Whole Foods’ CEO Jim Mackey is a bit fed up with media portrayals of Amazon as “a monster, putting everybody out of business.” He likewise has little patience for critics of capitalism who believe it is defined by greed, inequality or a desire for world domination. In fact, not only is our free-market economy not evil, as critics have increasingly tried to paint it, he says, but it will solve society’s ills, if we allow it to. “In the last 50 years, literally billions of people have been lifted out of poverty—that’s capitalism,” he says.
For almost a decade, Mackey has been making the case for “conscious capitalism,” which emphasizes corporate profit not at the expense of public interest, but rather as a result of considering the interests of all principal stakeholders. He has followed up on his 2012 book with Conscious Leadership, in which he explains that CEOs need to keep their company’s higher purpose front and center in order to create value for all stakeholders, including society at large.
In the first of this two-part series, Mackey recalled the leadership epiphany he had in 2011 when he nearly lost the company he’d helped found and built. In part two, below, he shares his views on how CEOs can balance the need for short-term results with long-term investment; how they can hold on to their vision while juggling the demands of multiple stakeholders; and why smaller retailers should emulate rather than fear Amazon.
Just before the dot-com bust, Whole Foods tried and failed to get a web-based business off the ground. Did you learn anything from that experience that has enabled you to better predict success or failure of a new idea? Did it give you better vision?
We only really see things clearly when we look at them in the rear view mirror. Dealing with it in reality, and the present, it can be confusing. So in the case of the internet bust, Whole Foods’ instincts were good. I mean, we saw that the internet was going to be fundamentally transformative and it’s been the biggest thing that’s happened in the last 20 years, no doubt about it. And we had a good business model. But the people who were online back in the year 2000, they weren’t the mass population. That was back when people were using dial-up modems and they were on AOL and nobody had any speed. So data transfer was very slow. All the people who were using the internet were the “digerati,” the people who were technologically sophisticated, and they were just looking for free stuff. So there was not a mass customer base at that time. That was when Amazon stock price dropped 90%, in that bust— that would have been a good time to buy Amazon, I might add—and most of these [dot-com] guys went bankrupt. And Whole Foods just saw the same thing—it may have been a good technology, but we were just way ahead. And what the market was telling us, because our stock price was getting killed, was that they didn’t want us [doing it]. When we talked to the investment community, they said, ‘You guys should just stick to what you’re doing and just ignore this.’ And so we took a write-off and that’s exactly what we did.
The lesson I learned there is you need to be innovative, but sometimes you can be too far out ahead of the curve, and unless you’ve got strong working capital you’re not going to survive it. Whole Foods had another very successful business so it was easy for us to pivot and just focus 100% on that. The ironic thing is, of course, we sold out to Amazon three years ago in 2017 and Amazon is the most advanced internet commerce company so we’ve kind of come a full circle through merging with Amazon. We’re back now at a cutting edge of technology, but we’re not doing it, so to speak, Amazon’s doing it and we’re partnering with them.
Are you sharing notes with Amazon’s R&D or are you working on your own?
Both. We are working on some of our own stuff, but we’re also — Amazon’s probably one of the most innovative companies in the world, and they think really long term. These are two of the reasons we wanted to partner with them and sell out to them was they think really long term and they’re very innovative. I obviously can’t talk about some of the innovations that are going to be introduced in the next few years, but I do think they’re game changers. I think Amazon will change the food retailing business as we know it today—it will be very different 10 years from now than it is today. I remember when I met with Jeff Bezos and before we made a final deal with Amazon, he said, ‘Let’s reinvent the supermarket business together.’ I was down for that. Whole Foods had already been doing it. So we were going to get a very innovative company that thinks long-term to partner with that had greater resources than Whole Foods. So I thought that was a really win, win, win, idea.
What is the key to successful innovation?
Innovation is partly a mindset. It’s something that you have to push to innovate. On the other hand, there are keys to innovation, which is you have to try a lot of experiments. If you read something like Matt Ridley’s new book [How Innovation Works: And Why It Flourishes in Freedom” (Harper, 2020)], he makes it very clear that it’s not some genius that comes out with all these great ideas. Because that’s how it’s portrayed—you’ve got Thomas Edison and Steve jobs and Steve Wazniak and Bill Gates, Jeff Bezos, Elon Musk, you’ve got these larger-than-life characters, but in fact, while they may be the entrepreneurs driving things, they’re also going to have a brilliant team with them and they’re trying lots of different things. They say Edison tried 10,000 different elements before he found the right one that would be the filament to make a light bulb. He had 10,000 failures before he found a successful one, right? That’s a lot of persistence. And I think persistence really matters to innovation.
