OUTSTANDING IN HIS FIELD During his years at Whole Foods, Mackey has gone from hippie to Libertarian, from crunchy shopkeeper to CEO of an $8 billion retail beast. | Photograph Courtesy of Whole Foods Market

John Mackey's Whole Foods Vision to Reshape Capitalism

John Mackey, the Libertarian CEO of Whole Foods, says not to worry: Capitalism and the invisible hand will cure the world's ills. But isn't it a little late to start believing in magic?

Just to be clear, John Mackey isn't Moses. "It's not like you go up to the mountaintop and God talks to you: Here is your purpose — execute," he says.

"It is something you discover and also create." Mackey, founder and CEO of Whole Foods Market, is riffing on the gospel of what he calls Conscious Capitalism. It has been a brutal couple of months for Mackey, who simultaneously became both the punching bag of the progressives and the poster boy of the right wing late last summer, after writing an op-ed in The Wall Street Journal that railed against a government health-care option. Liberal Whole Foods customers organized nationwide boycotts, while self-described "radical conservative" Tea Party types rallied around Mackey, calling for Whole Foods "buycotts." Now, sitting in a soulless beige conference room in Whole Foods' Austin headquarters, with Mount Bonnell looming beyond the window and two protective publicists at his side, Mackey finally starts to relax.

"You see, Conscious Capitalism is a fairly new idea, but it's going to have a huge impact," he begins, describing the philosophy he developed as he built his tiny natural-foods store into an $8 billion retail beast. "I do believe it will become the dominant paradigm of business in the 21st century." Conscious Capitalism, Mackey insists, moves corporations to refocus on purpose instead of profit. In theory, it underscores the importance of all of a company's interdependent "stakeholders": employees, customers, shareholders, suppliers, community, and the environment. When all of those constituencies' interests are factored into the company's decisions and aligned, his thinking goes, all — including, not incidentally, the bottom line — will flourish.

Two years ago, Mackey began rolling out his Catalyzing Conscious Capitalism Summit, which he will be expanding to Europe and India next year. He's building a Conscious Capitalism Alliance to help formalize the enthusiasm and sells a two-and-a-half-hour audio series that lays out the blueprint for aspiring Conscious Capitalist companies (he has trademarked the phrase). Mackey, 56, has also hit the road, visiting more than two dozen universities to inspire the next generation with his seductive message.

It would simplify things if Mackey's theory proved true. "Businesses that are more conscious of making a positive difference in the world make the world a better place from just being there," says Mackey, whose office sits next to the Austin store, an 80,000-square-foot altar to wholesomeness. "That all results in higher profit and higher return on capital. There are no losers." That sounds mighty appealing. But haven't we been down this road?

The rise of Whole Foods Market reads like creation myth at this point. It was Austin in the late 1970s, and Mackey, the shaggy-haired college dropout, wanted to meet some "interesting women"; so he moved into a vegetarian co-op popular with the ladies. He got a job at a natural-foods store, realized retail was a pretty simple game, and resolved that he and his new girlfriend (scored, of course, at the co-op) would open their own natural-foods store and café in an old Victorian house. "I was 24 years old. I started out wanting to have a company that had good healthy food and to earn a living," says Mackey, in a lulling Texas cadence. "Did I start out wanting to change the world or change people? Of course not, it would take a total megalomaniac to do that."

Since his teens, Mackey had been on a quest for meaning and purpose. During his college years — all seven of them — the philosophy and religion major was your typical lefty. "Both business and capitalism were based on exploitation of consumers, workers, society, and the environment," he wrote in 2009's Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the World's Problems, describing his early "crunchy granola" political views. "I believed that 'profit' was a necessary evil at best and certainly not a desirable goal for society as a whole." However, once Mackey started running his own company, he quickly found himself on the dark side: His customers thought his prices were too expensive; employees complained of being underpaid; and the government "was slapping us with endless fees, licenses, fines, and taxes." "According to the perspective of the political left," he wrote, "I had become a greedy and selfish businessman."

The identity crisis sent him into an existential tailspin. Then Mackey, the son of an accounting professor, discovered the writings of Milton Friedman and Ayn Rand, the high priest and priestess of modern free-market capitalism. He slipped on the Libertarian mantle. "What I love most about the freedom movement, another name for the Libertarian platform," writes Mackey, "are the ideas of voluntary cooperation and spontaneous order that, when channeled through free markets, lead to the continuous evolution and progress of humanity." The beauty of Conscious Capitalism, says Mackey, is that self-interest and altruism can not only coexist, they can both thrive simultaneously without a lot of government meddling. "One of the things that I'm trying to philosophically just destroy," Mackey told Time magazine last year, "is this bifurcation that human beings are either greedy, selfish, only in it for themselves — or they're saints."

