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John: Hey, I'm not a hippie I'm not right wing.
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Anything you've read about me is mostly bullshit.
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[Laughter] John: So hopefully you'll form your own opinions based in my talk today.
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John: [Pause] This talk sometimes takes an hour, so I'm told the people at Stanford are really smart.
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So I'm gonna go really fast assuming you're all really quick studies and that will save more time for Q and A.
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So I do think we need new paradigms for the way we think about business, and the way we think about capitalism.
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Someday, historians are gonna look back on the 20th century, and their gonna see that a great war was fought between two different philosophy's of economics.
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Socialism and Capitalism.
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[Sneeze] [] John: Capitalism won that competition.
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Every place that it had [Sneeze] John: direct competition, whether it be United States vs.
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Soviet Union, or South Korea vs.
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North Korea, or East Germany vs.
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West Germany etc, etc, etc, However, it did not capture the minds of the intellectuals or the heats of the people.
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Capitalism was still greatly mistrusted.
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And corporations who I believe are the most influential institution of the world are widely perceived as greedy, selfish and exploitative.
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And they are certainly not worthy of any trust.
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You can see this very clearly with deep recession that we've been into, the financial crisis has been demagoged as the fault of greed and corporations out of control.
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Cap -- Another example of Capitalism not working.
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And there's been no blame for bad government policies, bad monetary policies, bad regulations.
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And I would argue that corporations and capitalism have serious branding problems.
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They are not branded very well, they don't market themselves very well in the PR side of things.
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And what I see happening is that even though capitalism won the battles in the 20, 20th century that were rapidly moving back toward more socialism, more progressivism.
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And I'm gonna argue that there's another way.
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That conscious leadership conscious business and conscious capitalism is what we should be doing.
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So, conscious capitalism is based on four primary principles of economics.
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Secure property rights, freedom of contracts, freedom of trade and the rule of law.
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Conscious capitalism is equal to these four primary economic principles plus conscious business.
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Which leaves the question, what then is conscious business?
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Conscious business is based on?
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It's going in and out, in and out.
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[Louder with Mike Feedback] John: Maybe I'll talk, whoa.
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[Laughter] John: Conscious business is based on these three primary principles of enterprise which is what I'm gonna primarily talk about.
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The enterprise has the potential to have a higher purpose beyond merely maximizing profit and shareholder value.
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The enterprise is managed to optimize value simultaneously for all of the interdependent stakeholders.
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And then the leadership of the organization is conscious organization that serves the enterprise and the stakeholders.
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If you go to a cocktail party and you ask people what the purpose of a business is -- do this experiment sometime -- you'll find 99% of the time people will say, "what do you mean what the purpose of business is, purpose of business is to make money. Everybody knows that."
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But that's kind of a curious answer.
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Because if you ask what the purpose of a doctor is, people aren't gonna tell you, "Well, everybody knows the purpose of a doctor is to make money."
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Or if you ask what the purpose of a teacher is, no one says "Well teacher's purpose is to make money."
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Purpose of a doctor is to heal people, purpose of a teacher, to educate people, purpose of an architect, design buildings.
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Why is it that we say the purpose of a business is to make money?
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And who defines what the purpose of a business is anyway?
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I'll argue that the entrepreneur that creates the business in the first place is the one who has the right to find what the purpose of that business is.
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And I have known hundreds, hundreds of entrepreneurs in my lifetime.
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And with only a few exceptions have they told me that their primary purpose was to make as much money as possible.
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They had multiplicity of reasons why they started their business.
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And sure they wanted to make money, but that wasn't what was driving them.
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I had the privilege to meet Bill Gates a year or so ago, and I got to talking about this with Bill.
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And believe it or not, he didn't start Microsoft to become the wealthiest man in the world.
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He was on fire about software.
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He had a vision of everyone having their own personal computer.
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And that was an incredibly revolutionary idea.
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Let me ask -- quick poll here, how many people have their own personal computer?
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[Audience Mumbling] John: That's why Bill Gates is the richest man in the world, because he had a vision about that and he pursued it with a single mindedness and a passion.
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And the rest so to speak is history.
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Entrepreneurs create the original purpose of business.
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And in the 21st century, entrepreneurs of the conscious business are also entrepreneurs of meaning.
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They must determine the meaning, and they must interpret it, and they must explain it.
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And what I found very interesting is that although the entrepreneur may create the original purpose of the business, it's the stakeholders that ultimately evolve the purpose of the business over time.
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And these communities of stakeholders, interacting with the enterprise, the businesses purpose continues to evolve.
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And the businesses that flourish over the long term will continue to get to either -- you can do a metaphor of higher and higher, or deeper and deeper in terms of the meaning of what their purpose is.
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To higher levels of complexity and meaning.
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The great companies in this world have great purposes.
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Think about the companies that you most admire, scratch the surface and you will find they are trying to fulfill a deeper or higher purpose.
