ConsciousCapitalism:

A New Business Paradigm

John Mackey, CEOWhole 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:

1.A Conscious Business has a higher purpose that transcends maximizing profits. It is focused on fulfilling its higher purpose, which evolves dynamically over time.

2.The enterprise is managed to optimize value for all of the major interdependent stakeholders.

3.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 & CareThe Good

• Discovery & the Pursuit of TruthThe True

• Excellence & the Quest for PerfectionThe Beautiful

• Changing & Improving the WorldThe 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

not Making 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

Whole Foods Market’s deepest purpose is:

Changing & Improving the World

1 Selling the highest quality natural and organic products available 2 Satisfying & delighting our customers 3 Supporting team member happiness & excellence 4 Creating wealth through profits & growth 5 Caring about our communities & environment 6 Encouraging win-win partnerships with our suppliers 7 We actively promote the health, well-being, and longevity of our stakeholders through education about healthy eating

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 LeadersU.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

Distribution of WFM options granted as of 2005

All Others

93%

Top 16 Execs 7%

Estimated distribution of options outstanding as of

2005 in the U.S.

Top 5 Execs 75%

All Others

25%

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

Percentage World Population Living on Less Than $1 per Day

0 50 100

2003

1980

1950

1820

Less than $1Less than $2

•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 GuaranteePrice GuaranteeLabor Practices GuaranteeEnvironmental Sustainability

Guarantee1% 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

Agriculture & livestock

Indigenous handicrafts

Corner Stores

Prepared Foods

Loans used for:

Where We Currently Work

14 Countries NowCosta 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

Whole Planet FoundationWhere Are We Making a

Difference?

HaitiGuatemalaCosta RicaNicaraguaHonduras

Peru

Thailand, Indonesia,

East Timor

Nepal & IndiaQueens, NY

EthiopiaKenya

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

• 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

Conscious Capitalism & Non-Profit Organizations

The Conscious Non-Profit Organization Model:

Holistic Interdependence

GoodAltruistic

(Non-Profits)vs.vs.

EvilGreedy, Selfish

(Corporations)

Tear the Wall Down

Creative Love is the “Golden Mean” which ends the false dichotomy between egoism & altruism

win-win

+win-lose

_lose-win

_

Love of selfLove of others

Corporate Social Responsibility Conscious CapitalismShareholder-oriented Stakeholder-orientedHas nothing to do with corporate purpose Incorporates higher purposeAdds ethical and financial burden to business goals

Reconciles caring and profitability through higher synergies

Consistent with traditional, mechanistic view of business

Holistic, ecosystem view of business as a complex adaptive system

Often an “add-on” – grafted on to traditional business model—usually as a separate CSR Department or is part of the Public Relations Department

Social responsibility is at the core of business model and is the responsibility of the entire company—not just one separate department

Easy to meet as a charitable gesture—frequently just another PR messaging strategy—green washing

Requires genuine transformation

Assumes all good deeds are equally desirable and are not connected to company’s core mission

Requires that good deeds also advance the company’s core mission[1]

[1] Daniel Yankelovich, Profit with Honor: The New Stage of Market Capitalism

Corporate Social Responsibility is not Conscious Capitalism

From Traditional Capitalism to Conscious Capitalism

From This To thisProfit-focus Purpose-focusOnly shareholders win                              All stakeholders winShort-Term                                                                Long-TermZero Sum                                                      Win-Win-Win-WinSelf-centered HolisticConflicts of interest                                                    Harmony of InterestsParasitic                                                                    MutualisticExploitative                                                         Creating ValueTrade-offs                                                                     SynergiesDisliked Valued/LovedNot 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.