Interview with John Mackey: A Whole Foods "Stakeholder" Model For Better Business… And Bigger Profits
by Dr. Mark Skousen, Chairman, Investment U

Last week in Guatemala I met up with John Mackey, CEO of Whole Foods Market (Nasdaq: WFMI), the fastest-growing organic food supermarket chain in the world.

I’ve known John now for four years, and we’ve developed a friendship, with our common interests in book reading, free-market economics, investments, sports, healthy living and spiritual growth. Like Bill Gates, who dropped out of college, John is a brilliant thinker and entrepreneur who’s turned Whole Foods into an $8 billion company. And his business model is spreading like wildfire…

Let’s take a look at his “stakeholder” philosophy, and the companies quickly adopting it…

John Mackey's Long-Term Profits In “Conscious Capitalism”

When we met last week, John had just come from a small village where his Whole Planet Foundation is making small micro credit loans to poor women.

“Mark, if you could see the light in their eyes, you would be amazed at the transformation these small loans have done to these small business owners.” John is a big fan of Muhammad Yunus and the Grameen Bank, which pioneered the concept of small loans to poor people.

“It’s the best anti-poverty program I know,” he said. “And it’s happening all around the world, including here in Guatemala.”

John’s an advocate of a new business model he calls “conscious capitalism,” one that involves a “stakeholder” rather than “shareholder” philosophy. He rejects the traditional profit-centered business model that seeks to optimize profits for investors only.

Rather, he believes that the key to maximizing long-term profits is by “having a deeper business purpose, great products, customer satisfaction, employee happiness, excellent suppliers, community and environmental responsibility.”

The Whole Foods Model... and the Stakeholders Within

Whole Foods has a policy of fulfilling the needs of many “stakeholders” in the company: customers, employees, shareholders, suppliers, the community and the environment. The company is known for paying high wages and benefits to its workers, including stock options to most employees rather than only executives; and it donates 5% of its profits to local causes.

Critics complain that stakeholder businesses are expensive to maintain and ultimately under-perform on Wall Street. Is this really the case?

Mackey refers to a new study that tries to answer this question: Firms of Endearment: How World-Class Companies Profit from Passion and Purpose, by David Wolfe, Rajendra Sisodia and Jagdish Sheth (2007 by Wharton School Publishing). The authors identify 30 companies that are managed to optimize total stakeholder value instead of focusing strictly on profits. And they tracked the long-term stock performance of those that are publicly traded:

Take a look at how stakeholder companies performed as a group against the S&P 500 in the chart below…

As the chart above indicates, “stakeholder-centered” (S-C) companies have had extraordinarily high short- and long-term stock market returns.

“This is no accident,” Mackey states. “It is the result of all 30 firms creating a superior business model – the business model that I believe will become the dominant business model of the 21st century.”

John Mackey may be right. My only concern is how well Whole Foods and other stakeholder businesses do during cyclical downturns, which are inevitable. Can they continue to be generous with their employees, suppliers and the community?

Good investing,

Mark

 

 

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