John Mackey: The conscious capitalist
·
by
Whole Foods’ evangelist has
long warned about the
toxic things we put
in our bodies. Now he’s on a new mission:
cleansing America’s
free-enterprise soul.
A few
years ago Whole Foods Market decided that organic food didn’t go far
enough. Never mind that organic is the upscale supermarket’s largest product
category, accounting for 25,000 items on its shelves. Never mind that co-CEO
and co-founder John Mackey is almost surely the individual most associated with
today’s organic movement and most responsible for taking it mainstream.
In
Mackey’s view, organic had grown stale. Its guidelines prohibit the use of
synthetic fertilizers and pesticides, which is a good thing, he says. But they
don’t address all the burgeoning issues—from excessive water usage to the
treatment of migrant laborers—facing agriculture today. And once farmers are
certified as organic, Mackey believes they have little incentive to improve
their practices. “Organic is a great system, but it’s not a complete solution,”
he says. “We feel like Whole Foods should take a leadership role in this. Who
else is going to do it?”
So in
late 2014, Whole Foods WFM 0.44% rolled
out a new rating system called Responsibly Grown, which measures factors like
energy conservation, waste reduction, and farmworker welfare.
You
could hear the blowback from Monterey County, Calif., to New York’s Hudson
Valley. Phone calls and emails flew from one local organic homesteader to
another, with many fearing that the new rating system would undermine their
brand. When Vernon Peterson of Abundant Harvest Organics in Kingsburg, Calif.,
brought the issue to the attention of the California Certified Organic Farmers
organization, where he’s treasurer, they unanimously decided, “We should fire
every bullet we had.” Eventually he and a handful of fellow farmers sent an
open letter to Mackey, complaining that the new rating parameters were
“onerous, expensive,” and shifted the cost of marketing to growers, “many of
whom are family-scale farmers with narrow profit margins.” The New York
Times picked up the story, airing it on the front page of the business
section. NPR broadcast a lengthy segment onMorning Edition. Says Peterson:
“This was a hill to die on.”
In the
end Whole Foods made some tweaks to the new program but hasn’t backed down. The
62-year-old Mackey, for his part, seems utterly undaunted by the hullabaloo.
Indeed, if there’s one thing to be said about the man, it’s that he has never
been afraid of pissing people off. “I am absolutely a contrarian,” he tells me
at Whole Foods’ Austin headquarters in one of the first of our many
conversations for this story. “You need dissonance, and you need someone who is
challenging things. Otherwise you get stuck.”
The
same term would certainly apply to Whole Foods itself right now: The company is
in a period of dissonance, one that makes the attacks on its Responsibly Grown
program seem like small organic purple potatoes. First came accusations, in
June, that its stores overcharged customers in New York City—which prompted
investor lawsuits as well. Then, in August, comedian John Oliver spent three
minutes on HBO’s Last Week Tonightmocking Whole Foods for selling bottled
water laced with asparagus stalks … for
$5.99. The company said it was a mistake, but the episode gave yet more
currency to the notion that the chain dubbed “Whole Paycheck” was out of touch.
The
store’s numbers haven’t been pretty either: Same-store sales growth last
quarter was at its lowest level since 2009, a fact blamed in part on the New
York City investigation and on the longer-term concern that it is facing stiff
competition in the healthy-eating ethos up and down the grocery food chain—from
Kroger KR 1.57% andWalmart WMT 0.43% to
Trader Joe’s and Sprouts SFM -1.91% . All
of this Sturm und Drang has been reflected in the company’s stock
price. In mid-August shares hit a three-year low, representing about a 50% loss
of market cap since October 2013.
“They’re
getting Tom Brady-ed,” says BB&T BBT 2.04% Capital
Markets analyst Andrew Wolf. “They’re getting piled on.”
What
better time to test what is perhaps Mackey’s most dissonant, brazen idea yet?
He
calls it “conscious capitalism,” a mode of doing business that attempts to
create value for all stakeholders—employees, customers, community,
shareholders—rather than sublimating the needs of the first three to those of
the last. The idea is an old one, dating at least as far back as the 1980s, to
the work of R. Edward Freeman, now a professor at the University of Virginia’s
Darden School of Business, whom many consider the father of “stakeholder
theory.” But Mackey, who co-authored a bestselling book on the theme in 2013,
has become the closest thing to a modern-day spokesman for an idea that, dare
we say, has found its time.
Mackey leans on his favorite lightweight
Gossamer Gear hiking poles on a field in Boulder in August.Photograph by Wesley Mann for Fortune
For
evidence, consider the who’s who of America’s business and financial elite who
have echoed the theme—often coining first-cousin terms like “compassionate
capitalism” (Salesforce’s Marc Benioff), “creative capitalism” (Bill Gates),
and “just capital” (investor Paul Tudor Jones) to frame their philosophies.