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They're not always completely conscious of it, but it resonates in their very DNA.
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And stealing from Plato, the deepest purposes the he was able to articulate, the good, the true and the beautiful, I added on heroic.
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These four categories are sufficient to explain at the most abstract level what the potential deeper purpose is that each business can try to manifest in the world.
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If you think about a business that's serving the good, or fulfilling -- pursuing the good, one of my favorite examples is Southwest airlines which is a tremendously -- very, I think very much a conscious business.
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And definitely is pursuing a deeper purpose of service to others.
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Nordstrom's another good example, their terms of the true.
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Think about how exciting it must be to discover something that no one has ever known before, that advances humanity.
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And yet that's what companies like Google have done, or Intel, or Genentech.
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Those are three of my favorite examples there.
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How about the beautiful, what's beautiful have to do with business?
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In a sense a business that strives for excellence, because excellence is inherently beautiful. How about Apple?
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Their technology is beautiful.
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I think IPhones, IMacs, IPods are beautiful technologies.
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Warren Buffet, what he's done with Brookshire Hathaway has made investing into something I think is an art form, it's beautiful.
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We talk about the heroic courage to do what it right, to change or improve the world.
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Bill Gates at Microsoft and now with the Gates foundation.
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Muhammad Yunus with the Grameem, Grameem banks are two of my favorite examples.
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I call this the paradox of profits.
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And the best way to understand it is through the metaphor and the analogy of happiness.
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I'm now old enough to be able to speak with some authority about happiness.
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And what I've found is that happiness is a bi-product of other things.
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That people who tell you that the purpose of their -- that - - purpose of their life is to be happy probably aren't gonna, aren't gonna find it.
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Cuz happiness is a -- people that are obsessed with finding their own happiness tend to be sort of self involved narcissists.
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[Audience Chuckles] John: And that's a very bad strategy.
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It does not lead to ultimate happiness or fulfillment.
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Rather having a deeper purpose, service, striving for excellence, growing as a hum -- individual, friendship, love, generosity.
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These are the type of virtues that when practiced, lead to happiness.
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Similarly, I believe that profits are best realized when they're not made the primary goal of the business.
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That they are also a bi-product of deeper purpose, great products and services, customer satisfaction, employee happiness and social and environmental responsibility.
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The metaphors that we use to think about business are not good metaphors.
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One, going back to Adam Smith and the industrial revolution in terms of business being like a machine.
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You put in land, labor and capital, put it on the assembly line and do it, profits spit out.
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The Darwinian models of survival of the fittest.
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War metaphors, [Harsh Voice] John: We're gonna crush our competitors and roll 'em up.
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[Normal voice] John: I don't think those are great metaphors for really understanding business.
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Metaphors do determine how we think about things.
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We need to be careful in terms of the metaphors that we use to think about anything.
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I'm gonna argue that a good metaphor to use in the 21st century is that of a complex adaptive self-organizing system that creates value for all of the inter-dependant constituencies or stakeholders.
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What is conscious leadership?
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Conscious leadership fills the deeper purpose of the organization, create value for the inter-dependant stakeholders, and to be a servant leader to the enterprise.
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What do I mean by servant leader?
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It means you're serving the enterprise and its purpose.
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You're no there trying to line your own pockets and see how much money you can make.
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The true transforming of leadership is serving that organization.
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So adopting the metaphor of a servant leader is a very appropriate metaphor.
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Creating value for the entire interdependent system -- I will argue today and this is my radical idea, that that will also simultaneously result in the highest long-term profits and shareholder value.
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I'm gonna argue that Whole Foods is a conscious business.
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There are some other good examples right here, the only one I understand really well from the inside out is Whole Foods, so I'm gonna use that as my primary example.
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Here's a simple model that we use to think about our business.
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It starts with our mission, why we exist?
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What our deeper purpose is.
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The core values, they're at the center, they're at the heart of everything we do.
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And they're radiating out from that heart like, like spokes on a wheel, are the major interdependent stakeholders.
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The team members, the suppliers, the customers, the investors and the community and the environment.
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This models over simplified because a web of all those stakeholders interacting with each other would be more appropriate, but I haven't figured out how to model that in a simplistic way yet.
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But simply, when you allow these stakeholders to -- when you manage to value for all of them at the same time, you end up in a upward spiral.
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So in sense this is a circle, but a more appropriate metaphor would be to show this in an upward spiral of continued value creation.
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So, conscious leadership focuses on synergies, not on the trade offs.
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I'm heading off a question that I will get.
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What about the trade offs and the conflicts that you have between the various stakeholders?
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The more you give the employees, the less money you have to give the investors.
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The more money you give away to not for profit organizations, then the less money you have for shareholder values.
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The higher you pay your workers, the less money there'll be for investors.
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And so forth and so on, as if a Hobbs war against -- the war against, all against all is in play here.
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That there's this ongoing struggle between the stakeholders.
