Paper 2

Success for Shareholders and Stakeholders: The Case of Whole Foods Market


Every company struggles to achieve success, yet success can be defined in many different ways. As a result, management teams of companies must make decisions based on a set of goals and values that aim to maximize value for different groups that have a stake in the company. Choosing the most important values and goals for a company is incredibly difficult, and has been the foundation of the ongoing debate regarding stakeholder and shareholder managing styles. Theorists, economists, and CEOs alike argue over maximizing value for the owners of a company (its shareholders) versus aiming to serve a greater purpose for society by maximizing value for all its stakeholders. Economists like Milton Friedman argue, “…There is one and only one social responsibility of business- to use its resources and engage in activities designed to increase its profits,” (Friedman, 1970) thus opposing the idea that companies have responsibilities over their stakeholders including employees, customers, or the community the company operates in.

Friedman and other proponents of shareholder value theory believe that success for a company will result from making decisions solely with the shareholders’ interests in mind, but this management tactic is critiqued for often instigating unethical actions.  For example, many companies choose to cut salaries or expenses involved with safety because it increases net income, thus making the company look more profitable to investors and shareholders. Because many decisions are made to create value for shareholders at the expense of stakeholders, the debate over management strategy incorporates many issues of corporate social responsibility and business ethics.

Embedded in both the shareholder and stakeholder value theory are sets of philosophical theories that help determine how management makes decisions. Although not specifically stated in their mission statement or core values, Whole Foods Market uses a utilitarian thought process and considers the outcomes and consequences of decisions. In addition, “According to the principal of utility, an ethical decision should maximize benefits to society and minimize harms… What matters is the net balance of good consequences over bad” (Trevino and Nelson, 2004). In sum, a utilitarian company approaches all ethical predicaments by detecting substitutes for actions and considers the consequences for all stakeholders involved. With this definition in mind, it is clear that Whole Foods prioritizes creating value for all its stakeholders including customers, employees, communities, suppliers, the environment, and shareholders. To the disbelief of many shareholder value theorists, there are cases of business models revolving around stakeholder managing and utilitarianism that also serve the interests of shareholders with incredible growth and profits as proof of success. Whole Foods Market is a prime example of a company that aims to maximize the value for all stakeholders involved with the business including its shareholders through utilitarian decisions.

The History of Whole Foods Market       

Whole Foods’ legacy began in 1978 when John Mackey started a small natural foods store called Safeway, as seen in appendix A. With high profits and some new investments, Mackey was able to open another store, which he called Whole Foods Market in 1980. Around 1984, the company began its expansion out of Texas and grew by acquiring other small natural-foods chains all over the U.S and, eventually, Canada and the UK in the early 2000’s (Koehn and Miller, 2007).  In 1985, Mackey and 60 Whole Foods workers created a mission of the business that later became known as the “Declaration of Interdependence” (Koehn and Miller, 2007). This was updated in 1988, 1992, and 1997, and still stands today as an important aspect of Whole Foods’ business model. According to Whole Foods’ website, the Declaration states,

Our motto — Whole Foods, Whole People, Whole Planet — emphasizes that our vision reaches far beyond just being a food retailer. Our success in fulfilling our vision is measured by customer satisfaction, team member happiness and excellence, return on capital investment, improvement in the state of the environment and local and larger community support. Our ability to instill a clear sense of interdependence among our various stakeholders (the people who are interested and benefit from the success of our company) is contingent upon our efforts to communicate more often, more openly, and more compassionately (Whole Foods Market, 2013).

As a major part of the company’s mission and values, the Declaration of Interdependence is very clear about how the company views success as being greatly determined by the interdependence among all stakeholders. The declaration was largely a reflection of the company’s five core values: selling the highest quality natural and organic products available, satisfying and delighting customers, supporting team member excellence and happiness, creating wealth through profits and growth, and caring about communities and the environment (Whole Foods Market, 2013). Furthermore, according to Koehn and Miller, CEO John Mackey “attributed the performance of his company to the way it created value for all of its stakeholders.” It was clear from the start that Whole Foods was going to operate its business through utilitarian decisions made to increase value for its stakeholders: a unique strategy that would go against shareholder value theory which fixates exclusively on profits.

