Conscious Capitalism vs. the Profit-Biased System

April 20, 2013 — 1 Comment

An essay in which I consider Whole Foods CEO John Mackey’s response to my question, “if Conscious Capitalism is such a good thing, why aren’t more companies doing it?”

John Mackey, Whole Foods CEO Photo Source: Joe M500, Flickr (Creative Commons License)

John Mackey, Whole Foods CEO
Photo Source: Joe M500, Flickr (Creative Commons License)

John Mackey Speech in Raleigh // Conscious Capitalism // Asking Why?

John Mackey stares at the running faucets in the men’s room just moments before his talk. He shakes his head incredulously, muttering to no one in particular, “That’s an awful lot of wasted water.”

The co-CEO of Whole Foods is a man of medium height and possesses a slight build. A tight haircut has tamed the unruly locks of curled hair I’ve seen in so many of his media headshots.  He’s in Raleigh this chilly February morning for a breakfast talk sponsored by our chamber of commerce. Mackey is promoting his new book Conscious Capitalism: Liberating the Heroic Spirit of Business.(1)

He looks around for an air dryer for his wet hands and finding none seems to ponder briefly whether to just slide them across his tan slacks. He opts for a single paper towel instead. Those who want to greet him this morning with a handshake will just have to endure his damp fingers.

Moments later Mackey is giving his spiel before an attentive crowd, a set of remarks unburdened by notes, spilling freely from a mind that has spent much time mulling over the subject. Then he opens the floor for questions. I sneak one in just at the end. It went something like this:

If Conscious Capitalism is such a good thing, why aren’t more companies doing it?

I’ll revisit his response in a bit.

Conscious Capitalism In a Nutshell // A Systemic Bias for Profits

Conscious capitalism rests on the notion that a holistic approach to business makes for better business results.(2) It’s a rejection of the idea that a company exists for the sole purpose of generating ever-higher profits for its owners. It argues that businesses answer to several stakeholders – of which investors are just one – and that by tending to them all as an interconnected system, the whole becomes greater than the sum of its parts.

But corporate America has an overwhelming bias for profits.(3)  Business decision-makers are so concerned with hitting short-term earnings targets that they trade long-term investments in their employees, their vendors, their customers and their communities in exchange for higher profits today and a few fleeting “attaboys” from Wall Street pundits.

Mackey believes this bias for profits, for favoring investors at the expense of other stakeholders, is deeply flawed. But the bias has been reinforced for generations now, to a point where it’s accepted wholesale in mahogany-walled boardrooms, rarely scrutinized among the white-shoed legal cognoscenti, and set as doctrine in the syllabi of our business schools.

The bias is rooted in the system. It has become dogma. And Mackey seems to relish in the idea of himself as heretic; as the rabble-rouser giving first breath to a protest movement by nailing his theses to the sanctuary doors.

That’s what Conscious Capitalism is about. It’s a heretic’s protest. And it’s finding support.

Henry Blodget // Profits Trump Paychecks // Again, Why?

But Conscious Capitalism is not an establishment movement. It does not count entrenched executives of big corporations or Wall Street analysts and bankers among its supporters.

The support is coming from outside the system and trying to move its way in.

It’s finding a voice among people like Henry Blodget, founder and CEO of the online business rag Business Insider. Think: Wall Street Journal meets Huffington Post. It delivers news and hard analysis but doles it out in bite-sized morsels for a short attention span audience.

Blodget was once a player in the system; a Wall Street wunderkind. He was best known as Merrill Lynch’s loudest cheerleader for the internet and telecom wave of the late-90’s. But he cheered a little too loudly for Elliott Spitzer’s liking. And in the tech fallout the crusading former Attorney General and Governor of New York accused Blodget of misleading investors, saying he published bullish reports encouraging clients to buy, buy, buy the same businesses he was panning internally to his Merrill colleagues. Blodget was banned from Wall Street.(4)

He emerged a few years ago with this second act, and Blodget seems to enjoy Business Insider as his personal platform for mucking against prevailing corporate dogma. So it’s no big surprise that he’s lending his voice to support the tenets of Conscious Capitalism.

In March of this year he published an article called “Companies Should Focus On Creating Value, Not Profit.” (5)  Over the past 30 years, he says, American corporations have gone from below-average profits to having the highest margins in history.