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The conscious leader sees the inner-dependencies, and sees the relationships.
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If you look for trade-offs, you can find them.
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If you look for synergies, you can find them.
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The conscious leader looks for the synergies, looks for the strategies that will create value, simultaneously for all of the inner-dependant stakeholders.
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One's creative mind does not need to think in terms of the zero sum game, I win you lose, you lose, I win.
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We can create win-win-win strategies.
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That is the beauty of capitalism, that is its potential, to create value for all of the ones that are voluntarily changing with the business.
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The human mind is infinitely creative.
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Beginning to think this way creates new mental pathways and unleashes human creativity in unexpected ways.
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It will be the creative entrepreneurs and the conscious capitalist who will solve the problems that the world faces in the 21st century.
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It's going to be that individual creativity applied collaboratively through enterprise that will solve most of the world's problems.
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What is Whole Foods deepest purpose?
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I used to believe for many years Whole Foods' deepest purpose was the good.
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We're in the service business, we're to serve other people.
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And then as I did this talk around Whole Foods, and I would instead of giving the answer, I would poll the team members.
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I would say well --I'd explain the four deepest, highest purposes and then I'd take a poll and I'd ask the team members to tell me, "What do you think the deepest purpose or highest purpose of Whole Foods is?"
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And I got an astounding answer.
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And it wasn't -- I got answers for all of them, but about 75% of the team members tell me that Whole Foods' highest purpose is heroic.
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To, to do what is right and to change and improve the world.
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And I used to argue with them.
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I used to say "No it's not, I created Whole Foods, that's not, that's not why we did it.
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Its service, it's about love. " So service to others.
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No John, that's not what it's about.
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So I had this argument, and then I'd go around all over the country, and finally I surrendered and said, "You know what, this is a great example of the enterprise out growing its founder and moving in its own direction."
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Just like a parent raises children, but eventually the child fulfills its own destiny, often times in a direction different from what the parents would aspire to.
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So I've embraced this myself.
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These are the seven core values of Whole Foods that are at the center of everything that we do.
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Just real quickly, in terms of those core values.
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Selling the highest quality natural and organic foods available.
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We're very proud of the fact that we've been able to improve the health, wellness and longevity of literally millions of people.
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We've proven that good health and pleasurable eating are compatible goals.
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Alternatives to the degradation of -- industrial degradation of our food.
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And we've educated, or beginning to educate our stakeholders in terms of what healthy eating's all about.
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How many of you hope to start your own business someday?
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[Pause] John: Wow, great.
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I'm giving to you the biggest secret.
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It's all about the customers.
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[Audience mumbling] John: You'd be surprised how few businesses really understand that.
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And so you have to design your business model first and foremost around the customers.
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Because if you do that, you will probably win.
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Because chances are your competitors will not be as committed to that as you will be.
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So they're the most important stakeholder.
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No customers, no business.
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Customers always exchange voluntarily, they're not coerced, they trade voluntarily with the enterprise.
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Therefore you have to treat them as ends in themselves, and not as means.
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We designed our business model at Whole Foods so that our team members are completely empowered to do whatever it takes to satisfy and delight the customers.
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Of course the team members think they're #1.
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Everyone's' disappointed when I tell them they're just the # 2 stakeholder to the customers.
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These are some of the innovations we've done.
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It'd be interesting to go into these in some detail but for lack of time, I'm not.
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Self managing teams, offered salary information, salary cap benefits, insurance for all, stock options for all team members, personal wellness accounts, fully paid health insurance.
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And Bill said we've been named one of the hundred best companies to work for for 13 years in a row, #18 in 2010.
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This is often times by the time I get to this part of the presentation people think, "This guys like, he's like against profits.
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He's talkin about all this other stuff."
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But profits are very important, and it's one of the most important reasons and functions of the business.
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And that profits are created through voluntary exchange.
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They are not primarily created through the exploitation of people.
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It is that voluntary exchange that fundamentally makes business ethical.
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No one is forced to trade.
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The customers aren't forced to trade, employees aren't forced to trade, suppliers aren't forced to trade, investors aren't forced to invest.
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Everyone invests voluntarily.
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That's what makes it inherently ethical.
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Profit are not evil, profits are good.
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Profits create wealth, they create capital and they create prosperity.
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Capital is the fuel for all the technological progress the world has ever known.
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Without the fuel, there would be no progress.
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Whole Foods has tried to do its part.
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We've been the fastest growing publically traded food retailer for the past ten years.
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8 billion in sales, our same store sales have averaged 9%, our return on invested capital is 35%.
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EBADA companion or growth rate, 30% a year since we went public in 1992, our stocks increased 1400% since our 1992 IPO, even though it traded down tremendously in 19 -- 2007 and 2008.
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I say one of the most important functions in business it to create prosperity.
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Business has a fundamental responsibility to create prosperity for society and indeed for the entire world.
