize the interdependency of all your stakeholders and only view them as a means to maximize profits rather than as true partners, your business will never reach its full potential. Human creativity is essentially unlimited, especially when it is motivated by a deeper purpose other than just self-interest. When all of your stakeholders feel valued and have a shared sense of purpose, creativity and productivity are elevated, resulting in increased profits. If you look for trade-offs, you will always find them–that is a guarantee; but, if you look for win-win synergies, more often than not, you will find them.
You advocate 'Conscious Capitalism'. How is it different from corporate social responsibility?
The key difference is that CSR is often grafted onto an existing approach to business that is fundamentally out of harmony with the real needs of stakeholders. 'Goodwill gestures' are usually added on to enhance an organization's reputation or as defensive measures to ward off criticism. Conscious companies, on the other hand, are in synch with the needs of all of their stakeholders and are inherently socially responsible, because every decision made is rooted in higher purpose.
Whole Foods sets caps on total cash compensation, including bonuses, so that its executives can never earn more than 19 times the average pay of all team members. In publicly-traded companies, this ratio can be as high as 500 to one. Why did you make this decision, and what are the repercussions?
Setting the salary cap and having total transparency on compensation is an essential part of our culture, and it ensures that the compensation system is fair. Because it is transparent, team members can give feedback on what they find to be unfair, giving us an opportunity to change and evolve it. This approach creates a sense of solidarity throughout the organization and helps to keep resentment and gossip at a low level.
What is entailed in viewing the Environment as a stakeholder?
We are all part of the environment–we live in it, it affects us and we affect it. The environment is a unique stakeholder in that it does not have a literal voice, but conscious companies recognize the full impact that they have on it and take responsibility for their actions. Whole Foods considers the environment at all levels of our business–from supporting organic agriculture, sustainable livestock production and fishing practices, to reducing our energy footprint and offering in-store composting and recycling. We care about how our business impacts the environment and strive to live by our motto: whole foods, whole people, whole planet.
What are the first steps for leaders who want to embrace Conscious Capitalism?
It has to start with purpose. Leaders must begin by asking existential questions such as, "Why does our company exist? Why is it needed? Why would people miss it if it disappeared?" All stakeholders–not just a company's leaders–should be part of the discussion. It's not always an easy conversation, but it helps to lay the groundwork for a conscious culture that recognizes the interdependency of stakeholders and supports win-win partnerships.
John Mackey is the co-CEO of Whole Foods Market, which he co-founded in 1980. He is the author of Conscious Capitalism: Liberating the Heroic Spirit of Business.