That’s no misprint. It’s a wholly accurate statement based on data collected by the St. Louis Fed. Both leading up to the Great Recession and now, as we’re emerging from it, American companies have sported the fattest profits ever.

Those profits are not so much a function of a booming economy, however, as they are of corporate managers forsaking investment in salaries and capital needs. The record profits are the result of paying the lowest wages in history (measured as a percentage of the overall economy) and scrimping on property, plant, equipment infrastructure and R&D.

In other words, the historical profits are a result of managers consciously neglecting the very things these same managers KNOW they must invest in if they want long-term success: a stable, happy workforce and the basic stuff (both equipment and research) for expanding a business.

They’re sacrificing long-term success for immediate profit gratification. They’re practicing the exact opposite of Conscious Capitalism.

So back to my question of John Mackey:


If Conscious Capitalism is such a good idea, why are American corporations rejecting it?

Chuck Prince // Musical Chairs, Corporate Version

Here’s a cynical response to the question: Corporate managers are just some combination of dumb and greedy. They’re too dumb to understand the long-term implications of their neglect and too greedy to care.

I reject that response. While I know it holds true in some unfortunate (and highly publicized) cases, my own interactions – limited though they be – with executives in large, public companies has shown this group of men and women to be generally intelligent and thoughtful. They are motivated as stewards of the companies that fall under their guidance. They’re interested in the rewards of their position, but they’re also obsessed with the legacy they’ll leave. They care about people they work with and the cultures of their organizations.

So, how can they be those things and still make such short-sighted decisions?

Chuck Prince, the former CEO of Citigroup, is an establishment guy if ever there was one. He caught my attention in a July 2007 interview with the Financial Times.(6) For context, at the time banks of all sorts were still wheeling and dealing in mortgage lending and their derivative off-shoots. A consensus was building that it had all become unstable; that the bubble in profits from originating, packaging and trading mortgage-backed securities was stretching to its popping point.

Yet the desire for profits continued trumping any sense of caution. There was still money to be made. Gobs of money! And for any one bank prudent enough to leave the party, a dozen were standing eagerly behind the velvet rope, waiting to jump in and reap the profits for themselves.

Here enters Chuck Prince with some color commentary on the party metaphor. He recognized the risk. He sensed, like many of his peers, that the likelihood of losses was quickly overtaking the opportunity for profits.

Prince told the FT reporter: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

Let me take a stab at translating that statement: Yes, I recognize there is substantial risk. Yes, I believe it could create serious liquidity issues for my bank. But I don’t know when it all ends. I don’t know when the risk overtakes the opportunity. It could be weeks, months, or even years. And so, with so much uncertainty on timing, how can I possibly justify to Citigroup investors the decision to walk away from these hundreds of millions in quarterly profits?

In this, I think, the former CEO could feel some camaraderie with the Apostle Paul when he wrote this bit of mind-twisting rhetoric in a letter to Roman followers:

“I do not understand what I do. For what I want to do I do not do, but what I hate I do…For I do not do the good I want to do, but the evil I do not want to do—this I keep on doing.”

The System-Induced Double Bind // Honestly, What Would You Have Done?

The Chuck Prince situation had far less to do with internal debates over good and evil than it did with the consequences that would be meted out by an external variable – the system.

Prince made the decision to stay in the sub-prime game until the results of risk became clear to everyone. Why? Because he understood the system well-enough to know that it will tolerate many transgressions, but it holds no pity for he who commits the cardinal sin: failing to deliver profit margins in line with your competitors in any given quarter.

This is the essence of the profitability bias, and the Wall Street earnings system has made its requirements very clear. If you don’t deliver profits, the analysts pan you; investors overreact, leaving in droves; your stock price tumbles; your board starts squirming; and your CEO is told that if he/she doesn’t improve results quickly, we’ll find someone who will.

Thus revenue gets chased with little attention to its riskiness. Costs get cut with little thought to ramifications beyond another quarter or two. Salaries are held in check and capital investments are delayed, giving Henry Blodget more grist for his Business Insider protest mill.

And in John Mackey’s Conscious Capitalism framework, all the non-investing stakeholders are relegated to the background. Employees are told to do more with less, suppliers are squeezed without mercy, customers are worked over for quicker sales, and the community becomes an afterthought.

