A conversation with the Whole Foods CEO.
Justin Fox: I’m Justin Fox of the Harvard Business Review and I'm at the Big Think studios in New York talking with John Mackey, co-founder and co-CEO of Whole Foods Market. ... So, John, this emphasis on consensus. Has that been there from the very beginning or has that evolved over the years?
John Mackey: It has evolved over the years. I think I found that when you make decisions by consensus and you let all the disagreements get expressed that you’re going to make better decisions. That people are equals and they are expressing their opinions that if they disagree you have to dive deeper into what the basis for that disagreement is and so that you can persuade people that for the good of the group the decision can be... we’ll come to some type of a consensus or a compromise or agreement that everybody can get solidly behind. Because if you don’t do that, and people in the leadership group don’t have consensus, then they’re secretly there is a natural human tendency to kind of want the decision, the person who lost, who didn’t get their way in a sense to be proven right. It’s like: "See, I told you that wasn’t going to work. I told you so." And they won’t totally enlist in the decision and that ends up I think creating divisiveness, so I think consensus is very important.
Justin Fox: Does it take really long sometimes to get to it?
John Mackey: It can. It can, but again, if you’re under urgency then you’ll… there is a greater intensity to get to the consensus quicker, but sometimes decisions get talked about for weeks or months. They don’t all have to be made on the spur of the moment or quickly. Generally if you make important decisions that really are going to impact the business it’s good to talk that over. And of course we had a wider circle of what we call our Whole Foods Market Leadership Network, WFLN, that consists of the top 30 executives in the company. And we don’t seek consensus, it’s virtually impossible to get consensus with 30 people, but if there is strong factions in the group when we make larger decisions we definitely want to try to reach decisions that are not like a 16 to 14 type of decision. You want to have decisions that allow the great majority of people to agree with the decision and buy into it. It’s a little bit like Japanese management decision-making, which, they spend a lot more time trying to develop consensus in their decision group. That takes longer, but the virtue of it is while it takes longer to make the decision once you begin the implement it, it goes a lot faster because there isn’t sort of resistance and sabotage that works its way through the organization, so we found that is at least at Whole Foods, a better way to operate.
Justin Fox: And is there any attempt to replicate that style at the store level, at the regional level as well?
John Mackey: We lead by example in that way, so I do think there is. While it’s not company policy, I do think our culture encourages that type of decision-making, although it’s not a requirement.
Justin Fox: So what is conscious capitalism?
John Mackey: First you have to understand the basic principles of capitalism that help capitalism to flourish and be successful or if you don’t have these principles it’s not going to work. One is you have to have property rights. We know in countries like in South America, for example, that don’t have well established property rights, it’s very hard to create a real type of entrepreneurial climate. You have too much of the economic activity goes underground. It goes in a sense to the underground markets and people will not invest for the long term if they can’t be assured that they retain rights to their property, if it’s going to be arbitrarily confiscated by governments or bureaucracies that really undermines the ability for capitalism to flourish.
You also need the ability to trade your property and trade it to pretty much whoever you want to. If you can’t do that, then in a sense you’re not going to optimize the economic system. You also need a rule of law. Laws and regulations that are well understood, so you can factor those into your business decisions and you can adapt and adjust... and those rules, the rule of law needs to be applied equally to everyone, so it’s not selectively applied against you. For example, at Whole Foods if we go into a city and they have regulations about cheese in the Health Departments, and they say "Your cheese has to be refrigerated," it’s fundamentally unjust if those rules are applied to Whole Foods Market, but they’re not applied to our competitors—which I might add does happen in New York City some. But in general America has consistency in our applicational laws.
So those are some of the key principles for the economic system and then you need to have conscious businesses and a conscious business is one that becomes conscious of its higher purpose. A purpose is very important to the conscious business. It’s not just about maximizing profits and shareholder value. It’s becoming aware of the deeper purpose that a business has. Secondly, it’s recognition of the stakeholder model, that stakeholders, the customers and employees, investors, suppliers, larger communities, the environment are all interdependent on one another and you operate the business in such a way that it’s not a zero sum game. You’re trying to create value for all of these interdependent stakeholders, not just maximize shareholder value or maximize profits.
Thirdly, you need to have what we call conscious leadership. Leadership that... or you could also call it "servant" leadership, one that is in a sense identifies their own flourishing with the flourishing of the organization. It’s not an ego-driven type of project where the leadership is trying to maximize their own personal gain. They’re trying to serve the organization and its purpose.
