Here is my first book review on Barrons — on John Mackey’s new book, “Conscious Capitalism,” which I regard as revolutionary and encourage everyone to get a copy at either a Whole Foods store (always fun to visit) or on Amazon:
| SATURDAY, FEBRUARY 2, 2013
The Soul of the New Capitalism
A worthy successor to The Wealth of Nations
Reviewed by Mark Skousen
We tend to regard capitalism in these cynical times as the worst economic system, except for all the others. By contrast, in Conscious Capitalism, Whole Foods Market Co-CEO John Mackey and Bentley College marketing professor Raj Sisodia put forward what could be the most ambitious, indeed revolutionary, model for capitalism ever conceived. Had their application of higher consciousness been in the boardroom a generation ago, we might have avoided the suffocating regulations of Sarbanes-Oxley and Dodd-Frank, and the dire straits of companies like General Motors, Sears, Citibank, and even Enron.
Conscious capitalism, according to Mackey and Sisodia, is “a way of thinking about business that is more conscious of its higher purpose, its impacts on the world, and the relationships it has with its various constituencies and stakeholders.”
Conscious Capitalism: Liberating the Heroic Spirit of Business
by John Mackey and Raj Sisodia
Harvard Business Press
368 pages, $27
Although they call free enterprise the source of “unprecedented prosperity for humanity,” they challenge the two celebrity philosophers of capitalism, Ayn Rand and Milton Friedman. They reject the Randian notion that “selfishness” and “greed” are virtues, and deny the Friedman view that the only responsibility of capitalism is to maximize profits for its shareholders.
“Business is not about making as much money as possible,” the authors declare. “It’s about creating value for stakeholders.” Companies must develop sterling reputations to attract loyal customers, employees and suppliers, and generate community goodwill. If they do, superior returns can be achieved in earnings and stock price as a byproduct, not as a primary goal.
Can the authors back up their claims? They include numerous case studies, starting with a $16 billion grocery-store chain, Whole Foods (ticker: WFM), that Mackey co-founded and has been directing since the early 1980s. Whole Foods has some of the most innovative labor relations anywhere, including a cap on executive compensation, factoring in bonuses, at 19 times the average pay of all workers; total transparency in salaries and wages; and similar benefits to all full-time employees, including stock options.
How do employees feel? Mackey’s company has a turnover rate of less than 10% a year, and has been listed on the Fortune 100 Best Companies to Work For since 1998. “Team members” earn above-average wages and benefits that include medical savings accounts and wellness centers. There are lots of built-in incentives to improve performance and earn more.
The company also enjoys superior returns. In the grocery business, traditionally known for its low margins, Whole Foods has achieved high margins, and does so with little advertising; customers are the stores’ best advocates. Investors agree. Since the market hit bottom in March 2009, Whole Foods’ shares are up eightfold, compared with a doubling of the Standard & Poor’s 500.
Mackey and Sisodia highlight other companies with a similar philosophy and equal success, such as Starbucks (SBUX), the Container Store, Tata Motors (TTM), Costco Wholesale (COST), Google (GOOG), Southwest Airlines (LUV), Panera Bread (PNRA), Twitter, Trader Joe’s, and Waste Management (WM). Unfortunately, however, they don’t discuss Charles Koch’s “market-based management,” which has catapulted Koch Industries into the second-largest private company in the world, or John Allison’s “Objectivist model” that transformed BB&T (BBT) into the fastest-growing regional bank in the country. It would be instructive to have Koch, Allison, and Mackey compare notes in a public forum.
Nor do Mackey and Sisodia explain how to deal with business reversals. Most companies go through tough times, when they must downsize, turn around, or go bankrupt, leaving workers unemployed and bills unpaid. Are the authors suggesting that if business leaders follow the tenets of conscious capitalism they will never fail—that they can always adjust to the new demands of fickle customers, obsolete technology, and government regulations—that firms will seldom if ever have to lay off workers en masse or close stores?
But Conscious Capitalism is still an inspiring blueprint for a better world. In The Wealth of Nations, Adam Smith wrote that the businessman is “led by an invisible hand…to promote the public interest.” For conscious capitalists who have read that passage in Smith, the invisible hand has become visible. It’s now up to them to make the most of that conscious fact. In that sense, Mackey and Sisodia have written a worthy successor to The Wealth of Nations. I can think of no higher praise.
MARK SKOUSEN is the editor of Forecasts & Strategies, a former professor at the Columbia Business School, and the producer of FreedomFest, which meets every July in Las Vegas.