Book Notes and Main Takeaways: “Conscious Capitalism” by John Mackey and Raj Sisodia

(LM → my personal comments)

General quotes

In his widely quoted 1970 treatise in the New York Times, “The Social Responsibility of Business Is to Increase Its Profits,” Friedman excoriated business leaders who were concerned about their employees, communities, and the environment: “Businessmen that take seriously their responsibilities for providing employment, eliminating discrimination, avoiding pollution … are preaching pure and unadulterated socialism.”

In his leadership of Whole Foods Market, John Mackey has become a role model for conscious capitalism just as my Medtronic colleagues and I have tried to be.

John Mackey, who calls Friedman “one of his heroes,” challenged the economist’s ideas in their 2005 debate, shortly before Friedman’s death. To his credit, Friedman tried to incorporate many of Mackey’s ideas into his theory of shareholder value creation, but Mackey pushed back: “While Friedman believes that taking care of customers, employees, and business philanthropy are means to the end of increasing investor profits, I take the exact opposite view: Making high profits is the means to the end of fulfilling Whole Foods’ core business mission. We want to improve the health and well-being of everyone on the planet through higher-quality foods and better nutrition, and we can’t fulfill this mission unless we are highly profitable.

The book has inspired entrepreneurs in the social venture space as well. For example, Verb Inc. is a social enterprise that activates and empowers social entrepreneurs through innovation competitions and an online marketplace. Its signature competition is the Dell Social Innovation Challenge, which over the past seven years has awarded more than $750,000 in seed funding. The competition has received more than seven thousand venture proposals from over sixty countries and has doubled in size year after year.

LM: Verb Inc was sold to https://www.paycor.com/verb/ and seems like it’s not a social enterprise anymore

(www.ConsciousCapitalism.org) now has a significant presence in several countries through country chapters

At the time we started Safer Way, the progressive political philosophy I believed in had taught me that both business and capitalism were fundamentally based on greed, selfishness, and exploitation: the exploitation of consumers, workers, society, and the environment for the goal of maximizing profits. I believed that profit was a necessary evil at best and certainly not a desirable goal for society as a whole.

I ultimately became disillusioned with the co-op movement because there seemed to be little room for entrepreneurial creativity; virtually every decision was politicized. The most politically active members controlled the co-op with their own personal agendas, and much more energy was focused on deciding which companies to boycott than on how to improve the quality of products and services for customers. I thought I could create a better store than any of the co-ops I had belonged to, and decided to become an entrepreneur to prove it.

If they do, the joint value created is divided fairly among the creators of the value through competitive market processes based approximately on the overall contribution each stakeholder makes. In other words, business is not a zero-sum game with a winner and loser. It is a win, win, win, win game—and I really like that.

Despite my good intentions, I had somehow become a selfish and greedy businessman. To my co-op friends, I was now one of the bad guys. Yet, I knew in my heart that I wasn’t greedy or selfish or evil. I was still very much an idealist who wanted to make the world a better place, and I thought I could best do so by operating a store that sold healthy food to people and provided good jobs.

I stumbled into reading a number of free-enterprise economists and thinkers, including Friedrich Hayek, Ludwig von Mises, Milton Friedman, Jude Wanniski, Henry Hazlitt, Robert Heinlein, Murray Rothbard, Thomas Sowell, and many others. I thought to myself, “Wow, this all makes sense. This is how the world really works.” My worldview underwent a massive shift.

It is unquestionably the greatest system for innovation and social cooperation that has ever existed.

In a mere two hundred years, business and capitalism have transformed the face of the planet and the complexion of daily life for the vast majority of people.

Just 200 years ago, 85 percent of the world’s population lived in extreme poverty (defined as less than $1 a day); that number is now only about 16 percent.

Contrary to popular belief, prosperous countries have a higher level of life satisfaction. The self-determination associated with free markets, along with greater prosperity, leads to greater happiness. The top quartile of economically free countries has a life satisfaction index of 7.5 out of 10, compared with 4.7 for the bottom quartile.

The founding father of modern capitalism, Adam Smith, recognized both of these powerful human motivations. His book The Theory of Moral Sentiments preceded his far better-known book, The Wealth of Nations, by seventeen years. In the earlier book, he outlined an ethics based on our ability to empathize with others and to care about their opinions.

The principle of profit maximization even became codified into corporate law as the de facto definition of fiduciary responsibility.

Their days race by in a blur of focused intensity, collaboration, and camaraderie.

These were articulated by Plato as the transcendent ideals of the Good, the True, and the Beautiful.

Businesses must think of their customers as human beings to be served, not as consumers to be sold to. In fact, the very word consumer objectifies people, suggesting that their only role is to consume.

Perhaps the most radical one has been to have total transparency on compensation; everyone who works at the company can know what everyone else is paid. This transparency is an essential part of our culture, and it ensures that the compensation system is fair. Because it is transparent, team members can give feedback on what they find to be unfair, giving the company an opportunity to change and evolve it.

Related to the issue of fairness, we have also adopted a policy at Whole Foods Market that caps the total cash compensation, including bonuses, for any team member at nineteen times the average pay of all team members. In publicly traded companies of a similar size, this ratio, including equity awards and other incentives, can be as high as four hundred to five hundred times.

a salary cap is good: it attracts people with a higher degree of emotional and spiritual intelligence. At some point, people have enough money to have financial security, live a comfortable, adventuresome lifestyle, and fulfill most of their aspirations in life. It is a mark of emotional and spiritual maturity to be able to say, “I have enough.” Past a certain point, it is not healthy to want more; actually, it is a kind of sickness.

