Doing Good While Doing Well Sorenson
Transcript of Doing Good While Doing Well Sorenson
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Conscious Capitalism
Doing Good While Doing Well
Asian Institute of Management
February 23, 2011
Dr. Ralph Z. Sorenson
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In the U.S. We Live In In Era of Public Distrust
Of Capitalism & CorporationsDaily headlines citing tales of greedy, corrupt CEOs
& senior executives of major public companies
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The American Rogues Gallery Of
Corruption
Bernie Ebbers of WorldCom
John Rigas & Son of Adelphi Dennis Kozlowski of Tyco Martha Stewart of Martha Stewart, Inc.
Richard Scrushy of Health South Michael Milken of Drexel Burnham Ken Lay, Jeff Skilling & Andrew Fastow of Enron Bernie Madoff Raj Rajaratnam, Galleon Group
Alllen Stanfordand others
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Gordon Gecko: Greed is Good!
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You cant take it with youbut perhaps you can eat it !!
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Governance Also Being Criticized:Some boards of directors are accused of:
Incompetence Being rubber stamp cronies
Illegal trading in companys stock
Back-dating of stock options Being over-compensated for board service
Providing inadequate oversight over financialreporting, corporate controls, risk taking, andexecutive compensation
Having unhealthy interlocking directorships
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Interlocking Directorships
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The Media Are Having a Field Day Targeting
The Corrupt Capitalist System UN Attacks Capitalism (UNCTAD Study)
6 Charged in Vast Insider-Trading Ring (WSJ)
Outrageous CEO Salaries Are Nationwide ScandalWhere Are The Politicians?
Obscene & Excessive Lou Dobbs on CE0
Compensation vs. Minimum Wage; CNN News
Gallup Poll: Widespread Dissatisfaction With Free Market
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In short,Main Street is at war with Wall Street
andmuch of the corporate community !
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Sadly,
much of the criticism is
justified !
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Result:
Growing efforts on the part of
U.S. government to try to legislatehonesty, integrity, and morality
Many new laws, regulations, and
interventions into the private sector
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Examples
Foreign Corrupt Practices Act
Sarbanes-Oxley legislation
Banking and financial services interventions
Strings attached to TARP and bailout
programs Compensation controls
Government takeover of General Motors
Health care reform legislation
Financial reform legislation
.and many others
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The Big Question in the U.S.:(and the rest of the world)
Is it possible to retain free-market capitalism as a
powerful positive force for creating jobs, innovation,and economic well-being while making it more
responsive to the interests of all stakeholders, not
just shareholders ??OR
Are we destined to see ever-increasing government
involvement & intervention in the workings of theprivate sector ??
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Some Examples of Companies That Appear to be
Doing Good While Doing Well*
Amazon Honda Southwest
CarMax IKEA Starbucks
Caterpillar JetBlue Timberland
Commerce Bank Johnson & Johnson Toyota
Container Store Jordans Furniture Trader Joes
Costco L.L.Bean UPSeBay New Balance Wegmans
Google Patagonia Whole Foods
Harley-Davidson REI
* Courtesy of Firms of Endearment; Sisodia, Sheth, & Wolfe;
Wharton School Publishing; 2007; page 16
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LETS TAKE A CLOSER LOOK AT THE
LAST OF THESE COMPANIES:WHOLE FOODS MARKET
Why do I single out Whole Foods Market?
Simply because, being a director of the company, I
know it well and because I believe it represents aunique approach to management and governance
that is well worth emulating and that could represent
the wave of the future for corporations and otherentrepreneurial enterprises
in the U.S. and around the world
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Whole Foods Market: Whole Foods has been the fastest growing & most profitable
publicly owned food retailer in the U.S. in the last 10 years
It focuses on selling high quality natural & organic food
Current annual sales are in the $9 - $10 billion range
305 stores in U.S., Canada, & England
~ 57,000 team membersall non-union
13 years on Fortune list of 100 best places to work!
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WHOLE FOODS MARKET (CONTINUED)
Same store sales growth has averaged 9% over last 15years
EBITDA CAGR of 30% since IPO in 1992
WFM ranks 284 on the current Fortune 500 list
Market capitalization is in $10 billion range
Stock price is in the $60 range; PE Multiple: 35 - 40 !
$100k invested in 1992 IPO now worth ~$1.5 M; 1500%gain !
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In short, Whole Foods has been anextraordinary success story by
almost any standard ofmeasurement
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What lies behind this success?