So you take something like Amazon—Amazon is innovating in so many directions, you can’t even track it. They know they’re going to have a lot of failures, but they’re also going to have a lot of successes that change things. And they’re willing to live with the failures because the successes make up for it. Whole Foods to a certain extent is adopting that philosophy. We’re going to try a lot more different things, knowing that many more are going to fail, but the successes will make it all worthwhile.
Amazon has often been portrayed as a Goliath, putting smaller retailers out of business and crushing the competition, etc. That feels like it’s at odds with one of the key values that you talk about in the book about how business should not be this Darwinian battle, but rather about cooperation and community. How do you reconcile that?
First, I’m not going to try to completely reconcile that because it’s inappropriate for me to talk about Amazon per se. I know a lot more about Whole Foods than I know about Amazon. So I don’t think I’m the right person to talk about Amazon in any kind of deep, big sense. But I will make one comment on that question you asked, which is that I don’t like the question. I don’t like the way that’s portrayed because it portrays Amazon as Goliath and they’re going around like a monster, putting everybody out of business. Amazon’s not trying to put people out of business. Amazon is trying to create value for people, they’re trying to innovate and customers vote for what they want. So in some areas like internet commerce, Amazon’s number one, but in many of these other areas, they’re not even close to number one. Like video streaming—Netflix is a leader there and Amazon’s an also-ran. Or music—they don’t lead that, Spotify leads. So they’re competing, they’re innovating and customers have to decide what they want. They prefer Spotify to Amazon Music as a general rule, or they prefer Netflix to Prime Video. So you’ve got to take all these things in perspective. If you go back and look, Amazon did their own phone, the Fire phone, and it didn’t succeed. They tried to win, but they lost. So again, I think you should ask Amazon these questions instead of me, but I can tell you, Amazon does not think of itself as Goliath going around trying to put a lot of companies out of business. They’re trying to create value for customers. And then the customers decide who they want to do business with.
In other words, free market capitalism.
But the way you portrayed it is the way the critics of capitalism portray it—as a bunch of monopolists going around like Goliath, stomping on people—”it’s unfair,” “the bullies win,” “it’s all a rigged game,” “winners take all,” blah blah blah—and I think that’s a misconception of what capitalism is. Capitalism is about innovation and creating value for other people. And yes, there’s competition in it, but the competition is not the primary metaphor, except for the critics that hate capitalism. That’s not how business people primarily think about it themselves. It’s like, how can we find a way to create value for customers where we can be successful in doing so? And what Amazon is really good at is innovation and taking the long-term perspective, which makes them a formidable competitor. But that just means other companies need to innovate and think long term, too. They should be emulating Amazon because Amazon is doing a lot of things right.
So one of the challenges right now to capitalism is income inequality and the growing wage gap, which CEOs are increasingly talking about and concerned with. What do you think the role of business leaders is in addressing that inequality?
Well, the inequality question I’ve always felt like is the wrong question. Isn’t the real question [about] poverty? That’s what capitalism is solving. If you go back 200 years ago, these are just such important statistics that I always need to tell people—if you go back to 1820, 85% of the people in the planet lived in less than $1 a day, 94% lived on less than $2 a day, and that’s adjusted for the same price index. Today only 8% of the population lives on less than a dollar a day. And in the last 50 years, literally, billions of people have been lifted out of poverty. That’s capitalism. Capitalism is ending poverty on this planet—if we continue to let it work its magic. Does it end inequality? No, it doesn’t, but what does? What economic system that we’ve ever used in the history of the planet ended inequality? None. It’s everywhere. You’re always gonna have inequality. So I think that question’s framed up wrong. The real question is poverty, and that’s what capitalism is good at ending. Statistically, it’s undeniable that people are getting wealthier over time and not just the rich people, but everybody. It’s rising up. If you look at the wage statistics from 50 years ago, you will see that in every category, people are making more, when you combine salary and benefits together, it’s been a rising tide.
