By John Mackey, CEO and Cofounder of Whole Foods Markets
In the five years since Raj Sisodia and I wrote Conscious Capitalism: Liberating the Heroic Spirit of Business, society has seen the remarkable growth of Conscious Capitalism. It is steadily becoming a worldwide movement to change how we think about business and how we conduct it. Many thousands of businesses are now inspired with a higher purpose beyond simply maximizing profits. Indeed, countless young entrepreneurs are starting up businesses, with their highest intention being to make the world a better place and to elevate humanity. Social entrepreneurs are creating many thousands of organizations that seek to solve the challenges we collectively face. Increasingly, the boundaries between business entrepreneurs and social entrepreneurs are beginning to blur as their higher purposes intermingle with one another.
I believe both our book and our nonprofit organization have been major factors in the larger movement toward a Conscious Capitalism world. Our book has now sold over 160,000 copies and has been translated into thirteen languages around the world. Our nonprofit organization, www.consciouscapitalism.org, now has chapters in more than thirty US cities and fourteen other countries.
Several other important organizations are also helping business consciousness to evolve in positive directions. Th ese include the benefit corporation movement (B Corp movement), which has created an alternative corporate organizational form. Benefit corporations require boards of directors to take into account not only the shareholders’ interests but also the well-being of other stakeholders and the larger social and environmental good in their decision making.
This alternative corporate organization form is now legal in thirty-three states and several other countries (see http://benefi tcorp.net/). The B Team is an international nonprofit organization dedicated to creating social, environmental, and economic good through business. It is led by a number of well-known business leaders such as Richard Branson, Paul Polman, Mark Benioff , Muhammed Yunus, Ratan Tata, and many other notable leaders (see http://bteam.org). A third organization having a large global impact is Inclusive Capitalism, whose purpose is to make capitalism more equitable, sustainable, and inclusive (see www.inc-cap.com/about-us).
All these organizations share a desire for business to place social and environmental values on at least equal footing with shareholder value—what is often referred to as the triple bottom line.
The triple bottom line is a wonderful idea and is one of the major inspirations for the Conscious Capitalism movement. However, a more comprehensive framework is necessary for truly meaningful change. Professor Ed Freeman’s seminal work on stakeholder theory formed the basis for the second pillar of Conscious Capitalism. It has moved from an interesting academic idea to one that is at the center of how many leaders think about their businesses—consciously creating value for all their major stakeholders. Although the identity of major stakeholders can vary across organizations, in Conscious Capitalism we identified six: customers, employees, suppliers, investors, society, and the environment. Whereas the triple bottom line tries to ensure that society and the environment are taken equally into consideration along with profits for investors, stakeholder theory proposes a “sextet” bottom line, which also includes customers, employees, and suppliers. All six of these major stakeholders are important, and the truly conscious business sees the web of interdependencies that exist between all of them and manages the business to simultaneously create value for all of them.
Of course, creating value for all six major stakeholders is not always easy—at least until we change the way we think about stakeholders. Th e always-present temptation is to make tradeoff s between the stakeholders so that one stakeholder gains at the expense of the others; if we look for tradeoff s, then we will surely find them. What is more difficult to do, but also absolutely necessary, is to shift our consciousness to look for win-win-win strategies—what Raj and I call Win6. Once we see the various stakeholder interdependencies and give ourselves permission to create strategies in which all are winning, that is what we actually will create.
While I’ve been greatly encouraged by the overall progress of Conscious Capitalism during the past five years, I’ve been deeply disturbed by one very powerful counter trend—shareholder activism toward public corporations. Th is activism is driven by the philosophy of maximizing shareholder value—usually, short-term shareholder value as the activist firms seek to make as much money as quickly as possible. Most shareholder activists don’t care about any of the four tenets of Conscious Capitalism or indeed too much about anything besides driving greater profitability and higher stock prices over the short term. Shareholder activists generally take an ownership stake in public corporations from 1 percent to 10 percent and then use their stock position to pressure the board of directors and the CEO to take various actions to increase short-term profitability and the stock price.
Usually, the actions entail massive layoff s of employees and other major expense cuts, huge stock buybacks, and dividend payouts. It can also mean putting the company up for sale to the highest bidder. If the board and the CEO do not cooperate with their demands, they often seek to replace directors with their own board candidates and lobby to remove the CEO as well.
Over the last few years, many large corporations have been pressured by shareholder activists. Th ese include Dell, Apple, Microsoft , Procter & Gamble, DuPont, and Panera Bread. In response, Michael Dell took his company private, and Ron Shaich, the founder and the CEO of Panera, sold his to JAB, a large international holding company. Both leaders were perhaps primarily motivated by their desire to escape the shareholder activists hounding their companies.
In 2016 and 2017 our company, Whole Foods Market, faced two shareholder activist challenges. Th e first one, by Neuberger Berman Group, began in the summer of 2016, after it had purchased 3 percent of our stock. Th e firm began making various demands to the management team: reduce our cost structure, bring in new directors onto our board, hire a new chief financial officer, eliminate our co-CEO structure, and put the company up for sale. We listen carefully to all our stakeholders, including our shareholders, and do the best we can to make them happy. Where Neuberger Berman’s suggestions made sense to us to improve the company, we implemented them. Where we believed its suggestions would be harmful to the company, we ignored them.
