Conscious Capitalism. John Mackey

measure long-term company performance with the balanced scorecard.

      As a vivid illustration of how this works, consider Hewlett-Packard and IBM and the different approaches to leadership taken by CEOs Mark Hurd and Sam Palmisano in the last decade. Prior to being forced to resign for misconduct, HP’s Hurd, who came from NCR Corporation, took over from the failed leadership of Carly Fiorina and seemingly got the company back on track, driving revenues and profits upward and more than doubling HP’s stock. However, these gains were caused in part by sharp cuts in R&D spending from 6 to 3 percent (compared with historic levels of 10 percent) and a near-term focus that precluded investing in viable long-term strategies. Since his departure in 2010, HP stock has declined by $60 billion, or 55 percent.

      Under Palmisano’s steady leadership, IBM focused on serving its global customers through a values-centered “globally integrated enterprise.” This long-term culture change took the bulk of Palmisano’s ten years as CEO but resulted in an increase in IBM shareholder value of more than $100 billion, or 84 percent, in the past three years. Virginia Rometty, Palmisano’s internal successor, is well positioned to sustain this success, whereas Hurd’s externally chosen successors, Leo Apotheker and Meg Whitman, continue to search for a viable strategy.

      I am deeply grateful to John Mackey and Raj Sisodia for giving business and society this invaluable treatise on how to integrate all the company’s constituencies for the long-term benefit of creating sustainable organizations that serve society’s interests simultaneously with their own. They refer to capitalism as a “heroic force” addressing society’s greatest challenges. In that sense, their ideas dovetail perfectly with those of my Harvard Business School colleague Michael Porter, the pioneer of modern corporate strategy, who has issued a clarion call to corporate leaders to contribute to society by “creating shared value.”

      It is my fervent desire to see these ideas became a widely accepted and practiced mode of running corporations in the future, thereby enabling capitalism to flourish in the decades ahead as the dominant force contributing to a prosperous global society.

      Bill George is professor of management practice at Harvard Business School and the former chair and chief executive of Medtronic, Inc. He is the author of four best-selling books, including Authentic Leadership and True North, along with his most recent book, True North Groups. He serves on the board of directors of ExxonMobil, Goldman Sachs, and the Mayo Clinic.

      INTRODUCTION

      Awakenings

      BY JOHN MACKEY

      Before I cofounded Whole Foods Market, I attended two universities, where I accumulated about 120 hours of electives, primarily in philosophy, religion, history, world literature, and other humanities. I only took classes I was interested in, and if a class bored me, I quickly dropped it. Needless to say, with such a self-directed educational strategy, I learned many interesting and valuable things, but ended up with no degree. I never took a single business class. I actually think that has worked to my advantage in business over the years. As an entrepreneur, I had nothing to unlearn and new possibilities for innovation. I spent my late teens and early twenties trying to discover the meaning and purpose of my own life.

      My search for meaning and purpose led me into the counterculture movement of the late 1960s and 1970s. I studied Eastern philosophy and religion at the time and still practice both yoga and meditation. I studied ecology. I became a vegetarian (I have been a vegan for ten years). I lived in an urban co-op/commune in Austin, Texas, for two years, and I grew my hair and beard long. Politically, I drifted into progressivism (or liberalism or social democracy) and embraced the ideology that business and corporations were essentially evil because they selfishly sought only profits. In contrast to evil corporations, I believed that nonprofit organizations and government were “good,” because they altruistically worked for the public interest, not for profit.

      With that background, I was clearly “well prepared” to launch a business in 1978. Our original company, a natural foods market named Safer Way, was a small 3,000-square-foot store in an old house that I opened with my girlfriend, Renee Lawson. We had seed capital of $45,000 that we raised from friends and family. We were both very young (I was twenty-five and Renee was twenty-one) and idealistic, and we started the business because we wanted to sell healthy food to people, earn a decent living, and have fun doing both.

      Despite working many eighty-plus-hour weeks, Renee and I initially took salaries of only about $200 a month and lived in the office above the store. There was no shower or bathtub there, so we took “showers” in the store’s Hobart dishwasher when we needed to clean up (I’m pretty sure that violated several city health codes). After operating Safer Way for two years, we decided to relocate to a much larger building, merge with another small natural food store, and change the name to Whole Foods Market in 1980.

      First Awakening: Creating a Business and Becoming a Capitalist

      At the time we started Safer Way, the progressive political philosophy I believed in had taught me that both business and capitalism were fundamentally based on greed, selfishness, and exploitation: the exploitation of consumers, workers, society, and the environment for the goal of maximizing profits. I believed that profit was a necessary evil at best and certainly not a desirable goal for society as a whole. Before starting Safer Way, I had been involved in the cooperative movement in Austin. Besides living communally in a housing co-op for two years, I was also a member of three separate food co-ops at different times. For several years, I believed that the co-op movement was the best way to reform capitalism because it was based on cooperation instead of competition. If a store was owned by its customers, rather than by profit-hungry investors, it would be both less expensive and more socially just. I agreed with the food co-op motto—“food for people, not for profit.” However, I ultimately became disillusioned with the co-op movement because there seemed to be little room for entrepreneurial creativity; virtually every decision was politicized. The most politically active members controlled the co-op with their own personal agendas, and much more energy was focused on deciding which companies to boycott than on how to improve the quality of products and services for customers. I thought I could create a better store than any of the co-ops I had belonged to, and decided to become an entrepreneur to prove it.

      Becoming an entrepreneur and starting a business completely changed my life. Almost everything I had believed about business was proven to be wrong. The most important thing I learned in my first year at Safer Way was that business isn’t based on exploitation or coercion at all. Instead, I discovered that business is based on cooperation and voluntary exchange. People trade voluntarily for mutual gain. No one is forced to trade with a business. Customers have competitive alternatives in the marketplace, team members have competitive alternatives for their labor, investors have numerous alternatives to invest their capital, and suppliers have plenty of alternative customers for their products and services. Investors, labor, management, suppliers—they all need to cooperate to create value for customers. If they do, the joint value created is divided fairly among the creators of the value through competitive market processes based approximately on the overall contribution each stakeholder makes. In other words, business is not a zero-sum game with a winner and loser. It is a win, win, win, win game—and I really like that.

      I also discovered that despite my best intentions and desire to create a good business, there were many challenges. Our customers thought our prices were too high; our team members thought they were paid too little; our suppliers would not give us good prices, because we were too small; the local Austin nonprofit sector was continually asking us for donations; and various governments were slapping us with many fees, licenses, fines, and various business taxes.

      Not knowing much about how to operate a business didn’t quite pay off for us in our first year, as we managed to lose more than 50 percent of the capital entrusted to us—$23,000. We discovered that creating a successful business isn’t easy. Despite the losses, we were still accused by antibusiness people of exploiting our customers with high prices and our team members with low wages. Despite my good intentions, I had somehow become a selfish and greedy businessman. To my co-op friends, I was now one of the bad guys.