John Mackey may have found the cure for our ailing economy. The Whole Foods (NASDAQ:WFMI) co-founder, chairman, and CEO visited the Fool recently to describe the "conscious capitalism" built into his company's DNA.
Mackey's long contended that capitalism has a brand problem -- and a bad reputation. After all, capitalism is a powerful creative force; most people who have the free time to complain about it probably enjoy that free time because of capitalism. To argue his point, Mackey once even debated great economic thinker Milton Friedman on the social responsibility of business. (He's not the only one who thinks Friedman was wrong.)
Here's a quick overview of the basics of Mackey's "conscious capitalism" concept. You may even discover that you're already a conscious capitalist -- and didn't even know it.
What is conscious capitalism?
According to Mackey, three major principles drive this philosophy:
- The enterprise has a deeper purpose beyond maximizing profits and shareholder value.
- The enterprise is managed to optimize value for all of its major independent stakeholders.
- Leadership is servant to the enterprise and its stakeholders.
At its core, a conscious capitalist endeavor believes that an organization is about more than making money. The late Milton Friedman may have disagreed on this point, but Mackey points out that while entrepreneurs may not be averse to making money, few ever start a business with only profits in mind. They usually have some big idea that really ignites their creative spirit -- something that owes to far more than simple self-interest.
As an example, Mackey cited Microsoft (NASDAQ:MSFT) founder Bill Gates, who Mackey said was motivated more by the exciting idea of a personal-computing revolution than by the simple pursuit of maximum wealth.
Purpose over profits
Mackey argued that "great companies have great purposes." He outlined four such goals that light up great companies (with a little inspirational help from the Greek philosopher Plato):
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The Good (service to others, expressing love and care)
Mackey noted Southwest Airlines (NYSE:LUV), both for its touchy-feely ticker symbol and its aspirations to provide great customer service. As a result, Southwest has often been named one of the United States' best employers. Mackey also mentioned The Container Store; one of his own grocery rivals, Wegman's; and Nordstrom, all of which have made gold-standard customer service a major part of their missions. -
The True (discovery and the pursuit of truth)
Mackey's examples here included Google (NASDAQ:GOOG), Wikipedia, and Genentech, all of which strive to collect and make available vast arrays of knowledge. -
The Beautiful (excellence and the quest for perfection)
Not surprisingly, Mackey highlighted Apple (NASDAQ:AAPL), which has built a reputation for beautifully designed technology. In a less straightforward example, he offered Berkshire Hathaway's (NYSE:BRK) (NYSE:BRK-B) Warren Buffett, whose approach to investing is heavy on perfection. -
The Heroic (changing and improving the world)
Mackey's examples included both Microsoft and its founder's Gates Foundation, which is currently working to eradicate malaria. Mackey also mentioned the Grameen Bank, which seeks to eliminate poverty by providing Third World entrepreneurs with tiny loans to start their own very small businesses.
Make love, not war, in business?
Mackey's ideas touch on another big idea that interests most of us here at The Motley Fool: long-term performance versus short-term profitability.
Recent "earnings beat" euphoria made many investors giddy. But the more skeptical among us took the news with a grain of salt, realizing that most of those gains came from overly zealous cost cuts in the face of flagging sales. To shore up their bottom line in the near term, companies may have jettisoned their best talent, or damaged customer service in a way that will drive their former patrons away. Wall Street's subprime calamity is another prime example of the long-term dangers of "maximizing profits" in the short run.
Mackey argued that as our society and business climate evolve, the common metaphors we use for industry -- "war," "Darwinian struggle," "machinery" -- should become increasingly obsolete. Instead, Mackey spoke of "complex systems" encompassing a variety of stakeholders, all of which depend upon each other. In his world, business doesn't have to be a zero-sum game.
In a future commentary, I'll delve into this cooperative "complex systems" approach to business in greater detail. Until then, feel free to share your thoughts about Mackey's radical rethinking of capitalism in the comments section below. And to hear Mackey's argument for yourself, check out our complete podcast of his visit.
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