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Do you realize that less than 200 years ago, 85% of the people alive on the planet earth lived on less than a dollar a day, and that's in today's dollars, 85%!
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We're down to 20%, that's progress.
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That's what business has done, that is what capitalism has done.
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No, it's terrible that we still have over a billion people on this planet that live on less than a dollar day, but that's still only about 20% instead of 85%.
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If we don't screw it up, we will end poverty on the planet earth in the 21st century.
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There are people young enough in this audience today that will live to see that.
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As Muhammad Yunus says, "Someday, poverty will be something people only see in museums."
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This is one of the heroic things that business is doing.
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It is creating wealth, it is creating prosperity and it is lessening poverty.
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In the last 15 years alo -- alone in India and Chine, literally hundreds of millions of people have been able to escape from poverty.
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I do not believe suppliers are supposed to be beaten up, I believe they're partners with the business.
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And business has to create win-win relationships with their suppliers.
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And I'm very proud of the fact that all these little tiny ma and pa suppliers, they're all millionaire's.
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Now most of them sold out, and it's sort of sad they sold out to big corporations, but I'm happy they got wealthy, and Whole Foods certainly contributed to that.
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And they contributed to our success.
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We wouldn't be what we are today without growth of our suppliers.
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I don't know whether you're aware of this or not, but there' s a complete renascence going on about local agriculture in the United States. And it's very exciting.
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Whole Foods is trying to contribute to that.
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We've made -- We have a local loan program, we've made, we' ve loaned out three million dollars to small producers around the United States, Canada and the UK.
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We're also trying to work with small, poor farmers around the world.
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Our whole trade guarantee, we've done over 200 million dollars in 2009 in whole trade goods.
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We work with a variety of partners, this is a good thing.
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So I do think that business has a responsibility to be, to be responsible for the communities and the environment.
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And I think that citizenship is the appropriate metaphor.
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That business should be good citizens in whatever communities they do business in.
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Good citizens in their local communities, their national communities and the global communities.
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I think philanthropy is consistent with citizenship and I also believe that philanthropy is not theft from the shareholders.
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It needs to be managed, just as you manage any other part of the business, it needs to be done intelligently.
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But if done intelligently, it creates a win-win-win strategy that creates value for all of the stakeholders including the shareholders.
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In Whole Foods case, we donate a minimum of 5% of our profits to not for profit organizations.
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90% of that is done locally in our stores.
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We support literally thousands and thousands of not for profit organizations each year.
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We also have a foundation called the whole planet foundation.
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This is commitment of our global citizenship.
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We work with Muhammad Yunus and the Grameem bank to make these micro-credit loans.
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We've --these are the countries we currently work in.
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These are communities that we are actually trading in, so we don't just do these randomly.
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It's wherever our business is trading in the developing world, we look to eventually set-up a micro-credit operation.
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98% of our loans have been to women, 98% repayment, no collateral, no contracts.
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We've now made over 57,000 loans, over 10 million dollars, and we just -- I underline Haiti because we just doubled our commitment to Haiti as a result of the earthquake.
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So we're up to a million dollars now in Haiti in our micro- credit loans.
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Eventually we're gonna cover the planet.
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This program, this is an example of win-win philanthropy, win-win-win philanthropy.
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There's no single thing our company has ever done in our 30 year history that has created better team member moral than this.
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So for a mere 10 million dollars, we've received hundreds of millions of dollars of good will with our team member base and with our customers.
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We've engaged our suppliers in what we call supplier alliances, so that they're also investing in the -- in the whole planet foundation.
24:02
Which, we always give our customers opportunities to make contributions.
24:07
Whole Foods cares deeply about our environment.
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We support local, organic and sustainable agriculture.
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Sustainable seafood is one of the environmental issues you don't hear much about, which is unfortunate, it's a serious problem.
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We've worked with Mary Stewardship Council, we have farmed fish standards, and we're striving towards complete transparency on our sustainability.
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Whole Foods is one of the largest re -- companies in the, in the world.
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Committed to alternative energy, committed to green building.
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We have store green mission teams.
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Committed to animal welfare standards.
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Again, environmental strategy should be thought of as a win- win-win strategy that benefits all of the stakeholders.
24:50
We're launching this year in 2010 our 5 step animal welfare rating program.
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Look for that in our stores.
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We've created a fo -- originally this was a foundation we started ourselves.
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It's called the animal compassion foundation.
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We've decided, we've worked with the animal welfare groups like humane society, PETA, animal welfare international.
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We decided to take the -- make this a public foundation and globalize it.
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We want our 5 step animal welfare system, we're gonna, whether than monopolize those standards, we're giving those standards that we've created.
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We've worked on it for five years to create our standards, we're giving those up.
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Hopefully for everybody else to begin to use.
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[Pause] John: More time, I'd go into more detail about this system, no time.
25:34
Conscious capitalism and not for profit organizations, what does this have to do with not for profit organizations?