Wrapped up in all these notions is the fundamental precept that profits and
purpose should go together—and that companies that marry the two faithfully
will outperform the competition over the long term.
That
many investors flatly don’t care about the long term is, of course, another
matter. Wall Street cares largely about the now and the near future—and right
now, and very likely in the near future, Whole Foods is struggling.
Mackey,
once again, seems undaunted. “This is where your philosophy gets tested and
when you get tested—your own commitment to it, your own integrity. It’s all in
question. It’s all in play,” he says. “If you’re going to wreck your company or
values just because you’re being attacked, then you’re not very deep.”
Deeply,
profoundly, to his core, John Mackey is a capitalist. Though critics
over the years have labeled him any number of things—anarchist, socialist, even
Marxist—make no mistake, Mackey is a true believer in (mostly unfettered) free
enterprise, and his love for it is like that of a convert who finds salvation
later in life.
His
conversion was not a peaceful one. He had been part of the food co-op
movement—and when he abandoned that to start his own for-profit health food
store, a group of his friends became ex-friends and gave him the nickname Darth
Vader. (He had gone from the light to the dark.) “I got a lot of hate,” he
says. “But I didn’t feel like I was evil because I was trying to earn a living
and create stores better than the co-op. I didn’t see why I had to apologize
for that.”
In many
ways Mackey is still the old liberal, granola-chomping hippie he was in his
early twenties: He is pro-choice, supports gay marriage, and is for the legalization
of marijuana. Yet he also opposes labor unions and once penned a Wall
Street Journal op-ed that ran under the headline The Whole Foods
Alternative to Obamacare that endeared him to the Tea Party. He is a man
who resists media training, although he says he is not as brash and provocative
as he once was, that he’s not as ego-driven. “He’s so who he is every minute of
every day,” says Whole Foods CFO Glenda Flanagan, who has worked with Mackey
for 26 years. “He doesn’t change who he is for anybody or any circumstance.”
“If I
had adopted the general philosophy of the left, I would have been loved instead
of hated,” Mackey says. “I just couldn’t do it. I’d rather be authentic and
have my own intellectual integrity and have a lot of people misunderstand me.
If they’re going to attack me I can live with it.”
He is
far more sensitive, however, about attacks on Whole Foods. And while I’m in
Austin this summer, the company is weathering a blow. The executive team is
doing its best to respond to allegations by New York City’s Department of
Consumer Affairs that the company systemically overcharged customers for some
prepackaged goods. Mackey and his co-CEO, Walter Robb, film a short video in
front of the produce section, offering an apology—but insist the errors (having
to do with the net weight of the products) were unintentional and were just as
often in the customer’s favor.
“This
stuff goes viral,” Mackey tells me, “because people are eager to believe bad
things about Whole Foods so it doesn’t disrupt their mental model” of business
as selfish and greedy. It’s similar to how people scrutinize his diet. “They
want to catch me on stuff,” says Mackey, who is a vegan and abstains from
processed food. “They want to prove I’m a hypocrite. I think that’s true for Whole
Foods as a whole.”
He
believes that this prevailing narrative of business—as a selfish and
exploitative enterprise—stems in part from intellectuals’ attack on capitalism
throughout history, which has fueled the public’s mistrust and skepticism. But
another key contributor to this perception, in Mackey’s worldview, is that the
dominant business theory of “profit maximization” has been a toxic one. “A
metaphor I like to use is that my body can’t live unless it’s making red blood
cells,” he explains. “If I stop making red blood cells, I’d be dead in no time.
It does not logically follow that the purpose of my life is to make red blood
cells.” The same logic applies to business. If a business does not make
profits, it dies. But it does not follow that the purpose of business is to
make profits.
In the
early 2000s, Mackey began giving talks about a new business paradigm and a
different kind of leadership, one based on Freeman’s stakeholder theory.
Central to the view is that these disparate groups aren’t necessarily at odds.
Corporate management teams that are taking action to benefit one stakeholder at
the expense of another simply aren’t thinking creatively enough. As Mackey
explains, no one has to lose: Business can create an ever-expanding pie, one in
which customers and employees and the community at large should benefit
as a company grows larger and shareholders are rewarded.