And fourthly you have to create a conscious culture, a culture that its strategies, structures and processes allow the organization to fulfill its higher purpose, implement the stakeholder model, allows conscious leadership to flourish. And all four of those key principles tend to interact with each other, so the conscious capitalism, the larger sense consists of those fundamental economic principles I outlined combined with a series of conscious businesses that are exchanging with each other in a conscious way with purpose, with stakeholder model and with conscious leadership.
Justin Fox: What are sort of the core principles of the organization and where do those come from?
John Mackey: I think business enterprises are like any other human communities. That they can aspire to the highest values that have inspired humans throughout time and if you use… you can use different value models, but I like Plato’s: the good, the true, the beautiful. Add the heroic to that, the heroic being the change and improve the world and stand up for what you believe is true and right and good. I think Whole Foods’ highest purpose or deepest purpose is a heroic one: to try to change and improve our world. And that is what animates me personally. That is what animates the company. I resisted that purpose for a long time by the way. I actually thought we were in some variant of service, so I thought really it was about fulfilling the good. And the team members consistently told me I was wrong, that we had a different purpose in that. It was this more heroic purpose and finally got it.
Justin Fox: When did you make the switch from that?
John Mackey: What ended up happening is when I’d go talk about conscious capitalism around to our different stores and I would… I’d poll the team members, “How many of you think we’re trying to fulfill a service purpose for the good. Or how many of you think we’re trying to achieve excellence or some type of a beauty or how much do you think we’re pursuing the truth and how many think it’s heroic?” And I’d get votes for all of them, but about 75% would vote on heroic and I used to argue with them: "No, you’re wrong. You know I know better. I'm the cofounder and the CEO of the company and I'm telling you really we’re about the good." And they’d say "No you’re wrong." And it’s a token to the passion that our team members have that when I kept hearing that store after store after store finally I started to realized gosh you know I think maybe they’re right. I've just been in denial myself about this. I would say it was about five years ago.
Justin Fox: Does that have any practical implications in how the place is run or priorities that are set?
John Mackey: It does a in a little bit in that we are going for it more, like now with... we’re willing to take sometimes unpopular stands in the public realm as I did on health care or now with our healthy eating education initiatives we feel a responsibility to try to change things, to correct some of the fundamental problems that we see in our society. Once you connect into that hero mythology for yourself and for the company then it does change behavior because you’re more conscious of your purpose and when you’re more conscious of it you can... you’re in a better position to realize it.
Justin Fox: Can you get so busy with heroics that you miss the things that sustain the business?
John Mackey: You’re supposing there that there is a tradeoff, and I would argue that there is a synergy. I always like to say if you focus on tradeoffs you find them. If you focus on synergies you find them. You can always take your eye of the ball. I mean that is at risk at any time in your business. I think in the case of Whole Foods we realize being grounded well in the principles that we need for our business to flourish that I don’t think we’re at too much risk. We’re more focused than ever on taking care of the basics.
Justin Fox: So in terms of the age-old debate about are companies there for the shareholders or for something else, is there one group? Is it customers? It is employees or is it this "purpose?"
John Mackey: That gets back into the second principle really of the conscious business, which is the stakeholder model, the interdependent stakeholders. There is this tendency. I think it’s kind of deep in human nature to think in terms of the zero sum, that if one stakeholder is winning then necessarily someone else must be losing. It comes from our sports metaphors where there is one winner and lots of losers... to this idea of a fixed pie where if someone is getting a bigger piece of the pie someone else has to be getting a smaller piece of the pie and what need in social justice is to make sure people get equal pieces of the pie.
Whereas a conscious business recognizes that you can have an expanding pie and that potentially everyone can get larger pieces of the pie. The stakeholders are interdependent. Management’s job at Whole Foods Market is to make sure that we hire good people, that they are well trained in their work and that they flourish in the workplace because we found that when people are really happy in their jobs they’re going to provide much higher degrees of service to the customers. We like to say happy team members result in happy customers. Happy customers do more business with you, they become advocates for your enterprise, your company and that results in happy investors, so happy team members resulting in happy customers resulting in happy investors. There is a win, win, win, win strategy, not a zero sum, not with one gaining and another one losing, but while our team members flourish our customers flourish and our investors flourish. You can expand that circle to include your suppliers, who you are trading with, and to the communities that you do business in that are in a sense are tied into this prosperity circle. A good metaphor I like is the spiral, which tends to move upwards, but it doesn’t move up in a straight line. It moves up where it loops back on itself, so sometimes you take a step backwards, but then you take four steps upward.