And is there anything a CEO can do about it? I mean, I can tell you what Whole Foods has done about it. First of all, we have wage transparency so everybody can see what everybody else makes. We have a salary bonus cap at 19 times the average pay, no one can make more than that. Um, we have a $15 minimum starting wage so nobody makes less than that, and most are making much more than that. So Whole Foods can’t solve the inequality problem, corporations across the world can’t solve the inequality problem—it’s always going to be there. What we can do is build companies that create good jobs, serve customers and help the world become more prosperous. That’s what we’re doing. And we should be praised for it, not constantly criticized because there’s inequality in the world like somehow or another, that’s our fault. I don’t think it is our fault because there was inequality before there was capitalism, there’s inequality in socialist systems. So inequality we’ve always had with us–what we haven’t had with us is prosperity. And that’s what capitalism is doing is creating prosperity and ending poverty. That is amazing. Who else has ever done that? What other economic systems ever done that?
So back to the concept of the higher purpose—Whole Foods is feeding people, so that seems easier to identity, but for CEOs running manufacturers of widgets that seem less tied to a higher purpose, can they also find a purpose to rally their people around and get them excited about?
Absolutely—purpose is everywhere and every business can find its higher purpose if it just asks the question, what value is it trying to create? The purpose is connected to the value of creation. We’re a food company so we’re trying to create and sell healthy food to people that helps nourish them. And the nourish in our case means nourishing emotionally and spiritually as well. And if I had time there are many, many layers to our higher purpose, but any company will have some type of value proposition that their higher purpose can tie into. I mean some companies may have trouble—tobacco companies for example—but most can find it if they are willing to do the digging to get back to that purpose. The entrepreneurs who started the company almost without exception had some type of higher purpose, some passion they were trying to realize in the world. So sometimes it just requires an older company to do a dig. If the company is younger, the entrepreneurs are usually still with it, and they’re the best ones to define what that higher purpose is.
In the book you talk about purpose champions—how can CEOs identify those?
One thing Whole Foods has done recently is in the last year we’ve created a program we call Cultural Champions and there’s a program that our team members can go through and then they become certified cultural champions. And so what it means is, we take them deep into our purpose, deep into our core values and deep into our leadership principles. We would like as many of our team members as possible to go through this program and get certified to be a cultural champion. So I do think, because you’re always hiring new people all the time if you’re growing, that you can’t take your purpose for granted. First of all, it’s very important that the leadership of the company embody that higher purpose, that they live it, because people pay a lot more attention to what you do than what you say.
But we also have to talk about it. I talk about it all the time. It’s very important. If you want to create a culture that’s based around purpose, you can’t take it for granted. you can’t just do some mission statement stick it up on the wall and expect to keep purpose alive in people’s hearts and minds. It’s something that you have to do orientations, you have to talk about it. I talk about it pretty much every time I do some kind of video or I do a town hall meeting, I am always going back to the purpose, always going back to our core values, always talking about why Whole Foods is doing what it’s doing and then purpose is living. And every corporation can do the same thing once they become conscious of what their higher purpose is. And that higher purpose will tie back to their value creation in some form or fashion.
On the subject of shareholder activism, you described it as “a parasite that has dug its way into the very structure of financial capitalism.” Are they ever helpful to a company or is it always just an unhelpful distraction?
They can be helpful. Because one of the responsibilities that a corporation has is creating value for investors. And if a management team consistently fails to create a value, then they’re not fulfilling their duty to all of their stakeholders because the shareholders/investors are one of the stakeholders in whole foods case. I mean, we’ve created a great value for our shareholders for a long, long time. I mean, since the company was created, right, and then you hit a streak where competitors are bearing down on you and your same store sales decline for a little bit and next thing you know, you need to throw out that management team because it’s no longer creating value and we need to sell the company—well, that’s just so short term focused. You create a company like Whole Foods, which has created a great culture, a great value in the world. That’s when shareholder activism becomes destructive rather than helpful. But it can be helpful. All the stakeholders matter, so the shareholders matter too, and they shouldn’t be taken advantage of or screwed. Whole Foods created a great value for our shareholders. I mean, from the time of our IPO to the time of the sale of Amazon, adjusted for splits, we created a 30X return for our investors. We’re very proud of that.