A still
more revelatory moment came when Mackey read an advance copy of the book Firms
of Endearment, co-authored by Raj Sisodia, explaining how enterprises with
passion and purpose outperform. “For a long time I thought Whole Foods was just
a weird company and nobody was like us,” he says, “and I read that book, and I
realized that we were not alone.” Sisodia visited Mackey in Austin, and the two
started using the term “conscious capitalism,” a phrase credited to Nobel Peace
Prize winner Muhammad Yunus, author of Banker to the Poor and
founder of the Bangladeshi microfinance lender Grameen Bank.
Sisodia
and Mackey invited a number of executives to a summit on the notion of
purpose-driven business in 2008 and the following year created a nonprofit
enterprise called Conscious Capitalism Inc. But to really spread the movement, Mackey and Sisodia knew they
needed a manifesto of sorts: a book targeted at executives. “I felt like
businesspeople needed to understand how much value they were creating in the
world—that they were good people,” Mackey explains. Says Rick Voirin, the
chairman of Stagen, a leadership training firm, and a former board member of
Conscious Capitalism: “It pains John that business leaders are thought of so
lowly.”
When Conscious
Capitalism: Liberating the Heroic Spirit of Businessdebuted in 2013, it popped
onto various business bestseller lists—but the readers who seemed to relate
best to the message were fellow chief executives. “I never realized I was a
conscious capitalist until John told me that was the title,” says Panera Bread PNRA 0.91% CEO
Ron Shaich. “He’s provided the ideology and language around the approach.”
Two
years later Mackey is still proselytizing. In mid-August he travels to the
University Club of Chicago to give a talk sponsored by Unilever, a company in
the broader shared-value movement. It’s the sixth day I’ve spent with him for
this story, but the only time I’ve seen him in anything but shorts. (He is
wearing khakis and a Patagonia fleece in lieu of a blazer.) During his
presentation, Mackey outlines what’s required to be a conscious leader:
analytical, spiritual, emotional, and systems intelligence. Analytical intelligence
is what we teach in schools and entails dividing things up to understand them,
he explains. Systems intelligence is the opposite—how the puzzle fits together.
Later, over lunch (at a local Whole Foods), Mackey says that most people don’t
have systems intelligence—which is why many don’t fully grasp stakeholder
theory. They don’t get the interdependence, he says. What’s more, they think
that if a corporation benefits from an action, the motive must be questionable.
But
it’s not as simple as being either self-interested or altruistic, he says. You
can be both. Mackey offers the example of the company’s “community giving
days,” which are held once per quarter. On those days 5% of a Whole Foods
store’s net sales are given to a local nonprofit. It’s the stakeholder model at
work, he contends: It creates goodwill with customers, motivates team members,
and takes care of communities. “Is it good business for us to do these things?”
asks Mackey. “Absolutely.”
Consider
the company’s decision to open a store in Detroit, where about 40% live below
the poverty line. The project was the brainchild of Robb, who was growing
increasingly concerned by Whole Foods’ reputation as a white, elite, expensive
company. Whole Foods, he says, “was meant to be healthy food for the world, not
just for a few people.” Mackey, however, was skeptical at first: “I’m going to
trust you on this, Walter, but I don’t want to lose money,” Robb recalls his
partner telling him.
It took
less than a year for the store to turn profitable—which led to plans for
markets in Newark and Chicago’s South Side (both slated to open as early as
next year). But even more important, the Detroit location—with its smaller
footprint, fewer products, and lower prices—offered a proof of principle that
the company could appeal to a much broader group of shoppers than its current
demographic.
The
experiment had a surprising dividend: offering key lessons for Whole Foods’ new
“365” chain—smaller, lower-priced versions of the flagship brand that will
begin rolling out next year. Detroit “gave us some confidence that we could go
in this direction,” Robb explains. “365 is an evolutionary strategy,” says
Mackey—a way to combat the competition and the next step in broadening access
to healthy food, which is the company’s core mission.
Such
highfalutin talk may sound to many like marketing blather. But spreading the
gospel of healthy eating is something Mackey is truly, unabashedly passionate
about. As with capitalism, he was a late convert to the cause. He did not
become interested in healthy food until joining the Austin co-op—a start he
recognizes as way too late. “If I drop over from a heart attack,” he says, “I’m
blaming it on my early childhood poisoning.”
Mackey
has spent the lion’s share of his 62 years recovering from that food
abuse. When he cooks dinner for me and members of his executive team at his
home in Old West Austin in late June, the menu is salad—homemade, oil-less,
vegan Caesar dressing on the side—local summer corn, sweet potatoes, and tofu
with mushrooms, broccoli, and tahini. Mackey whips up avocado chocolate pudding
for dessert with his Vitamix—his secret weapon in the kitchen. When he travels
he packs a rice cooker to make oats for breakfast. People scrutinize what
Mackey eats, but he is known for being a refrigerator voyeur himself. He
offended his wife, Deborah, on their first date by looking in her fridge—he
wanted to see her level of “food consciousness.”