In April 2017, a second shareholder activist, Jana Partners, announced that it had bought 8.8 percent of the company. When we met in person with Jana representatives two weeks later, they made no constructive suggestions on how we could improve the company. Instead, they told us we were doing a terrible job managing the company and they made two demands: replace seven of our twelve directors on our board, give Jana veto power over all seven, and put the company up for sale. If we did not agree to their demands within five days, they would escalate their attack against the company. They did not tell us what their escalated attack would involve, but our “activist defense” bankers and attorneys believed it would be a proxy battle to take over our board. If they won such a battle, the new board would fi re the existing management team and replace us with new management, which would then put the company up for sale to the highest bidder.
We reacted very quickly to Jana’s threats and implemented two tactics that proved to be very effective. First, we had five of our most senior directors, who were judged by our activist defense advisers to be highly vulnerable to losing in a proxy contest with Jana, resign from the board. We replaced them with five very highly regarded new directors who would be very difficult for Jana to beat in a proxy contest. Th e resignations included several excellent directors whom we hated to lose, but all of them were willing to make this personal sacrifice for the good of the company.
Second, we decided to look for a white knight to acquire the company. We all believed it would be a disaster for Whole Foods Market if we were forced into a sale to another supermarket company, most likely one that didn’t share our purpose, values, quality standards, or culture. Th at was a path that none of the leaders of the company wanted to go down. But we could very likely be forced down that path because of unrelenting pressure from both Neuberger Berman and Jana. Was there another partner that would allow Whole Foods Market to retain its unique and defining qualities, while evolving itself over the next few years and adjusting to new market realities? Th e more I thought about it, the more I realized that there might just be one company that would be a perfect fit for us, a company that I had greatly admired for the past twenty years: Amazon.
We reached out to the Amazon people to gauge their interest in Whole Foods Market at the end of April. When it turned out they were very interested, we set up a meeting in Seattle just a few days later. A team of four Whole Foods Market executives met with four Amazon executives, including their founder and CEO, Jeff Bezos, on a Sunday afternoon. We were simply blown away by our first conversation with them. Th e Amazon executives were all brilliant and highly creative people. We spent several hours that day discussing the various possibilities of what we could do together. Our team was very excited and was sold on merging with Amazon after the first meeting. It turned out that the Amazon team felt the same way. Th e deal happened extremely quickly, with the merger agreement being signed just six weeks after the first meeting.
So Whole Foods Market’s experience with shareholder activism appears to be having a very happy ending for all our stakeholders. But what would have happened if Amazon hadn’t been interested in buying us? Could any other white knights have fi t well with Whole Foods Market Conscious Capitalism business model? Possibly, but I don’t have a clue who they might have been. Could Whole Foods have stayed independent and successfully fought off both Neuberger Berman and Jana and prevented them from forcing the company into an undesirable sale to the highest bidder regardless of the sale’s impact on our higher purpose and our Conscious Capitalism business philosophy? Maybe, but it would have been very difficult to do. Competition in the natural- and organic-foods business has increased tremendously over the past five years.
Whole Foods needs to cut costs, centralize more of our purchasing to gain greater economies of scale, and lower our prices to close the gap with many of our competitors. Could we do all three of these without harming our sales, profits, and culture, while shareholder activists would be continuously breathing down our necks ready to pounce on the company if anything went wrong with these plans or if the plans didn’t yield immediate results? Perhaps, but the odds didn’t favor it. It was quite likely that the unique, conscious company that Whole Foods had evolved into would have been destroyed. Now, with Amazon as our partner, we will have the time to evolve the company in the positive ways that it needs to evolve to be more competitive, while gaining access to Amazon’s tremendous technology and supply-chain expertise to help us evolve quicker and in unique ways.
Shareholder activism, as currently constituted and practiced, is a clear and present danger to the Conscious Capitalism movement, which hopes to increasingly win over public companies to this very special business model that promises to make our world a better place and to elevate humanity to a higher level. Activist shareholders base their actions on the misguided belief that maximizing shareholder value is the only purpose of business and should be pursued at all costs. This is the virulent parasite that has burrowed very deep into the structure of financial capitalism; it threatens to kill its host and to discredit the institution of capitalism itself.
The Conscious Capitalism movement needs to meet this threat head-on in all ways possible—especially philosophically and legally. Th e B Corp movement is an excellent starting point; it offers a way to change the legal environment about the purpose of corporations. It offers some protection from shareholder activists who pursue short-term stock-price maximization for investors at the expense of all other stakeholders. However, financial capitalism as we now know it needs a complete makeover if Conscious Capitalism is going to continue to fulfill its mission in the world. Th is major task still lies in front of us, and it will require brilliant and dedicated financial entrepreneurs to develop new solutions to this massive challenge.
In the meantime, companies throughout the world should remain undeterred on their path to becoming more conscious and creating greater value of many kinds for all their stakeholders. For some businesses, despite the rapid spread of the Conscious Capitalism philosophy, it will remain just that—a philosophy—and its adherents, no matter how well intentioned, might struggle to convert this philosophy into actual practice. But thanks now to Raj Sisodia, Timothy Henry, and Thomas Eckschmidt and Conscious Capitalism Field Guide: Tools for Transforming Your Organization, the transformation is more attainable. Raj, Timothy, and Thomas methodically lay out scores of exercises, tasks, and examples that will help the reader ultimately evolve as a conscious business leader. I am confident that this field guide will prove to be an invaluable resource to leaders looking for a systematic, practical, and proven approach to bringing Conscious Capitalism to life in their organizations. It has been an exhilarating and deeply meaningful forty-year journey for me. I have no doubt that it will prove to be equally exciting and meaningful for you as well—along with all the people whose lives will forever be transformed by your embrace of this way of being in business.