What would be your advice to CEOs who struggle with how to balance the quarterly short-termism, keeping investors happy, with the long-term vision you have to have to be invested for the future?
It’s a good question. The market’s innovating in this regard, so you have things like the B Corp movement, which is a very important innovation that’s occurring. I would say any new corporation that starts up now should seek to be B Corp right out of the box if they can. Because the B Corp is putting an emphasis on the stakeholder model and it’s not strictly shareholders. Whole Foods is not a B Corp and I often wonder if we had been would we have been able to use the B Corp to help us fight off the shareholder activists–that’s not been tested yet, but I guess it eventually will be.
Secondly, there are new innovations, like the “long-term stock market.” I don’t know if you’re familiar with that. So you could go on long-term stock market and that has a different set of rules for things like shareholder activism and quarterly reporting and things like that. I always felt pressure, the quarterly earnings grind on you because you’re rewarded for good quarterly results and punished so much for bad ones that it works you down over time. That’s another reason why Whole Foods was excited to merge with Amazon because Jeff Bezos has always taken a long-term view. He’s been brilliant in being able to convince the financial markets to be patient and take the long-term view.
I think Elon Musk is doing the same thing. “I’m creating an entire new industry. It’s going to take me a long time to do it, but you have to believe in it.” And look at the valuation that Tesla has today. So it’s not easy to do. And I think the market’s going to have to innovate around it because it is what I said—it is a parasite on financial capitalism right now. And while it can be healthy, it’s increasingly becoming unhealthy and destructive.
You talk a lot about stakeholder capitalism. One criticism I’ve heard is that CEOs have to balance the needs of so many people, it’s easier to lose their “true north” in terms of purpose. How do you avoid that trap?
That is such a great question and I’m going to try to answer it, but it’s going to be a subtle answer because it requires a shift of frameworks. Most people when they approach the stakeholder philosophy still have a framework of win-lose, and they still think of the stakeholders in terms of some kind of trade off. If you raise the pay for your employees, that’s going to cost you profits. Or if you don’t squeeze the suppliers, that’s gonna cost you profits. So they’ve got a model in their minds where the stakeholders are in a struggle with each other, and we’re back into a win-lose framework.
That’s a misunderstanding of the stakeholder model. So I kind of want to shift the way we think about it. What we argue for and what I believe and how I’ve tried to operate Whole foods is that the stakeholders are not pitted into some kind of zero-sum game with each other. It’s management’s job to find strategies where all of the stakeholders simultaneously win.
That requires kind of flipping a switch in your mind of how you think about this. So when we come up with strategies where one or more stakeholders are losing, I say, that’s not a good strategy, throw it out, go back to the drawing board until you can come up with strategy where all of the major ones are winning— customers, employees, suppliers, investors, communities—unless they’re all winning, then it’s not really a good strategy. You haven’t been imaginative or creative enough.
So now whenever I hear a strategy, my mind is trained to run through it and I can say, “You know, our team members are not going to like that at all. That’s not a good strategy.” Or “My God, how are the customers going to think about that?” Or “We’re not going to screw our suppliers like that.” So you have to rework those strategies so that no major stakeholder is losing. And that just requires thinking about it differently. But here’s what I’ve learned about the human mind: It’s endlessly creative. And once you give it permission to go down this pathway—not only give it permission, but require it to go down that pathway—it will come up with innovative solutions that you never would have realized were possible.
For example, I used the example in the book about how we had these shareholder activists and they were pressing us, they were trying to take over our company and it was going to be very bad for all the stakeholders except for perhaps the investors. They were just looking for a short term payoff. And I kept asking again and again and again, what is the win-win-win solution here? What’s good for all of our stakeholders? And I couldn’t figure it out until one morning I woke up and it just pops in my brain: Amazon. Amazon’s a win-win-win solution for all of our stakeholders. And I knew it instantaneously when I thought of it. And I gave that idea to my team and they said, “That’d be great.” We contacted them. They were interested. And the rest is history.
But there is a win-win-win solution if we’re patient and we seek it and we’re creative. So that’s the challenge I’ll put to CEOs: Don’t just immediately default into a win-lose framework or a stakeholder tradeoff model. I’m going to do this for this stakeholder and this one’s going to lose, but I’ll make it up over here. Instead, look for strategies where nobody loses—they all win.
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