A cashier who has worked for the company for several years enjoys the same benefits enjoyed by the two co-CEOs of the company. It’s very powerful to be able to tell people about this practice. It creates a sense of solidarity throughout the organization. From

Some people believe the only way to change this is to change the laws of incorporation so that public companies can escape from the legal fiduciary requirement to maximize profits and shareholder value.12 But this view reflects a mind-set that trade-offs between stakeholders are inevitable. It fails to recognize the holistic nature of the business enterprise: that all stakeholders are interdependent and that the best way to optimize long-term profits and long-term shareholder value is to simultaneously create value for the other stakeholders too. Once we commit to a long-term perspective and creating value for all stakeholders, the conflicts and trade-offs that supposedly exist between investors and other stakeholders start to disappear.

Some people view this type of philanthropy as a form of theft from investors. They say, “If you feel altruistic toward other people, you should exercise that altruism with your own money, not with the assets of a corporation that don’t belong to you.” This view was famously articulated by Milton Friedman in 1970 in his essay “The Social Responsibility of Business Is to Increase Its Profits”

Most businesses have certain infrastructure capabilities and intellectual capital that can be leveraged to help the communities where they are doing business. Conscious businesses routinely work with nonprofits in the communities where they trade, especially nonprofits engaged in activities related to their core business. They encourage their team members to become involved in community activities.

Nonprofits play a vital role in society, addressing areas that business is unable to do profitably and that government can’t do competently.

The bottom line is that good government is absolutely essential. If government becomes too corrupt, it is impossible to have a free-enterprise system and healthy capitalism. We need the rule of law, but our regulations and taxes must be applied fairly to all. Regulations and taxes need to be set in such a way that the overall well-being of society comes first, with the guiding principle of seeking the common good while safeguarding individual freedom.

This is one of the most important ideas in this book: If you look for trade-offs, you will always find them.

LM: interesting decision making exercise here: “what if there were no tradeoffs?“

we cannot understand Conscious Capitalism very well until we are able to think with a holistic systems mind, until we can understand the interdependent relationships businesses have with their stakeholders, and stakeholders have with each other.

it is not easy to simultaneously accommodate the needs and concerns of all stakeholders. But it is fundamentally necessary. The way to enable it is to focus on value creation rather than on value division; we should not ask how best we can distribute the burdens and benefits across the stakeholders, but how we can create as much value as possible for all of them. We need to think in terms of expanding the pie, rather than just slicing it up more equitably.

The most common type of stakeholder cancer in business results from the widespread idea of maximizing shareholder value and profits. When the investor is seen as the only stakeholder that matters, and the interdependency and the intrinsic value of the other stakeholders are denied, the business is at high risk of creating and growing a cancer that may one day destroy it.

Conscious leaders, with their strong analytical, emotional, spiritual, and systems intelligences, are acutely aware of the importance of service in helping their organizations realize their highest potential. They also know that helping others leads to more personal happiness.

Leaders don’t need to be particularly charismatic to be effective. Human willpower and charisma can be extraordinarily powerful, but they can be destructive as well.

Conscious leaders are often quiet and down-to-earth, leading by example rather than through charm or the force of their personality. They focus on building great organizations that endure over time. Charismatic leaders, by contrast, tend to create organizations that are heavily dependent on them; as soon as they leave, things begin to fall apart. One of the most famous charismatic leader of all times was Alexander the Great, who conquered the world in eleven years. However, his empire fell apart soon after his death. That is why some leadership experts suggest that the real test of a leader’s effectiveness should be judged by how well his or her successor does.

All leaders, but especially highly charismatic ones, are susceptible to the trap of narcissism. The best way to fight this tendency is to have trusted advisers such as coaches, colleagues, and friends who have an independent perspective and can give leaders the straight truth they need to hear.

Another useful exercise in our quest to be more self-aware is to keep a journal of feelings, thoughts, and dreams, or just whatever comes to mind. It can be quite revealing to look at a journal years later and see what we were thinking and feeling then. It also serves as a historical record of where we once were, so that we can look back and see our own personal growth.

Conscious cultures are marked by an absence of artifice and by a genuine commitment to authenticity. What leaders and managers say, what team members do, and what customers experience must all be aligned with the company’s guiding philosophy and defining purpose. Internal and external communications are honest and straightforward, devoid of the spin control that is now so common in the business and political worlds. Advertising tends to be factual rather than hyperbolic; when you have a genuinely good story to tell, there is no need to embellish it.

An important benefit of creating a culture of transparency is that any unintentional unfairness can be immediately detected and quickly corrected. This is important because trust quickly unravels when there is a perception of unfairness. Human beings have a strong need to be respected, heard, and treated fairly.**

Organizations must be very careful in whom they promote. They won’t have the type of leaders they most need—caring, compassionate, and loving—if they don’t promote them. The criteria for promotion must go beyond technical competence to include a high degree of emotional intelligence and a capacity for love and care. Leaders need to be fully integrated human beings who transcend the typical dualities; they are strong and loving, masculine and feminine, and have high standards of excellence and a high degree of emotional intelligence.

The greatest advancements come from entrepreneurs who think outside the box, who dream about how the world could be, and create a business to realize that dream.

Main takeaways

• Whole foods experiment with total transparency on compensation and a salary cap (nineteen times the average pay of all team members)
  • Because it is transparent, team members can give feedback on what they find to be unfair, giving the company an opportunity to change and evolve it.
  • a salary cap is good: it attracts people with a higher degree of emotional and spiritual intelligence. At some point, people have enough money to have financial security, live a comfortable, adventuresome lifestyle, and fulfill most of their aspirations in life. It is a mark of emotional and spiritual maturity to be able to say, “I have enough.”