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Whole Foods calls its
management approach:
CONSCIOUSCAPITALISIM
A New Business Paradigm?
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Lets start with the tone at the top, beginning
with executive compensation in America
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Executive Compensation
Average large public company CEO is paid 300-400
times as much as the average company employee !!!
At Whole Foods total cash compensation is capped at 19
times that of the average team member.
In 2010 the salary and cash bonus cap was $652,400far less cash compensation than senior executives earnin comparable public companies.
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But what about equity compensation?
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Stock Options
Whole Foods does make use of stock option grants.
But 93% of grants go to non-executive teammembers, the vast majority of whom work in thegrocery stores.
Meanwhile the top 5 executives in the company, includingthe CEO receive identical stock option grants.
In 2008, these grants were each valued in the proxystatement at roughly $150,000extremely modest byFortune 500 standards.
Just in case you were wondering, John Mackey, founder ofthe company, owns less than 1% of company stock.
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The Distribution of OptionsThe Distribution of OptionsThe Distribution of OptionsThe Distribution of Options
Estimated distribution ofoptions at Fortune 500 firms
as of 2005
Top 5Execs75%
All Others
25%
Distribution of WFM optionsgranted as of 2005
All Others93%
Top 16
Execs7%
Data Source: Profits with Principles
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And , by the way, in 2006 John Mackey
decided he no longer wanted to work for
money and he nowworks for a salary of $1.00 a year
and donates all of the
stock option grants for which he is eligible tothe
Whole Planet Foundation!
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Senior executives have no other perks
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All team leaders receive same discounts andhealth benefits as all other team members
All fly economy class & stay in modest hotels
No company cars or drivers
No club memberships
Per capita dollar cap on what can be spent onbusiness meals, with any excess coming out ofthe individuals pockets
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Other Examples ofTone at the Top
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1. CEO-inspired culture of shared fate
2. We dont cut corners: commitment to honesty and integritystarting at the top
3. Deep & fundamental respect for all team members
4. Belief in giving all team members considerable responsibilityand authority
5. Total internal transparency re: company-wide compensation,store and department performance, operational policies
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Tone at the Top Examples (Continued):
6. New team members are approved by theirpeers, not their team leaders
7. Company-wide practice of promotion fromwithin
8. All team members vote on their benefits
9. Non-union shared fate philosophy
makes unions unnecessary
10. INNERVIEWS team member written magazine
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LESSON TO BE LEARNED:
Tone at the top really matters!
Whole Foods compensation policies andegalitarian management practices engender a
tremendous sense of trust in managementamong team members
throughout the company!!!
WE ARE ALL TRULY ON THE SAME TEAM
Th 3 Pill f
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The 3 Pillars of
Conscious Capitalism1) Enterprises that are primarily driven by their
mission and their sense of purpose
2) Committed not solely to maximizing profits toshareholders, but rather to optimizingreturnsto allstakeholders:
- customers - employees
- partners - investors
- communities - environment
3) Led by purpose and mission driven servantleaders & entrepreneurs..(often founders ofthe company)
Th Wh l F d M k t B i M d l
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The Whole Foods Market Business Model:Holistic Interdependence
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Whole Foods Core Values:
Core Value #1: Mission
To sell the
highest quality, delicious
natural and organic foodspossible and, in the process, help change
for the better the way people eat
and the way agriculture is practiced
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The Culture Captured in a Sign:
Team Members
Did you know that you are
Empowered to WOW CustomersAt any & every opportunity?
What does this mean? Whenever you are not sure how to handle theneeds of a customer, you have the authority as a team member to makea decision and exceed that customers expectations. You can discuss
the situation afterwards with leadership and maybe come up with a bettersolution, but there is no wrong decision when the customer leaves
HAPPY AND WOWED! Customer service is where westand head & shoulders above the competition and it is because ofyou!
#3: Team Member Happiness &
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#3: Team Member Happiness &
Excellence Team Members are the next mostimportant stakeholders
Relationship among team membersis based on trust engendered bytone at the top, transparency,genuine caring
Importance of shared purpose +empowerment + a consciousrejection of command & controlmanagement
Fair pay and attractive benefits
Great place to work (13 years onFortune 100 List)
#4: Win Win Partnerships with Suppliers
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#4: Win-Win Partnerships with Suppliers
The leading retail outlet for theenormous growth of natural &organic food in the last 30 years
Success not possible withoutdedicated supplier-partners
WFMs success has helped thesesupplier-partners to grow andflourish and they, in turn, havehelped WFM flourisha win-win for
all
Strong competitors have alsohelped!!