These days, Mackey finds himself in the role of accidental prophet. "Pioneers are the ones who have to hack through a jungle and create a road," he tells me, offering an allegory for his Conscious Capitalist quest. "The only thing that frustrates me sometimes," he adds, "is that I feel like I've been hacking away with a machete in the jungle for the last 30 years, and sometimes people come up and say, 'Man, this is as far as you've gotten? You should have done more.' "

But the way Mackey sees it, Whole Foods has already left the world in better shape than he found it. "If I get run over by a truck later today, I will have already in my life made a difference in helping many people," he says. "Customers are better off because millions of people are eating in a way they never would have had we never existed. Our team members are better off because we've created a company that's a great place to work. Our suppliers have flourished along with Whole Foods and have made a lot of money from their association with us. And our investors have made a ton of money."

For those companies aspiring to become Conscious Capitalists, Mackey says there are four ways to get there. They can pursue one of four ideals — the good, the true, the beautiful, or the heroic — or any of them in combination. "Plato said the good, the true, and the beautiful, and I added on the heroic," he allows. Indeed, Mackey has always considered himself a philosopher in the making, once telling Time that if his ex-girlfriend had never persuaded him to launch Whole Foods, "I'd probably be in an attic somewhere scribbling off insane philosophies that nobody reads." The pursuit of any of these shiny goals, he says — harmonized with the needs of all a company's many stakeholders — will deliver the enterprise to a Conscious Capitalist state of perfection.

Yet Mackey's interpretation of what constitutes higher purpose can be perplexing. He singles out Nordstrom and Southwest Airlines (for their deeper pursuit of great customer service, or "the good") and Four Seasons Hotels and Berkshire Hathaway (for their obsession with perfection, "the beautiful") as examples of companies that have attained an ideal state. "Do you know what Southwest Airlines' stock symbol is?" Mackey asks me, busting to spill the punch line. "It's L-U-V, love! Think about the businesses you most admire in the world. You'll find almost all of them are pursuing one of those deeper passions."

Another of Mackey's Conscious Capitalist exemplars is the Container Store. "Our purpose is to organize people's lives to save them space and time. There's a certain Zen quality to being organized," says Kip Tindell, CEO and cofounder, noting that the company's other deeper purpose is "to be the best retail store in America." Ever since Mackey turned Tindell on to the Conscious Capitalism model, the purveyor of plastic tubs says he's seen the light. "Capitalism has a bad public image," Tindell says. "Socialism doesn't work, communism doesn't work — this [capitalism] is the winner. It just needs to be modified a bit, practiced in a way that isn't so mercenary."

Tindell, says Mackey, is a pursuer of the good. And indeed, the Container Store pays its employees very well — some 50% above industry average. But he doesn't seem overly concerned with the "holistic" attention to all stakeholders that purports to be at the center of Conscious Capitalism. When I ask Tindell what he meant by the Container Store being a "sustainable business," he replies, "The business will endure long after I'm gone." The retailer's obligation to the earth — arguably a critical stakeholder — consists of little more than a corporate-recycling program. Meanwhile, the environmental policy on the company's Web site borders on parody: "A commitment to sustainability includes having salespeople who anticipate customers' needs so they get everything they need in a single trip to the store." At the same time, Tindell (who recently joined Whole Foods' board and is hosting a Conscious Capitalism Summit next year) is not shy about the financial rewards of his message: "We're not just a couple of altruistic guys espousing nice views; this stuff really works. If all you wanted to do was make as much money as possible, as fast as possible, this is the way to do that."

In Mackey's eyes, Whole Foods itself pursues both the good and the heroic. And the nation's largest seller of natural and organic foods does boast many noble practices: Nonexecutive employees hold 96% of the company's stock options; 5% of the company's after-tax profits are given to charity every year; no executive can make more than 19 times the employee average; and after much criticism from activists, it has shunned purchasing meat from factory farms. "The rule is not conflict of interests — it's harmony of interests," says Mackey, who reduced his salary to a dollar in 2007 (he still owns about $36 million in stock). "The leader needs to manage the enterprise in a way that you're creating synergies rather than trade-offs — that's the art of conscious leadership."

But Whole Foods is itself a study in compromise. "The only thing in the human body that grows just for growth's sake is cancer," Mackey tells me. "I think sometimes businesses do that because they get drunk off bigger market share or more power and bigger perks and bigger egos, and I don't think all of that scale growth is always healthy." In fact, Whole Foods' own astronomical growth — virtually doubling in size every four years through aggressive acquisitions of 19 of its competitors — has entailed social and environmental trade-offs. Most of its produce is purchased from agribusiness giants instead of local producers, often flown in from other continents. Its 40,000-square-foot stores — all of which are nonunion, thanks in part to Mackey's personal efforts — are the Hummers of retail. Last year, Ceres, a green-investment watchdog, ranked the chain's environmental record among the lowest of all corporations. As Michael Pollan explains in The Omnivore's Dilemma, Mackey's paradox is similar to Wal-Mart's: In order to heal the planet without sacrificing profit, he'll need to continue to tax it with more, still-bigger stores.