Justin Fox: 2008, 2009 when a lot of people didn’t think they were moving forward. How did Whole Foods handle that?
John Mackey: That was a great example of how the spiral works and because that was definitely a downturn for... the biggest downturn of probably my lifetime, certainly since we founded the company. And we did take, in a sense, a couple steps backward. What we did though was we allowed that downturn to see it as an opportunity to refocus on how we can create more value for our customers and we did it in two different ways. One was we really began to look at our prices more carefully. We’re quite aware that we’re oftentimes lampooned and criticized for being too expensive and so we’ve really focused on trying to get our prices down and we think we’ve done a good job of doing that. Part of it is just getting the... our lower priced stuff. We have a lot of less expensive stuff in our stores, but it’s not always highlighted and so we began to highlight it and put it forward to the very first thing people would see. And then secondly, to create more quality differentiation we went back and we’ve looked at all of our different areas of our store, our meat, our seafood, prepared foods, bakery, grocery, all the different aspects of the store, and asked how can we create differentiation from our competitors, how can we create more value for our customers. Not just in terms of lower prices, but in terms of a better experience or better quality, a better product, better services, so we worked on it from both ends and as the economy has begun to improve our company has jumped out in front and we’ve been growing very rapidly again for the last few quarters.
Justin Fox: Our pages in HBR are full of these discussions about how sustainability is going to... is becoming a competitive advantage. Do you believe that or do you think there will be lots of companies out there that will just have their own way of competing, it will be different from you guys and not that way?
John Mackey: I think sustainability is a way to compete. I don’t think it’s the most important way to compete. I do see it as more of a niche. It reflects the consciousness of your customers.
The truth is most customers don’t care about it. Most customers at the end of the day still care mostly about price, and that is the dominant consciousness that is still out there. But there is a growing consciousness for things like environmental sustainability or animal welfare, which is another initiative that we’ve launched, our animal welfare rating system, so we are rating how the animals were raised and how they’ve been treated through their birth to their death and have transparency on that as well, through a third-party certification process. That is a niche, but it’s a niche that can grow. When we first started out 30 years ago "organic" was a niche and most people didn’t know what it was and they could care less if they heard about it and but I would say partly due to Whole Foods’ success "organic" is something now that is very much in the national consciousness.
Justin Fox: Right, it’s at Wal-Mart.
John Mackey: Yeah, more recently the emphasis on local agriculture is something Whole Foods has gotten way behind and has helped to popularize is beginning to... something that we’re also beginning to see Wal-Mart pay attention to, so in a lot of ways Whole Foods Markets is helping to evolve the agricultural system in the United States in ways which we think are probably positive for the environment and positive for people’s health.
Justin Fox: With local you had this really interesting back and forth with Michael Pollan like four or five or six years ago where I think he criticized you and Whole Foods. I mean what was your evolution through that process?
John Mackey: Well Michael wrote his book, "The Omnivore’s Dilemma" and he took a lot of... he took some I think unfair pokes at Whole Foods. He didn’t actually do any first... he didn’t really do any research on it. He did his four meals in that book and in three of the meals he did a lot of research on and the fourth meal with Whole Foods he didn’t talk to anybody at Whole Foods. He didn’t dive deeper. He just did his own personal investigation from just being in the stores and therefore I think he got a lot of things wrong.
When I read his book of course I wasn’t very happy about how Whole Foods was portrayed in that book and I began a dialogue with him and that ended up I posted on my blog an open letter to him and he responded and then we ended up in a debate in Berkley, California back in February 2007 I guess it was. That was a healthy exchange and, to give Michael credit whereas I disagree with a lot of things he said about Whole Foods there were certain parts of his criticisms that I think ended up being true and Whole Foods wasn’t doing enough to promote local agriculture. We were not doing enough to promote, for example, grass-fed beef and we had put way too much emphasis on "organic" and not enough on some of these other aspects. And it was good for Michael to call us to task for that.
While those types of criticisms sting, they don’t feel very good, there was also an opportunity there. I actually think you should engage your critics and see them as a type of stakeholder, a stakeholder who is helping you to get better, helping you to improve. It’s not bad to think of your other critics that way too, journalists potentially, in Whole Foods’ case labor unions. Sometimes the critics actually they get it wrong, but sometimes they get certain aspects right and you have to have enough openness and swallow your ego to learn what you can. I do think Michael Pollen helped Whole Foods to become a better company and while I think a lot of his criticisms were off base enough of what he said was true that it caused us to self-examine ourselves and make some improvements which I think made us a better company and have provided better products for our customers.
