Because most philosophies that frown on reproduction don't survive.

Monday, October 05, 2009

John Mackey on Capitalism and Running a Business

Whole Foods CEO John Mackey attracted quite a bit of ire a few months back when he wrote an editorial for the Wall Street Journal in which he advocated that Obama and the congress consider an approach to health care reform similar to the health benefits which Whole Foods provides its employees (centered around high deductible coverage and health savings accounts.) Within days, several progressive sites were calling for boycotts of Whole Foods, seeing Mackey as giving aid to anti-Obama forces. Mackey himself is somewhat bemused by the firestorm his editorial caused.
"President Obama called for constructive suggestions for health-care reform," he explains. "I took him at his word." Mr. Mackey continues: "It just seems to me there are some fundamental reforms that we've adopted at Whole Foods that would make health care much more affordable for the uninsured."
Though he's not gunning to cause any more controversies, Mackey has an interesting weekend interview in the Journal where he talks, among other things, about his philosophy regarding capitalism and business, and how it's changed over the years since he founded Whole Foods with $45,000 in friends and family-raised seed funding in 1978.
"Before I started my business, my political philosophy was that business is evil and government is good. I think I just breathed it in with the culture. Businesses, they're selfish because they're trying to make money."

At age 25, John Mackey was mugged by reality. "Once you start meeting a payroll you have a little different attitude about those things." This insight explains why he thinks it's a shame that so few elected officials have ever run a business. "Most are lawyers," he says, which is why Washington treats companies like cash dispensers.

Mr. Mackey's latest crusade involves traveling to college campuses across the country, trying to persuade young people that business, profits and capitalism aren't forces of evil. He calls his concept "conscious capitalism."

What is that? "It means that business has the potential to have a deeper purpose. I mean, Whole Foods has a deeper purpose," he says, now sounding very much like a philosopher. "Most of the companies I most admire in the world I think have a deeper purpose." He continues, "I've met a lot of successful entrepreneurs. They all started their businesses not to maximize shareholder value or money but because they were pursuing a dream."

Mr. Mackey tells me he is trying to save capitalism: "I think that business has a noble purpose. It's not that there's anything wrong with making money. It's one of the important things that business contributes to society. But it's not the sole reason that businesses exist."

What does he mean by a "noble purpose"? "It means that just like every other profession, business serves society. They produce goods and services that make people's lives better. Doctors heal the sick. Teachers educate people. Architects design buildings. Lawyers promote justice. Whole Foods puts food on people's tables and we improve people's health."

Then he adds: "And we provide jobs. And we provide capital through profits that spur improvements in the world. And we're good citizens in our communities, and we take our citizenship very seriously at Whole Foods."

I ask Mr. Mackey why he doesn't collect a paycheck. "I'm an owner. I have the exact same motivation any shareholder would have in the Whole Foods Market because I'm not drawing a salary from the company. How much money does anybody need?" More to the point, he says, "If the business prospers, I prosper. If the business struggles, I struggle. It's good for morale." He hastens to add that "I'm not saying anybody else should do what I do."

Well, that's not exactly true. Mr. Mackey has been vocal in his opposition to recent CEO salaries. "I do think that it's the responsibility of the leadership of an organization to constrain itself for the good of the organization. If you look at the history of business in America, CEOs used to have much more constraint in compensation and it's gone up tremendously in the last 30 years."
emphasis added
Working in an area of business (pricing) which management traditionally turns to when trying to eke more revenues or profits out of a business that is not doing as well as they'd like, the bolded point is something of which I'm particularly aware. Tools such as pricing can be used to optimize a business, but (contrary to the belief of some executives) you cannot make people want something they don't want simply by pricing it right -- or indeed by any of the other "marketing magic" available in business's bag of tricks. At the end of the day, the way to have a sustainable, successful business is to provide people with something they need or want. While making a profit in a business is a primary reason for its existence (just our for any working person their paycheck is a primary reason why they show up) the only way to make profits achievable is to provide something that others value. And while it's possible to do this while caring only about the profits (or the paycheck) you're generally going to be most successful at it if what you really care about is providing that service profits are simply the way you measure your success.

When businesses (or individuals) start thinking about how to make profits without thinking about how to provide people with something they will actually value, they usually are undercutting their ability to do either in the long term.

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