25:40
Not for profits get one of the most important aspects of conscious business.
25:46
They understand the importance of having a higher purpose and having a mission.
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That's their gift that they had to teach the for profit section.
25:55
However, non-profits are not able to transcend self interest.
26:00
You will not become and angel just because you work for a non-profit, or work for the government.
26:06
Often times there's the anti=profit mentality that severely cri -- cripples, creates inefficiencies, wastes and stagnation.
26:14
Therefore many not for profit organizations are not sustainable over the long run.
26:19
They need to learn from corporations about surviving and flourishing.
26:25
So I argue they need to also evolve to a more holistic model.
26:29
This is the model of a conscious non-profit organization, does it look familiar?
26:35
[Audience Mumbles] John: It should, it looks -- it's exactly the same as the conscious enterprise model that I showed with Whole Foods.
26:44
The only difference is that -- at the core you've got a social mission as opposed to necessarily a business mission.
26:52
And instead of investors, you have donors.
26:56
Otherwise, it's pretty much the same model.
26:59
[Pause] John: This illustrates to me the flaw in the thinking that many people have about non-profits, government and corporations.
27:15
We believe that because non-profits have a higher purpose that they are good, they're altruistic, they do all types of wonderful things.
27:26
On the other side of the wall, we have corporations.
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And, they are greedy, they are selfish, they only care about profit.
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I want to tear this wall down, this way of thinking is not gonna serve humanity in the 21st century, we've gotta tear this wall down.
27:51
This exaggerated polarity and dualism between egoism and altruism is false.
27:58
Human beings are both self-interested and we're capable of love.
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We don't need a win-lose metaphor or a lose-win metaphor, we need win-win-win metaphors.
28:12
Creative love, love of self and love of others is the golden Aristotelian mean that breaks down the dichotomy between egoism and altruism.
28:23
You can see that the upward spiral of caring starts with your self, moves to you family, then to your friends, then to your tribe, or to you community, or your company, potentially moving to your race or your nation, potentially then expanding onto humanity as a whole.
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Possibly your ability to empathize can extend to all mammals, perhaps even to all sentient beings and perhaps even to all life.
28:51
That is the potential that humanities have, humanity have.
28:58
Conscious business is not the same thing as CSR. They're different.
29:07
On the left, you see corporate-social responsibility. It's very consistent.
29:11
CSR's very consistent with the traditional business model.
29:16
It's consistent because shareholders still rule instead of stakeholders.
29:19
It has nothing to do with the corporate purpose.
29:23
It still has a traditional mechanistic view of business.
29:27
It's usually an add-on, just an add-on.
29:30
Something they graft onto the business.
29:32
Ah were getting a lot of stuff about this CSR stuff, we can get some good publicity.
29:36
Let's create a CSR department/ Often times it reports up through the public relations department.
29:44
So, it's -- when business and corporations get accused of brain-washing, often times the accusations correct.
29:52
It is a simple for of brain-washing.
29:55
Whereas the conscious business -- the social mission, the environmental mission are at the very essence, the very core, at the heart of why the business exists in the first place.
30:06
It's not a grafting on, instead it's at the purpose, the center.
30:12
You can meet the CSR through, through a charitable gesture can meet that.
30:21
But the conscious business requires a genuine transformation.
30:26
The CSR assumes that all good deeds are equally desirable, but the conscious business, the good deeds should correlate back to advancing the company's core mission.
30:37
Here's what I wanna see happen in the 21st, that we will evolve from this to this.
30:44
From profit focus to purpose focus.
30:46
From only shareholding -- shareholders winning to all stakeholders winning.
30:49
From short term to long term.
30:51
From zero sum to win-win-win strategies.
30:54
From self-centered to holistic.
30:55
From conflicts of interest to synergies or to harmony of interest.
31:00
Parasitic to mutualistic From exploitative to creating value.
31:04
From trade-off to synergies.
31:06
From disliked to valued and loved.
31:08
And from not trusted to trusted.
31:14
Conscious business and conscious capitalism are new paradigms for the 21st century.
31:20
To just sum it up, you have to support capitalism, the conscious capitalist still supports they key economic rights that underlie all capitalism.
31:29
Property right, freedom of contract, freedom to trade and the rule of law.
31:34
The conscious business goes further, identifies a deeper purpose beyond maximizing profit and shareholder value.
31:40
The enterprise is then managed in such a way to create value simultaneously for all of the inter-dependant stakeholders.
31:46
The leadership becomes conscious to the enterprise and serves its mission and its stakeholders.
31:54
We transform the underlying ethics of the enterprise to a win-win-win-win philosophy.
32:01
This allows, finally for business and capitalism to do what human beings want it to do.
32:10
Which is to aspire to fulfill the deepest aspirations that humanity has.
32:16
The good, the true, the beautiful and the heroic. thank you very much.