Even Whole Foods' "healthy food" roots seem to have suffered for the sake of the bottom line. This summer, Mackey conceded to The Wall Street Journal that Whole Foods sells "a bunch of junk." His reasoning for why the company has drifted? "As we've gotten larger," he told the Journal, "we've tapped a middle-class customer, and this is what they're buying. They're voting for it." So while he may be feeding the cravings of one stakeholder — his customer — and thus his shareholders, he seems to be doing so at the expense of the company's healthy-foods mission. Rather than risk hurting his business by banning frozen turkey corn dogs or natural grilled cheese puffs, his solution is to offer healthy-eating clubs.

"[Mackey] has principles, but within that there's a lot of latitude," says Samuel Fromartz, author of Organic, Inc. "I remember one annual meeting where somebody asked Mackey, 'If you're a vegan, why are you selling meat? Why not become a vegan grocery store?' He said, 'I'm a vegan, but out of curiosity, how many people here are vegans?' It was a shareholder meeting; less than 10 hands went up. The implication was, You can't build a business out of that."

"This is all wonderful on paper," says Allen White, vice president of the Tellus Institute, a sustainability think tank. "The question is durability. If you say yes, yes, yes to all [stakeholder] pillars and then find yourself with Wall Street watching your every move and unloading shares when earnings are two cents less than you said they might be, how will those pillars stand up against that kind of pressure? That's the question Whole Foods is facing."

When Mackey was 29, some four years after his Randian rebirth, he was doing "connective breathing" exercises with his therapist and had a rebirth of another sort. "The experience of being in the birth canal," Mackey recalls on his Conscious Capitalism audio set, "was a spiritual awakening for me." He had been an atheist for years, but after his retro journey in therapy, he soon discovered "A Course in Miracles," a New Age guide to enlightenment and inner peace channeled from Jesus via a Columbia psych professor in the 1970s. He has been a devout practitioner ever since. "If we become more skilled at accessing that higher intelligence," continues Mackey, who credits his own "wisdom" to a higher source, "that's going to accelerate the evolution of humanity, and that's what's going to get us out of most of these problems that we're in."

Mackey's longtime colleague Jeffrey Hollender is less willing to rely on faith. Hollender was CEO of natural-cleaning products company Seventh Generation for the past two decades and remains co-chairman; his company likely owes its existence to Whole Foods. "Around 10 years ago, Whole Foods started building these big stores, but it didn't have enough to sell — and we had, like, an aisle of product," says Hollender. "I give them a huge amount of credit in our success."

But Seventh Generation's connection to Whole Foods was hardly a free pass. During all the years Hollender ran the company, he wrestled with what he sees as the often-conflicting motives inherent in running a cause-driven business. "This company lost money for 13 years," says Hollender, who has just returned from giving a fiery lecture at the University of Vermont. "Part of the problem was I just wasn't that focused on making money; I was focused on the mission of what we were doing."

Hollender says capitalism itself needs a bit of a rebirth, one that puts sustainability at the center. But unlike Mackey, he's calling for a radical regulatory overhaul in almost every area of our economic system, from taxing short-term capital gains to instituting full-cost accounting. "Almost every day, I ask myself, Am I devoting myself to the right thing that will make the biggest difference?" he says.

As Mackey did with organics, Hollender succeeded in changing his industry, remaking the notoriously toxic and wasteful cleaning-products industry by creating a new, environmentally "less bad" category. Over the past several years, consumer giants such as Clorox and SC Johnson have poured $700 million into the space. But Seventh Generation has continued to struggle. Today, the company, which went public in 1993 but went private again in 1999, only takes investment from "values aligned" institutional investors. "It has slowed us down," concedes Hollender. "But in the long run, we'll never fulfill our mission if we don't do that."

Hollender realizes that respect and power can be a by-product of size. "Growth buys you credibility and attention," he says. With that in mind, he stepped down as CEO of Seventh Generation last June, passing the reins to Chuck Maniscalco, the former president and CEO of PepsiCo's Quaker, Tropicana, and Gatorade business. Hollender has now charged Maniscalco with doing what he could not: building his $150 million company into a billion-dollar operation.

The question facing Seventh Generation is whether it can reach that level without resorting to the sorts of compromises Mackey has been willing to make. And the history of sustainable business trying to expand is littered with more tragedies than triumphs. Most green pioneers, such as Ben & Jerry's and the Body Shop, were swallowed by multinationals and saw their values subsumed by commercialism. Others, including Stonyfield Farm and Honest Tea, got slightly smarter, selling off only stakes in their companies to multinationals. Nevertheless, says the Tellus Institute's White, "the history of these firms is a little bit dark."