For a Fortune 500
CEO, Mackey’s home comes across as modest, decorated with furniture and art
from India, where his wife travels frequently. Just off the front entryway is
his “man cave,” which sports an exercise bike, an inversion table, and his
reading chair.
Mackey,
a voracious reader, often has seven or eight books going at a time spanning
from science fiction to economic theory. That intellectual thirst started in
college, when he took mostly religion and philosophy classes and transferred
back and forth between Trinity in San Antonio and the University of Texas at
Austin. “I was not interested in ideas until then,” he says.
Some
days Mackey would go to the library at 8 a.m. and not emerge until after
midnight. “I thought John was probably just the brightest kid at UT,” says Kip
Tindell, a college housemate of Mackey’s and CEO of the Container Store TCS -2.16% ,
another company that’s part of the conscious capitalism movement. “He’s
probably still the most interesting kid in Austin, Texas.”
Mackey
loved school but hated assigned texts. One night when he was reading Being
and Nothingness by Jean-Paul Sartre, Mackey threw the book on the ground,
dropped the course the next day, and decided he’d never read another book he
didn’t want to read. He identifies this as the moment when he started to take
control of his life. He hitchhiked to New York, grew his hair out, and told his
parents he might not get a degree. He dropped in and out of school—never
graduating despite having well over 100 credits.
During
this period, Mackey was overcome by the enormous diversity of thought in the
world—the expanse of different religions and philosophies. He became a
born-again Christian because of a girl he fell in love with. He went through an
existential, atheistic stage and then became spiritual again—this time in a
nonreligious way. He began to meditate. Today he sometimes calls himself a
perennialist: a person who believes that beneath all religious traditions there
is a universal truth found through spiritual experiences, not through faith or
dogma.
He
joined a vegetarian housing co-op—the story goes that he did it to meet interesting
women. At the time he thought capitalism was the source of society’s problems
and that cooperation was better than competition. “It was a very seductive
philosophy,” he says. But the deeper he got into the co-op movement, the more
he viewed it as dysfunctional—hijacked by the most politically active, who were
more interested in boycotts than creating value for members. Mackey was sure he
could do it better. He and his then-girlfriend, Renee Lawson, started SaferWay,
which evolved into Whole Foods when it merged with the health food store across
town.
His
father was an accounting professor turned CEO of a small health care company,
and he mentored his son in business. Mackey read tome after tome of economic
theory—Milton Friedman,Friedrich Hayek, and Ludwig von Mises—with all of
his discoveries pointing to a transformative revelation: Capitalism, he now
believed, was humanity’s single greatest invention. It made all other progress
possible.
On
Sept. 11, 2001, Mackey was on his way to the S&P ratings agency near
the World Trade Center, close enough to the falling towers that debris rained
down upon him. “It reminded me to take care of the things I wanted to do,” he
says in reflection. The next year he took a five-month sabbatical to hike the
Appalachian Trail. Mackey gave himself the trail name Strider, pulled from one
of his all-time favorite novels,The Lord of the Rings. “Strider was the
grisly ranger, and nobody knew who he was, but he was secretly a king,” he
says. “While I was on the trail and I was Strider, nobody knew I was the king
of Whole Foods Market.”
Every
couple hundred yards on the Appalachian Trail there’s a two-by-six-inch blaze
on a tree that lets hikers know they’re on track. Mackey would joke with his friends
that it would be great if life had these little blazes that said you’re on the
right path.
In the
summer of 2006, Mackey was hiking when he was struck by the notion that he
should go to a $1-a-year salary. Whole Foods already had progressive
compensation policies. The entire executive team, which makes decisions by
consensus, has the same paycheck, and the total cash compensation paid to any
employee in a calendar year is restricted to no more than 19 times the average
annual wage, including bonuses, of all full-time employees. But
Mackey felt as if he had made enough money in his life, and it increasingly
bothered him that people would dismiss his arguments about conscious capitalism
because of his pay. If he was really going to be a servant leader to Whole
Foods, he didn’t want any money conflict. “I wanted to take it off the table,”
he says. (The company donates stock options Mackey would have received to one
of its foundations.) The only time he’s ever had second thoughts was in 2008,
when everything collapsed. The company suspended its dividend, and Mackey had
no cash flow. “The best thing about doing something public,” he says, “is you
really are the hypocrite if you go back on it.”