32:21
[Applause] John: Alright, I did save a little time for questions.
32:38
I did rapidly go through a lot of that stuff.
32:41
So, how are we doing the questions?
32:43
Mike, am I gonna call on people, are the mikes being passed around? >>I've got it.
32:47
John: You got the mikes, great, so just fire away.
32:50
>>Great, thank you so much John.
32:51
As we are mostly focused on start-up strategies, we get a lot of founders and entrepreneurs that come in.
32:58
John: Mmm Hmm >>And a lot of times they speak of finding a company, running it until it gets to a certain size, and then the investors aboard decide that it'd be better to have someone perhaps with industry experience to run it.
33:09
And that your store is very different.
33:10
And so, I guess from a perspective of a leadership question, what were specific leadership challenges that you had while you company grew underneath you, and you went from being a founder to a small business owner to you know the CEO of Whole Foods?
33:22
John: Weeellll, there's 30 years of history there, so.
33:26
I will say that if you start your own business, I came up with a metaphor for venture capitalists.
33:31
They don't like it too much, but I think it's a pretty good metaphor.
33:35
They're like hitchhikers.
33:36
They're hitchhikers with credit cards [Audience Laughs] John: And as long as you get them to where they want to go, they will help pay for the gas.
33:46
However, if you get off track, they hijack the car, they hire a new driver and they throw you out to the side of the road.
33:54
[Audience Laughter] John: We never gave the venture capitalists control of Whole Foods.
33:58
We went public probably a little earlier than we would have ordinarily gone cuz we needed to raise more capital.
34:04
If we'd done another round, the VC's would have gotten control of the company.
34:07
So, we went ahead and "fire ready aim" became public.
34:12
Probably you couldn't even become public as small as Whole Foods was back in 1982, wouldn't be possible today.
34:20
In terms of the challenges, there's so many of them, I wouldn't even know where to begin.
34:27
I will say though that, in essence to your question, you have to grow as a human being and as a leader or you hold your business back.
34:37
I've been forced to grow, reluctantly, many times.
34:41
Because if I hadn't the company wasn't reach its full potential.
34:47
So, it's essential that you continue to get not only smarter, but develop your emotional intelligence.
34:56
I would say for leadership, emotional intelligence is more important than I. Q.
35:00
And I would argue that social intelligence, and I would also argue spiritual intelligence.
35:05
Spiritual intelligence being the ability to understand purpose and meaning and to be able to explain that and translate it are essential intelligences that the entrepreneurs of the 21st century need.
35:17
So you're gonna face many challenges as you grow your business.
35:21
First challenges is of course is money.
35:23
Gotta have -- get the money, gotta have the capital.
35:24
So you gotta deal with cash flow.
35:26
Then as you grow, you have to be able to create structures that simultaneously allow the business to fulfill its potential, but without hamstringing it.
35:36
So they have to be flexible structures that can evolve.
35:42
I mean, if we had --if we sat down one on one I could go over in some detail.
35:45
But there are different stages that a business goes through, and different crisis that a business meets.
35:51
And, just like as you go through your own life cycle, you'll have different crisis.
35:55
In your early 20's it's like finding a partner and finding work, that's your crisis.
36:02
When you get in your 30's you're raising kids.
36:04
When you get into you know 40's and 50's, it starts to be about generativeness and what your legacy's gonna be.
36:11
That's all I've gotten so far so, [Laughter] John: When I get a little older I'll find out what the next crisis is.
36:17
Probably body falling apart.
36:18
[Laughter] John: Despite Whole Foods, it hasn't -- I don't think it's made me immortal.
36:22
So, I'll deal with my own problems. Next Question.
36:26
>> So, the Supreme Court recently came down on the side of effectively letting corporations play a more active role in public political discourse.
36:35
And the liberal wing of the court --I'm over here. John: Where are you? There you are.
36:40
>> So the, the liberal wing of the court made a distinction between corporate speak and individual speak.
36:47
And I was wondering where you come down on the side of that debate?
36:50
Both in terms of Whole Foods and kind of the prevailing business atmosphere in terms of, excuse me, whether -- that new opportunity may be used more opportunistically by other than it might be by Whole Foods.
37:03
John: [Sigh] You know every time I ever take on a political question, I get totally slammed in the media.
37:12
So, on the other hand, I aspire to authenticity, so what am I supposed to do.?
37:18
[Laughter] [Applause] John: Let me try to be cagey on this one, and authentic.
37:27
I don't believe that media corporations such as the New York Times and the Wall Street Journal and Forbes, that they should have the right for freedom of speech because they own media assets.
37:39
And other corporations therefore don't because they don? t own media assets.
37:44
So, as a general rule, I don't think corporations are eager to -- you pay a price when you speak out publically.
37:51
Trust me, I found that out this summer.
37:53
So, I don't think this ruling, I do think it's consistent with freedom of speech.
37:58
And I, I, I was happy with the ruling.
