Conscious Capitalism: A New Business Paradigm John Mackey, CEO Whole Foods Market Tulane University October 2009
Do We Need a New Business Paradigm? • Historians will one day view the 20th century as the great struggle between Capitalism and Socialism. Capitalism won this battle decisively, but it did not capture the minds of the intellectuals or the hearts of the people. • Corporations: the most influential institutions in the world, but they are widely perceived as greedy, selfish, exploitative, & not trustworthy • Current financial crisis & recession being blamed on “greedy” financial corporations & deregulation, rather than bad government regulations & monetary policies, combined with widespread governmental incompetence and corruption • Corporations & capitalism have serious “branding” problems & we appear to now be moving backwards toward either government control of companies (Fascism) or government ownership (Socialism) • What is needed instead in the 21st century is Conscious Capitalism
What Then is Conscious Capitalism? • Conscious Capitalism is based on three primary principles: • A Conscious Business has a higher purpose that transcends maximizing profits. It is focused on fulfilling its higher purpose, which evolves dynamically over time. • The enterprise is managed to optimize value for all of the major interdependent stakeholders. • Conscious Leadership to the enterprise & its stakeholders.
What is the Purpose of a Business? • What is the purpose of most professions? • If all the professions have a purpose that relates to the public good, why doesn’t business? • Who defines the purpose of any business? • Surely it is the entrepreneurs who create the business that define the original purpose of the business ?
Entrepreneurs Create the Original Purpose • Entrepreneurs of the Conscious Business are also entrepreneurs of meaning • Stakeholder community of customers, employees, investors, suppliers, and communities co-evolve the purpose of the Conscious Business over time • Businesses flourishing over the long-term evolve their purpose to higher levels of complexity and meaning
Great Companies Have Great Purposes • Service to Others: Expressing Love & Care The Good • Discovery & the Pursuit of Truth The True • Excellence & the Quest for Perfection The Beautiful • Changing & Improving the World The Heroic Which of these great purposes will be at the core of your own organization?
The Paradox of Profits • Happiness is a by-product of other things: • purpose, service, excellence • personal growth • friendship, generosity, forgiveness, love & compassion • Profits are best when not primary goal: • higher business purpose • great products & services • customer satisfaction • employee happiness • supplier partnerships
Long-Term Profits are Maximized by notMaking them the Primary Goal • Business is not a machine, it is a complex adaptive system of interdependent stakeholders • Leadership’s job is to fulfill the deeper purpose of the business,optimize the health & value of the entire business system, be a servant leader to the business • Optimize entire interdependent system = highest long-term profits & shareholder value • The price system is a tool for leadership to use—a valuable source of information
The Whole Foods Conscious Business Model: Holistic Interdependence
Not Tradeoffs—Rather Higher Synergies Leadership at a Conscious Business means thinking about the business very differently It means focusing not on tradeoffs between stakeholders, but on the potential synergies that exist between them One’s creative mind doesn’t think Zero Sum or Win-Lose, but rather Win-Win-Win-Win-Win-Win Different types of questions are posed and therefore different types of solutions are discovered and created The human mind is infinitely creative. Conscious Capitalism creates new pathways to unleash human creativity. Creative Entrepreneurs and Conscious Capitalists can solve all the world’s problems One example: The Whole Planet Foundation
Our Core Values 1Selling the highest quality natural and organic products available2Satisfying & delighting our customers3Supporting team member happiness & excellence4Creating wealth through profits & growth5 Caring about our communities & environment 6 Encouraging win-win partnerships with our suppliers 7We actively promote the health, well-being, and longevity of our stakeholders through education about healthy eating Whole Foods Market’s deepest purpose is:Changing & Improving the World
Selling the Highest Quality Natural & Organic Foods Available • WFM leading retailer of natural & organic foods • Improving health, well-being, & longevity of millions • Good health & pleasurable eating = compatible goals • Offering alternatives to the industrialized degradation of food • Creating higher animal welfare standards
Satisfying & Delighting our Customers • Most important stakeholder—no customers, no business • Customers shop voluntarily • Customers are treated as “ends” not “means” • Team Members are empowered to satisfy & delight customers Happy Customers = Happy Investors
Team Member Happiness & Excellence • Self-Managing Teams • Open salary information • Salary cap • Benefits vote • Gainsharing for all • Stock options for all Team Members—93% to non-executives • Personal Wellness Accounts & fully paid Health Insurance • “100 Best Companies to Work For” 12 yrs in a row, #22 in 2009
Rich Bosses—Not Conscious Leaders U.S. CEO pay as a multiple of average worker’s • In 2006, U.S. CEOs received $364 for every $1 the average worker earned. • At Whole Foods Market, the highest pay is limited to $19 for every $1 the average full-time Team Member earns • Servant Leadership requires modest pay Data Source: Business Week (1980-2000) and Institute for Policy Studies-United for a Fair Economy (2007).