Creating Value for Customers

Without ever having been inside a Whole Foods facility, it may be hard to understand what makes it so unique in the eyes of a customer. Since 1978, Whole Foods Market has progressed to become “America’s healthiest grocery store” and refers to itself by stating on its website: “we seek out the finest natural and organic foods available, maintain the strictest quality standards in the industry, and have an unshakeable commitment to sustainable agriculture. Add to that the excitement and fun we bring to shopping for groceries, and you start to get a sense of what we’re all about” (Whole Foods Market, 2013). In general, Whole Foods changed the way people thought about grocery shopping, and attempted to make a chore entertaining and engaging. For example, the products stocked are carefully displayed, and, in the words of Koehn and Miller, “the premium the company put on the customer experience is apparent in the design layout of the stores, which are characterized by wide isles and attractive displays.”  In addition, most locations provide hot prepared food in a sit-down dining area, and some even provide other luxuries (as seen in appendix B) such as massage services and valet parking  (Koehn and Miller, 2007).

In regards to customers concerned about the quality and health benefits of the products being sold, Whole Foods defines quality by “evaluating the ingredients, freshness, safety, taste, nutritive value and appearance of all of the products we carry…feature[ing] foods that are free of artificial preservatives, colors, flavors, sweeteners, and hydrogenated fats…[is] committed to foods that are fresh, wholesome and safe to eat…” and “seek[s] out and promote[s] organically grown foods” (Whole Foods Market, 2013). With strict health standards and a unique and exciting shopping experience, Whole Foods actively creates value for the customer section of its stakeholders.

Creating Value for Employees

Similarly, the employees at Whole Foods are not simply viewed as workers. Instead, Whole Foods “supports its claims to employee empowerment with competitive benefits: free coverage for full-time workers, and options for dental, vision, disability, and life insurance…Current [team] members play an important role in the hiring process by interviewing and voting on prospective colleagues…”  (Koehn and Miller, 2007). In addition, Whole Foods differs from other U.S companies by distributing 94% of stock options to non-executive staff thus promoting a sense of appreciation and value for team members on all levels  (Koehn and Miller, 2007). Through a sense of community and overall satisfaction, it is clear that Whole Foods creates value for another part of its stakeholders: its employees.

Creating Value for the Environment and Local Communities

Since Whole Foods is a large supporter of organic agriculture and sustainable consumption, it goes without saying that the company aims to create value and cares for the environment and the communities involved with the company. This devotion is evident throughout the company website, which includes detailed sections about numerous foundations and programs that Whole Foods supports including Whole Kids Foundation, Whole Planet Foundation, Community Giving, and Local Producer Loan Programs. For example, Whole Kids Foundation’s mission “is to support schools and inspire families to improve children’s nutrition and wellness” according to Whole Foods’ website (see appendix C). “Our ultimate goal is an end to the childhood obesity epidemic. Through partnerships with innovative organizations, schools and educators we work to provide children access to fresh, nutritious meals.” Although many companies have programs that aim to help people in their surrounding communities and may donate to specific charities, Whole Foods really goes the extra mile in making these commitments a critical part of their business model as opposed to giving back simply to seem socially responsible for investors. Furthermore, Whole Foods has implemented countless environmentally friendly practices like composting spoiled produce for use in gardens and farms. Whole Foods was also the first retailer to build a supermarket that adhered to the environmental standards of the LEED Green Building Rating System  (Koehn and Miller, 2007). Thus, creating value for the community and the environment is an integral part of Whole Foods’ existing philosophy and management approach.

Creating Value for Shareholders

The proponents of shareholder value theory would conclude that Whole Foods’ decisions to maximize value for all stakeholders including employees, community members, the environment, and customers is absurd. Management choices to provide such lofty benefits to employees, extravagant amenities to customers, and large donations to communities only takes away from creating value for the true stakeholders of the company: the shareholders. Shareholder value theory even suggests that these decisions are unethical because they do not serve the true purpose of the firm. Interestingly enough, Whole Foods Market has proven that value can be created for shareholders despite the efforts and focus on creating value for stakeholders.

CEO John Mackey thought that well-educated consumers would pay more for the products that Whole Foods offered and thus pushed acquisitions and growth plans throughout the 1990s. By 1991, the company operated 12 stores with total annual sales of $92.5 million, according to Koehn and Miller. The following year, Whole Foods was the first retailer in the counter-cultural natural foods market to issue an IPO, which raised $23 million for the company. Whole Foods’ growth exploded from here, as from 1993 to 1997 the number of stores nearly doubled, and sales climbed to more than 1.1 billion (Koehn and Miller, 2007). In addition, growth and success continued throughout the early 2000s, as Whole Foods was added to the Nasdaq-100 and S&P MidCap 400 indices only 10 years after its IPO  (Koehn and Miller, 2007).  As of November 15, 2013, Whole Foods’ stock price had a day end price of $58.94 (as seen in appendix D), which is up almost 86% from its IPO offering price of $8.50 (Wall Street Journal, 2013). This financial data shows that Mackey and his colleagues at Whole Foods Market were successful in creating monetary value for its shareholders, which are considered both owners and stakeholders in the business.