38:02
So, mostly because I, I don't think it's gonna be all the negative things that people believes gonna happened is gonna happen. But time will tell. Next Question.
38:12
>>So you might have to be cagey again here.
38:15
John: I don't want to talk about climate change, or healthcare reform. [Laughter] >>OK.
38:23
So, I don't necessarily agree with this argument, but I want to see how you respond to the argument.
38:28
Why not simply have the government enforce the conscious capitalism that you're advocating for.
38:34
Whether that be, you know, subsidizing green project, or healthcare reform or what not.
38:39
John: Well cuz I might be wrong.
38:46
[Sigh] I mean [Pause] John: People believe that if they had ultimate power, they would be good.
38:56
And, I don't believe in a society where government is legislating a particular vision on the way people should live.
39:04
Even if I happen to be my vision.
39:07
I believe in a pluralistic society where we get to experiment.
39:12
And that one of the secrets to Whole Foods is that we're a very experimental company.
39:16
We try thing, most of them fail.
39:18
But we throw out the failures and we continue to learn and evolve.
39:21
So I believe in a society that's democratic and allows -- I believe conscious capitalism by the way is going to triumph at the end of the 21st century. Why?
39:31
Not because government has to pass these laws to force people to be that way. Because it works better.
39:37
It's gonna win in the market place, it's gonna win in competition.
39:40
So these ideas need to be tried out and if they work, they' ll flourish and expand.
39:45
If they don't work, they'll be thrown in the trash bin of history.
39:48
And, having government pick winners for business philosophies is a very bad idea.
39:54
First of all cuz they probably won't pick the ideas that you agree with anyway.
39:57
So, I don't want to live in a society where government is telling us how businesses should operate.
40:03
I think that the marketplace should determine that.
40:05
[Pause] >>Hi, can you talk about some of the difficult decisions you've had to make with your supply chain when you -- as Whole Foods has grown over the past twenty years.
40:17
John: Could you give me a little more color on that? I mean what?
40:20
>> In terms of maintaining the integrity of what you wanted in a supplier when you first started a business by what you can get as you scaled to be such a large company.
40:29
John: The first crisis of faith of Whole Foods was when we realized our suppliers were mostly -- weren't -- they, they weren't as good as their marketing materials indicated.
40:40
Some disillusion of a retailer because as we got in there and looked beneath the Kimono so to speak, a lot of what we saw was not that pretty.
40:52
For example, in the meat industry.
40:54
If you really knew what they were doing to those animals out there, you'd probably all become vegetarians or vegans. It's terrible.
41:01
And as we've gotten into the process, and we've seen more.
41:04
So that's the first challenge, is the retailers, the middle man right between the farmer, the rancher, the manufacturer and the consumer.
41:13
And the consumer trust us to, to deliver what the manufacturer claims.
41:22
They blame us if it's not.
41:24
So that was the first challenge that we had.
41:26
And it's an ongoing challenge.
41:28
We have to look very deeply at our supply chain and determine whether or not it's what it's cracked up to be.
41:37
And so we're doing lots of things now, like.
41:39
We have our animal welfare rating system.
41:41
We're gonna put all of our -- everybody we buy meat from which is thousands and thousands of people will have to get -- every -- will have to get rated in terms of the way they treat their animals, so we can give transparency to our customers.
41:53
Seafood sustainability's another one that is very important.
41:57
And people are not aware that so many of the species they buy in seafood departments are not sustainable.
42:02
And yet, the retailers are not telling the customer that.
42:05
So they're not -- They're keeping that as a secret.
42:07
Se we're gonna basically be much more transparent about that.
42:12
There's all kinds of -- the first organic supplier Whole Foods bought from.
42:16
For example, anecdotally here was a company in Southern California.
42:19
It was called sunburst farms.
42:24
And, you read their marketing materials, they're organic, they're this community living there.
42:28
And it looks like they're love and peace and joy and it seems like a really wonderful thing.
42:33
We checked -- we got into it, we checked them out and it turns out they were like the guy that was a cult leader.
42:41
And they were a survivalist group what had a whole bunch --- they were they were stocking up guns for Armageddon that was coming.
42:48
And in fact, they weren't selling that much organic produce, it was mostly -- they were taking -- they had organic boxes and they were taking commercial produce and stinking it into the organic boxes and shipping it out.
43:00
So there was a lot of fraud that we had to deal with.
43:03
Now, we're in this enviable position that we've gotten large enough that we can go work with our suppliers in a more transparent way to assure ourselves and our customer that the people are really getting what they've been promised.
43:17
So if you're smaller, it's a lot harder to do that.
43:20
So, there is fraud that goes on in business I'm sorry to say.
43:27
And, so that was one of our challenges we had to deal with. Next question.
43:31
Sean: Hi, Sean off here to you right. John: Stand -- Go ahead.
43:34
Sean: Originally my families been Whole Foods shoppers for 20 years.
