Profits are like happiness: If you aim for it directly, you’re more likely to miss
I’ve become very intrigued lately by Whole Foods CEO John Mackey’s concept of “conscious capitalism” (link to PDF essay).
A few days ago, Justin Fox from Time Magazine published a lengthy interview with Mackey and his college housemate Kip Tindell - who, as it happens, is the CEO of the Container Store, which is similarly prosperous and also run by a very similar business philosophy.
Year after year, Fortune magazine consistently rates their two companies as among the best companies in the world for which to work.
Here’s a good quote from Mackey, from the Time interview, that sort of sums up Mackey’s business philosophy:
First of all, Milton Friedman is one of my personal heroes, so I don’t want to trash Milton Friedman. But he had a mechanistic view of business-it’s like a factory that you bring inputs in, capital and labor, and you mix them together and out spits profits, and that’s the reason business is created. That’s how he would think about it.
It’s true that what Kip and I do also does create the best or maximum long-term shareholder value, but that’s not the reason we do it. If that was the reason we did it, we probably wouldn’t be as successful at it. The whole idea is to create an organization where all of the stakeholders are flourishing at the same time. Or in a very simple, simplistic model, which I teach our team members, the purpose of management is to make sure that the team members are well-trained and they’re happy in their work. If they’re happy in their work, then that’s going to result in good customer service and happy customers. If the customers are happy, then the business is going to flourish and the investors will be happy.
So you get this virtuous circle, and you can add the suppliers in because they have to be flourishing as well. It’s this idea that everyone is creating with the business voluntarily, and they all need to simultaneously flourish. And if they do, the business will prosper. And that will maximize long-term shareholder value.
It’s not a strategy to maximize shareholder value. It’s not the reason we’re doing it. The reason we’re doing it is because we want all of the stakeholders to flourish. Where I differed with him was what was the purpose of the business and why it really existed. He couldn’t conceive that it would exist for any other reason than to maximize shareholder value. And once he understood that this does maximize shareholder value, he said, “Oh, we agree.” I said, “No, we don’t agree because that’s not the purpose of the business.” And that’s where we never could quite sync up.
And Tindell says a short bit later:
I mean, we were joking at a gathering that we had this past summer that even the lawyers and bankers kind of get into the act. They’re so philosophically proud of the way your organization is governed that they kind of get into the conspiracy and feel somehow a part of it and do things that wouldn’t ordinarily take place.
I’m not quite nailing that description, but there’s a harmonic effort that takes place, like a chorus is so much more beautiful than a single voice. These people are all interconnected. And it not only provides a higher return to each of them-compensation for the employees, return for the shareholders, this creative crafting of a mutually beneficial relationship from the vendors-but it enriches the lives of those people, too, as crazy as that sounds.
So that’s when business starts transcending into sort of an emotional response. It’s fun. It’s passionate. People love Whole Foods. They love the Container Store. And it’s very satisfying to not just us but everybody that works there and everybody that shops there.
Fascinating. Read the full interview for much more about these two creative, intelligent gentlemen.
I keep thinking there’s something important for Objectivists to learn, here.
At a recent talk I saw him give in Austin, Mackey made an interesting statement to the effect that “Profits are like happiness - if you aim for it directly, you’re more likely to miss. But if you aim for the underlying values that make it possible, you get the big payoff.”
I do wonder whether Ayn Rand is guilty of encouraging people to aim a little too “directly” at happiness rather than understanding just how fully happiness comes through caring relationships, radical self-acceptance, and personal generosity.
True to form, many Objectivists and free marketers criticize Mackey’s approach to maximizing stakeholder value (rather than just shareholder value) because it’s not aimed directly at maximizing corporate profits.
My own sympathies, though, are increasingly with Mackey. I think his company, and his life - he looks to me like a happy, actualized man, from what I can tell - provide good testimony on behalf of his approach.
Originally published at Mudita Journal. Please leave any comments there.