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Core Value # 5: To provide attractive returns to investors
through profits and growth .
The reasoning: If the company has happy team members who,with the support of its suppliers, delight customers by offeringthem delicious natural and organic food along with world-classservice, it follows as night the day, that shareholders, in the long
run, will also be delighted and well rewarded.
Only after talking about the above top four core values does JohnMackey (CEO & founder) go on to talk about shareholder value.
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And, for the most part, they
have been !
# 5 P idi I t ith tt ti t
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# 5: Providing Investors with attractive returns
through profits and growth Shareholder are the owners of
the company
Their role is to provide capitalfor innovation and growth
Managers and employeesare stewards of that capital
Profit: the end resultof optimizing
gains for other stakeholders,not a goal in & of itself
Profits, in turn, create wealth
& prosperity for shareholders
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Whole Foods has two additionalCore Values
#6 To care about communities, the environment, andthe humane treatment of animals.
#7 To promote the health of all stakeholders throughhealthy eating education.
Commitment to Communities:
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Commitment to Communities:
Philosophy: Corporate philanthropy because it is goodbusiness and because it is the right thing to do!
Overall Policy: 5% of net profits are donated to charities
Policy in place for 20 years, since first mission statement was drafted
Local store level 5% days (5% of sales contributed to local non-profits)
Donation of day-end perishable food to community food-shareorganizations
Contributions in natural disasters: e.g. Katrina
Whole Planet Foundation: Partnership with Grameen Bank& Muhammed Yunis Micro Loans in developing countries
WhereWh l Pl
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Agriculture &livestock
Indigenous
handicraftsCorner Stores
Prepared Foods
Loans used for:
Whole Planet
FoundationCurrently Works
Costa Rica Guatemala,
Nicaragua Honduras,
Mexico Columbia,Peru
Queens--NY
Nepal India
East Timor Indonesia
Kenya Ethiopia
98% women
55,000+ Members
$10+M loaned out
98% Repayment
Leader In Environmental Stewardship
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Leader In Environmental Stewardship
TheonlyFortune500company
topurchaseenoughwindenergy
creditstooffset100%ofitselectricity
use:750megawatts/yr
Two-timewinneroftheEPAsGreen
PowerPartneroftheYearaward.
Solarpowerin20stores&growing
3storespoweredbyhydrogenfuel
cellswithmoretocome
Commitment to the Environment:
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Commitment to the Environment:
Extensive re-cycling program; no plastic shopping bags
Extensive use of re-cycled and re-usable materials
Attempting to minimize packaging materials, green itstrucking fleet & warehouse operations
Extensive program of working with organic farmers andvendorsboth in U.S. and in developing countries
$10 million loan fund to support organic farming
Leader in promulgating FDA standards for organic andnatural food & for truth in labeling
Active program to oppose use of GMOs
Core Value # 7:
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Promoting the Health of Stakeholders Through
Healthy Eating Education
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Unhealty Eating and Health Care
Promoting the Health of Stakeholders Through
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Healthy Eating Education
GOAL: Combat obesity & promote better health for everyonethrough healthier nutrition.
Recently formed partnership with Chef Ann Cooper to createthelunchbox.org, a Web site that features practical tips on how toimprove the state of school lunches.
Launching Customer Wellness Clubs where customers canlearn more about developing healthier, more nutritious eatinghabitsthe ANDI INDEX.
Adding in-store nutritionists
New internal programs to incent team members to improve theirhealth. (The healthier you are, the greater your in-store discount!)
Summary
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Summary
Shareholders are served best when returns areoptimized for all stakeholders:
customers partners communitiesemployees investors environment
government
In the long run, it is better to be mission driven,thanprofit driven
Profits = an endresult, not a goal in and ofthemselves
Summary (Continued)
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Summary (Continued)
Believing in the mission of the company counts !
The tone at the top counts !
Leadership counts ! (servant leaders moresuccessful in the long run than command &control leaders)
Culture counts !
Companies can do good while doing well !
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Conscious Capitalism:
Putting the enlightened
back into the concept ofenlightened self-interest
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At Whole Foodsand the foregoing companies
Conscious Capitalismappears to be working
QUERY:
Can it work in other
Companies & Organizations?