Last week, I introduced Whole Foods Market (NASDAQ:WFMI) CEO John Mackey's concept of "conscious capitalism." It's a holistic, long-term approach to running a business, with a focus on purposes greater than the blind pursuit of profits. Mackey thinks conscious capitalism could be an ideal way to fix capitalism's image problems and spur greater, more productive entrepreneurship.
Mackey's not condemning profits entirely; they motivate businesses to compete efficiently. And he's not suggesting that no business ever deserves to fail. But for Mackey, business isn't a war -- it's a web, connecting companies, employees, suppliers, and customers in a way that can ultimately help all of them.
Virtuous circles
According to Mackey, Whole Foods Market pursues a business model of "holistic interdependence." The company recognizes that stakeholders all rely upon each other, making its business more about synergies -- ways for everyone involved to win -- than trade-offs, in which only one party walks away happy.
Mackey discussed "the paradox of profits," arguing that profits are best achieved by not aiming directly for them. Self-absorbed, narcissistic people rarely find true happiness, especially if they act only for their own benefit. Similarly, companies that focus only on their own short-term profitability often destroy themselves by alienating, exploiting, and angering the stakeholders they require to survive: their employees, suppliers, and customers.
This may sound radical, but it isn't exactly a new concept. Ford's (NYSE:F) iconic founder, Henry Ford, came up with a profit-sharing wage plan, paying his employees well over the minimum wage. This meant they could afford to buy Ford's products, which would be good for both the company and the overall economy.
Today, Costco (NASDAQ:COST) also treats its employees famously well, giving the company a loyal, long-term workforce in an industry well-known for turnover. Among other benefits, encouraging workers to stay put reduces the expense Costco would otherwise incur to constantly train a steady flow of replacements.
Let's be friends, not frenemies
Whole Foods' collaborative web not only includes employees, customers, and shareholders, but also suppliers. Companies like Whole Foods can help small suppliers flourish against larger rivals; some have done so well that they've become coveted takeover targets for giants such as PepsiCo (NYSE:PEP), Coca-Cola (NYSE:KO), and Kraft (NYSE:KFT). Sticking up for the little guy also helps keep Whole Foods' expenses low, since a market full of suppliers spurs competition, giving the company leverage to negotiate for the lowest possible prices.
Whole Foods also makes local loan programs to small businesses -- in 2006, the company pledged help to small farmers who sell locally grown produce -- and pursues its Whole Trade program internationally.
Get over it, shareholders
In Mackey's view, shareholders aren't conscious capitalism's No. 1 priority. By focusing more on keeping employees happy, companies will increase their odds of making customers happy, too. Happy customers mean greater revenue and earnings, which will ultimately make shareholders happier as well -- provided they can exercise a bit of patience.
Mackey also warned that corporate social responsibility initiatives are not the same as conscious capitalism. Such efforts are often intended at least partly for public relations, designed to please shareholders, not stakeholders. Too often, such campaigns are simply "greenwashing" -- halfhearted efforts that can drive away savvy, cynical consumers. In contrast, conscious capitalism means that a company's benevolent aims are built into its DNA.
It's best to stay conscious
Mackey thinks that the human mind is infinitely creative, and that conscious capitalism creates new pathways to unleash that creativity. I believe he's right. Tapping the resilience and resourcefulness of entrepreneurs, especially those with loftier aims than simply getting rich, will do more to restore our wheezing economy than any government program could.
You could argue that conscious capitalism has little to do with investing; personally, I think it has everything to do with it. Companies that exploit and infuriate customers, employees, suppliers, and shareholders ultimately make themselves big, slow-moving targets, just waiting to get clobbered by smart, principled businesses built for the long haul. In that light, unconscious capitalism could be a vice your investments simply can't afford.
Do you prefer your capitalism conventional or conscious? Got any great examples of conscious capitalism, besides Whole Foods? Feel free to share your thoughts in the comment boxes below, and for a firsthand introduction to the concept, check out our podcast of John Mackey's visit to Fool HQ.
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