Justin Fox: You were telling me that not recently you were speaking at the Kennedy School at Harvard and there were protestors lined up outside. Did you learn anything from any of them? What were they protesting?
John Mackey: I think they were just protesting the fact that I was there speaking because they don’t like me. There is many… Whole Foods is the second largest national food retailer in the United States that's not unionize in an industry that is pretty heavily unionized, food retailing. Honestly, the unions aren’t happy about that and I think they take every opportunity they can to try to run us down, smear me. They’ve called for me to be fired. After I wrote my op-ed piece in the Wall Street Journal about health care.
That can be painful, but it all depends upon in a sense how you handle that and back to your question, you can look at all those criticisms and ask what is the truth here and, if there is a truth there then you can learn from that. In terms of the protestors at Harvard they didn’t have any truths there. They were mouthing basically inaccuracies. I just used the energy that was created to give probably one of the best talks on conscious capitalism I've ever done, so you can use the energy that that creates, but I don’t think it’s ever constructive to go into a real reactive, angry, defensive place and in some ways it comes with the territory. As Whole Foods has become larger I've become a little bit more famous and that creates distortions. Just kind of the way our media works in American we tend to build people up and then we like to tear them down.
Justin Fox: Was there some point early in Whole Foods’ evolution that you sort of had to step back and say "What is our purpose?"
John Mackey: The interesting thing about our purpose is that it has continued to evolve. As a company grows, its purpose grows with it. It has the potential to evolve your purpose. And remember how I told you that the team members were arguing with me about the purpose? The original entrepreneur may initiate the initial purpose, but in a sense like a parent that has children, the children have their own destiny and at some point that can veer off away from the wishes the parent might have for it. I think that is a pretty good analogy or good metaphor in that Whole Foods is 30 years old, it’s has its own purpose and destiny now apart from the father who created it. So the stakeholders, the customers care, the team members care, investors care. They’re all sort of co-evolving the purpose.
And let me give you an example of how our purpose has evolved. We were... We’ve always believed in a sense of social responsibility. We’ve always tried to be good citizens in the communities that we do business in. And we thought of that as meaning we would support philanthropically not-for-profit organizations in each community that we trade in, which is something we do. 90% of our money that we give away—we contribute over 5% of our net profits and most of that is done locally at our store level. But we began to ask the question do we have any responsibility in these developing nations where we’re trading in, where we buy our coffee from, where we get our bananas from. And what we discovered is that we asked that question and we answered it yeah, we do think we do have some responsibility for that. and we began to work with Muhammad Yunis of Grameen Trust, Gramine Bank who won the Nobel Peace Prize in 2006, 2007 for his micro-credit loans in Bangladesh because he wanted to do more international type of expansion. So we began working with him and with Grameen replicators, and we now are in 23 countries. Just the last 5 years we’ve grown from... or 6 years from 0 to 23 countries that we’re trading in and we’ve set up micro-credit lending organizations in those developing-world countries in the communities that we’re actually trading in.
That is a great example of how our purpose has evolved because we didn’t think of it that way, but now it seems like a no-brainer as part of who we are and what we care about and what is fascinating about how the interdependency of the stakeholders work, if you take a very narrow sort of Milton Freidman, the only social responsibility of business is to maximize profits then that would look like that is theft from the shareholders: we’re taking their money and we’re giving it away in loans to these developing world poor people. How can that no be theft from the shareholders? But what is interesting about that is there is nothing we’ve ever done in our history that has created more goodwill with our team member base than that.
We actually now have a volunteer program where our team members can volunteer and go down and work in some of those communities that we’re doing the micro-credit lending in. It has been incredibly motivating for our team member base. Now, every year we do what we call a prosperity campaign where we enlist our customers to make small dollar-type donations at the cash registers. We raise a couple million dollars a year that way that we can funnel into micro-credit loans, so the customers are now engaged in it. We have supplier alliance that allows our suppliers to get preferential marketing call outs in our stores from being part of our supplier alliance to micro-credit, so our supplier network is benefiting.
So you’ve gone from this sort of narrow win-lose phenomenon where your theft from me to them, to seeing interdependency if you’re philanthropic efforts is creating good will with our customers, good will with our team members, good will with our suppliers and what we believe results in higher profits for our shareholders. So rather than that being some type of theft we’re actually creating more shareholder value through the Whole Planet Foundation, because you have these complex feedback loops which the narrow model of philanthropy being theft doesn’t properly account for.