The Distribution of Options Estimated distribution of options outstanding as of 2005 in the U.S. Distribution of WFM options granted as of 2005 Top 16 Execs 7% All Others 25% All Others Top 5 Execs 93% 75% Data Sources: Institute for Policy Studies-United for a Fair Economy (2006), Profits with Principles (2004)
Creating Prosperity through Profits & Growth • Investors are the #3 stakeholder • We are stewards: frugality is important • Profits created through voluntary exchange--not through the exploitation of people • Profits create wealth, capital, prosperity • Capital is the fuel for technological innovation and progress
Creating Prosperity through Profits & Growth • Business has a fundamental responsibility to create prosperity for society & the world • The percentage of people living on less than $1 per day has dropped from 85% in 1820 to only 20% today Source: World Bank (constant 2003 dollars)
Creating Prosperity through Profits & Growth • Fastest growing & most profitable publicly-owned food retailer in the U.S. past decade • $8 billion in annual sales--#324 on Fortune 500 • Same store sales averaged over 9% for the past 10 years (including 2008 slowdown) • Store ROIC over 35% for stores over one year of age • EBITDA CAGR of 30% since 1992 IPO • Stock price increased 1500% since 1992 IPO
Encouraging Win-Win Partnerships with our Suppliers • Leading retail outlet for the enormous growth of natural and organic products in the last 30 years • Success not possible without dedicated supplier partners • WFM’s success has helped our suppliers to grow and flourish
Local Producer Loan Program More than $2,780,000 loaned out—54 total loans Mudslinger’s Freestyle (NC) Full Circle Farms (RM) Holy Cow Beef (SW) 3L Farms (S) Buzz’n Bee (FL) Red Jacket Orchards (NE) Laughing Giraffe Organics (SP)
Whole Trade Guarantee • Helping poor farmers around the world • Over $200 million in sales estimated for 2009 & $2 million donated to Whole Planet Foundation • Partners: Rainforest Alliance, TransFair USA, FLO, Institute of Marketecology (IMO) • Quality Guarantee • Price Guarantee • Labor Practices Guarantee • Environmental Sustainability Guarantee • 1% of sales to Whole Planet Foundation
Caring About our Communities & Environment • The citizenship metaphor is appropriate for business • Local, national, and global • Businesses have responsibilities to communities • Philanthropy consistent with citizenship; managed prudently & efficiently • Contributes to shareholder value through increased good will with customers, Team Members, & communities • Philanthropy “win-win”, not “win-lose”
Caring About our Communities & the Environment • We donate more than 5% of profits to non-profits. • On a local basis we support thousands of local community events and organizations
Create economic partnerships in developing-world communities supplying our stores with product Provide innovative assistance for entrepreneurship through direct micro-credit loans Unleash the energy and creativity of every human being to contribute to prosperity in emerging economies Whole Planet FoundationGlobal Citizenship
Where We Currently Work 14 Countries Now Costa Rica, Guatemala, Nicaragua, Honduras, Haiti, Peru, Queens, NY, Nepal, India, East Timor, Thailand, Indonesia, Kenya, Ethiopia 99% women 47,000+ Members $16+ M loaned out 99% Repayment Loans used for: Agriculture & livestock Indigenous handicrafts Corner Stores Prepared Foods
Whole Planet FoundationWhere Are We Making a Difference? Thailand, Indonesia, East Timor Haiti Guatemala Costa Rica Nicaragua Honduras Peru Queens, NY Nepal & India Ethiopia Kenya
Caring About our Environment • We strongly support organic, local, & sustainable agriculture • Sustainable seafood—Marine Stewardship Council plus farmed fish standards with 3rd party certification • Commitment to recycling and alternative energy: up to 100% Wind Energy Credits. • Green Building, fuel cells and solar installations • Store & Facility Green Mission Teams • Animal Welfare program for livestock • Environmental strategy should be thought of as win-win-win-win
Conscious Capitalism & Non-Profit Organizations • Non-profits do understand the importance of deeper purpose & mission—corporations need to learn from them • Are non-profits able to transcend self-interest because they have an deeper purpose? Problem of self-interested, self-perpetuating Boards. • Anti-profit mentality frequently creates inefficiencies, waste, & stagnation • Many are not financially sustainable over the long-term—they need to learn from corporations • Non-profit organizations also need to evolve to a more holistic model
The Conscious Non-Profit Organization Model: Holistic Interdependence
Evil Greedy, Selfish (Corporations) Good Altruistic (Non-Profits) vs.
Tear the Wall Down Creative Love is the “Golden Mean” which ends the false dichotomy between egoism & altruism Egoism Selfishness *Creative Love* Altruism Self-sacrifice Love of self Love of others win-lose _ lose-win _ win-win +
Corporate Social Responsibility is not Conscious Capitalism Daniel Yankelovich, Profit with Honor: The New Stage of Market Capitalism
From Traditional Capitalism to Conscious Capitalism From This To this Profit-focus Purpose-focus Only shareholders win All stakeholders win Short-Term Long-Term Zero Sum Win-Win-Win-Win Self-centered Holistic Conflicts of interest Harmony of Interests Parasitic Mutualistic Exploitative Creating Value Trade-offs Synergies Disliked Valued/Loved Not Trusted Trusted
Conclusion Conscious Capitalism—New Paradigm for the 21st Century • A Conscious Business has a higher purpose that transcends maximizing profits. It is focused on fulfilling its higher purpose, which evolves dynamically over time. • The enterprise is managed to optimize value for all of the major interdependent stakeholders. • Conscious Leadership to the enterprise & its stakeholders. • This way of thinking about business transforms the underlying ethics of the enterprise to win-win-win-win-win-win. • The larger societal brands of business and capitalism will evolve toward fulfilling the deepest ideals that humans aspire to—all things Good, True, Beautiful, and Heroic.