Which is why Hollender is trying to break that pattern by certifying Seventh Generation as a B Corporation, a new type of for-profit corporate status (think Fair Trade for companies) that legally obligates companies to consider factors other than just earnings in their decision making. "Corporate law in the U.S. says your job is to maximize return for your shareholders," explains Jay Coen Gilbert, cofounder of B Lab, the nonprofit that created the B Corporation status. "So that's what you're legally bound to do. If you don't, you can get sued." Unless, that is, shareholders also have explicitly endorsed that larger purpose.

B Corporations institutionalize values into the fabric of a company, legally requiring it to practice the stakeholder model. For sustainability to scale, says Gilbert, there need to be "clear standards, not just nice stories." Once a company is certified as a B Corporation, its board commits to considering environmental and social factors every time it makes a decision and has to hit specific social and environmental performance targets.

Because corporate law is determined at the state level, there are still 19 states where B Corporations don't yet have legal protection, including corporate havens like Delaware. There are campaigns under way in at least five states to change that, but B Lab has still managed to certify 230 companies across 50 industries, representing more than $1 billion in revenue. Its goal is a new generation of Fortune 500 companies with this novel legal structure built into their DNA. "There are some things that should be off the table for discussion," says Hollender.

But the reality is that so far most B Corporations are little green companies. For emerging models like this (and there are several, including an effort called Corporation 20/20 that the Tellus Institute's White is heading) to have serious impact, companies still need to become large enough to exert pressure in the marketplace. As Gilbert explains, "The odds that an existing public company like Whole Foods with a large amount of disembodied third-party institutional investors is going to vote to expand its corporate responsibilities are pretty remote to say the least. That's why we haven't spent a lot of time talking to the John Mackeys of the world. They are already public companies. The genie is out of the bottle."

Mackey professes to be aloof from any concerns about Whole Foods' stock price. "Investors of a public company, if they don't think Whole Foods has a good return, they sell their stock," he shrugs. "In fact, people are gaining and losing customers all the time, are hiring and losing team members all the time. People are selling stock as we speak, others are buying." Which makes it all the stranger that he was outed two years ago for pumping Whole Foods' stock and bashing his competitors under a pseudonym on Yahoo Finance message boards over a period of seven years. "The endgame is now under way for OATS... ." wrote Rahodeb, Mackey's alter ego, of Whole Foods' largest then-rival, Wild Oats. "Whole Foods is systematically destroying their viability as a business — market by market, city by city." Mackey was cleared of any impropriety in the "sock puppeting" fiasco. And in 2007, Whole Foods did absorb Wild Oats, prompting the Federal Trade Commission to launch an antitrust investigation, which was settled in early 2009.

No one is disputing Mackey's right to run and grow his business. But his actions seem to contradict his rhetoric. "I don't see this as a clean break from the past," Joel Makower, author of Strategies for the Green Economy, says of Mackey's stakeholder model, which has been around for decades. "A lot of sustainability efforts are happening in an evolutionary way, but not at the scale and speed we need to address social and environmental issues." Paul Hawken, coauthor of Natural Capitalism, warns, "Without a systematic and coordinated approach to climate change, energy production, oceans, food, militarism, poverty, and other issues, there will be an ecological and corresponding social collapse because the shadow side of private enterprise is parochialism and narrow self-serving interests."

Back in 2005, when Mackey was introducing Conscious Capitalism, he engaged in a debate with his free-market hero Milton Friedman in the Libertarian magazine Reason. It was an unlikely spectacle, made all the more so by Friedman's energetic debunking of his grocer-disciple's theories. "The differences between John Mackey and me regarding the social responsibility of business are for the most part rhetorical," Friedman wrote. "Strip off the camouflage, and it turns out we are in essential agreement."

Mackey's retort — delivered with all due deference — argued that Friedman was missing the point. "If we are truly interested in spreading capitalism throughout the world (I certainly am)," Mackey wrote, "we need to do a better job marketing it." And "if our two statements are equivalent," he added, "then I know which statement has the superior 'marketing power.' Mine does."

Mackey is not the first to note the marketing power of conspicuous good works (see Rockefeller, J.D.). And it's that much easier to take the high ground when you're selling heirloom tomatoes as opposed to, say, oil. But stripped of the camouflage, as Friedman put it, Mackey's position sounds a lot like capitalism as we've known it for generations. Mackey might be willing to rely on the invisible hand and other miracles, but the rest of us don't have that luxury.

OUTSTANDING IN HIS FIELD During his years at Whole Foods, Mackey has gone from hippie to Libertarian, from crunchy shopkeeper to CEO of an $8 billion retail beast. | Photograph Courtesy of Whole Foods Market

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