43:38
We're big fans, and I also was a former front end team leader at you Richardson Texas store so.
43:43
John: Look how far you've come.
43:44
[Laughter] Sean: Made it all the way, so [Applause] Sean: Big fan, thanks for your time.
43:49
Question for you, about ten to fifteen years ago, it seemed like there was a shift from -- Whole Foods started stocking Lays potato chips and conventional items.
43:56
And it seemed like there might have been a shift in you know the culture or the core business segment you guys were going after.
44:01
And then a few years later went back and eliminated those products and focused more on organics.
44:05
Just trying to figure out what kind of the thinking was of the company at that two year period, and then kinda where you guys went to there.
44:12
John: Well, you can't understand Whole Foods unless you understand how decentralized and empowered we are.
44:16
That was not a decision that was made in Austin Texas for the whole company that was probably made locally in a store or a region.
44:25
And it was done as an experiment.
44:27
So, the experiment was taken -- went out and customers didn' t like it, and the experiment was just a failure.
44:34
So that was, that was not a companywide experiment.
44:38
So, again, most of our experiment, they most of them fail.
44:43
But, and that was one I would argue, that, that, that failed.
44:46
But it was important that the region and the store get a chance to test that idea out.
44:52
It might be disillusioning, but again, most of the suppliers that were in that early days, they've mostly sold out to like Pepsi co.
44:59
Frito Oley, Coca Cola Kraft, General Foods.
45:03
Most of the natural food labels now are in the hands of those larger food manufacturers.
45:09
And, there's less transparency there than there should be.
45:13
And Whole Foods of course has got a much greater commitment to our private label now at this point.
45:18
Trader Joe's is like 85% 90% private label.
45:21
Whole Foods is only about 20%.
45:24
So, I don't think there was any lasting cultural change, but there is continued evolution in the supply chain that we have to deal with.
45:33
So I don't >> My question surrounds Leonard Greens lessons in Whole Foods in 2008 and how you came to the decision to take private equity capital.
45:45
And how that partnership has helped your business to evolve over the last year.
45:49
John: Good question [Pause] John: We bought -- The Wild Oats merger has worked out extremely well for us, but the timing of it was terrible.
46:03
When we -- Of course than we got into the whole FTC thing and what a hassle that was and how much money we wasted on that. But another story.
46:10
But, when we bought Wild Oats, the market -- we were kind of at our peak stock price. We paid cash for them.
46:17
In order to do that, we had to go borrow money.
46:20
So we took on a lot of debt.
46:22
More debt than we'd ever taken on our company's history.
46:24
But we didn't think it would be a big deal because we thought we'd sell stock in a couple of months and pay off, pay down the debt.
46:31
But then our, the economy started going into the tank.
46:34
But first of all, the merger got put off many, many months while it had to go through the regulatory processes.
46:39
Then our stocks started to decline because the economy was declining, and our sales were declining, so we didn't wanna sell stock.
46:48
And then, what September 2008, you can remember that time, I've never, that was a panic.
46:55
That's the only panic I'm old enough to have lived through, and I'm probably the oldest guy in the room.
47:00
So, it's a -- everything went to hell.
47:05
And our sales started plummeting, our stock went down to $7. 00.
47:11
We were trading at two times our cash flow.
47:14
Could have bought Whole Foods and you got a 15% return on cash flow alone.
47:20
Us begging, please let me buy back stock, please let me buy back stock.
47:25
But the board in their infinite wisdom [Laughter] John: Realized that what if it's not the bottom. What if it gets worse?
47:34
So, that was good point of view and we took the money in from Leonard Green as an insurance policy.
47:39
That's what it was, it was an insurance policy in the even Armageddon was really happening, we wanted to survive.
47:46
And it turns out we didn't actually need the capital.
47:49
Armageddon did not happen.
47:52
Deepest recession of my lifetime happened, but not Armageddon. But, you know what?
47:58
Leonard Green's been a great investor.
48:01
They own 17% of the company and they don't control it, but they've been very valuable on the board.
48:07
They do take a long term perspective, they love us.
48:10
I guess because, we've already made like 500 million dollars for them in the year.
48:14
[Laughter] John: So, one of my jokes is that when the stock is up I'm this visionary.
48:20
And when the stock is down, I'm like the village idiot.
48:22
[Laughter] John: Your reputation waxes and wanes based on the stock price.
48:28
But with Leonard Green, I'm a visionary cuz they've made so much money. So, glad we did it.
48:33
It was an insurance policy that I'm glad we didn't have to collect on. How's that?
48:39
And I would -- But I think they are.
48:40
You hear lots of bad things about private equity firms.
48:45
Leonard Green is an outstanding firm with great integrity.
48:49
I'm proud to be associated with them.
48:51
Hope that gets printed in the newspaper.
48:52
[Laughter] John: Thanks very much.
48:55
[Applause] John: Thank You