Conclusion

Debates about the way in which Whole Foods achieved this financial success is still relevant today. The topic focuses on the social responsibility of a business, and whether a business’ sole purpose is to increase profits, thus doing so at any cost. John Mackey, CEO of Whole Foods, strongly disagrees with the idea that a business has no responsibility to its stakeholders and makes this clear in an article in Reason Magazine in 2005. In the article, Mackey expresses his thoughts about corporate social responsibility and Whole Foods’ successes while still maintaining the utilitarian philosophy that runs the company. Mackey’s piece summarizes the idea that, “…It is the function of company leadership to develop solutions that continually work for the common good” (Mackey, 2005) and attempts to refute statements in Milton Friedman’s article for The New York Times Magazine written in 1970. For example, Mackey states, “… I believe that the enlightened corporation should try to create value for all its constituencies. From an investor’s perspective, the purpose of the business is to maximize profits. But that’s not the purpose for other stakeholders… [Stakeholders] will define the purpose of the business in terms of its own needs and desires, and each perspective is legitimate” (Mackey, 2005). Mackey’s beliefs about the purpose of a business are fundamentally interchangeable with utilitarian ethics, and showcases Whole Foods’ determination to create value for its stakeholders as a concrete part of its business model.

As previously stated, tension concerning corporate social responsibility revolves around questioning whether prioritizing stakeholders will definitely benefit shareholders, too. The question then becomes determining whether using utilitarian ethics principals in decision-making will lead to value creation for shareholders, because proponents of the shareholder value theory do not believe so. The case of Whole Foods Market distinctly shows that it is possible for a company to incorporate utilitarian ethics and stakeholder value theory into management decisions while creating value for shareholders, as Whole Foods’ successes are undoubtedly in direct relation to creating value for all stakeholders. More importantly, Whole Foods values its shareholders within its stakeholders, thus keeping in mind the significance of shareholders without implying that they are the only important aspect of the business. In regards to the shareholder value primacy, Mackey states that, “The shareholders of a public company own their stock voluntarily. If they don’t agree with the philosophy of the business, they can always sell their investment, just as the customers and employees can exit their relationships with the company if they don’t like the terms of the trade” (Mackey, 2005). If shareholders, vendors, customers, or vendors adamantly disapproved of Whole Foods, it would not be the thriving and successful business is today, thus showcasing that it is possible for a corporation to be socially responsible to its stakeholders and shareholders at the same time.

Appendix A:

saferway

Appendix B:

whole_foods_columbus_5feb04

Appendix C:

brent

Appendix D:

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Works Cited

“Declaration of Interdependence: Whole Foods Market.” Whole Foods Market. 2013.Web. Whole Foods Market IP. L.P. <http://www.wholefoodsmarket.com/mission-values/core-values/declaration-interdependence>.

Dow Jones Company, Inc. “WFM Stock Chart- Interactive.” Wall Street Journal. Nov 13, 2013 2013.Web. <http://quotes.wsj.com/WFM/interactive-chart#P1D>.

Friedman, Milton. “The Social Responsibility of Business is to Increase Its Profits,”      New York Times Magazine 32 (September 13, 1970).

Koehn, Nancy F., and Katherine Miller. “John Mackey and Whole Foods Market.” Harvard Business School (2007): 1. Print.

Mackey, John, and Milton Friedman. “Rethinking the Social Responsibility of Business.” Journal of Reason 2005: 15-7. Print.

Trevino, Linda K., and Katherine Nelson. “Prescriptive Approaches to Ethical Decision Making in Business.” 3rd ed.John Wiley and Sons, 2004. 89. Print.

“Whole Kids Foundation.” Whole Foods Market. 2013.Web. <http://www.wholefoodsmarket.com/mission-values/caring-communities/whole-kids-foundation>.

Appendix A Photo

Appendix B Photo

Appendix C Photo

Appendix D Photo 

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