Mackey
can often seem adamant about his beliefs, but he has a reputation for changing
his mind. “John, more than most other high-profile people, is willing to make
radical changes and complete changes on things,” says Doug Rauch, the former
president of Trader Joe’s and the current CEO of Conscious Capitalism. The most
prominent example took place in 2003 at a shareholder meeting in Santa Monica
when Mackey got into a heated exchange with an animal-rights activist who said
the company wasn’t going far enough. Mackey took the summer to read a dozen
books on livestock and animal agriculture and let it marinate while he hiked
the Colorado Trail. When he got home, he sent her an email telling her she was
right. That led to the company’s animal-welfare rating standards that are in
place today.
The
episode inspired Mackey to go from vegetarian to ethical vegan. For the first
year or two he ate eggs from the chickens at his country place outside Austin.
But people were always bringing it up. So again he decided to “take it off the
table.” Says Mackey: “I was always having to explain. It was boring for me.”
The
animal-welfare standards, along with the company’s sustainable-seafood policy
(it sells no fish at low levels of abundance), Responsibly Grown ratings, and
decision to become the first national grocery chain to label whether products
contain genetically modified organisms, all show a bit of Mackey’s libertarian
streak. (He has given $50,000 to a Super PAC backing Rand Paul.) The company
has no intention of waiting around until the USDA or some other governing body
sets new rules.
His
dismissiveness of such rule-making agencies may have been supercharged by past
experience. In 2007—the last time, according to Mackey, that Whole Foods was in
a cyclical trough—the company was facing off against the Federal Trade
Commission, which had challenged Whole Foods’ proposed acquisition of a smaller
health food chain, Wild Oats.
During
the legal wrangling, the FTC revealed that over a period of years—and under a
screen-name alias—Mackey had been promoting his company (and taking the
occasional potshot at Wild Oats) in more than 1,000 comments on Yahoo Finance
message boards. The SEC, in turn, launched an informal investigation, which
left Mackey reeling in anxiety.
That
personal emotional bottom, however, led to an awakening of sorts. “I did a lot
of spiritual work,” he says, and came to the realization that if he wanted to
continue to be the CEO of Whole Foods, there couldn’t be any aspect of his life
that was secretive or hidden that would be embarrassing should it become
public.
The
deal went through, and the SEC dropped the investigation without action.
Afterward, Mackey didn’t have any fear in his life, he says. He just let it all
go. “Even with this crisis we’re in now,” he says, “I never felt anxious about
it or nervous about it. I just don’t feel that anymore.”
But
those who know Mackey say that, in fact, he does worry—not so much about doing
the right thing but about figuring out what that right thing is. “One of the
great things about John Mackey is he’s opinion-rich, but he’s educated,” says
Roy Spence, chairman and co-founder of advertising agency GSD&M and a
longtime friend of Mackey’s. “He will dog it until he understands what is the
right thing to do.”
Mackey
is now working on a book called The Whole Foods Diet, based on eating
90% plant-based foods. Sitting on his patio at his summer house in Boulder, he
pulls out his iPad to forward me an article on a new study from the Centers for
Disease Control and Prevention that found that only about one in 10 Americans
eats the recommended minimum five servings a day of fruit and vegetables. “Food
culture in America is very toxic,” he explains. “We’re food addicts.” Mackey
starts rattling off statistics—54% of our calories come from refined sugars,
grains, and oils—basically processed junk food; 32% from animal foods; only 14%
are whole plant foods, and a good portion of that comes from fried potatoes.
“That’s the obesity problem right there—Americans eat calorie-dense foods.” He
adds, “I always say if we were to design a diet to kill people, this is what we
would feed them.”
These
are not new ideas, but Mackey is creating a model for people to follow. He also
has a louder megaphone than most. It’s much like what he did with his first
book in conveying what many may have already instinctively known or felt about
capitalism. “Once they have a pathway, they can follow it, and everything is a
lot faster and easier,” he says. “I like creating those pathways.”
Blending Nonprofit
With Profit
Whole
Foods has launched three in-house foundations to address challenges facing the
local—and global—community.
Whole Cities (Founded in 2014)
Courtesy of Whole Foods
Helps those in lower-income communities—and in other places
where fresh food is limited—get access to healthy offerings and nutrition
education. It stems from the company’s experience in its Detroit store.
Whole Kids (Founded in 2011)
Courtesy of Whole Foods
Funds salad bars (4,091 so far) and gardens (3,014) in schools
to combat poor nutrition among children. A salad bar can reduce food waste and
eventually improve the bottom line for school lunch programs.
Whole Planet (Founded in 2005)
Courtesy of Whole Foods
Gives
grants to microfinance institutions in places where it does business. It has
committed $64.1 million to date in 67 countries. It’s based on the pioneering
work of Muhammad Yunus’s Grameen Bank.
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