This is the system Chuck Prince knew very well when he decided to continue dancing even while the music faded to silent. He knew definitively what would happen if he stopped dancing and lost out on profits that his competitors won. The system would show no mercy. He would be fired. He would be replaced by someone happy to grease the investors’ palms.

I believe he weighed this certainty against all the uncertainty of what might happen if he kept dancing with everyone else.

He was ultimately fired (well, technically speaking, he resigned) in November 2007 because of those very liquidity issues he predicted in the FT interview. Within months of his interview, Citigroup’s entanglements with sub-prime lending would threaten the bank’s solvency; its very existence.

But what choice did Prince actually have? He was stuck in something I’ll call a “system-induced double bind.”  Put more simply, it’s damned if you do; damned if you don’t.

If an executive in a publicly traded company goes against the system – delays immediate profits in an effort to protect his business from risk or in order to invest behind some promising R&D initiatives – he runs the high likelihood of being punished; of being fired. If he steps in line with the systems expectations, however, he could be injuring the long-term viability of his business.

Damned if you do; damned if you don’t. And so these executives (despite what I believe to be largely noble intentions) are conditioned to go down the path of least resistance. They become habituated. They become entrenched system players.

Chuck Prince’s case is a microcosm of the much wider issue. The double bind is pervasive and shows itself in many scenarios. It creates a high hurdle for Conscious Capitalism getting a toehold with today’s corporate leaders.

Back to John Mackey // Millennial Habits // A Conscious Capitalism System

Back to my question after the talk. I asked, “If Conscious Capitalism is such a good thing, why aren’t more companies doing it?”

John Mackey glanced at the ceiling and smirked ever so slightly as he pondered his response. “I strongly believe,” he began, “that there are a lot of unconscious conscious capitalists out there. After Whole Foods, this is my legacy to the world. Conscious Capitalism is my intellectual gift. I’m giving all of you a secret formula for building a successful business. It will be copied as others see you succeed with it.”

He paused before continuing. “But I’ve given up on my generation,” he said. “We are too ideologically locked in. We aren’t changing our habits. Conscious Capitalism is aimed at the millennial entrepreneurs. They are part of a very conscious and ideological generation. Their habits aren’t set. They’re willing to do things differently.”

And with that, content with his response, he ended the talk.


That system-induced double bind is too strong, Mackey concedes. The thinking of his contemporaries, is too entrenched. They are conditioned in the way of the system. They are conditioned to chase short-term profits, serving their investors at the expense of other stakeholders.

The system cannot be changed from the inside out.

But he holds hope for a longer path toward the Conscious Capitalism ideals. Change the system with outsiders who can work their way in. Introduce this new way of thinking to the younger generation, one that seems intrinsically more conscientious anyway, and let them bring a revised set of values into new businesses that will one day become publicly-traded corporations. Or let waves of them enter the ranks of existing corporations, throwing themselves at the system until their new mindset combines with their numbers to overwhelm the old habits.

Existing corporations aren’t practicing Conscious Capitalism because their leaders are conditioned to the old model; to the profits-biased system. But Conscious Capitalism can be a better way for really good businesses, those with competitive advantages and the ability to invest heavily in themselves for growth and the larger benefit of their multiple stakeholders. I don’t believe Mackey’s “secret formula” comment is quite as outlandish as it might seem at first blush.

And success will beget success. As small companies practicing its tenets demonstrate success (indeed, as they demonstrate that it can be a competitive advantage unto itself); as they grow into large corporations, others will take note. Others will seek to copy their practices. Change will occur.

Getting there, however, just might require a whole new generation that abides to a whole new mindset.

The path to a new Conscious Capitalism system will be long and winding.



(1) More about the book:

(2) I explored the Conscious Capitalism idea previously in this essay:


(4) The saga was retold recent by Ken Auletta in this New Yorker article:


(6) The FT article is behind a paywall here:

But you can access a good synopsis on this blog:



Paul Dryden


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  1. The Whole Foods Secret Formula: A Check-In on Conscious Capitalism | Paul Dryden - May 29, 2014

    […] his speech I had the opportunity to ask Mackey a question. “If conscious capitalism is such a good thing,” I asked, “why aren’t more companies doing […]

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